Q3 2021 ManTech International Corp Earnings Call
Ladies and gentlemen, good afternoon, and welcome to the Mantech third quarter fiscal year 2021 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.
If anyone should require assistance during the conference. Please press Star then zero on your touched on telephone.
As a reminder, this conference call is being recorded I would now.
Now I'd like to turn the conference over to Stephen Byrd, Vice President corporate development and Investor Relations.
Welcome everyone. Thanks for participating on Mantech third quarter call. Joining me today is Kevin Phillips, our chairman CEO and President Judy B, Jordan, our CFO and Matt <unk> our CFO.
During this call we will make statements that do not address historical facts and thus they're forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 995. 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.
Undertakes no obligation to update any of the forward looking statements made on this call.
On today's call, we will discuss some non-GAAP financial measures, which we believe provide useful information for investors.
Non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures you can find a reconciliation of the non-GAAP measures discussed on this call our third quarter earnings release with that let me hand, the call over to Kevin.
Thanks, Steven and good afternoon, everyone Mantech delivered exceptional profitability and cash flow in the third quarter.
However, revenue growth and bookings fell short of expectations.
We are navigating a complex and uneven industry operating environment, which is creating certain challenges for us.
That said the foundational drivers for our long term growth remained favorable and we are positioned in higher priority areas of the market.
Operationally, we continue to feel the lingering impacts from the pandemic, namely on three fronts.
The slower return to normal within our intelligence community customers, continuing supply chain challenges and a tightened labor market.
Unfortunately, our expectations outpaced recovery trajectories for both of our intelligence business and the supply chain.
We remain confident in the attractive fundamentals of serving hard to penetrate intelligence community customers and our position in that market.
We see durable demand across our solutions and full spectrum cyber secure mission and enterprise it.
Data analytics and other key mission focused offerings.
However, in the near term be intelligence component of our business continues to face meaningful pipeline and award delays.
And we expect that a return to normal may take several more quarters.
Mantech has higher relative exposure to Intel customers amplifies that impact, which is evident in our overall performance.
Next the supply chain, while customer demand is clear the supply chain challenges become much less predictable significantly impacting the timing and level of material procurements.
Similarly, we expect this trend to linger, but are hopeful that a path to normal is on the near horizon.
Finally, we are seeing the effects of a tightening labor market and have uncertainty about what effects. The executive order on requiring vaccinations among our workforce will have in the fourth quarter and entering 2022.
We have made concerted efforts to comply with this mandate, but still have some work to close the remaining gap prior to the December deadline.
Turning to the U S departure from Afghanistan, we are proud to have supported this overseas contingency operations over the last two decades and thank our employees for their dedication to that mission over the years.
Withdrawal from Afghanistan in March what we see is a clear shift in national defense strategy around overseas, Ken our tourism operations and related support.
To one that is focused on near peer threats.
In the short term this shift will create a low single digit headwind in our overall revenue for the balance of the year and into 2022.
Additionally, we anticipate and are beginning to see reductions in select Centcom focused field support operations within the army.
Mantech is a project of the Cold war over the course of greater than 50 years, we are well understood the need to adapt to evolving mission requirements.
The mission moves to near peer focus the vast majority of our portfolio is well aligned and we are pivoting to balance to this future mission.
In aggregate the factors discussed in my earlier remarks, coupled with natural program conclusions that occur every year, we'll constrained the level of near term organic growth compared to the last few years.
We are recalibrating, our expectations for 2021 and 2022 as a result of our year to date performance these headwinds and uncertainties.
Judy will review our revised outlook later on the call.
Moving to a quick budget update we began the government fiscal year under a continuing resolution, which currently last through early December.
Congressional agenda remains focused on infrastructure the debt ceiling and other priorities that may cause appropriations to continue to shift to the right.
Irrespective of the status of appropriations, our customers continue to have clearly defined priorities that align well with <unk> core capabilities and investment roadmap.
First the growth of both cyber and space Warfighting domains, partly driven by near peer focus.
Second the need to modernize <unk> software and systems to meet the challenges of today and tomorrow.
The needs within this trend are broad and complex, but notably we are seeing greater customer need for automation analytics and delivering data at the edge.
Lastly, the full and rapid implementation of digital warfare in traditional into traditional operating technology missions is of increasing importance.
Recently, we announced our intent to acquire Griffin technologies for $350 million.
The acquisition builds on our position within important department of defense customers and it has enhanced digital and systems engineering capabilities.
Demand for these capabilities has been robust and we see this as a continued growth Avenue organically.
As the near peer focus ramps into higher gear.
We look forward to welcoming gripping nearly 500 employees to the Mantech family.
We intend to maintain an active posture for value accretive M&A and our balance sheet is certainly supportive of additional acquisitions.
