ManTech International Corporation
Q3 2015 Earnings Call Transcript

Published: 29 Oct 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the ManTech Third Quarter Fiscal Year 2015 Earnings 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 call is being recorded. I would now like to turn the conference over to your host, Stuart Davis, Executive Vice President for Strategy. Please go ahead sir.

[Stuart Davis:]

Thank you, Latiff. Welcome everyone to today's call with George Pedersen, our Chairman and CEO; Kevin Phillips, Executive Vice President and CFO; and Dan Keefe and Bill Varner, 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, everyone, and thank you for participating in today's call. The third quarter marks the second consecutive quarter of strong bookings and sequential growth in revenues. In the past two quarters, we alone, we have won nearly $2 billion in new contract awards. Our solutions are in demand by our key customers and we are taking market share in key markets. These awards will lead to the continued growth of our corporation. Cash generation was another metric that set out to me in the quarter. Cash flow from operation was $103 million, it’s highest quarterly level in more than four years. Our business model generated significant cash which we used to pay dividends and acquire companies that bring us new customers and new technology growth. We have, at this point in time, about $21 million cash in the bank and a $500 million line of credit that’s available for us for growth. As expected, the government is now operating under a continuing resolution which fully funds programs through December 11. We are pleased that a two-year budget agreement that would increase military and domestic spending in the ways that debt ceiling [ph] is currently working its way to the Congress. You've read about it in the past day. The agreement sets a base defense budget for the government’s fiscal year 2016 at roughly $521 billion, about $24 billion above the 2015 level and adds $8 billion to the present budget requests for OCO, Overseas Contingency Operations. This is all a very positive development for ManTech. Our customers will have significantly more resources to meet to expanded missions and they will have certainty and stability they need to obligate funds and begin new program. Now, Kevin, will provide you with details on our financial performance and outlook. Kevin?

[Kevin Phillips:]

Thank you, George. ManTech's third quarter results demonstrate that we have moved into a growth mode. Revenues for the third quarter were $393 million, up $9 million or 2% compared to the second quarter of 2015. Direct labor was up 2% sequentially and up 4% year-over-year. We are growing our direct labor base and expect continued growth in the high-end skills we offer. Our support for Overseas Contingency Operations contributed $32 million, which was up about $2 million from the second quarter. In total, revenues were slightly lower than expected as the new programs that we were awarded in the second quarter staffed more slowly than expected and some material purchases at the end of the government fiscal year did not occur. Our continued strong awards and associated ramp-up will result in sequential growth in the fourth quarter. There is little change in the standard revenue breakouts that we reported. Our contractor mix was 88% of revenue. Contractor mix was essentially unchanged with 69% of third quarter revenues on cost plus contracts, 11% on time of material and 20% on fixed-price contracts. Operating income in the quarter was $21.1 million, which was unchanged from the second quarter. Quarterly operating margin of 5.4% decreased 10 basis points compared to the second quarter as a result of the early termination of a lease for a facility that house some of our army field sustainment-related work. This one-time expense reduced operating income by $1.3 million. We will continue to evaluate our facilities usage for optimizing long-term performance. Net income was $30 million and diluted earnings per share were $0.35 for the quarter, which were up 5% and 6% compared to the second quarter of 2015. We recognized gain from the sale of our cyber products business, which added about $1 million to net income and $0.03 to earnings per share. The gain was recorded as other incomes or it is below the operating income line on the income statement. Onto the balance sheet and cash flow statement. During the quarter, cash flow from operations was excellent at $103 million or 8x net income. DSOs were 69 days for the quarter, an improvement of 14 days compared to the second quarter of 2015 and five days compared to the third quarter of 2014. This marked the highest operating cash flow since the second quarter of 2011, and the lowest DSO in three years. This performance was aided by the government’s rush to pay by the end of fiscal year and it reflected excellent work by our entire team. Our balance sheet at quarter-end shows $51 million in cash and $10 million of debt. We will continue to strengthen the balance sheet while we continue our focused acquisition activity. Turning to business development. Bookings for the quarter were $1.3 billion, our highest total since the second quarter of 2012. This performance provides an exceptionally strong book-to-bill ratio of 3.2x. 30% of the bookings were for new business, primarily in the areas of intelligence, cyber security, health and systems modernization. In addition to the prime awards listed in our press release, ManTech is a significant subcontractor on two blockbuster procurements; the $4.3 billion Defense Healthcare Management Systems Modernization program or DHMSM and the $1 billion DHS Cyber Security program called DOMino. These awards demonstrate our valuable capabilities in the exciting growth areas of health and cyber and our status as a preferred technical solutions provider. The strong awards quarter brings our year-to-date book-to-bill ratio to 1.8x and our trailing 12-month book-to-bill ratio to 1.6x, which support our growth objectives. All awards have cleared through their respective protest periods with the protests. Our business development investments are paying off in second - for the second straight quarter with industry leading book-to-bill, including takeaway wins of major programs from incumbent. Total backlog at the end of the quarter stood at $4.1 billion and funded backlog was $900 million. Total backlogs increased 20% sequentially, the second straight quarter it has risen. Our funded backlog is expected to increase in fourth quarter as customers’ ramp up work on recent awards. We now have a total qualified pipeline of $17 billion, of which, $3 billion is outstanding and awaiting adjudication. Now to the forward outlook for 2015. We expect to achieve revenues of $1.55 billion to $1.6 billion. Net income of $50.9 million to $51.8 million and diluted earnings per share of $1.35 to $1.38. Compared to ranges from last quarter, we are holding to lower end and trimming the upper ends of guidance. We are narrowing the ranges primarily as a result of third quarter results, which are based on the slower-than-expected staffing of new programs and material purchases. Operating margin for the year should be 5.5%. The lower end of our revenue guidance is consistent with our year-to-date performance plus incremental expansion from recent awards. We can achieve the upper end through rapid staffing of third quarter new business awards, material purchases on current contracts. We are in the process of building our 2016 plan. Our first look suggests mid-single-digit organic growth based on strong awards to-date in 2015. We could potentially do better if award activity continues at elevated level. We expect margins to be steady as we focus on growth and program execution. Our investments in business development and solution will continue to be supported. Now Dan will speak to our defense, health and federal civilian business. Dan?

