ManTech International Corporation
Q1 2014 Earnings Call Transcript

Published: 30 Apr 2015

[Operator:]

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

[Stuart Davis:]

Thank you, Amanda, and welcome, everyone. On today's call, we have George Pedersen, Chairman and CEO; Kevin Phillips, Executive Vice President and CFO; and Bill Varner and Dan Keefe, our two Group Presidents. During this call, we will make statements that do not address historical facts and thus are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.These forward-looking statements are subject to factors that could cause actual results to differ materially from anticipated results. For a full discussion of these factors and other risks and uncertainties, please refer to the section entitled Risk Factors in our latest Form 10-K and our other SEC filings. We undertake no obligation to update any of the forward-looking statements made on this call. Now, I'd like to turn things over to George.

[George Pedersen:]

Good afternoon and thank you for participating in today's call. For the first quarter, ManTech showed strong margin driven by stability and direct labor and lower indirect expenses. We experienced some reduction in revenue which was the result of pullback and sub-contracts and materials primarily that was used in Afghanistan. The in-theatre staffing today is about 300 people compared to 2400 in early 2013. In addition we had excellent cash generation with operating cash flow more than doubled net income. Our ability to generate cash enables us to invest in the growth of the company. On that note earlier this week we acquired Welkin Associates which strengthens our ability to provide high end systems engineering and business solution especially in intelligence community. Welkin is the next organization to ManTech and we are actively looking for other promising acquisition candidates. The 44 million in cash and net cash and then $500 million line of credit we have cash and the balance sheet to acquire more and larger firms and we will refine the appropriate ones. The current industry dynamics support our acquisition plans given the greatest certainty around funding, we are seeing more high quality companies of all sizes become available for acquisition. In addition to full appropriation for the fiscal year 2015, there appears to be more normal appropriation, a more normal appropriation classes to 2016. The budget resolution pass and both the house of the senate. It is encouraging to see both houses of the Congress are looking for ways to increase defense spending whether to increase OCO funding that's overseas funding or sequester relief. We see funding in fact we see the funding environment as a very positive for the industry and for ManTech. Now Kevin will provide you details on our financial performance and outlook. Kevin?

[Kevin Phillips:]

Thank you George. Revenues for the first quarter were 370 million compared to 452 million in the first quarter of last year and 411 million in the fourth quarter of last year. The year over year revenue difference are mostly explained by clients in the Afghanistan related contracts and pressure is on the overall army budget. Revenues for the quarter were below last quarter as a result of two factors, first we experienced reduced sub-contract material requirements primarily from the army and OCO related demand. Annualized direct labor which is central to our value proposition as a services company was up compared to the fourth quarter after adjusting for two fewer workdays. Second, projected new contract awards did not materialized almost 2 billion of awards expected in the first half of this year have slipped to the right causing delays in the work. Our support for OCO contributed 23 million which is down 8 million from the first quarter. We still expect the OCO related work contributed about 75 million for the year. There is a little change in the standard revenue breakouts that we report. Prime contractor mix remained at 89% of revenue, 68% of first quarter revenues were on cost plus contracts, 11% were on time of material contracts and 21% were on fixed price contracts. Operating income for the quarter of 20 million was essentially unchanged from the first quarter of 2014. Quarterly operating margin of 5.4 million increased a 100 basis points year-over-year, as a result of the direct labor mix, strong contract performance and improved cost management. General and administrative expenses dropped 6% sequentially and 7% year-over-year. Net income was 12 million and diluted earnings per share were $0.31 for the quarter which were up 23% and 19% respectively compared to the first quarter of 2014. Net income and earnings per share benefitted from margin expansion as well as reduced interest expenses from redeeming senior notes of the second quarter of 2014. Onto the balance sheet and cash flow statement, during the quarter, cash flows from operations were 26 million or 2.2 times net income. DSOs were 87 days for the quarter which reflects the temporary increase as we upgraded the company’s financial management system. DSOs to come back down as we complete this transition. Our balance sheet at quarter end shows 44 million in cash and no debt after playing 7.9 million in dividend. Our balance sheet provides plenty of fire power for acquisitions such as the Welkin acquisition we just closed. The $34 million payment which we're able to fund from cash on hand will be reflected on our second quarter financials. Welkin contribute sold growth in operating margins and be accretive to earnings per share in 2015. Turning to business development, bookings for the quarter were $149 million for a book-to-bill of 0.4% times. As a result backlog at the end of the quarter stood at 3 billion of which 900 million was funded. Approximately 44% of awards were for new business, primarily in the areas of health, software support, and systems engineering. We also won $44 million contract in the quarter that was subsequently proto-testing. We continue to be optimistic at a significant number of proposal debt outstanding will be awarded during 2015. At the end of the quarter we had a total qualified pipeline of 21 billion of which 5 billion was outstanding and waiting - the total pipeline is over weighted for cyber, intelligence and health for those areas adding over 2 million in qualified opportunities over the last six months. Since the last call we have identified 2 billion in additional proposals that we expect to submit in 2015 for a total of nearly $9 billion. This will be about 2 billion more than last year which was more than doubled the volume of 2013 and a record for us excluding the overseas activity. Despite delays in protest the market is said to rebound and revenues will accelerate as we win work from substantial pipeline of submitted proposals or near-term opportunity. Now that the - we expect to revenues of 1.6 billion to 1.7 billion net income of 53.7, to 57.9 and diluted per share of a $1.43 or $1.54. The guidance reduction reflects slower than anticipated workflow and lower materials in sub-contracted volumes than previously expected. We have five proposal activity with continued uncertainty around the timing and outcome of award decisions. As a result we believe the guidance ranges are most appropriate at this point. Our revised revenue guidance assumes about 100 million of new business with future acquisitions. We believe this is reasonable given our substantial pipeline strong balance sheet and market environment that is turning more favorable. If customers stick their announced adjudication schedule which will be closer to the upper end to that range. On the bottom-line revised guidance shows an improved margin outlook from labor mix and lower G&A expense. Operating margin for the year should ended about 5.7%. Expectations or other items such as tax, rate and operating cash flow remain unchanged. Now Bill speak to our cyber and Intel business. Bill?

