ManTech International Corporation
Q4 2020 Earnings Call Transcript

Published: 18 Feb 2021

[Operator:]

Good day, ladies and gentlemen and welcome to the ManTech Fourth Quarter Fiscal Year 2020 Earnings Conference Call. As a reminder, this conference 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 on ManTech’s fourth quarter call. Joining me today is Kevin Phillips, our Chairman, CEO and President; Judy Bjornaas, our CFO; and Matt Tait, our COO.

[Kevin Phillips:]

Thanks, Stephen. Good afternoon, everyone and thanks for joining the call. Before I walk you through our 2020 results, I want to spend a few minutes updating you on the operating environment. 2020 brought forth unconventional personal and professional challenges first off. Despite those lingering challenges, our people remained resilient and committed to delivering excellence for our customers and their critical missions. I want to thank both our employees and customers for showing great strength and willingness to adapt quickly and for their continued perseverance throughout this ongoing pandemic. I also want to thank our employees for their continued generosity. Not only do they enable critical outcomes for our customers, but they are beacons within their communities. Since the start of the pandemic, our employees have raised over $2 million to support those most impacted by the pandemic. One year into the crisis, I am satisfied with how we have managed the business while keeping a steadfast focus on our employees’ safety and our customers’ critical missions. Our 2020 financial performance exceeded our expectations across all measures, and we closed out the year on solid footing. We delivered our fifth consecutive year of healthy organic growth, increased profitability and margins, generated robust cash flow and successfully retained a new and existing business to fuel the continued growth of our record backlog. In the fourth quarter, we executed on our commitment to deploy capital for long-term growth and did so through two small strategic acquisitions that add to our full spectrum cyber solutions within the intelligence community and Department of Defense. I am pleased to welcome the talented employees from both Minerva Engineering and Tapestry Technologies into the ManTech family. I look forward to the team leveraging the enhanced customer capability position. We have ample financial capacity to continue creating value through M&A, and we’ll prioritize acquisitions that add to our differentiated capabilities.

[Judy Bjornaas:]

Thanks, Kevin. We continue to execute well and build upon our track record of generating strong financial results with a focus on long-term value creation. Revenue for the year was $2.5 billion, up 13% year-over-year, with 11% organically. The growth was primarily driven by new contract wins, growth on existing programs and our strategic acquisitions. For the fourth quarter, revenue was $639 million, up 6% over 2019. For both the quarter and full year, direct labor was a critical driver of our growth. Our contract mix largely remained unchanged year-over-year. In 2020, prime contracts comprised 91% of revenue, and the breakout of our contract pricing structures was approximately 68% cost plus, 19% fixed price and 12% time and materials. EBITDA for the quarter was $59 million or an EBITDA margin of 9.3%. Q4 EBITDA benefited from a onetime facility amortization adjustment. Excluding the impact of this onetime item, EBITDA margins for the quarter would have been consistent with the balance of 2020. For the year, EBITDA was $228 million, up 18%. EBITDA margin for the year was 9.1%, up 40 basis points from 2019, exceeding our expectations and more than accomplishing our targeted incremental margin improvement. Strong direct labor utilization and lower PTO usage as well as indirect cost management continue to provide tailwinds to margins. Net income was $32 million and diluted EPS was $0.79 for Q4. For the full year, net income was $121 million and diluted EPS was $2.97. As a reminder, our Q4 2019 and full year 2019 net income and diluted EPS benefited from a pickup related to the reassessment of multiyear R&D tax credits. Adjusted net income and adjusted diluted EPS, which excludes the R&D tax credit impact as well as the impact of the amortization of acquired intangibles, articulates more representative operational growth. Adjusted net income was $36 million and adjusted diluted EPS was $0.89, both up 10%. For the year, adjusted net income was $137 million and adjusted diluted EPS was $3.36, up 17% and 15%, respectively. Now to the balance sheet and cash flow statements. For the year, we collected $247 million in cash flow from operations, a robust 2.1x net income. DSO was 56 days at year-end, a 3-day improvement from last year. As Kevin mentioned, we executed on 2 smaller acquisitions in the fourth quarter. Additionally, we distributed $52 million in dividends for the year, maintaining a steady return of cash to shareholders. At year-end, we had $41 million in cash and $15 million of debt. Given the strength of our balance sheet and expected cash flow, the Board has authorized us to raise our quarterly dividend by $0.06 to $0.38 per share, a 19% increase from current levels. This dividend will be paid in March and equates to an annualized dividend of $1.52 or a yield of approximately 1.7%.

