ManTech International Corporation
Q3 2014 Earnings Call Transcript

Published: 30 Oct 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to ManTech International Corporation's Third Quarter Fiscal Year 2014 Earnings Conference Call. [Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to hand the conference over to Mr. Stuart Davis, Executive Vice President of Strategy. Sir, you may begin.

[M. Stuart Davis:]

Thank you, Sayeed, 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 2 Group Presidents. In addition, Lou Addeo, Executive Vice President for Corporate Development and Strategic Acquisitions, will join us for the Q&A session. 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. With that, I'd like to turn things over to George.

[George J. Pedersen:]

Good afternoon, and thank you for participating in today's call. In the third quarter, ManTech showed strong performance across most key business metrics despite a drop in revenues from Afghanistan, drop in our sales -- our revenues because of the operations in Afghanistan. Our improved margins and outstanding cash flow should demonstrate the ongoing health of ManTech. Our revenues are stabilizing and we expect to return to growth in 2015, driven by our focus and positioning in cyber, intelligence, healthcare, homeland security and other critical defense markets. As expected, our federal customers are executing against a continuing resolution until after the elections. The CR provides funding at last year's level, including Overseas Contingency Operations. We will have to await the results of the midterm election to see if there's a fundamental change to the budget outlook, but we expect to have a continuing resolution for the remainder of the government fiscal year. Soon after the new Congress is in session, the President will submit his FY '16 budget request. According to framework laid out in the Budget Control Act and affirmed in the Bipartisan Budget Act, federal appropriations are projected to grow for the first time in years and growth may accelerate if sequestration is eased. With $55 million in net cash and a $500 million net line of credit, ManTech has sufficient capability to grow the company through acquisitions. We are actively seeking out companies because we believe the long-term outlook for federal services contracting in our basic markets, but we remain cautious about -- on valuations and are awaiting more details of the upcoming appropriation process. We should have some of that data by December 11. We are most focused on areas where funding is clear and margins are strong, including cyber security and healthcare. Now Kevin will provide you the details on our financial performance and our outlook. Kevin?

[Kevin M. Phillips:]

