ManTech International Corporation
Q1 2020 Earnings Call Transcript

Published: 30 Apr 2020

[Operator:]

Ladies and gentlemen, good afternoon and welcome to the ManTech's First Quarter Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.I would now like to turn the call over to Stephen Vather, Vice President, Corporate Development and Investor Relations.

[Stephen Vather:]

Welcome everyone. Thanks for participating on ManTech's first quarter call. We hope that everyone is healthy and remaining safe during these uncertain times. We're practicing good social distancing and as such we're utilizing a completely virtual approach to our earnings call this afternoon. Please bear with us if you experience any minor delays or mixed audio quality on the call.Joining me on today's call, we have Kevin Phillips, President and CEO; Judy Bjornaas, Executive Vice President and CFO; as well as Matt Tait, and Rick Wagner, 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. No COVID-19 has been included as a risk as it is uncertain what the potential impact could be to our business and therefore it could cause our future results to be different than our current estimate. 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 first quarter earnings release. Following prepared remarks, we'll turn the call over to your questions. We recognize there may be many questions. Please limit yourself to one question and if you have more than one, please ask your most pressing question first and then reenter the queue.With that, let me hand the call over to Kevin.

[Kevin Phillips:]

Thanks Steven and good afternoon, everyone. I would like to begin the call by discussing the COVID-19, its impact and how we're managing our business through this national emergency. After that, I will offer an update on ManTech's quarterly performance, followed by some thoughts on the broader market and the environment.First, I want to express our deepest gratitude to the healthcare professionals, first responder, government officials, members of the military and National Guard and many others that are on the front lines of battling this pandemic. Over the last few months the world has seen unprecedented events as you can imagine the health crisis has become the key national priority for our customers and it has been receiving our leadership team's full attention.We've proactive in our planning and response throughout this crises. Our engagement with employees, customers and partners is very high. We're in regular communications and have adapted swiftly to the evolving conditions. Throughout this, ManTech has been operating with two key priorities in mind. First, the continued health, stinky and well-being of our employees and their families as well as those of our customers and our partners,Second, maintaining continuity in the critical support for our customers and their important missions and support these two priorities, ManTech has taken a number of our actions to establish quick social distancing metrics, by establishing telework for employees to the maximum extent possible, provide placing restrictions on travel and in-person meetings.We've also established heightened hygiene standards through increased awareness and by working closely with customers with safe workspaces and arrangements for those on the telework driven customers mission needs. As you know, the defense industrial basis considered part of the critical infrastructure. It is per charter to help address the nation's broader needs during this crisis.Along with those in our industry, we at ManTech entered this national emergency supporting federal customers operating on full year appropriations through September 30. As it relates to our business and workforce, responding to those prices, our DoD and federal civilian customers have been able to expand the use of telework and establish approaches to shift work and work schedules that minimizes the impact of the covert emergency on operations.Both customer missions and requirements was affected by the need for stringent social distancing measures or those that require access to highly classified systems and information, those for the work performed in both significant global and national travel or where supply chain issues may delay material purchases on select programs.I'll cover this for some changes to how we operate, its impact on our business so far has been relatively light. We're thankful to our customers in the federal government at large for recognizing the value and necessity as the defense industrial base and national security. Provisions in the CARES Act enacted in late March, specifically sections 3610, an implementation of guidance provided by OMB, DoD, DNI, EHS and others have made it clear that the intent is to support and maintain the defense industrial base thus supporting critical infrastructure, those assisting key federal health and citizen services needs and the highly skilled and highly third workforce supporting the intelligence community.This guidance affords recovery of the cost related to our workforce that are unable to provide full time support, customer requirements due to workforce safety measures. But before we are preparing to move towards a more normal operational environment at this national crisis subsides. Currently, the administration congressional appropriately remains on addressing the pandemic and resulting economic implications.As such our sense is that moving to full operational status will be gradual and we may be operating in a niche proportion of FY '21 under continuing resolution. That said, we believe the agreed-upon tenure budget deal should afford a sound framework for funding levels excluding additional funding that is established within the emergency funding bills.Now let me shift for our performance in the quarter. On our last call, we provided a strong financial help for the year and we delivered solid Q1 performance. The quarter's performance was marked by healthy revenue growth of 22%, EBIT growth of 34%, EBITDA margin expansion of 80 basis points and steady operative cash flows of $43 million.Additionally, we saw considerable hiring in the quarter with onboarding being done virtually in the latter half of March. I want to thank the broader team's vigilance on our customer's missions which enabled another quarter of outstanding performance. That said, we're slightly tempering expectations for 2020, to factor in uncertainties during this crisis. Judy will walk through the details of our financial performance and revised guidance a little later on the call.We had a solid fourth quarter of contracts as well. Bookings totaled $1.1 billion resulting in a $1.8 book-to-bill. New business made up over 90% of Q1 awards and total backlog grew at $929.3 billion, which was up 11%. Funded backlog stood at $1.4 billion. The durability and longevity of our backlog gives us good visibility to our revenue. In response to customer requirements for Q1, proposal and business development activity remained elevated. Our proposals outstanding figure of approximate 7 billion as seen in the quarter was strong.We did not see material delays and procurements from most of our business during Q1. We're beginning to see signs that slippage may occur in some areas of the business in the coming quarters. Our customers have funding and the requirements remain clear. However the procurement and contracting processes needed to support near-term COVID-19 contracting actions as well as anticipated gradual phasing of work schedule factoring in most state may all contribute to delays.As a result, it is possible that indications and bookings could experience greater variability. Our company and tested leaderships have supported many urgent needs and fluent environments before. We're committed to supporting our customer's needs through this crisis.Now Judy will walk through the details of our Q1 financial performance and revised outlook, Judy,