[Matt Tait:]

Thanks, Judy. Let me expand on what Kevin highlighted earlier. In the fourth quarter, we won $605 million of contract awards, resulting in a 0.9 book-to-bill, which aligned with our expectations. Overall, we had a successful year on the business development front. In 2020, we secured $3.7 billion in contract awards, leading to a 1.5 book-to-bill. New business comprised approximately 45% of awards for the year. Our success was evident across our customer base and our key capabilities in intelligent systems engineering, full spectrum cyber, mission and enterprise IT, analytics and programs in support of intelligence operations. Nearly 40% of our bookings were awarded on a sole source basis in the year. As a result of our strong 2020 bookings, we exited the year with total backlog of over $10 billion, up 12%, and funded backlog stood at $1.2 billion.

[Kevin Phillips:]

Thanks, Matt. In closing, let me reiterate that we are pleased with our 2020 performance. We’re executing well and building on this foundation to deliver long-term value to our customers, employees and shareholders. Our strategy and business focus remains sound as we enter 2021 and look to the national priorities of the new administration. We remain agile with a demonstrated ability to proactively position and quickly pivot to navigate through complex operating challenges as evidenced by our handling of the business over the last year. Core to our agility and operating philosophy is empowering and enabling our talented employees to do what is in the best interest of our customers and the nation. With that, we are ready to take your questions.

[Operator:]

Thank you. Our first question comes from the line of Gautam Khanna of Cowen. Your line is open.

[Gautam Khanna:]

Yes, thank you. Good afternoon.

[Kevin Phillips:]

Hi.

[Gautam Khanna:]

I have a – first, just a specific question to the guidance in 2021, any – can you frame the add-backs? Is there amortization, what have you like how large that is and if there is a big change year-to-year with respect to that?

[Judy Bjornaas:]

With respect to amortization?

[Gautam Khanna:]

Yes. And the delta between GAAP and adjusted EPS.

[Judy Bjornaas:]

It’s primarily just the intangible amortization.

[Gautam Khanna:]

Okay. And does that rise year-to-year? It looks like – I am just trying to frame like below the line, tax rate is a little bit higher, share counts down minimally or whatever, up minimally. I think it’s a 300,000 share change or something. Anything else we should be thinking about below the line or non-operationally?

[Judy Bjornaas:]

Yes. The amortization is dropping a little bit year-to-year.

[Gautam Khanna:]

Okay. The other thing, I just want to make sure I understand the – like Booz Allen made a comment on their call about awards in the intelligence and cyberspace being a little soft. Are you seeing any incremental slowdown or is this just kind of par for the course given the COVID environment we are in? And I just wondered if you have seen anything change since last quarter with respect to pace of procurement activity?

[Matt Tait:]

Sure. Hey, Gautam, this is Matt. We have not seen a change from our perspective. I think we have been telling you on the last few calls that there is – that we have expected choppiness, especially in defense and intel. I mean – and so it’s – so there is no surprise for us. But we were very happy with a 0.9 book-to-bill in Q4 that actually was what we were expecting because that’s kind of seasonally soft for us with the 1.5 for the year.

[Gautam Khanna:]

Okay, so no change. And then lastly, can you characterize the M&A pipeline and what you might expect? Do you think we will see more properties come to market in 2021 than we saw in 2020 and how those might stack up to the deals you have done recently? Are there any bigger opportunities that are potentially more juicy from ManTech’s perspective?

[Judy Bjornaas:]

Yes. We do expect 2021 to be very active on the M&A front. 2020 actually ended up much more active than we were expecting a few – midyear last year. So we are going to continue to focus on making deals that fit within our strategic plan and are going to give us the capability or customer sets that we want to leverage and expand on. It’s – M&A has been in our DNA and we continue to look at properties and I would be very surprised if we weren’t able to find something that made sense for us this year, but as you are well aware, it is a very competitive market and valuations are high.