Thank you, George. ManTech improved overall operating performance in the third quarter, while overcoming continued delays in contract awards. Revenues for the third quarter were $447 million compared to $567 million in the third quarter of last year and $463 million in the prior quarter. The revenue differences are mostly explained by the expected decline in the Afghanistan-related contracts and pressures on the overall Army budget. The MRAP family of vehicle support work contributed $31 million in the quarter, down $74 million year-over-year and down $9 million from the prior quarter. S3 revenues were $74 million in the quarter, down $61 million year-over-year and down $25 million from last quarter. Prime contractor mix remained essentially unchanged at 89% of revenues, while contract type reflected the impact of the recent acquisition of 7DELTA and has greater weighting towards fixed-price and away from cost-plus. 67% of third quarter revenues were on cost-plus contracts, 10% were on time and material and 23% were on fixed-price contracts. Compared to the second quarter, fixed-price work has grown by 4 percentage points. Compared to the third quarter of 2013, fixed-price work has grown by 7 percentage points. All of this increase has come from a reduction in cost-plus work. This mix is much more favorable as we look to improve our operating profit. Operating income and operating margin rose for the third consecutive quarter. Operating income for the quarter was $26.7 million, up 11% from the second quarter of 2014. Quarterly operating margin of 6% increased 80 basis points from the second quarter of 2014 and 40 basis points from the third quarter of 2013 as a result of strong contract performance and improved cost management. General and administrative expenses dropped both in absolute terms and as a percentage of revenue compared to last quarter. Looking forward, we will continue to control indirect costs even as we grow revenues. Net income was $15.5 million and diluted earnings per share were $0.41 for the quarter. In addition to operating enhancements, net income and earnings per share benefited from reduced interest expense as a result of the redemption of senior notes in April, which decreased second quarter earnings per share by $0.16. Both net income and earnings per share were about double their levels in the second quarter. Now onto the balance sheet and cash flow statement. During the quarter, cash flows from operations were an outstanding $90 million or 5.8x net income. Cash flow has been strong all year. Year-to-date, operating cash flow is $150 million, which is already 3.2x revised net income guidance for the full year. DSOs came in at 74 days, an improvement of 5 days compared to the second quarter of 2014, and 4 days compared to the third quarter of 2013. We're now operating near a sustainable level, given the current payment practices among our customers. Our balance sheet at quarter end shows $55 million in cash and no debt. Our credit line and strong balance sheet will allow us to respond quickly when we identify attractive acquisition candidates to strengthen our position in faster growth markets. Turning to business development. The third quarter showed increased pace of awards on the part of our customers; still, many awards have either been delayed or protested. Bookings for the quarter were $493 million for book-to-bill at 1.1x. Approximately 40% of the awards were for new business. We also won $131 million in contract awards in the quarter that were subsequently protested, the majority of which represent new work for ManTech. If these awards had not been protested, the book-to-bill ratio for the quarter would've been 1.4x. All the protested bookings should be resolved in the fourth quarter or early in the first quarter of next year. Proposal activity remains high and the fourth quarter should see strengthening contract award activity as well. Q4 awards to-date are very strong. Just adding the awards so far, this quarter and the protested wins in the third quarter, would put us in a book-to-bill of 8x for Q4, and we are still awaiting some large awards that should be made before the year-end. Backlog at the end of the quarter stood at $3.5 billion, of which $0.9 billion was funded. Based on trends and improved clarity on overseas support requirements, we made a downward adjustment on our expected use of backlog on various S3 C4ISR task orders and our MRAP support contracts. At the end of the quarter, we had a total qualified pipeline of $20 billion. We had $4 billion of proposals outstanding, and we expect to submit $2 billion in the fourth quarter alone. So we're set up well when the government moves out on award decisions. While our new government initiatives will be -- while new government initiatives will be unlikely during the period of continuing resolution, we are focused on positioning and expanding in the competitive environment as customers prioritize requirements and execute their procurement strategies. Now to the forward outlook. As a result of protests and slower-than-expected award delays that offset reduced OCO revenues, we're revising our fiscal year 2014 guidance. We expect to achieve revenues of $1.8 billion, net income of $48 million and diluted earnings per share of $1.28. On the bottom line, revised guidance reflects an improved contract mix, cost control initiatives and strong margin performance in Q3. Operating margin for the year should end at about 5.3%, with the fourth quarter margin about 5.6%. Despite the drop in anticipated revenues, operating income is essentially unchanged. The drop in net income and earnings per share from our prior guidance is entirely the result of revised tax rate assumptions moving from about 39% to 40%, which reflects a one-time adjustment and recent market effects on a nonqualified retirement plan. We expect our fourth quarter operating cash flow to be net neutral and to end the year at about the same level of cash and operating cash flow as at the end of Q3. The remaining 2014 guidance assumes virtually no new starts. And with the pace of drawdown in Afghanistan slowing, we should soon see our strong pipeline drive organic growth, revenue and profit. Our bookings are increasing and federal budgets have stabilized and will turn more positive over time. We offer compelling solutions in cyber, intelligence, healthcare, enterprise IT, homeland security and defense that respond to critical and ongoing needs of our customers and our nation. Building awards and a strong pipeline of opportunities that match these capabilities, bode well for us in 2015. Now Bill will speak to our cyber and intelligence business. Bill?

[L. William Varner:]

Thanks, Kevin. The market opportunity for the Mission, Cyber & Intelligence Solutions group continues to expand. The prominent cyber attacks on Home Depot, Target and many others demonstrate the urgency and potency of the cyber threats. ManTech has discriminating technologies, a large contingent of cyber analysts and developers, and the best contract portfolio and past performance in the industry. To meet this threat, we offer both services, as we have been doing for more than a decade, and products through the ManTech Cyber Solutions International subsidiary. Our customers recognize that we have developed the most advanced in-memory forensics tools, and we are keenly focused on advancing these products moving forward. The sharpened focus will enable us to drive higher sales in 2015. It is still early, but we are already seeing increased renewals and landing new marquee government customers as well as Fortune 100 companies, building on an already solid foundation of our 200-plus customers. In our government services business, we are also building momentum into 2015. In the third quarter, we had some key wins, although protests are increasingly prevalent across the intelligence community. We are very excited about the global intelligence support services, IDIQ for INSCOM. This $5 billion, 5-year contract represents new work for us and fits well with many of the core capabilities across all of ManTech. MCIS will provide advanced cyber operations, forensics and full-spectrum information operations and intelligence, and Dan's group will provide other solutions and mission support and sustainment services. This should be a great win for ManTech, and we expect task orders to be issued shortly after the protest is resolved. Dan?