[Judy Bjornaas:]

Thanks Kevin. We had a strong financial start to the year and the results exceeded our expectations across all of our key measure. Revenue for Q1 was $611 million up 22% with over two thirds of the growth coming organically. Sustained customer demand in the form of new contract wins and growth on existing programs as well as our strategic acquisitions continued to serve as the major drivers of our growth.As Kevin mentioned we had a healthy hiring quarter and as a result direct labor remain key to our overall top line growth. In the quarter we performed 91% of our work at the prime contractor and our contract mix was approximately 68% cost, 20% fixed price and 12% time and materials. EBITDA for the quarter was $55 million and grew 34% over Q1 2019. EBITDA margin of 9% outpaced our expectations and represented an 80 basis point improvement year-over-year.Margin in the quarter was primarily driven by strong program performance and award fees, efficient cost management and some nonrecurring items. The bottom line was bolstered by our revenue growth and margin improvement that hampered slightly by a higher than expected tax rate.Net income was $29 million and diluted EPS was $0.71 for Q1. Both are meaningfully compared to last year. Healthy growth was also evident in our adjusted figures. For the quarter adjusted net income was $33 million and adjusted diluted EPS was $0.81 up 33% and 31% respectively.Now on to the balance sheet and cash flow statements. For the quarter we collected $43 million in cash flow from operations, representing 1.5 times net income. We could not see a major delay and ability to collect cash given most of our customers permit electronic invoicing and our DSO level improved from last year, a quarter where we had a partial government shutdown. DSO was 64 days at quarter end, a six-day improvement from last year.Consistent with prior communication, we distributed $13 million in dividends for the quarter. At quarter end, we had $89 million in cash and $115 million of debt. Our net debt position remains similar to where we stood at the end of last year. As a cautionary liquidity measure, we drew against our revolver to ensure the smooth flow of cash to fund operations, as we were monitoring the payment process for potential delays.Despite the broader macro backdrop, our capital deployment strategy remains unchanged. We continue to focus on deploying capital to fund the growth of the business, maintain our quarterly dividend and accelerating growth via strategic M&A. The M&A market has slowed as a result of the COVID pandemic destruction, but that said, we anticipate M&A activity to increase as we recover from the pandemic.We are in an excellent position to review opportunities as they arise. Our pristine balance sheet affords us great flexibility to capitalize on opportunities that fit our strategy.Now on to our revised 2020 guidance, compared to our previously communicated guidance, we are adjusting the ranges on revenue, adjusted net income and adjusted diluted EPS. While we have seen minimal impacts to our financial performance in Q1 we're exercising prudence in our revised view to take into account varying scenarios in the time and approach we will collectively need to get back to normal operations.We expect revenue to be between $2.35 billion and $2.45 billion, which represents 6% to 10% growth over 2019. Our recent awards and robust backlog provide good visibility for the rest of the year. However, the variability in our guidance will be driven by a number of factors including the time it may take to get some of our employees with part of their work week in a mission-ready state back to full-time mission support, the level of material procurements, the timing of new contract awards, the ramp-up of recent contract awards and our success in winning new and re-compete business.Turning to margins, our guidance assumes an EBITDA margin range of 8.7% to 8.8% for the year. The revised margin range reflects the outperformance in the first quarter, which is being offset by the margin decreases related to the lack of fee recovery for our employees who have spend part of their work week in a mission-ready state. However, they still represent a potential of up to 10 basis point improvement compared to last year.At the bottom line we are expecting adjusted net income between $120.3 million and $125.2 million and adjusted diluted EPS between $2.95 and $3.07. Underlying these guidance ranges are an effective tax rate of 25.2% and a fully diluted share count of 40.8 million shares. Note that we slightly modified our tax rate and fully diluted share count assumptions to reflect the actual observed in Q1.Now to cash flow; we continue to expect cash flow from operations to be at least $150 million for the year. However, we expect capital expenditures to now range between 3% to 4% of revenue. The increases in capital expenditures are onetime in nature. Our customers showed higher demand on our managed services programs to accommodate remote work for their employees and secondly, we are accelerating facility investments to support anticipated expansion and near-term facility needs for broader workforce distribution. As discussed on our last call, longer-term we expect capital expenditures to trend lower to more normalized levels.Now Matt will speak to our defense and federal civilian business.