[Gautam Khanna:]

Thanks, guys. Best of luck.

[Judy Bjornaas:]

Thanks.

[Kevin Phillips:]

Thanks, Gautam.

[Operator:]

Thank you. Our next question comes from the line of Tobey Sommer of Truist Securities. Your line is open.

[Tobey Sommer:]

Thank you. I was wondering if you could give us some more color on your recompete calendar this year and maybe discuss the timing and detail of any particularly chunky pieces of business that we should keep an eye on?

[Judy Bjornaas:]

Yes. We don’t really have any large recompetes. We don’t even have any programs that are greater than say 5% of our revenue. We did see a number of recompetes kind of slip out of 2020 into 2021. So, we are seeing a little bit of a bunch up in kind of the second half of the year from recompetes, but nothing crazy. Still, overall, about 80% of our midpoint of our guidance is coming from existing backlog and the balance kind of split between new and recompetes.

[Tobey Sommer:]

Is there an opportunity like there has been sort of over the last couple of years to go to your clients for which you have recompetes coming up this year and sort of see if you can get an extension where you are performing well so that it obfuscates the need for recompete competition or could you give us your perspective on that?

[Matt Tait:]

Yes, Tobey, this is Matt. That is definitely one of the levers that we use as a part of our go-to-market strategy. So, we – while we can’t comment on specifics on a contract-by-contract basis that is definitely – those conversations are definitely ongoing.

[Tobey Sommer:]

How has the success rate been in recent years? And any reason to think that this year would be different?

[Matt Tait:]

Look, I think if you look at – I think 40% of our bookings were awarded on a full source basis last year. That’s a pretty healthy number. I can’t – are we going to be that high next year? I don’t know, but again, we are very – it is definitely part of our go-to-market focus.

[Kevin Phillips:]

Tobey, it’s Kevin. What I think you will see across the space is there were some delays last year because of COVID. Yet, there is only so much capacity within the acquisition workforce and the government. So, they do have to make choices about what they spend their time on from a major recompete or competition standpoint and that’s what causes delays across the customer as well. So, it very much depends on the internal capacity that they have and what they can accomplish.

[Tobey Sommer:]

Right. Thanks. What is sort of internal billable headcount growth now and could you talk about your target for what kind of growth you maybe able to achieve towards year end or maybe for ‘21, if you want to speak about it from that perspective on a year-over-year basis and discuss the hiring and talent environment?

[Matt Tait:]

So Tobey, so this is Matt. I mean we typically don’t give headcount statistics, but this past year, we were – our DL drove our growth for the year as evidenced by the results. So we are very happy with the hiring that we have been doing. And so we have a similar plan going into ‘21 in terms of headcounts in DL to drive the kind of growth that we are looking for.

[Tobey Sommer:]

Is there any rule of thumb that we should think of externally in terms of looking at DL and breaking apart the two major components which would be volume and price?

[Matt Tait:]

Yes. So I wouldn’t over-index on that, Tobey, just because we are moving to more of a solutions based organization and so it’s not exactly a one-for-one there.

[Tobey Sommer:]

Okay. Is the hiring and talent marketplace a constraint on growth? Maybe you could just discuss that, the demand environment and the contracting activity win rates versus hiring and kind of give us those puts and takes?

[Matt Tait:]

Sure, sure. Let me just make sure I answer – so on the – you kind of talked about a couple of things there, right? So I think from an industry perspective, yes, we would love to have more cleared people in the overall population set to do work. You’ve heard us talk about that, and that’s something that Kevin has been leading as an active part, right, in terms of driving reform around getting folks cleared so we can bring more talent into the overall federal market space. So that’s kind of, I’ll say, large commentary. But specifically for us, look, we’ve been very successful hiring the talent. As we’re rotating the business towards the technical focus areas that I mentioned on the last call, our recruiting team has done a phenomenal job of that within the COVID environment. Now it’s a competitive environment, but we’re still able to hire the folks that we’re looking for to go do the mission set work that we want to do. And Kevin, do you want to...