[Bill Varner:]

Thanks, Kevin and I am extremely pleased to welcome the highly skilled employees of Welkin to ManTech and to MCIS. They bring deep experience and demonstrated expertise and virtually all of them are directly supporting intelligence missions and are cleared at the highest level. Welkin deliveries mission centric services in high end systems engineering and advance national security technology and business services. Welkin's contributions to its customers are notable for their technical depth and for their criticality to mission execution. Their primary customer is the National Reconnaissance Office where they have performed work in nearly every directors in office supported dozens of major system acquisitions and aided in the operations of dozens more. In addition Welkin supports the number of other key customers both within the intelligence community and across the Department of Defense. Welkin's expertise is consistently sought by both customers and teaming partners. This acquisition is strategically positions us to pursue large engineering and support activities in the intelligence community and the Department of Defense. Together we are focused on the seamless transition of existing work and aggressive pursuit of new business. In other news I spent last week at the RSA conference which is the world's largest information security event. My discussions with existing and potential customers and partners highlighted the need for our cyber security services and product. The conference also showcased the momentum we are seeing on the commercial product side as we've rolled out the Linux addition of Responder Pro which analyzes physical memory from servers and hosts and enables deep forensic analysis of now artifacts in memory. Our product addressed the gap in today's market currently filled with signature and indicators of compromised based security products which are limited in their effectiveness and unable to defend against sophisticated event resistant threat. Our patented approach performed behavior based analysis of physical memory to detect malicious processes. With 200 plus customers and ManTech's deep cyber security experience in the Federal Government we delivered differentiated value and are poised for growth. In our services business, our customers are actively engaged and moving procurements alone. Many are still experiencing delays but we are seeing promising signs that our intelligence community customers will be making significant awards over the next several quarters. Our position in cyber should benefit from legislation that is currently working through Congress. After a series of false starts it appears that we will finally get cyber legislation that would push company to share access to their computer networks and records with federal investigators. Last week the house passed two bill that are similar to a measure approved by the senate intelligence committee. There are still some issues around the balance between privacy and liability protection but I'm hopeful that legislation will be enacted this year. Dan?