[Matt Tait:]

Thanks Judy. MFS is off to a solid start to 2020, particularly in winning new work. I am excited to formally share with you additional detail behind the $920 million five year contract award that we briefly discussed on our last call. On this contract, ManTech will modernize ISR and electronic intelligence capabilities on the Navy's fleet of manned, unmanned and persistent surveillance maritime patrol and reconnaissance aircraft as well as other platforms.The breadth of the work we will be providing on this program span cyber, model based systems engineering, platform integration and modernization, all of which are key capability strengths for ManTech. We are excited that Naval Surface Warfare Center Crane has trusted us with this important mission and are already working tirelessly to provide exceptional performance on this new effort as we do for all our customers.Rick over to you.

[Rick Wagner:]

Thanks Matt. I'm pleased to report that MCIS had a good quarter as well. Our people continue to be the key to ManTech's differentiation and their safety and well-being remains our utmost priority. As we all know, this highly skilled and highly cleared workforce is critical to national security and important to retain so they can meet our customer's needs once this national emergency is passed.As such, we are continuing to work closely with our government partners to ensure we strike the right balance while still delivering on our important national security missions. We're thankful to our customers and providing us great flexibility through teleworking arrangements and allowing proportions of our work where appropriate to be conducted on an unclassified basis. We hope these structural trends continue in part long after this crisis is resolved to better facilitate the steady flow of hard-to-find highly skilled differentiated talent towards critical national security missions.I would note that the security clearance process was largely functional for those with existing clearances. However, challenges exist in the processing of new clearances, which may cause hiring delays. While there may be some near-term disruptions, our growth trajectory remains intact and driven largely by direct labor growth. Within MCIS and ManTech, we remain well positioned in the short, medium and long-term to support the needs of our customers.With that, let me hand the call back over Kevin for closing remarks.