[Daniel J. Keefe:]

Thanks, Bill. At Mission Solutions & Services, we see opportunities in new markets as well as our traditional markets, while at the same time focusing on continuing to deliver excellent services to our customers in Afghanistan, even as that mission has moved to a lower level of sustainment. In the newer areas for us, we have fully integrated our healthcare business into one entity, ManTech Health & Life Sciences, which is operating well. As mentioned in the press release, we received a large award from the Department of Veterans Affairs in the areas of cloud computing and mobile applications. It is great to be working on next-generation solutions for the VA, and this represents the largest award that 7DELTA has ever received. The VA recognizes the valuable contributions of our team, and we've been able to continue all of our work through numerous recompetes and extensions. The Health business should drive profitable growth for ManTech for years to come. In our traditional markets, we expanded our test and evaluation support to the Aegis Weapon System, and we see numerous opportunities for new work across the Navy and Marine Corps, leveraging our T&E and system engineering qualifications. Our support to the warfare remains an important component of our business. With the bilateral security agreement with Afghanistan in place, our support is more stable, although will continue to decline as we have discussed. In the third quarter, we won the recompete for our elevated sensor support work. Finally, we are seeing success in bringing cyber throughout the business, working with Bill's team. We are working collaboratively to sell ManTech capabilities across all customers, including potential international customers. The INSCOM win is a great example, and I look for more to come. George?

[George J. Pedersen:]

Okay. In summary, ManTech demonstrated strength across most key metrics, especially margin, cash collections and bookings. I am very optimistic about our future given the pipeline of opportunities, the value we provide to customers and employees and the improved clarity about our support for overseas operations. Before turning to your questions, I want to recognize the commitment and dedication of our employees here and around the world. The world is dangerous and unstable, and our military will always play an essential role. Our employees deploy wherever customers need us and provide critical technology support. I applaud their vital service to our country. With that, we are ready to take your questions.

[Operator:]

[Operator Instructions] And our first question comes from Gautam Khanna from Cowen and Company.

[Gautam Khanna:]

I was wondering if you could talk about those Q4 awards where you're seeing some strength. Is there any common characteristic by maybe markets where you're seeing a little bit more award flow or -- if you could just characterize why we're seeing such a pickup, that would be helpful.

[Daniel J. Keefe:]

Yes. Thanks for the question. This is Dan. We have seen a slight increase in award flow, but I wouldn't say considerable. We still have a lot of awards outstanding. As I commented, we're very pleased with our Veterans Affairs work and the award received there and also expanding our work in the Navy. But I wouldn't put a fine point on any specific area, but it's good to see these awards.

[M. Stuart Davis:]

And of those awards in Dan's area, all of those were take-over awards. And so that bodes well.

[Gautam Khanna:]

Okay. And could you maybe update us on your expectation for the Afghanistan or overseas work and how that draws down next year, S3 and then separately the MRAP-related contracts?

[Kevin M. Phillips:]

So dollar-wise, this year, we expect to end for OCO-related work in total 2014 is about $200 million for our business. Next year, we expect OCO-related business to be between $75 million and $100 million for our business in total. However, of more importance is the Q4 2014 run rate for OCO because we are hitting kind of a stabilization point. Against that, the 2014 total OCO revenues will be maybe $30 million less than that. So it's kind of hitting a level point and we'll see what happens.

[Daniel J. Keefe:]

And this is Dan again. I'd also highlight -- for example, on the MRAP work, we are seeing work in the continental United States under that contract and also foreign military sales, supporting allies on the MRAP.

[Gautam Khanna:]

Okay, and so just to be clear, so that's S3 -- the portion of S3 that is overseas plus MRAP is $200 million next year. Do you have the split between those, Kevin? Or...

[Kevin M. Phillips:]

Yes. It's $200 million this year and it will be between $75 million and $100 million next year, roughly evenly split.

[Gautam Khanna:]

Evenly split, okay. Okay, last question was just -- if you could characterize on some of these new pursuits you're going after. Are these still of the LPTA type of dynamic? Are you seeing any customer appreciation for sort of the best value, as intense a price -- dog fight it has been in the last couple of years? Or is there any signs of that finally reverting back to kind of total value as opposed to just a price shootout?

[L. William Varner:]

Gautam, this is Bill. In the intelligence community, in my part of the business, we're actually seeing a return to much more best-value procurements than we are the low-cost technically acceptable. That's very good for us, of course, and I think we're seeing sometimes a feeling that awards that are made purely on costs to turn out to be nonexecutable in the long run.