[Kevin Phillips:]

Tobey, I’ll add something. Just – it’s important for our industry not just for ManTech. But those individuals in those programs that have the highest level clearance will have the largest delay in getting new talent in and also new awards because the people physically have to be on-site to do the work. And unless they clear through all the different COVID hoops, so it’s that really higher excellent type of work, both the procurements and the talent influx, that you will likely see the biggest delays.

[Tobey Sommer:]

Okay, thanks. That’s helpful. Last thing for me, I heard you say cash flow impacted by working capital this year. I may have missed it. Could you explain that a little bit further, please? Thank you.

[Judy Bjornaas:]

Yes. We guided at least $200 million in cash flow from operations for 2021, which is down slightly from what we generated in 2020, and that’s basically just driven by what might happen with DSOs and other CapEx or capital requirement – working capital requirements in the quarter – in the year.

[Tobey Sommer:]

Could you elaborate as to what those factors are that make you want to accommodate for what may happen? Is it COVID-related? Are you bidding for some things with different payment terms, new customers? What are those factors?

[Judy Bjornaas:]

I think we saw a 3-day improvement in DSO in 2020. If that ticks back up, that alone almost gets us with a reduced – that with – coupled with the growth gets us kind of to that level, so nothing unusual. We did see that it seemed like the government was pushing cash-out if that was related to incentives, trying to make sure that there’s money in the economy and getting small businesses paid given the COVID environment, hard to say. So we’re just being a little cautious on if they return to what we’ve seen historically as more normal payment cycles.

[Tobey Sommer:]

Thank you. That sounds prudent. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Matt Sharpe of Morgan Stanley. Your line is open.

[Matt Sharpe:]

Kevin, Judy, Matt good evening and nice quarter.

[Matt Tait:]

Thank you.

[Matt Sharpe:]

Judy, just real quick on the revenue guidance, looks like it’s up 7% at the midpoint. What is that implying for organic growth? And then what was the book-to-bill – or the bookings cadence need to look like to push you guys to the high end of the range this year?

[Judy Bjornaas:]

It’s a combination. So to answer your first question, the organic is about 5% or so at the midpoint. And I think the factors kind of getting us from the midpoint up are the timing of the awards and when they happen so we could have a really strong book-to-bill. But if it all comes in, in fourth quarter versus second quarter, that’s going to change that top line number. And how much of it’s recompete versus new would also impact that. So I think just the factors that I mentioned on the call – in the prepared remarks about timing of awards, recompetes, material procurements as well as COVID and the CARES Act extensions kind of are the factors that get us throughout that range.

[Matt Sharpe:]

Got it. Okay. And then just on margins. How much of the 40 bps of expansion in 2020 was either COVID or mix-related, e.g., sort of lower material pass-throughs? And how much was sort of underlying performance? Is there any sort of pressure – where I am going here with the question, is there any pressure on 2021? You are sort of flat to up 10 bps.

[Judy Bjornaas:]

Yes. So I mentioned we had this onetime adjustment in Q4, which added probably over the course of the year, about a 10 basis point uptick in EBITDA margin. I think it really is the indirect spend more normalizing, which is – we had a really strong performance, a little bit of headwind or tailwind that we talked about from labor utilization and direct spend slightly under. So looking to do a 10 basis point improvement, I think is something we are focused on, but given those headwinds with returning to more normalized indirect spend and labor utilization, we still think we can get there.

[Matt Sharpe:]

Got it. And then just one last one if I may, on the employee base, some of your peers have pointed out a PTO dynamic where resurgence in time off is potentially pressuring top line and our margins. Is – has ManTech experienced any of that or expect to see any of that dynamic play out through 2021?

[Judy Bjornaas:]

Yes. We definitely saw, I think in Q2 and Q3, a reduction in PTO usage. We saw a little more normalization in Q4 around the holidays. So I think we’re seeing people figuring it out. But it definitely had a little bit of an impact on revenue and margins in 2020 that, again, will – the more that normalizes, it will have some impact on revenue and margin, but we feel like within our guidance range, we fully accounted for that.