[Kevin Phillips:]

Thanks Rick. In closing, let me leave you with three key thoughts before we take questions. First, ManTech is a national and homeland security company operating during the national emergency. Security and success of our nation is foundational to who we are as a business and has been for over 50 years. During this time, we're focused on the needs of our customers, the health and well-being of our employees and maintaining a workforce critical to national security.Second, our business is strong, that includes our balance sheet, backlog, workforce, and mission focus, all of which position us for future growth. Third, we have always invested with an eye for the future and the growth that it brings. We will keep an eye for the future while we help our customers address critical issues during this unprecedented period.The entire ManTech family offers our heartfelt grief for those who have been impacted by COVID-19 crises and we again offer our gratitude to all through our steadfastly healthier nation and its citizens through this difficult period.With that, we're ready to take your questions.

[Operator:]

[Operator instructions] Our first question is from Edward Caso with Wells Fargo. Please go ahead.

[Edward Caso:]

Trying to understand the 3610, section 3610 process here, how much of it is normal business and how much are you going to have to ask for equitable adjustments down the road that's my first question, thanks?

[Kevin Phillips:]

On the services side, their vast majority of this can be business as usual for any amount of time after the 27 March where our people were moved into a mission ready state. There is a couple week period before that where a little bit -- maybe a month and half, depending on the customer region where people may have started to moving into a different mission ready state on an interim basis for that portion of it, there may be some REA requirements.But the vast majority of it we'll fulfill on a regular cycle the cost for the people for the period of third mission ready state. Does that answer your question.

[Judy Bjornaas:]

I was going to add that I think because most of our work is cost plus basis, the process for us will be relatively painless to build and recover the COVID cost, I think if you have fixed-price contracts that were impacted that's going to be a little more difficult and will probably require an REAs.

[Edward Caso:]

Okay. Great just a simple one here $1.01 million is all the $120 million in that number?

[Kevin Phillips:]

Sir, you're breaking up a little bit, could you say that again?

[Edward Caso:]

I'm sorry, just how much of the large $900 plus million contract is in this quarter's awards?

[Kevin Phillips:]

The full amount is in Q1.

[Operator:]

Our next question comes from Brian Kinstlinger with Alliance Global.

[Brian Kinstlinger:]

If I think the run rate of your first quarter revenue, you're already at the high end of your guidance range. So one, are you expecting fewer pass-throughs? I think you maybe talked about lower revenue maybe from programs where teleworking is not possible or is it more as projects and programs like your $920 million contract will be delayed in ramping given the current situation?

[Judy Bjornaas:]

Yeah I think it's a combination of those things Brian. I think the bigger impact is for new business to delay and then while we've seen good hiring to date that it clearly is a little bit harder to get people ramped up on new contracts so there could be some delays there and then just the usual timing of material pass through.

[Brian Kinstlinger:]

Great and then my follow-up would be your talked about the procurement cycle, are you seeing procurements get canceled where the customer says we're going to do a one year bridge is it'll be easier in this time to stick with our incumbent. I am just wondering if that trend is starting to materialize at all?

[Kevin Phillips:]

It's Kevin. It's very much driven on the customer. I would say that the proposal volume and request within the vast majority of our business is continuing. If there are delays it's more incremental. So we're not seeing, if anything we're seeing them continuing to push very aggressively on our procurement process, on awards where delays just based on the availability of people based on working remotely.I would say the exception to that is nearly where people physically have to be on site to be able to access the data from the customer side, that is going to create some delays and there might be some extensions as a result but it is too early to tell.

[Operator:]

Thank you. Our next question is from Gautam Khanna with Cowen. Please go ahead. All right, we're going to move to the next question from Robert Spingarn with Credit Suisse. Please go ahead.

[Robert Spingarn:]

Good numbers, I wanted to ask you Kevin, you alluded or maybe somebody else alluded to some changes coming here in the early part of the second quarter. I was wondering if we could just dig a little deeper into that, how things are may be slowing or changing as you move from Q1 to Q2 and I have another question after that?

[Kevin Phillips:]

Yeah so, on the proposal volume, again the proposal volume is very high, the timing of awards might be delayed, except for the intelligence community where the proposal volume might slow down because the physical on presence need to do the type of work needed to continue this procurements and generally a vast majority of contracts near-term actions done to get the COVID related charging all set up on the programs and that could create a delay.So that's about it, except for the people who're working in a part-time state and some of those folks, they are going back full-time to work and that's kind of the timing phase that Judy spoke in the guidance.