[Dan Keefe:]

Good afternoon. Like Bill I have just returned from major conference highlighting one of our key growth initiatives. Earlier this month they attended the health information and management system society or HIMS conference in Chicago. This event was massive and underscore how robust the health market will be for years to come. The conference also serves a launch of our ManTech health brand. Over the past three years we have invested in three acquisitions to build our capability and customer presence in health IT. Now we are aggressively investing and building out the leadership team to sustain and accelerate our growth. Our new leadership with Steve Comber, our new General Manager we've just hired three stellar executive that bring ManTech's health tremendous credibility and thought leadership. John Dorman joins us as Chief Information Officer responsible for the development of ManTech Health IT solution strategy and technology focused services to improve healthcare outcome. Dr. Bryan now leads our health and human services business and Dr. Carl Brazen [ph] will start next week as our Chief Medical Officer. All three are nationally recognized experts who have demonstrated ability to managing grow large federal health businesses. ManTech health will be a significant growth driver for MSS and ManTech. Turning to other parts of our business as Kevin indicated, we have stability in our OCO work. Over the last quarter we have received plus ups on some in-theatre work to maintain current levels of support. We do not see further downsize to our in-theatre business which provides us a stable platform for which to grow additional foreign military sales. However our business overseas is very much dependent on political decisions. George?

[George Pedersen:]

In summary, ManTech is moving out aggressively on acquisitions and new proposal submissions as we await awards from our large pipeline of submitted proposals. We are seeing a number of high quality companies coming to market and Welkin is the first of what we hope to be several additional acquisitions in 2015 and I started by the volume of opportunities that Bill and Dan are pursuing very high priority mission. In closing, I want to highlight to two region, accommodation speaks to the commitment and dedication of our employees and the work environment at ManTech. President Obama recognized ManTech employee with the Energy Lifestyle Award for developing a pioneer training program to health transition military residents to the clean energy workforce. In addition to military times recently rank ManTech is one of the best employees - we greatly value the contributions of our veterans, veterans have made and we're proud that so many of them are making another clear for themselves at ManTech. With that we are ready to take your questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Edward Caso with Wells Fargo. Your line is now open.

[Unidentified Analyst:]

Hi, good evening. It’s Rick on for Ed. Thank you for taking my question. The first one George you talked a lot of about M&A I was just curious sort of the size of the transactions you are looking or maybe the size of the transactions that we are comfortable with and whether you have seen larger properties now in the pipeline.

[George Pedersen:]

We have seen larger properties and I must say the volume of candidates that we are interested has increased in the past few months. For a period of time yeah, it was a little dry but it is turning around. And I will let Bill talk a little more about the acquisition that we have made but that is a good profile of what we are looking for. Talk a moment about why we picked what we did.

[Bill Varner:]

I will be happy to, thank you George. So the Welkin Associates acquisition is a represents opportunities for us in customer spaces that we know very well but market that are adjacent to where we are currently performing so, it provides us some opportunities to some current some large upcoming procurement where leader company could earn themselves but together we are able to and they offers us I think great expansion opportunities in areas where we are very interest in moving.

[George Pedersen:]

And again from the acquisition point of view we just reported our cash position. It is unusual for us over the years that have been - but we have been in that position for a while but we will continue to look aggressively for the companies large and small we will not by sales we must get new technology, new customers, new people and we have to be able to make a clear that is our policy in--

[Unidentified Analyst:]

Also just one the last point I believe you said Welkin would be accreted to 2015 EPS I am curious if you can give the expected run rate for revenue or maybe what the 2014 revenue was?

[Kevin Phillips:]

Yeah, so 2014 revenue is about $33 million and the run-rate slightly above that on the day of acquisition and we will see growth from that going forward.

[George Pedersen:]

On that sales alone the combination.

[Unidentified Analyst:]

Okay. And then just a last question for me you talked about seeing some awards not materializing things slipping to the right. I know that has been the trend for a while now from the space but curious what the recent behavior going to client it has been different and why do you think those in particular slot? Thank you.