[Matt Sharpe:]

Got it. Thanks.

[Operator:]

Thank you. Our next question comes from the line of Mariana Perez Mora of Bank of America. Your question, please.

[Mariana Perez Mora:]

Good afternoon, everyone.

[Kevin Phillips:]

Good afternoon.

[Mariana Perez Mora:]

So, about 45% of 2020 awards were from new businesses, could you please describe what are ManTech’s relative advantages or strengths that position the company to continue taking market share?

[Kevin Phillips:]

So, yes, it’s Kevin, I’ll speak briefly. In terms of how we are getting new business, the 45%, and what we’re doing around that, we’ve been fairly consistent over the last few years about investing in certain technology areas. And we continue to do that. I think Matt mentioned a number of them, and then bringing those to the mission and solutions that our customers need. So we are literally trying to – and I get too far ahead of our customers, but invest into solutions and bring to them because it will be a new environment in the future that people need to operate out – in, especially in the DoD, in our view and we are trying to provide that so the customers have a path. And as it relates to the new business in 2020...

[Matt Tait:]

Yes. So we are definitely kind of focused on three main areas, right. So, one is around just business development. The second one is around our solutions. Kevin kind of intimated on that, but we really are doing that for the new solutions as well or new work. And then the talent, right, we really want to sharpen our competitive edge in terms of the type of talent we are bringing in, but also the additional training and certifications that we are giving them. And so we feel like when we combine all that together that we’re going to continue to have the win rates that we have been enjoying over the last several years.

[Mariana Perez Mora:]

Perfect. Thank you. And then the next one is related to the CapEx, with CapEx going down to 2.5% of sales this year, could you please discuss what are the main CapEx requirements in the near to mid-term?

[Judy Bjornaas:]

Yes. So we – the main CapEx is coming from a couple of our managed services contracts. So we came in a little bit lower this year than we were expecting at the start of the year because COVID did delay some tech refresh on one of those contracts that we expect to kind of normalize in 2021. And then we are doing some facility expansions related to secure skiff space for – to help support our customers. So those are kind of the primary drivers of CapEx. And I do think we’ve kind of like stabilized around that 2.5% of revenue. And barring any significant changes, I could see, as the revenue growth continues that, that could drift down slightly.

[Mariana Perez Mora:]

Thanks. And my last one is related to EBITDA you saw an expansion in 2020 and expect to see another expansion in ‘21. What should we think the long-term looks like or what is embedded in your backlog today in terms of EBITDA margins?

[Judy Bjornaas:]

Yes. We’ve kind of said we are targeting the 10 to 15 basis points per year. It really is going to depend on as we see that shift towards more solution bids that Matt talked about. And if we see a shift in contract mix away from the almost 70% cost plus we have now, those are the kind of things that would allow us to deliver a more meaningful margin expansion. So at this point in time, we just kind of focus one year out on what we think we can deliver.

[Mariana Perez Mora:]

Great. Thank you.

[Judy Bjornaas:]

Thanks.

[Operator:]

Thank you. Our next question comes from Robert Spingarn of Credit Suisse. Your line is open.

[Robert Spingarn:]

Hi, everybody. I don’t know who this is for, Kevin, Matt, Judy, but in terms of the new administration, are we seeing any a priority shift yet from them? I know they talk a lot about cyber and so on, but has any of that come through yet or is it too soon?

[Kevin Phillips:]

It’s too soon. I think at a high level, the guidance of what they are focusing on in terms of newer technologies, whether it’s nationally or applied within the government because they need to protect those technologies and deploy them to futures of conflict as well as where those conflicts might be, and this is outside of the U.S. borders, I think the one area that we will see more focus that we’ll be tracking is clearing COVID. That’s clearly a priority. Getting through whatever climate approaches and strategies need to affect to our customer sets. But beyond that, I think that there’s less change from the technology areas that we are focused on from an administration because of the external threats that those changes are being responsive to.

[Robert Spingarn:]

Okay. So there is a consistency. And it’s not like you need to go out and do particular M&A or anything to realign with the future mandates, so to speak?