[Robert Spingarn:]

Okay. And then just on the logistics of this, you mentioned before obviously some of your people are teleworking and then some need to be on site. Is there a way to quantify, is there a pie that we can chop up here in terms of who's eligible to telework? And then on the back of that, do you see some cost savings down the road here if as someone said earlier you're able to continue to do the work remotely in the future. Is there a real estate footprint opportunity or anything else that might benefit you in the future?

[Kevin Phillips:]

So a very high level I'll start by exception in outflow, less than 20% of our workforce is basically in a position where they may not be just based on the access restrictions although that's travel or clearances may not be able to work full time. Out of that I would say many of those are actually working full-time because of the type of work and accommodations everybody beyond that is working tolerates.Within that, we have a number of a group of people who are either working full-time within that 20% or 30 hours a week or 20 hours a week or 10 hours a week and those have been a baseline from which they're going to start gradually ramping back up. So it's hard to give you a heads on equivalent because it's variable, but generally less than 20% of our workforce is in some mission ready state for some part of their time as helpful.

[Robert Spingarn:]

And then just on the cost side in the future, the permanence of this?

[Kevin Phillips:]

I'll let Rick speak to some of the activities he is seeing in his customer set. It's hard for us to know whether it's permanent just based on the variability of this but Rick?

[Rick Wagner:]

So typically the intelligence community does a lot of their work within steps and special basis. Being able to do teleworking really creates some opportunity for us on the side of being able to hire people at different clearance levels. I don't think you'll see big real estate reductions or things of that nature around it. It'll just -- it'll make it more efficient to do the work and could help relieve a little bit of pressure on hiring.

[Operator:]

Thank you. Our next question is from Tobey Sommer with SunTrust.

[Tobey Sommer:]

What changes in federal spending priorities do you anticipate at this juncture with incomplete information I acknowledge that and how do you plan on positioning the company against what could be shifting priorities certainly as it relates to public health, thanks.

[Kevin Phillips:]

So I'll speak to two parts and then on the federal outside I'll let Matt end on this. So generally we see the FY '20 budget to be a good arbiter of the '21 budget because two year plans are already in place and there might be some timing as to when Congress can get to the '21 budget. They aren’t seeing anything that would say there is a redirect on the '21 budget, it's more imperative set of requirements the response of the COVID based on the emergency bills.Long-term I think that the -- it's hard to tell but I would say that you can tell the discretionary budget within the federal government has a high demand and sometimes when it may not be invested in, at a point in time when there's an emergency, you can see where that is. So we'll have to see how this all plays out just like we did for any emergency or any investment that the government has to make our choices as to how they need to redirect.But I would just reinforce that these events are an example where the discretionary budget that drives the decision to react and capacity of the federal government basically show the importance of it. Matt, do you want to speak to the federal health side?

[Matt Tait:]

On the federal health side, I think this is part of the reason why we have been focused on that aspect of the business Tobey is and we've always seen that that's going to be a need from a national security mission set perspective. So we actually are -- we feel well-positioned for where that's going to be going from the priorities perspective.

[Tobey Sommer:]

And maybe could you maybe elaborate on…

[Operator:]

Okay. And our next question -- can you hear me?

[Tobey Sommer:]

If I could, thank you, sorry about that, I was going to ask about a tension proceed between two comments. One was the increase in near-term investment in infrastructure and some degree of like hope for optimism that longer-term this may change the way your customers and your own staff deliver, thanks.

[Matt Tait:]

So Kevin, I'll speak to that. There are needs for distributed environments or artwork and that's where our investment is going. There may be a potential or a shift in work towards an unclassified portion of that over time that will allow for more work to be done outside of the secured facilities. So both are in play right now that we have to deal with when they're supporting necessary distribution of strict facilities and the others is to allow for a non-classified portion of work so we can help scale that workforce as well. So it's not -- certainly it's been conflicted with some of the works too.