[Kevin Phillips:]

Yeah, so there is a lot of volume in customer and I'll let Dan and Bill add to it. There are a lot of customers working procurements I think the slots are mixed based on the customer but generally they have the money they are going to make awards which is different than two years think they're being very cautious about reviewing everything and making sure that it's a reasonable decisions on their behalf and then in some cases I think different agencies are still going through internal reviews as to prioritization. But we see a lot of volumes, we see a lot of opportunities we're very focused on that and I think it's more internal timing within the customer. Guys do you want to add anything? A - Bill Varner And in some cases in the intelligence community we see that there are just aren’t people in the acquisition workforce and therefore the review of proposal takes time and the awarding the proposals takes more than then it should.

[Unidentified Analyst:]

Thank you very much.

[Operator:]

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

[Steven Cahall:]

Yeah, thanks very much. Maybe just a first question on revenue and growth just you know looking for range and guidance for the year and maybe excluding the OTO work is it reasonable for us to expect you maybe exit the year with flat or even slightly growing revenues were based on the instability which you're still seeing would that be able to too optimistic at this point.

[Unidentified Corporate Speaker:]

So I mean that the timing of growth is very much depend on the contract award volume which we have not submits out there we do expect all things moving in the right direction in Q4 this year that will start seeing in the growth and we do expect that to the year based on the volume of activity that will start seeing a growth patter again.

[Steven Cahall:]

Okay and then maybe just to follow up the M&A theme. Maybe a couple of questions here. So George you mentioned that Welkin is a good example of some stuff you're seeing maybe - seeing that you could do a lot of things at the size of Welkin and still have a lot of cash left. Is there an appetite to do anything outside of the dividend or M&A or are we saving all of the cash for M&A in terms of priorities at this point.

[Kevin Phillips:]

Hey Kevin I'll speak with that. As we've been fairly consistent with the acquisitions is our number one priority. Dividend policy we firmly have a second. If we don't have any use of cash after looking at properties which I think are number out there that I just toward set are becoming more active and we look at other alternatives and we have discussion around that to make decisions. But the acquisitions continues to be our number one priority for use of cash.

[Steven Cahall:]

And then a final one from me and then I'll get off. When you talk about the M&A pipeline picking up and the interest picking up with the stabilization in the market. Does the same thing happen where all this said now you are getting interest as a target as well do you see that level of activity in the market or have that would be buyers of companies really not guiding that comfortable with the situation as yet.

[Kevin Phillips:]

I think that the companies have to focus on that as a strategy and then they're being more open about that based upon the market be rather than more strategic discussions like that. That's our view.

[Steven Cahall:]

Thank you. I'll get back in the queue.

[Operator:]

Thank you. Our next question comes from Brian Kinstlinger with Maxim Group. Your line is now open.

[Brian Kinstlinger:]

Thank you I wanted to start with how many proposals are waiting awards into the March quarter.

[Kevin Phillips:]

We have $5 billion proposals in process or are waiting award.

[Brian Kinstlinger:]

Okay and then from that I guess I understand there were delays. But as I look back to a very few quarters where you had this much just a little business from new awards. You had a few in '14 and in previous years I mean '13, '12 or if something like the $60 million to $65 million contract renewal awards or new revenue. Right so I guess I'm wondering if that’s a function of delay is getting worse. Are you is your win rate a little bit lower than in the past does it may be curious where you think behind the weaker bookings is opposed to the stronger bookings of course not March of last year which was one of the weakest quarters you ever had.

[Kevin Phillips:]

Yeah so just couple of observations. For the announced proposals that we're going after a vast majority at 80% range of new work and that is going to be harder to get win rates or wins. And so that I guess in average historic the win rate is going to be less. But if we get those contract awards from the upside is significant. So we're very much focused on that that we compete levels this year below average and that the timing is to get depends on the customer set but generally we see more activity but more cost as review cycle to get to the award. And I think that they will begin to award is just the timing issue.

[Dan Keefe:]

Okay hearing on the hill is that this current plans increase the defense budget by $38 billion for next year that is in a formal proposal at this point in time. But that's the current beliefs that that's how the appropriation process will wind up by adding $38 billion

[Brian Kinstlinger:]

Now I know in April you would expected a few very large award which in second quarter to be adjudicated hoping that you'd be the victor as that's new business couple of large intel ones. Where those further delayed or has April started off the same way the first quarter started.

[Bill Varner:]

Well Brian this is Bill one of those large activities was mine and I'm sorry to have to say that unfortunately we were not awarded best large - despite providing a very compelling technical and management solutions. However we still have many large opportunities left within the intelligence community that we are either currently writing proposals awaiting award or in some phase of capture.