[Dan Keefe:]

Good afternoon. ManTech Mission, Solutions and Services Group has always focused on being the very best partner to our customers, so it’s especially gratifying to have that effort recognized by one of our top customers. We recently received notice that we are selected as a tier-1 supplier to the army under the Superior Supplier Incentive Program. We were one of only 13 companies in total and four pure play service providers to receive this honor. This recognition demonstrates our commitment to helping our customers meet their most difficult missions. Award activity was very strong for MSS in the quarter. We won nearly $130 million awards from the Army Communications-Electronics Command, much of it new to us for support to biometrics and intelligence surveillance and reconnaissance system. We also won almost $50 million in VA work under the T4 vehicle. As Kevin mentioned earlier, we’re also a key subcontractor on the winning team that the Department of Defense $4 billion electronic health records modernization program. Our expertise and interoperability makes us an important player in health systems implementation programs. As you can see in our results, OCO is a relatively small but stable piece of our business. OCO related works contributed about $110 million for the year. With the Presidents recent announcement that he will maintain the current support structure in Afghanistan through most of 2016 and then keep 5,500 troops in 2017, we expect that our support will be near current levels for some time. Bill?

[Bill Varner:]

Thanks Dan. The highlight for MCIS was also our strong awards, the highest quarterly awards totaled in our history. The $400 million air force security award took out the largest component of our re-compete risk for 2016. The $250 million cyber range jobs significantly expands on one of our most compelling discriminators. We design, build, test and operate some of the most sophisticated cyber range and training environments capable of stimulating full spectrum computer network operation scenarios that prepare future war-fighters anytime, anywhere across the globe. The $200 million defense and intelligence community modernization support contract is a takeaway from a longtime incumbent and strengthens our position with the key intelligence community customer. This project is critical machine work supporting worldwide operation. We also won the successor contract to our Solutions for the IT Enterprise or SITE contract with the Defense Intelligence Agency. The new contract is called E-SITE or Enhanced SITE. This multi-award indefinite delivery, indefinite quantity vehicle has a five-year period of performance with a potential value of $6 billion. We will compete to provide worldwide coverage for IT requirements and technical support services for the DIA and other members of the intelligence community. Many of our current DIA programs are administered under SITE and we anticipate that the DIA will drive a significant number of opportunities to E-SITE as well. We are committed to working with the DIA and our IC partners to enhance the security of our nation and continue our successful support to all stakeholders supporting the intelligence mission. Finally, we won as the subcontractor to Raytheon, the large DHS DOMino program, one of the most important cyber security jobs in the country. Although the award is currently under protest. Results like this quarter's outstanding awards are a team effort and we have the best team I have ever been associated with. George?