[Kevin Phillips:]

No. We still think it’s more of a talent issue against the opportunity set than it is where the market is headed.

[Robert Spingarn:]

Okay. And then related to that there has been some talk out there, we have seen a lot of Silicon Valley interest in the Beltway and the government customer from a technology perspective. Are you seeing any disintermediation from that crowd trying to get into your markets? And are they having any success with that?

[Matt Tait:]

I think if you look at that, probably the overall answer you’ll get is mixed, right? You definitely have Silicon Valley folks trying to come in, and a lot of that through like DIUx, but they also don’t know how to do contracting within the federal market space. So a lot of times, they will come to try and join a partnership, right, to go make it happen. So I think while there’s definitely innovation that is being asked for by the federal market or by the federal government overall, which we think is a great thing and aligns with our strategy, I mean, I think the Silicon Valley folks that are trying to get into this environment where we are seeing is they can – we see them as ways to actually help us from a solution perspective versus anything that’s competitive.

[Robert Spingarn:]

Okay, okay. And Judy, just quickly, I don’t know if this was covered already. But cadence for the year, how we should think about sort of the quarterly cadence as we move through the year here. And I think you already talked about the organic growth in ‘21 being closer to 5%. What was it in the quarter when you had the acquisitions?

[Judy Bjornaas:]

In the quarter, it was 5%.

[Robert Spingarn:]

Okay. And then just on that cadence?

[Judy Bjornaas:]

Yes. As you know, we really don’t give out quarterly guidance, but it is, we think, a moderate step-up throughout the year from Q4 of 2020.

[Robert Spingarn:]

Okay. So sort of the normal trajectory?

[Judy Bjornaas:]

Yes.

[Robert Spingarn:]

Okay, thank you very much.

[Matt Tait:]

I call it boring good. I guess hoping some more of that.

[Robert Spingarn:]

Okay, thank you.

[Operator:]

Thank you. Our next question comes from the line of Louie DiPalma of William Blair. Your line is open.

[Louie DiPalma:]

Kevin, Matt, Judy and Stephen, good afternoon. Given how ManTech has high exposure to government cyber security, has the SolarWinds cyber breach materially impacted any of your contracts? And longer term, can you access or assess any of the specific impacts that it may have on demand for cyber security services and cleanup and remediation of what took place?

[Matt Tait:]

Sure. So from a SolarWinds perspective, I can’t talk about specific customers in terms of what they have been impacted, right? I think any of the customers that we serve they are making their own public declarations there. So I don’t want to comment specifically on that. But I do think – or at least what we are seeing is, because of this, more conversations in dollars that are trying to figure out how to stop this from happening again. So from a demand perspective, we think that this is going to continue to keep the focus on cyber and drive additional demand and do that in places that we are already in. So from an overall cyber demand, we expect this to, I’ll say, to increase and elevate.

[Kevin Phillips:]

It’s Kevin. I will add that from a national policy level, I do think we’re going to see more maturity around that, both from a national defense side. I mean protecting all of the nation and also how the government reacts to these events differently or more aggressively one or the other. So I do think that from a policy level, we will see a shift, and we’ll all stay tuned as to what that does for our sector and for broader national strategy.

[Louie DiPalma:]

Thanks. And switching gears a little bit, late in 2019, ManTech announced that it won a $132 million task order to provide software and systems engineering for the Army’s distributed common ground system program. And related to that, I was just wondering, could you provide a quick overview of ManTech’s involvement with the Army and the Air Force network and ISR modernization efforts like we have seen like other similar types of Army contracts like Capability Set 23 prototypes. And recently, there was a report about this project tie-ins for network modernization. Can you provide with a quick overview of like how ManTech is involved in programs such as like the DCGS-A and others?

[Kevin Phillips:]

Yes. So the short-hand term we use is D6 for that program. And that’s one of many examples that we have across the Army, Air Force and Navy, where we’re doing intelligent systems engineering work as well as you combine that with other technical focus – technology focus areas we’ve talked about like analytics and cyber. So that is one example where we’re trying to really bring digital to the mission, where – with the Army, we have several contracts, Air Force and Navy as well. Not that we talk in detail on specific contracts on the call here, but that is definitely in alignment with our strategy doing that type of work because we think it’s good mission work that supports our nation.