[Operator:]

Our next question comes from Steven Cahall from Royal Bank of Canada.

[Steven Cahall:]

So just picking up on a little bit with the OCO. So as we see these sales drop away, I guess, number one, is it safe to assume that we hit those lower run rates, and they don't really lump up either in the quarters or in any future years? And the corollary is the margin that we're starting to see come through the way we should think about the margin through the underlying business, excluding some of this work? Or is there something else that's going on in the underlying business so that this quarter is not necessarily indicative of what we might extrapolate going forward?

[Kevin M. Phillips:]

Okay. So on the OCO work, I do think it will be much more level, and we'll have to wait and see what further troop withdrawals may happen exiting 2015. Again, that's going to be less than 10% of our business and lower margin on that, so I think it's becoming less of an overhang for us. And in terms of the overall margins, we had a very strong quarter in Q3, as moving us toward that trend of trying to meet or exceed 6%. That said, there was 1 or 2 one-time issues of about $1 million that we're kind of excluding from the run rate going forward. But we do expect, based on the mix of business that we're going after, that we will be able to continue to move towards that goal or exceed that goal over time.

[Steven Cahall:]

Okay. That's helpful. And then just a quick one on cash. The conversion is great this year. Is this year exceptional in that sense? And as we're thinking forward, does it disappear or does it go to what we might think of as a more normalized historical level for you?

[Kevin M. Phillips:]

I think it will be normalized, but still pretty strong. If you look at the noncash components of our P&L in terms of stock-based compensation and depreciation and amortization, we still believe that a 1.3x to 1.5x, maybe even stronger, is doable, but it should be in that range. So a little bit more normalized from us, but still strong.

[Operator:]

And our next question comes from Bill Loomis from Stifel.

[William R. Loomis:]

Kevin, what was the 7DELTA revenue in the quarter and I guess Allied, too? So what's the acquired revenue?

[Kevin M. Phillips:]

So acquired revenue was somewhere in the $49 million range year-to-date -- I'm sorry, it's $40 million, total, for the 2 big pieces of the business with federal health combined with the 7DELTA. So $30 million with the 2 pieces of acquisitions, $40 million with federal health and we expect to exit this year with our federal health business in excess of $120 million of revenue.

[William R. Loomis:]

Okay. So just to be clear, the acquisitions, that was $40 million in the third quarter?

[Kevin M. Phillips:]

Yes.

[William R. Loomis:]

Okay. And then on MRAP, I think I had in my notes last quarter, second quarter, you said you thought MRAP would be about $130 million for the year. Now you said it's going to be roughly about $100 million. Is that correct?

[Kevin M. Phillips:]

That's correct.

[William R. Loomis:]

How is that dropping off so quickly? I mean...

[Kevin M. Phillips:]

Hang on. I said OCO-related.

[William R. Loomis:]

Okay. But you said it would be -- the $200 million would be split about even between MRAP and S3. So...

[Kevin M. Phillips:]

Right. So for the MRAP work, we expect about $130 million this year, of which $100 million is overseas-related. We're having a greater proportion of work done in the U.S. Actually, the majority of our staff now are CONUS-based reporting systems here. So that $30 million delta is U.S.-based support of MRAP programs.

[William R. Loomis:]

Okay. And then on just the OCO portion, how much -- I mean, what's the margin on that business this year and next, roughly? What would you say the operating margin is?

[Kevin M. Phillips:]

Operating margin of that business is 4% or less.

[William R. Loomis:]

Okay. And then the -- in an S3 and, I guess, the MRAP CONUS would be the same type of margin, too?

[Kevin M. Phillips:]

Yes.

[William R. Loomis:]

And then on S3, what about the rest of the S3 business that's not OCO? Is that going to be 4% also?

[Kevin M. Phillips:]

No. That work should be between 5% and 4%. It depends on the bid. It may be lower. You can never can tell based on the type of work that we're doing in the future requirements.

[William R. Loomis:]

Okay. And then on the non-OCO S3, how is that work going? Is it -- is that falling off, too, with the forced structure drawdown?

[Kevin M. Phillips:]

Yes, Army generally has seen a drawdown generally on a number of fronts, that one as well.

[Operator:]

Our next question comes from Tobey Sommer from SunTrust.