[Dan Keefe:]

We were not be - on that particular program so it doesn't represent the decline in our revenue. And there is still maybe opportunities for sub-contracts.

[Brian Kinstlinger:]

But why committed all on that I think there one there was inconvenient and a multi 100 million to a billion dollar award is that one?

[Kevin Phillips:]

Yes, Brian there was inconvenient.

[Brian Kinstlinger:]

Okay. And I guess I have one more question on the bigger picture of guidance I mean it is not just guys the industries had a difficult meeting as we have seen some contracting go down we have seen hardware or material purchases go down and we have seen protest and you mentioned in your guidance basically include a 100 million that you need to win or acquire first of all that is the low end of the midpoint but secondly given the pace of our words right now coupled with the protest usually will make you take a long time before you actually generate revenue is that really reasonable? I mean is that a difficult target of 100 million do you think that is challenging target I am just curious how you look at that?

[Kevin Phillips:]

So when we look at the amount of new business award for going after and the 5 billion is actually actionable and I would mention the industry the biggest judge - if you have that amount of activities from the government you think you are well positioned how do you incorporate that into your view of the business and how much delayed you have built to the timing of the awards and we have time to come more focus on that timing and trying to build that in but I would say it is hitting this but we fit more than a share then we work then it goes above that and if not then we continue to wait for those awards to happen. The $100 million is the midpoint and again I think that we are well positioned based on the investments we have made over the last year and half if you start new business awards into that expansion.

[Brian Kinstlinger:]

One last one, the second quarter revenue given the new awards not to recomplete we are fairly low it be similar looking to March quarter plus maybe the acquisition revenue that you have I mean there shouldn’t be a steep ramping like you are saying the second-half of the year hopefully will be much stronger given congress it was then how we should think about it?

[Kevin Phillips:]

It will be higher there are more billable mandates in second quarter then first, first quarter is a low spill of the mandate at the total year and we do expect some of the ODCs not all but some of the ODCs that did not occur inQ1 come back up because it is more of a timing issue and then in Dan’s - pace to start getting more new contract awards and in fact the first month’s contract award is already at or above our full prior quarter award subject to protest. So we --some another.

[Brian Kinstlinger:]

Great, thank you.

[Kevin Phillips:]

And Brian we do expect Q3 to above Q2 and Q4 to above than Q3.

[Brian Kinstlinger:]

Got it, thanks very much.

[Operator:]

Thank you. Our next question comes from Bill Loomis from Stifel. Your line is now open.

[Bill Loomis:]

Okay, thank you. On the OCO revenue I heard 75 million for the year but what was for the quarter and first quarter?

[Kevin Phillips:]

23 million.

[Bill Loomis:]

Okay. And then on 100 million of awards you mean but that include potential acquired companies or is that just new organic bids?

[Kevin Phillips:]

It is a mix if we have a bids that get awarded we can see getting to the upside of our range with that $100 million and then if not then we have an inquisitor process that could help us get there if the contract awards don’t happen. So we build them all them together but we do think there is not contract award activity to support the range that we have to be the primary driver.

[Bill Loomis:]

Okay. And then on the commercial cyber Bill you talked about your new products 200 customer. What is the run rate on that now and is the commercial cyber profitable?

[Bill Varner:]

Commercial cyber is not yet profitable and that we are still investing in the business. We do have 200 commercial customers we have also several government commercial customers or the commercial products these are products that can be sold either to the government or to others in the industry is that what you are asking Bill?

[Bill Loomis:]

Yes, then anyway you can size what is the revenue run rate is now in commercial cyber?

[Kevin Phillips:]

It is Kevin it is consistent with prior but the level of investment is less we are actually closer to break even not breaking closer to than a year a fairly consistent top-line number.

[Bill Loomis:]

And if I have look back to nose was that 5 million in the quarter than in the past?

[Kevin Phillips:]

It was full year between $5 million and $10 million okay. And then on the OCO revenues to stabilizing and you have a good visibility on that $75 million. What happened as we extent 9000 troops for another year? Do you think you could actually see some potential growth in that or do you is this kind of the floor number?