[George Pedersen:]

Thank you. In summary, ManTech is positioning to grow organically based upon strong awards over the past two quarters. We have excellent prospects for expansion based upon synergies within the KCTG and Welkin acquisition, both of which are working out very nicely. And we acquired them earlier this year. Our strong balance sheet and cash flow allows us to pursue additional acquisitions, and I mentioned before, we have $500 million line of credit and a lot of cash in the bank. We are ready to take your questions at this point in time. Any questions?

[Operator:]

[Operator Instructions] Our first question comes from the line of Tobey Sommer of SunTrust. Your question please.

[Tobey Sommer:]

Thanks for taking my question. I wanted to just know what normalized DSO will be going forward, given the performance in the quarter and how we should think about that cash flow into ‘15 into ‘16?

[Kevin Phillips:]

This is Kevin. I think that our normalized cash flow should somewhere be in the mid-70s 73 to 75 days. It will be lumpy but I think that there is more focus by the government to work towards more constant payment.

[Tobey Sommer:]

Okay. And the bookings in the quarter are very strong. Is that mostly from Federal 4Q activity, or do you think there is a change of in adjudicating awards going forward?

[Kevin Phillips:]

I'll comment and let others speaker up. Over the last year, there has been a large amount of activity that government has had a large amount of acquisition activity and they are finally moving towards a more constant level of awarding them as well. So the awards activity is fairly consistent in what we anticipated. And going forward, rough order - we should see requirements in the $2 billion a quarter range for requirements to the government and they are going to adjudicate anywhere between $1.5 billion and $2 billion that we are looking at. So I think there is new opportunities [ph] that is here to stay for a little bit of time.

[Dan Keefe:]

This is Dan. I would just add to that, in the last two years we have really focused on improving the quality of our team and the quality of our processes. So obviously a reflection of that book-to-bill is winning the awards.

[Bill Varner:]

Yes, this is Bill. I think just to follow-up, we are seeing what we had expected and we had believed we would expect to see in this time period. So I think it’s, as Dan said, the result of some very, very good solid proposal activity and I think that's result of that.

[Tobey Sommer:]

Okay. And last one from me. Could you talk a little bit about growth rates and pricing on the cyber side? You had some nice wins there

[Kevin Phillips:]

So the growth rates what we’re expecting going forward is the cyber and intelligence business will be above-average growth based on the requirements from the government and the overall flow of demand. The returns on the business are fairly mixed. It depends on the customer set and their requirements but they are certainly going to be above average as well. So I'd say that the demand is certainly there, cyber itself is more matured as the contracting requirement but the demand is still above-average.

[Tobey Sommer:]

Great. Thanks very much.

[Operator:]

Thank you our next question comes from the line of Ed Caso of Wells Fargo. Your line is open.

[Rick Eskelsen:]

Hi good evening. It’s Rick Eskelsen on for Ed. I guess just following up on the earlier question on the bookings and you guys expecting more activity to flow on a normal quarterly patterns. What sort of behavior do you think that has happened for the customer to drive that? It's just been enough stuff has backed up and it really just had to shake loose, or do customers seem like they are feeling better about life? And if so, how do you think that the budget deal that’s out there in Capitol Hill might change that further?

[Kevin Phillips:]

It's Kevin. I’ll speak first again. So they in our view have more certainty around what they need and more certainty around the base budgets that manage through, I'll call the floor that they have to expect. So they have confidence around procuring and that’s not consistent in all agencies but it is much more definitive in terms of their comfort around procuring. And those agencies that tend to have more budget certainty are awarding more quickly than they used to. So it's a combination of those things. And in my view that the budget agreement once it's in place, will certainly provide them a lot more comfort and certainty over the next two years and that's very good for our industry and our mix [ph].

[Stuart Davis:]

This is Stuart. I’d just add that, I don't think it's - any one should expect that the industry is going to be delivering book-to-bills north of two in upcoming quarters. That being said, we would certainly look for and expect that book-to-bill or above one in the fourth quarter is reasonable for us, which would obviously make a very, very strong year.