Judy will discuss how you should think about the pro forma business going into 2022.
Now I'll turn it over to Matt to cover the business development and operational highlights for the quarter Matt.
Thank you Kevin.
In the quarter, we booked $716 million in contract awards, resulting in a book to Bill of approximately one one times on.
Our last 12 months book to Bill ratio also sits at one one times with a majority of the bookings for existing work.
Bookings in the quarter were propelled by the retention of important recompete as well as incremental on contract growth.
The major awards in the quarter include a $476 million contract to continue providing space force with launch enterprise systems engineering and integration.
As well as a $51 million contract to continue providing the navy acoustic engineering services to support the naval submarine and surface signature silencing programs.
These contract awards continue to demonstrate our capabilities strength and intelligence systems engineering.
Furthermore, we are pleased with the outcome of a multi year strategic pivot into resilient O&M and Rd T&D priorities within the Navy Air Force and other parts of the Dod.
That said Q3 bookings were seasonally light and came in below our expectations.
There were two principal drivers for that trend.
First as Kevin discussed earlier, we lacked meaningful adjudication within our intelligence community customers.
To add a bit more color.
Over the last 18 months Intel bookings have comprised less than a quarter of mantech overall bookings.
Prior to the pandemic it was averaging close to half of the company's total bookings.
Second we were less successful than desired on new large business pursuits, and our federal civilian business.
This is a part of our concerted effort to penetrate into new markets that will have persistent demand.
We will continue to position ourselves to support existing Intel defense and homeland security customers, while we made strategic moves to advance our expansion into other federal agencies.
As a result of these bookings our total backlog was $10 1 billion at quarter end, representing 3% year over year growth with funded backlog at $1 3 billion.
We exited the quarter with nearly $8 billion in proposals outstanding which has a healthy mix of new business and recompete opportunities.
We are continuing to prosecute our pipeline and are seeing steady proposal submissions.
The volume timing and competitive positioning on adjudication remain a key driver to the cadence of our quarterly bookings.
We are continually fine tuning our business development process to maximize optimal outcomes with respect to pipeline conversion.
Before I turn the call over to Judy I would like to take a minute to welcome the newest member of our leadership team we.
We are excited to have David Hathaway join us as the head of our defense business.
David has significant experience leading high performance teams focused on bringing technology solutions to an array of defense missions.
I look forward to leveraging his valuable expertise to further affect our strategic operational and technology initiatives across our customer base.
With that I'd like to turn it over to Judy to discuss our financial results in more detail.
Thanks, Matt quarterly revenue was $638 million, which was flat compared to Q3 of 2020.
Q3 revenue fell short of expectation, most notably due to the delays in OTC that Kevin referenced earlier.
Additionally, an uptick in PTO usage and increase turnover pressured direct labor contribution in the quarter.
We also saw some programs come to their natural end and Q3.
Q3, EBITDA was $73 million up 27% from Q3 of 2020.
This resulted in an EBITDA margin of 11, 4% up 240 basis points year over year as margins continued to benefit from stronger overall labor mix continued indirect cost understanding and a onetime benefit related to a contract closeout for some international work.
Net income for the quarter was $38 million and diluted EPS was <unk> 93.
<unk> 28, and 27% from Q3, respectively.
Adjusted net income was $41 million and adjusted diluted EPS was $1 <unk> up.
23, and 22% from last year, respectively.
Our effective tax rate was higher than expected at 27, 9% in the quarter.
Turning now to the balance sheet and cash flow statements cash flow from operations was a robust $139 million in the quarter, which represented three six times net income and was driven by a strong DSO of 55 days.
At quarter end, the balance sheet showed $145 million in cash and no debt.
Additionally, we distributed $15 million in dividends in Q3, maintaining a steady return of cash to shareholders.
The board has authorized us to continue our current cash dividend of <unk> 38 per share to be paid in December.
The acquisition of Griffin technologies reflects our commitment to capital deployment for long term value creation through M&A.
As mentioned by Kevin earlier, we intend to remain active on M&A and are continuing to review opportunities that we view are additive to our competitive position.
Following the acquisition of Griffin, we expect to have approximately one point times leverage.
Moving on to guidance, we are decreasing our previously communicated guidance for revenue and increasing our adjusted net income and adjusted diluted EPS.
It reflects year to date performance and likely outcomes for the remaining quarter based on current market factors.
The drivers behind the revised guidance are continued impacts from delayed <unk> press.
Pressures from a more competitive labor market and reduced new business contribution.
Our revenue guidance is now $2 55 billion to $2 $5 75 billion, representing a 1% to 2% growth year over year.
We are increasing our outlook for adjusted net income to be in the range of $150 2 million to $152 2 million with adjusted diluted EPS of $3 66.