[Frank Atkins:]

This is actually Frank in for Tobey. Wanted to ask, you said you saw a little bit of a return to best value in cyber and intelligence. Are you seeing any change in margin and if any color on the outlook for margins in that area?

[L. William Varner:]

We're not seeing any changes in margin, Frank. I think, as Kevin sort of indicated a minute ago, it all depends on the specific bid. But best value is -- indicates a better margin trend and low-cost technically acceptable.

[Daniel J. Keefe:]

And this is Dan. And I would tell you, in some of our core defense work and in the Army, formally the impression of the LPTA has gone away. We still face that pressure continually.

[Frank Atkins:]

Okay. I wanted to ask about protests. We've seen a lot more and more in the last few years. Is that changing at all? Is that ramping up for large work? Or is it remaining pretty status quo? Or do you see any shift towards less protests going forward?

[Kevin M. Phillips:]

It's Kevin. I'll mention, I think the protest activity is here to stay for a while. We'll have to see how the actual procurements and the strength of them come out over time. But for now, we think it's just a way of doing business in some areas.

[Frank Atkins:]

Okay. And lastly, can I ask a little bit about the hiring environment? How easy is it to get good people? And what are you doing on that front?

[L. William Varner:]

Well, the hiring environment in my area, Frank, in the intelligence community is such that we're actually having a lot of success now hiring the type of people we need. There are a couple of very specific, very narrowly focused categories in the cyber area that have always and will always be hard to hire in. But we're actually having success in that area, too. So right now, we're not seeing that much difficulty in hiring the people we need.

[M. Stuart Davis:]

This is Stuart. I mean, overall, throughout the company, our time to fill a vacancy is less than 30 days.

[Operator:]

Our next question comes from Edward Caso from Wells Fargo.

[Richard Eskelsen:]

It's actually Rick Eskelsen on for Ed. The first question is, George, I believe you referenced the expectation that there's going to be a full year continuing resolution. That's different from some of the press reports that we've seen. So I'm just curious for why you're thinking the full year CR.

[George J. Pedersen:]

It has not been determined which way it will go. Some of the phone calls I've had today seem to indicate that they will do a full year CR as opposed to quarterly. There's also talk that there could actually be an appropriation bill considered. And now whether that's real or not, I don't know. The only thing we're hearing for sure is they're not looking to shut the government down.

[Richard Eskelsen:]

Okay. And then just on the pace of the contract awards, including the ones that were awarded and then protested, do they kind of match up to what you were expecting? How was it relative to your expectations entering the quarter?

[Kevin M. Phillips:]

So broadly, we expected about $1 billion more in awards to happen in Q3 than happened, and so they were delayed. Generally, submits as well, a little bit -- very, very heavy volume, but less than was originally expected. So increased volume, increased movement and decision making, but less than was anticipated.

[Richard Eskelsen:]

And I mean, is there one theme that's running through the less than expected in terms of decision making and volume?

[Kevin M. Phillips:]

No. I think that, at this point, it's the government working through a process. I believe that they have more certainty in what they want to procure and they're going through that, which is why we see more tempo booked on the requirements and the award activity. But I don't know if there's any one other delayed purpose. Do you guys have any other answers?

[L. William Varner:]

I don't have anything to add to that, Kevin.

[Richard Eskelsen:]

I guess, just building off that, then, a little bit more, particularly with what you said about the fourth quarter, should we be thinking about a different pace or seasonal pace of awards, maybe more spread out and less focused on the third quarter as we go forward since there seems like such a backlog of stuff that still has to come out?

[Kevin M. Phillips:]

Yes. For the type of business we work, I think it will be more paced over quarters and not back-ended, with the exceptions of a few customer sets.

[Richard Eskelsen:]

Okay. And then just the last one for me. On the M&A side, maybe if you could go in a little bit more on the pricing commentary you had some in your upfront script. So what are you seeing out there in the pricing?

[Louis M. Addeo:]

Yes. This is Lou. In terms of the price premium, we're seeing high expectations on the part of sellers. And to that end, when we look at acquisitions, we are making sure that there's maximum value. I think the acquisitions that we've done so far this year, we're very comfortable with the premiums and our ability to do the work.

[Operator:]

Our next question comes from Brian Kinstlinger from Maxim Group.

[Brian Kinstlinger:]

I was trying to understand the -- and I can't -- I don't know if you answered this. The margin on the OCO work in general and especially the revenue expected to fall off in 2015, is it more ODC related? Or is it more direct labor related?