[Rick Eskelsen:]

Okay, that's helpful. I wonder if you could talk a little bit more broadly on pricing. Do you think clients really have moved beyond LPTA for everything but sort of commodity type things? What are you seeing overall in pricing?

[Kevin Phillips:]

Yes, it’s Kevin. Price and cost still matter. Technical still is moving towards a better weighting than just purely low-cost but again that's customers thinking as well.

[Dan Keefe:]

Yes, this is Dan. And this expression [ph] that DOD, we still see a lot of customers that are present on price and so LPTA is certainly still alive and well.

[Bill Varner:]

And this is Bill, and my part of the business certainly price and cost are important. On the other hand, as Kevin noted, we have won some programs where we were not the low bidder. So that's a refreshing approach and seeing technical and management being weighted more heavily than cost in proposal to valuations. Very customer dependent.

[Rick Eskelsen:]

Thank you. Then just the final question here is on business development. I know you guys have made investments there. It seemed like the industry is returning to a better growth path and visibility. Are there further investments that you need to make, or do you think you’ve made them and you're able to leverage them now that awards are shaking for? Thank you.

[Dan Keefe:]

Yes, this is Dan. I think in the - we certainly don't see that we’re at a point where we want to do more investments as we look at the enterprise IT market, data analytics, cloud computing. We continue to look for strong talent to improve on the solutions we’ve built so far.

[Bill Varner:]

So this is Bill. I think in terms of DB like them, no one would ever claim that we are finished and we have exactly everything we need, but I will make the comment that we certainly have the best business development and proposal team that I've ever worked with. So we are real pleased with where we are and that's directly seen in these nice awards that we had in the third quarter.

[Rick Eskelsen:]

Thank you very much.

[Operator:]

Thank you. Our next question comes from Gautam Khanna of Cowen & Company. Your question, please.

[Bill Ledley:]

Hi thanks. This is Bill Ledley on for Goutam. Couple of questions for you. First, thanks for the clarity around the OCO work. Can you perhaps comment on the profitability of that work this year, and next is that above-average profitability? Then I have a couple of follow-ups?

[Kevin Phillips:]

I would say that the OCO work is leveling off and that it has leveled off the variability around it, is a matter of degree, it's not going to be huge changes like it used to be. So I would say that we’re expecting a fairly consistent pattern going forward into ‘16 and then we'll see what happens from there based on financial strategy.

[Bill Ledley:]

Sure. And the profitability on that work, is that in line with the rest of business, is it…

[Kevin Phillips:]

No, it’s still below the average of the business.

[Bill Ledley:]

Okay, thanks. And then on the new work that you guys announced, can you perhaps comment on the profitability of that? Is there a potential for mix shift towards higher margin work as you gain share?

[Kevin Phillips:]

That type of work that we're winning is generally higher and the margins generally should be at or above average, but that's not going to be consistent with all awards.

[Bill Ledley:]

Okay, thanks. And then on the M&A pipeline, what you guys seeing, what you guys looking at? We've obviously seen some larger assets come to market or will be coming, to market. Can you talk about perhaps consolidation, if you have any appetite for a larger awards or see the need for further scale?

[Kevin Phillips:]

This is Kevin. We've been very focused on our acquisition strategy, as George has been fairly consistent over the last few years, it's too - acquired capabilities or customers entrée where we see budgets growing.

[George Pedersen:]

We will not buy and sell [ph].

[Kevin Phillips:]

And I think that is going to continue. That said, if there are quality properties of scale that fits that profile, we'll certainly consider to have the financial capacity to do it.

[Bill Ledley:]

Okay, thanks. And then on re-compete pipeline, how much work do you have coming up for re-complete and what percent of your sales are potentially at risk?

[Kevin Phillips:]

So for the next 12 months the re-compete level is around 30% of our business is of re-compete. It is more heavily weighted into the DoD because of the combination of the DoD moving toward a shorter contract life-cycle and the continued delays on procurement. So it may be the new norm in terms of being above 25% but that’s generally the mix and it’s more heavily weighted in the DoD side and less weighted on the intel side.

[Bill Ledley:]

Okay. Thanks very much guys.

[Operator:]

Thank you next question comes from the line of Brian Kinstlinger of Maxim Group. Your question please.

[Brian Kinstlinger:]

Great. Good evening. The first question I had is, if you could quantify how much was put into backlog related to DHMSM and DOMino, if any?