[Louie DiPalma:]

Great, thanks.

[Operator:]

Thank you. Our next question comes from the line of Joseph DeNardi of Stifel. Please go ahead.

[Joseph DeNardi:]

Thanks. Good evening. Kevin, just in regard to Louie’s question – or sorry, maybe it was Matt. You talked about seeing, I guess, the potential for increase in demand in dollars coming from SolarWinds. Is it fair to say that, that’s not – that hasn’t yet converted into awards or opportunities necessarily, that’s still going to come and hopefully kind of in the near future? Is that how you all look about it – look at it?

[Matt Tait:]

Yes. I’d say that’s fair, Joe. We are definitely having, I’ll say, multiple conversations across multiple customer sets around these topics right now.

[Joseph DeNardi:]

Okay, okay. And then maybe a question for Kevin, can you quantify for us how much of the portfolio is actually aligned with or positioned to benefit from cyber? And if you are not willing or able to quantify that, which I’m suspecting is the case. Could you maybe talk about how you would go about conducting that exercise if you were an investor?

[Kevin Phillips:]

Well, I’ll speak more broadly. For ManTech, if it’s looking at IT analytics, automation, cyber and providing technology for mission support, that business today is 85% or more of our business when you combine that, whereas maybe 5 years ago, just OCO alone 10 years ago was 60% of our business. So it is a much higher concentration of our business. How that gets affected from a growth standpoint, very much depends on the procurement process our government has and what they decide to prioritize, as we mentioned before. But we do think that we’re in a very good spot from a capability standpoint against where the market needs are for the next few years.

[Joseph DeNardi:]

Okay. And then, Kevin, you also mentioned that talent is the challenge, it’s not the budget or lack of opportunities. Can you just talk about kind of what that means practically? If tomorrow, you could find everyone you wanted, you could bill more, that there are essentially unspent dollars out there because there is a shortage of talent. Is that right?

[Kevin Phillips:]

Yes and yes. So we have internal degree programs that have price points for targeting upskilling as well as certification processes that we pay for because we want to get the internal resources we have, and those veterans who come into the company scale towards what we think the growth of the future is, both for them, professionally and for us and bring that talent in. There just is not enough talent with clearance and technology capabilities supporting national security period. You will hear that consistently from the government and from every new contractor you talk to.

[Joseph DeNardi:]

Can you quantify what the shortage is? Is it 3% or is it 30%?

[Kevin Phillips:]

In terms of – I would probably say...

[Matt Tait:]

I wouldn’t hazard a guess here, to be honest.

[Kevin Phillips:]

Yes, I agree with that, but there is a lot of other things. So...

[Matt Tait:]

But I do think that – yes, we have a lot of customers that would love to be able to – because it’s also – this is also budget-driven, right. So we are kind of opening up into a max theoretical world, but we probably would need to consider other factors.

[Joseph DeNardi:]

Okay, fair enough. And then just lastly, Matt, when the budget comes out in a few months, hopefully, what do you look at first, if anything, what page do you flip to first?

[Matt Tait:]

Yes. For us, we really want to make sure that the budget is aligning to the priorities that we’ve talked about today, right, the intelligence system engineering, cyber, analytics, automation and AI and as well as mission and enterprise IT and data at the edge. So we look at those things, look to make sure that those things are prioritized within the budget. We are obviously keeping tabs on those things to make sure that they are. And so we feel that we continue to see good alignment to our overall strategy in terms of those capability sets.

[Joseph DeNardi:]

Okay, thank you.

[Matt Tait:]

Yes, thanks, Joe.

[Kevin Phillips:]

Operator, it appears that we have no further questions at this time. As usual, members of our senior team will be available for follow-up questions. Thank you all for your participation on today’s call and your interest in ManTech. Have a good evening.

[Operator:]

Ladies and gentlemen, this does conclude today’s conference. Thank you for your participation and have a wonderful evening. You may all disconnect.