[Dan Keefe:]

Yeah this is Dan as I mentioned in my prepared remarks we did see additional funding and that really to for the government recognized that the ramp down of their plan was not going to occur as they had planned it. So I don't see additional growth again that's all time the political decisions obviously. But I think what we're seeing is fairly stable given the national guidance for 2015 pretty stable for this year.

[Bill Loomis:]

Okay. And then the margin on that OCO business is that still to only 4% or 5% type business.

[Dan Keefe:]

It's below that it's below under the range that we have for returns.

[Bill Loomis:]

Okay thank you.

[Operator:]

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

[Robert Spingarn:]

Good afternoon.

[Dan Keefe:]

Hello.

[Robert Spingarn:]

Hi, I guess I have a couple of questions which related to the revenue guidance just like others before me. Before we get to that one question what was your organic sales growth in the quarter and what's embedded for the year.

[Dan Keefe:]

For the quarter organic decline of 23% and for the full year midpoint the organic would be around 9%.

[Robert Spingarn:]

Okay about 9%. And then on the --.

[Dan Keefe:]

Negative sorry yes.

[Robert Spingarn:]

Minus 9. I'm hearing what you're seeing about the pipeline. But at the same time I can't help at noticed that your funded backlog is added just relative low here at around $900 million total backlog as well. And at the midpoint of your guidance which of course includes it sounds like some business you have in one. The implied quarterly revenue is a good $50 million above what it was in the first quarter. And so I'm just struggling to see how we don't continue to see how we get to the guidance number the revenue number. Because when we knock off the $100 million we knock off the three quarter contribution from the acquisitions. I guess you should be somewhere in the $1.5 billion range. So it's not clear to me quite how you get there how you have the confidence to get there.

[Dan Keefe:]

Okay. So in the first quarter if you think about the revenues that we have there. About half of that roughly $20 million of that is related to OCO drops or mandate differences the mandate differences will come back up. And the other half were on the ODCs that we do believe based on the visibility that will come back at some level let's say $10 million. So roughly $20 million on top of the three 370 gets us moving in the right direction. We do have contract awards are starting to get. And the $900 million we have in funded backlog is fairly consistent with last year. And the majority of the work that we're bidding on is new. So we do think that if we start getting contract awards it will be new business this will start ramping up and should get us to the guidance range that we’ve provided.

[Robert Spingarn:]

Would you say Kevin that you've changed maybe this question for George as well? You’ve changed your forecasting process at all through over the past several quarters given the challenge to meet projections?

[Dan Keefe:]

Yes I think we have changed that we've also tried to work towards the range based on what we have. So, we are trying to modify what we are providing moving to the ranges looking at what we have based on just the variability of having –so many proposals outstanding, but the timing of the awards being uncertain.

[George Pedersen:]

We are trying to tie the current status to the appropriation process. It's frustrating to have so many proposals submitted and awaiting award and they're not coming to the system. And it's hopeful that we hope at this point in time that this additional funding and the additional staffing will accelerate that process.

[Stuart Davis:]

This is Stuart we're also trying to be very transparent about what we need to hit that guidance.

[Robert Spingarn:]

I think you are being as transparent as you can be but it is just been a trend here where somehow the numbers have been somewhat consistently optimistic, relatively to what’s come through and I am just wondering if there is any kind of systemic explanation.

[George Pedersen:]

It's based on the timing of awards and if we are being [indiscernible] about the new business getting our fair share of it and that would be our downside.

[Robert Spingarn:]

Okay. Thank you.

[Operator:]

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

[Gautam Khanna:]

Hey good evening guys.

[George Pedersen:]

Hey.

[Gautam Khanna:]

Maybe I missed this but could you articulate Welkin’s contribution to the sales this year and to earnings?

[Kevin Phillips:]

So the earnings are small given the size of the deal, it's a $33 million revenue business in 2014, we expect it to, from the date of contract award for to be at or above that run rate, totally in the mid-20s to the low 20s in terms of contribution --.

[Gautam Khanna:]

Alright and you said its de minimus earnings maybe $0.01 or $0.02?

[Kevin Phillips:]

Yes.

[Gautam Khanna:]

Okay and then you mentioned I think Kevin that early in the second quarter you have had a pretty good contract award pace and I was wondering if you could just elaborate on that. How does it?