[Kevin Phillips:]

Zero.

[Brian Kinstlinger:]

Zero. And then follow-up, DHMSM, which is - doesn't sound like I'm not sure if it’s under protest, I know you said DOMino was. Is your expectation that you'll play a significant role, will you play a modest role, could this be a very large win for you? So maybe some quantification about what that means for ManTech?

[Dan Keefe:]

This is Dan. So currently that's in the pilot phase and we don’t think have people contract with the prime and the policy. We expected to grow up and again recognize the full deployment has close to 18 months now. It certainly won't be one of the largest programs but given our past performance in interoperability we are certainly significant player. So hard to quantify at this point but we are already seeing revenue on it.

[Bill Varner:]

So all the way the incremental based on the requirement that comes to us as that work starts to expand.

[Brian Kinstlinger:]

Another analyst asked a question, it's a little bit differently. Last quarter you talked about your awards being heavy towards ODCs I believe I'm curious this quarter is it more direct labor content as a percentage of the total or is it similar to the third quarter?

[George Pedersen:]

It's a mix, but it's more heavily weighted towards labor-based growth and some of the higher skilled areas. But if we provide for some ODC requirements as well.

[Brian Kinstlinger:]

So when you talk about initial plan of organic growth for next year your talking direct labor in addition to ODCs am I right?

[Kevin Phillips:]

Yes, we are talking in total at the overall organic growth to be in the mid-single-digit.

[Brian Kinstlinger:]

And then did I missed - did you mentioned proposals outstanding?

[Kevin Phillips:]

Yes. Proposals outstanding is at just under $3 billion.

[Brian Kinstlinger:]

And the engine on business development, do you see that growing where demand is right now, is it going to remain level around $3 billion? Sort of take us through the six to 12 months based on what you're seeing?

[George Pedersen:]

I think that submit volume - the amount of requirements for the government were still strong over the next 3 to 4 quarters and that's going to hold up proposals that’s outstanding in the early consistent manner in our view.

[Brian Kinstlinger:]

Okay. Thanks so much.

[Operator:]

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

[Steven Cahall:]

Thank you. Maybe first, just on the guidance. As you continue to get strong bookings and the revenue is filling in, what is going outside of expectations because we've got a couple of changes to both sales and EPS as we move through the years? I'm just wondering with all the positivity on the wins, what's kind of moving the other way, is it just timing?

[Kevin Phillips:]

Well, it’s timing but also because the re-compete levels, we are trying to be cautious about when and how that ramps up and some of the DoD work may come in at a lower level requirement that it has in the past. And there still is a trend towards some moments on small business set-asides that we have to factor in as well.

[Steven Cahall:]

And so do you feel like you’ve taken a more conservative view when you think about that mid-single-digit target for the future? That's factoring in the new sales cycle, a more conservative view?

[Kevin Phillips:]

Yes, that's factoring the sales cycle what we see today in the government trends and I would note though that rough order of that $2 million a quarter and submittal our requirements to the government, that 75% of that is for new work to ManTech. So if our proposal engine and win rates continue, and if we start seeing more of that activity then there could be upside as we go throughout 2016, but we have to see that come through.

[Steven Cahall:]

Okay. And then in the quarter, it looks like you had a big contributor in the other income line. I was wondering if you can tell you is what that is and is that anything that's going to repeat going forward or is that more of a one-off?

[Kevin Phillips:]

It’s a one-off. It’s related to the - our merger of our commercial side of our business with [indiscernible] and one-time gain.

[Steven Cahall:]

Okay. And then on the cash flow side of things, obviously a great quarter there. Do you still expect 150% to 160% conversion or is that going to go up since you had such a solid Q3?

[Kevin Phillips:]

It will be higher. For 2015, the normalized run rate is still going to be about 1.5 or above run rate. So next quarter might actually be a little bit sound based on the surge we need to do this kind of growth in the quarter but overall it's still going to be that going out years and this year it will be strong.

[Steven Cahall:]

Okay.

[Dan Keefe:]

Since we’re not expecting to decline enough to get to 1.5x.

[Steven Cahall:]

Got you. Okay. That makes sense. And then just a final one from me. With all the wins that you’ve got and it sounds like we are kind of expecting a stable dollar run rate for the OCO work. I put the OCO at about 7% of sales for the year, I guess to be a little less going forward as everything else gross. If we try to bucket everything else between like the cyber intel type awards, like DOMino and the cyber ranges and the recent DIA and then sort of everything else, either that's DoD or civil. Can you give us kind of rough percentage of revenue of how those buckets breakout or does it not set up very well that way?