[Tobey Sommer:]

Understood, are those discussions for sort of a portion of unclassified work being done, is that being conducted at the highest levels within the customers and with clinical support?

[Kevin Phillips:]

Those are certainly discussions that have been going on for some time. I think you will see as part of this process that we will ramp that up and try to do work to get more.

[Operator:]

Thank you. Our next question is from Mariana Perez Mora with Bank of America. Please go ahead.

[Mariana Perez Mora:]

So I know defense/IT services contract firm mentioned a dramatic increase in our space since the beginning of March. Could you comment and give us some color on the RFP and award environment you are experiencing during the pandemic?

[Kevin Phillips:]

So work environment I'll speak to the proposal volume and award environment both and then you can follow-up if I missed anything. So we've seen a significant amount of requirements in the first quarter is very happy and that's reflected in our proposals outstanding. We have seen I would say a little bit less than average adjudication but not much, but as a company we're going to hire a portion of those adjudications that came through.So we're not really seeing a slowdown for any requirement except for those where the government is physically connected and do their jobs. So the demand signal still better than we see this as a labor workforce issue more than an opportunity still, which is why we're continuing to focus on how to get right time to speak to meet this.

[Mariana Perez Mora:]

Perfect. And then can you also give any color and any benefits that the Development of Defense has given to you because there has been a lot in the news about the accelerated progress payments and other benefits under the care side, but there is fear how the services are being benefited from those?

[Kevin Phillips:]

So first of all I think that we as an industry are very grateful to the government for recognizing the need for this industrial base and on the Congress, the executive branch, the services and agency partners are all moved at a very quick speed to the options of this crisis and so we're recognizing that.The DOD and agencies have tried to work towards accommodating the ability to push payments earlier to streamline payments earlier to streamline payment processes where potentially doable to streamline award decisions because they know they have a lot of other things to do relates the COVID crises.So for us specific in our industry I would say that they're more focused on protecting the workforce, maintaining the cash flow reasonably, not everything else because most of our work doesn’t require advance payments, a reasonable cash flow and we're making sure that we flow that data to our industrial base subcontractors as well because it's very important to dedicate to them.

[Operator:]

Our next question is from Louis Dipalma with William Blair. Please go ahead.

[Louis Dipalma:]

There has been a lot of M&A in this government IT services space over the last three years and even the prior three months before the pandemic some of your peers have made scale those and others have made product deals. I was wondering do you feel any need to increase ManTech's scale to counter the increased scale and the increased product capabilities of some of your competitors. You have obviously done well with your strategy as small tuck in acquisitions ManTech stock price has increased by more in 2020 than any of its peers, but at the same time, I was just wondering if you feel any need to react to your competitors on the M&A front?

[Kevin Phillips:]

Yeah so from an M&A standpoint, we maintain the same posture that first of all we want to prioritize M&A or use of cash but we also want to be selected because of our size and how the government procures there are more than enough I would say wide spade areas and capabilities that we can invest and go after $100 million cost procurement system prime contract to our business.We've not as a company seeing a path of a need to diversifying the product or to work towards scale. There are some bids at the enterprise level that may restrict us in the future based on the size of those but they may not. So the answer is no, long answer is we thought it through when we get position.

[Louis Dipalma:]

Great. Thanks and another one for me, last year you indicated that you intended to send the $10 billion in bids for calendar 2019. Can you provide the amount that you intend to submit for this year?

[Kevin Phillips:]

We expect the current year proposal volume to reach that number if not extended.

[Louis Dipalma:]

Okay. And final one, last quarter you indicated that your pipeline was greater than $20 billion. Is it still approximately at that level even though you have $7 billion in bids outstanding?

[Kevin Phillips:]

Yeah it's consistent in terms of this. Yes.

[Operator:]

Our next question if from Robert Spingarn with Credit Suisse.