[Kevin Phillips:]

It's more normalized to where we want to be, I wouldn’t say it's robust but it's moving in the right direction.

[Gautam Khanna:]

Okay and to hit… I mean just go back to this question on the sales guidance, specifically how much go-get do you still have and do you need to book to hit the numbers, to hit the low end and maybe to hit the high end?

[Kevin Phillips:]

So the $100 million is the revenue contribution we need from new business awards and the go get totally depends on what the time of those contract awards are. So if we have $5 billion or $8 billion we expect to be awarded over the next 12 months, the timing of those awards and how much we get is what’s going to drive that.

[Gautam Khanna:]

Okay. Just to be clear on those stuff, that’s a 100 million of awards from today, so not including what you’ve already won in the quarter?

[Kevin Phillips:]

Correct, $100 million.

[George Pedersen:]

$100 million in revenue that’s driven by new awards at the midpoint of the guidance.

[Gautam Khanna:]

Got it, of revenue so the award will have to be much higher presumably.

[Kevin Phillips:]

Yes.

[Gautam Khanna:]

And could you comment on with respect to what you are bidding on, does it come with a lot of sub contract and/or ODC works so that I imagine it would be very difficult to hire and ask people to convert 100 million of direct billable labor into sales in the year, or not? I mean if you could just… Are there any chunky bids that you are pursuing, are you doing a lot of ODCs with them?

[Kevin Phillips:]

It's mainly services based and there will be mix of ManTech labor and sub contract labor. There are some ODCs but as not as heavily weighted or merely as heavily weighted as it was in the past.

[Gautam Khanna:]

Okay, in the 100 million you have talked about, is that to get to the low end of the range, or is that the midpoint of the range?

[Kevin Phillips:]

That’s where we have what we have as midpoint.

[Gautam Khanna:]

Okay. Thanks a lot guys.

[Operator:]

[Operators Instructions] Our next question comes from Tobey Sommer with SunTrust. Your line is now open.

[Tobey Sommer:]

Thanks I was wondering if you could talk about the healthcare end market and what you are seeing there both on the government side in any kind of commercial prospects you may have? Thank you.

[Dan Keefe:]

Yes, this is Dan. I mean clearly within the government health market, which is where our focus area is, there is tremendous effort going on the government to standardize the electronic health records and that’s what we do, both in data analysis, cloud based health records, so you see that in all the agencies, the DoD Defense health agency, NVA and Health of Human Services. So that’s really where the large growth within that business that we see, commercially limited right now.

[Tobey Sommer:]

Right, switching gears just one kind of tech question, the temporary pick up in DSO pardon us if you mentioned this, because I did juggle on the couple of calls, has that righted itself so far in 2Q or do you expect it too soon?

[Kevin Phillips:]

Yes, we expect it to write itself it's a conversion issue we upgrade our system, our financial system, it’ll correct itself over the quarter.

[Tobey Sommer:]

Okay, so from your perspective just the temporary blip almost behind us.

[Kevin Phillips:]

Yes.

[Tobey Sommer:]

Okay. From a balance sheet perspective I understand you were pretty constructive on M&A opportunities are there any other plans to return capital to shareholders, kind of above and beyond the dividend that you have got and the capital structure perhaps could be enhanced? Thanks.

[Kevin Phillips:]

Sure. Right now we still have to use cash primarily for acquisitions, as they review the dividend policy every quarter, at this point in time we are maintained at our current dividend level. But if we don’t see any path for acquisition that are adventurous to us, it will go back to yard again.

[Tobey Sommer:]

Is there any kind of longer term capital structure goal that you would have in mind I understand it can be kind of chunky and you can oscillate around it depending on acquisitions you may consummate but…

[Kevin Phillips:]

I think what we have found is that… the dividend distribution that we have seems to fit within our operating cash flow the desire of we want to maintain additional acquisitions I don’t see that profile changing in the near future.

[Tobey Sommer:]

Okay. Thank you very much.

[George Pedersen:]

Amanda it appears that we have no more questions in the queue at this time. I appreciate your help on the call. As usual members of the team will be here available for follow-up questions. So I thank you all for your participation on today’s call and your interest in ManTech.

[Operator:]

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