[Kevin Phillips:]

It's not something that we will consistently report. I will say that intel and cyber business is a strong component but it's in even makes outside of the OCO between that in the traditional DoD income.

[Steven Cahall:]

Great. Thank you.

[Operator:]

Thank you our next question comes from the line of Brian Ruttenbur of BB&T. Your question please.

[Brian Ruttenbur:]

Yes, thank you very much. Question I have is about guidance mid-single-digit revenue growth I believe you stated during the call. What do you need in order to grow the mid-single-digits? I know in this year's guidance, you were going to need to win $100 million-plus in new awards. What I'm trying to dig at is what is our OEM backlog and what all do you need to still win in order to hit that mid-single-digit growth?

[Kevin Phillips:]

We’ll give our formal guidance on our February call. We're just giving you some view on what we see based on the awards to-date and the amount of the re-competes, but we'll provide that to you more for later.

[Brian Ruttenbur:]

Okay. And then as a follow-up, 30% for your re-competes. What's the normal? Did you say it's 25%? What is the normal like in 2014, 2013 going back, what is usually up for re-complete?

[Kevin Phillips:]

Well, it's hard to define normal anymore based on all the extensions that happened and the term of contract awards. I would say that 30% is the new normal simply because of shorter duration of contracts that happens on the DoD side?

[Brian Ruttenbur:]

Okay. And then last question, the flat - I believe your initial guidance or directional guidance was flat operating margins, yet what I thought I caught was LPTA is backing off some. Can you help me out with what's going on, it’s still a very competitive environment because the re-competes that you're assuming flat margins expanding margins?

[George Pedersen:]

It's still a competitive environment that we want to reflect here also. They’re going to continue to invest in those things that will top line around business development like R&D and the likes. And we want to make sure we factor that in because it’s having success for our business.

[Brian Ruttenbur:]

Great. Thank you very much.

[Operator:]

Thank you our next question comes from Bill Loomis of Stifel Nicolaus. Your question please.

[Bill Loomis:]

Hi, thank you. Just staying on margin. So your margins are only in the 5%, but as you’ve talked about in terms of wins being higher and more direct labor and so forth, I know you said you're investing but we’re still - margins are still some of the lowest - certainly among the public care place quite a bit. What exactly in the business is holding that back because the OCO business is growing 7% of revenues now and has stabilize. So what are the other major contracts or areas that are really holding that overall operating margin down?

[Kevin Phillips:]

Well, generally I think that across all of, not universally, but much of our work over the last years, customers have had to renegotiate or discuss the overall returns to us as a contractor and that's impacted it, and there have been some re-competes where we have to - we had lower fees. I'd like to suggest is exiting 2016 if things become more normal, we probably could do better than that, but we want to make sure that we don't factor that in for next year until we see the performance and the demand for the customer suggests that they are going to change the patterns [ph].

[Bill Loomis:]

So there is no like structural area around some group of contracts would have you like, [indiscernible] supply chain that's really low margin or anything that's really…

[Kevin Phillips:]

Some of the OCO work in army generally has a little bit lower just based on supply and demand for the services and non-other, no.

[Bill Loomis:]

Okay. Can you just on the cyber range re-compete, can you just as an example what are your major re-competes in the quarter, what was the structure that on the re-compete and the margins, is it better or worse?

[Kevin Phillips:]

We're not going to speak to specific contract award margins.

[Bill Loomis:]

Okay. And in terms of generally on your re-competed contracts, were you still seeing - I know you're mostly cost anyway but are you still seeing what amount of T&M [ph] you have still going to cost, or do you think that pendulum has swung already?

[Kevin Phillips:]

Leveled off. I think customers are kind of level off on what they are procuring between cost [indiscernible].

[Bill Loomis:]

Okay. And then just one more on investments, you said margins being held down on investments. So investments in what specifically outside of your typical bid and proposal, is there other centers of excellence or facilities or anything like that that's causing significant investments?

[Kevin Phillips:]

It's not facility-related. We've invested in more solution architects and people who can advance a more solution-based response to customers as well, so that we can move towards how they may have requirements.