[Robert Spingarn:]

I wanted to ask you a couple more things Kevin, as going to follow on to Toby's question about redirect and what I think was really looking forward to the risk of a period of budget austerity as other priority surface here related to the COVID crisis. How you avoid what happened a decade ago just being surprised on the downside and I understand that was that -- was industry-wide and it was a different set of circumstances, we were exiting a war and we had a new president that had a different view.But how do you protect yourself against the downside here and does it take a change in administration for this to happen and can we have over the same administration?

[Kevin Phillips:]

So I would say that we're much more diverse in our customer set than we were then all this to support customer missions when they go up and support our customers when those missions go down as well. That said, we have a much broader customer set and much broader set of capabilities. Our general view is that the mission enabling needs or the technology transformation underway today may stay the same or expand if you think about all the activities going on to be around distributed environments for communications.So we will have to see other deferral budgets play out but I would say that we're much better positioned from a risk mitigation standpoint as on the distribution of our customers, the distribution of work and the broad backlog we have as well.

[Robert Spingarn:]

I think this got touched on earlier, but I figured I'd try to delve in a little bit deeper, have you seen any early opportunities building here out of the federal government in a post-pandemic effort to prepare for next time, the next pandemic things that you could participate in given that I think that you bring a lot of skill sets that might be applicable in such an effort?

[Matt Tait:]

We actually are seeing opportunities and I would say are supporting certain aspects of this current pandemic. So I think that's definitely an area of opportunity that we already at.

[Operator:]

Our next question is from Joe DeNardi with Stifel.

[Unidentified Analyst:]

This is John on for Joe. Kevin, we were just kind of curious you’ve previously talked that 2020 would be kind of a usual year in terms of recompetes. Are you still thinking that and what's the customer telling you in regard to some of these recompete? Are they concerned around the risk, are they thinking may be that they can perhaps extend this work and push it out into 2021? Can you give some more color on that, that would great.

[Judy Bjornaas:]

I'll give it a first crack and then if Matt or Rick want to chime in about their business areas but in general we have seen some of the risk go down over the last two quarters especially in the Intel space where they have done exactly what you’ve mentioned and then down a number of multiyear sole source expansions. We still have on the book a number of recompetes in the second half of the year but right now about 90% a little more than 90% of the midpoint of our guidance is already in fact large.And I think just as we said there could be slippages from some of the new business that we were looking at, it's quite possible that there could be delays on recompete as the government gets the feedback under them and response post-pandemic and gets back to business as usual. I think it would surprise us tremendously but I don’t know Matt you’ve got quite a bit of those recompetes that locked what are your customers saying?

[Matt Tait:]

Yeah I think it's a mix like Kevin kind of eluded to right, there are some things that are moving in the past that you know where we now normal course but then there are certain areas where we're seeing a delay in terms of adjudications and I think that just kind of leaves to more revenue assurance.

[Unidentified Analyst:]

And then just kind of a follow-up here, when you're looking out at the current COVID-19 environment specific to protests are you seeing any change in companies protesting and in delays there from the GAO or it has there been kind of reset expectations around protesting and we thinking that approach? Can you guys give any color there that would be awesome.

[Kevin Phillips:]

No change in protest.

[Operator:]

[Operator instructions] Our next question is from Tobey Sommer with SunTrust.

[Tobey Sommer:]

So I wanted to ask a follow-up question, with respect to the potential for intelligent customers to disaggregate and have some non-classified work done before the classified piece finishes off? What are the positive potential outcomes of that for a company and industry and what are the risks including potential margin risk as part of it doesn't require clearances?

[Kevin Phillips:]

Yeah I think any movement we've seen in that directional will be minimal clearly to start. It was in my view it will take a long time for the intelligence community to change that model and to do a lot of work on classified. So I think the risk is fairly small and as I said before, I think the opportunity set is really on the ability to bring people into the intelligence community first in an unclassified manner and then upgrade their clearances and move them into the full capacity and so that's the most promising thing that I see.

[Operator:]

Sorry, I am not showing any questions sir.

[Kevin Phillips:]

Fantastic. Okay. As usual members of our senior team will be available for any follow-up questions. Thank you all for your participation on today's call and your interest in ManTech. Have a good evening and please stay safe.

[Operator:]

And ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful evening. You may now all disconnect.