[Kevin M. Phillips:]

It's Kevin. Against the Q4 run rate it's more labor related. Full year, it's a mix because we started seeing the trends down on ODC procurements exiting 2013 into 2014. I would say it's a mix, but a little bit more heavily weighted towards labor now.

[Brian Kinstlinger:]

I'm sorry, I'm confused. The drop is more related to labor? Or what's remaining is more related to labor?

[Kevin M. Phillips:]

Well, it's almost all labor now, and the drop is more labor related as well.

[Brian Kinstlinger:]

I see. And is that typical margin business for you? Is it average for your business? Or is it below average? Is it higher than average?

[Kevin M. Phillips:]

It's below average.

[Operator:]

[Operator Instructions] And our next question comes from Andrew Fleming from Heartland Advisors.

[Andrew J. Fleming:]

I wanted to laser in on the contract mix this quarter and if you expect that to continue going forward.

[Kevin M. Phillips:]

Yes, we do expect it to continue going forward. What we are seeing is the heavily DoD and overseas weighted work that's declining is cost-plus in nature type of work that we're picking up in what we consider some of the higher growth markets. And also higher return markets is trending positively. So we do expect that to continue.

[Andrew J. Fleming:]

Okay. And I missed it, if you said it earlier. What was the breakout on prime versus subprime this quarter?

[Kevin M. Phillips:]

89% prime, 11% sub.

[Andrew J. Fleming:]

Okay. And then I know you said OCO in total was $44 million for the quarter, but I'm curious with the breakdown of MRAP and S3 in the quarter in total, not just their OCO numbers.

[Kevin M. Phillips:]

Even mix, $22 million each; $22 million each to get to the $44 million for the quarter.

[M. Stuart Davis:]

You're saying what's their total contribution, regardless of whether it was OCO or non-OCO in the quarter?

[Andrew J. Fleming:]

That's correct.

[Kevin M. Phillips:]

Oh, I'm sorry. So S3 in total was $74 million and MRAP in total was $31 million.

[Andrew J. Fleming:]

Okay. And what were those numbers the previous third quarter?

[Kevin M. Phillips:]

I don't have the previous third quarter total in front of me.

[M. Stuart Davis:]

What we said in the script and we can do the addition here is it's -- the MRAP is down $74 million year-over-year and S3 is also -- was down $61 million year-over-year.

[George J. Pedersen:]

I think one way you can measure this at the high watermark, we had 2,000 people in Afghanistan, and today, we have 363. So the nature of the business is changing, but we've been able to transition into this different world without any pain.

[Andrew J. Fleming:]

Great. And then with the contract mix shifting to more fixed-plus going forward, should we expect the gross profit margin to be mid-14s to 15? Is that doable going forward?

[Kevin M. Phillips:]

Yes. I believe that, that type of work, as long as managed well and we're performing, is something that we can expect to achieve.

[Andrew J. Fleming:]

Okay. And the cash balance, great improvement Q-over-Q. I think we were up $75 million from a net cash perspective. Where do we expect cash to end this year?

[Kevin M. Phillips:]

We expect it to be roughly the same as it is in Q3. We have a higher disbursement level in Q4 and roughly static DSO expectation. So it will be about the same at $55 million net.

[Andrew J. Fleming:]

Okay. And then I had a hard time hearing earlier when you were talking about the bookings that are already hit for the fourth quarter. Could you just revisit that quickly?

[Kevin M. Phillips:]

Yes. So we've already had a fairly strong bookings. And if we add that booking plus $131 million in protested awards, the book-to-bill to date would be 0.8x expected revenue for Q4.

[M. Stuart Davis:]

So that means we have booked in terms of awards in Q4 already $230 million or so. And in addition, we expect some of those protests to be resolved in our favor this quarter. And obviously, we expect more awards as we go through November and December. And so we're certainly looking towards being at a book-to-bill above 1 for the fourth quarter as well as the third quarter.

[Operator:]

And I'm showing no further -- Yes, sir?

[M. Stuart Davis:]

It looks like that we don't have any more questions in the queue, so I think we'll end the call at this time. As usual, members of the ManTech team will be available for follow-up questions. And I appreciate all of your interest in ManTech and your participation in today's call.

[Operator:]

Thank you. And ladies and gentlemen, thanks for participating in today's conference call. This concludes our program. You may all disconnect, and have a wonderful day.