[Bill Loomis:]

Okay. And then are you still investing in commercial cyber business related to your…

[Kevin Phillips:]

No.

[Bill Loomis:]

Okay, you’re totally out of investing in that?

[Kevin Phillips:]

We have stock ownership minority but we are not investing in it.

[Bill Loomis:]

Okay. Great, thank you.

[Kevin Phillips:]

Okay.

[Operator:]

Thank you. [Operator Instructions] We have a follow-up question from the line of Brian Kinstlinger of Maxim Group. Your line is open.

[Brian Kinstlinger:]

Great, thanks. Wanted to follow-up, I'm sure you wanted one more margin questions so I'm going to go add it.

[Kevin Phillips:]

I’m here to serve. What can I do for you?

[Brian Kinstlinger:]

So heading back to my question about the mix of contract awards in the last two quarters and seeing that the direct labor contract mix should improve, in spite of investments, should we assume that margins are going to continue to grow in 2016? Can we get back to - if not, when can we get back to the 2013 sort of level?

[Kevin Phillips:]

There is potential for them to improve as things progress throughout the year if the mix works and if the competitive nature levels off a bit. How it gets back to a level that existed two, three, four years ago? I think that across our industry we'll have to wait and see how that plays out because it’s still a very competitive environment.

[Brian Kinstlinger:]

Okay. Thank you.

[Operator:]

Thank you our next question comes from Robert Spingarn of Credit Suisse. Your question please.

[Robert Spingarn:]

Hi everybody.

[Kevin Phillips:]

Hi Rob.

[Robert Spingarn:]

I wanted to - there is definitely a change in tone here. You had a great bookings quarter clearly, I guess, a lot of people are showing that. And so to some extent, it's driven by the government, but I also certainly do recognize the fact that you’re turning toward growth. What gives you the confidence though that you can hit that mid-single-digit growth number, or is there way for you to frame your confidence level just relative to what you’ve - your prior predictions? There is always been some uncertainty and some variability, and I want to understand better if there is just a higher level of confidence and why?

[Kevin Phillips:]

That's a good question. We appreciate it. So yes, we have a higher level of confidence because the factors that contributed to the government’s delays and decisions were needing to reduced overall budget seem to have leveled off. And then during that timeframe, we focused heavily on how to improve our business development and win rate and we’re going into the 2016 with a larger capacity of new work that will help us and capacity on contracts potentially ramp up, should the government need to surge towards more requirements. The cyber range is an example. The capacity on that allows for upside growth on top of what we currently do. So it goes back.

[Robert Spingarn:]

Now Kevin the change is at the high-end of the revenue guidance for this year. Can we put that into context of the expectation for the growth next year? In other words, the visibility in the next year, it sounds like it was better than into this year?

[Kevin Phillips:]

It is. And I would say that some of the delays that we had to deal with on the staffing side are related to how long it takes to get people through the clearance crossover process in relation to that. It's very - it's more technically how to work through to get the people placed rather than do they need even need requirement.

[Robert Spingarn:]

So in a way it’s some of this is just timing that maybe some of this year is ending business moves into next year. You see that much more work next year?

[Kevin Phillips:]

We see being able to move towards meeting requirements of the customer on the contract once they’ve provided us the new business.

[Robert Spingarn:]

Okay, all right. And then just with regards to the timing on the bookings that came in, in the quarter ahead of the end of the government's fiscal year. I know that you guys have been watching this just as we have how this big budget is getting put together and there has been a lot of uncertainty up, it’s still there. Could we go with a light bookings quarter here in December? I think you commented on the upcoming quarter before but I just wanted to review it. Is there a possibility that there is an offset to some of the strength in this December quarter just because the government is getting it's ducks in a row so to speak?

[Kevin Phillips:]

I'll comment just to weigh in. I think that they are becoming more certain in their procurement methodology and timelines, there are some delays but overall set of requirements that are outstanding in the expected award times are still there and that's healthy. If there is a delay, it will just delay in the Q1. So I don't see us having people saying, we no longer have requirement and therefore we are going to make no awards in this quarter. We don't see that.

[Robert Spingarn:]

Okay. Thank you very much.

[Stuart Davis:]

Yes, Latiff, it appears that we have no further questions at this time. So as usual, members of a senior team are here for any follow-up questions. And with that, I want to thank you all for your participation on the call.

[Operator:]

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