To $3 71.
We are also increasing our expected EBITDA margin for the year to be 10, 2%, which represents a 110 basis point improvement over 2020.
Many of the same tailwind for the Q3 outperformance are responsible for the full year increase which included a lighter level of lower margin otc's.
Indirect cost management, and some one time contract closeout fee pickups.
Year to date margins continued to average higher than our full year guide, but there are known trends that will drive fourth quarter spend higher primarily M&A related expenses and greater PTO utilization.
In total when adjusting for these factors our normalized 2021 EBITA margin.
It would be approximately nine 4%, a nice uptick of 30 basis points from 2020.
The adjusted net income and adjusted diluted EPS ranges assume a slightly higher effective tax rate of approximately 25% and a consistent fully diluted share count of approximately 41 million shares.
Finally cash flow from operations is still expected to be at least $200 million with capital expenditures expected to be a touch lighter than previously thought at less than two 5% of revenue for the year.
During this call we have gone through a number of factors that will impact our expected financial performance for 2022.
While it is premature to provide detailed 2022 guidance, we wanted to offer some directional commentary.
We expect total revenue growth of at least 5%, which is inclusive of the full year contribution from Griffin.
We are considering a number of factors and our assessment of 2020 too.
Many of which are a continuation of the issues we are dealing within the second half of 2021.
Given the change in our expected near term growth trajectory I wanted to crosswalk each of the major factors impacting our current view.
As Matt mentioned earlier the headwinds to growth include the fact that year to date bookings have been disproportionately related to existing programs versus new work at full year impact of natural program conclusions inclusive of but not limited to Afghan and certain field sustainment related efforts and are <unk>.
<unk> uncertainty on the level and timing of Intel new business efforts and the supply chain with respect to OTC.
Furthermore, it is our expectation that we will have another normal year of re competes approaching 25% of revenue.
Okay.
Moving on to margins, our EBITDA margin expectations for next year are in the nine 4% to nine 5% range, which implies flat to potentially up 10 basis points against our normalized 2021 EBITDA margin.
The business risks that we are closely monitoring but are not fully factored into our guide or the impact of the vaccination executive order and disruptions to the business from a potential extended labs and government funding.
Our 2022 preview is confined to the current visibility into the business and market factors.
We expect to refine this preliminary guidance on our year end earnings call in February.
Let me hand, the call back over to Kevin for some closing remarks.
Thanks, Judy in closing our team is keenly focused on pipeline conversion.
<unk> and retaining talent leveraging our recent acquisitions to drive growth and continuing to deploy capital to deliver <unk> to deliver long term shareholder value.
As discussed in great detail, we experienced a market shift in some areas of our work.
We're seeing greater demand towards more cyber technology Naval mission needs.
Our differentiated portfolio of capabilities and customers sets are well aligned to national priorities.
We're now ready to take your questions.
If you have a question at this time. Please press the Star then one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
As a reminder, please limit yourself to one question and one follow up if you have additional questions. Please re enter the queue. Our first question is from Matt Akers from Wells Fargo. Your line is now open.
Yeah, Hi, Thanks, good afternoon.
I Wonder if you can comment a little bit more on the slowdown in.
Intel.
And specifically I guess, what do you think needs to happen for that business to start coming back again, I mean does your customer need to add.
Staff to kind of get through some of those contracts or Sydney or funding or what do you think will lead us to sort of get.
Get out of that slowdown youre, saying.
Yes, it's Kevin I'll speak in a minute Matt wants to add he can.
The government and the Intel community has needs they are persistent.
But what we found is the timing of their ability to send out awards were making adjudication.
Continue to be in.
Impacted by a combination of Covid coming back open coming back in and then having to shut down again, when they physically have to be in the office to do that role.
As well as staffing constraints within their organization, so a bit of both.
It's not about the budget of mission requirements is more about a combination of their ability to do their job.
Get outcomes in a timely fashion, where that has definitely been disrupted in the intelligence community over the last 18 months.
Okay.
Got it thanks, and then I guess, if I could do one margins.
On Griffin.
Are you able to comment.
Multiple you paid for that or maybe just in general sort of a what.
How can a competitive debt deal is or what youre seeing just in terms of.
Kind of multiples for M&A in the space in general.
Yes, I think we paid.
Market multiple comparable for comparable assets.
And we're really focused on being able to leverage that.
The systems Engineering did.
Digital engineering capabilities across the enterprise.
But we're excited about the combination Griffin into amtech.
We have a heavy presence, but this is very complementary.
Of work, they do or enable surface and the combination of their investments about systems engineering digital engineering and data analytics, along with what we've invested in I think offer very compelling view of how we're going to support the navy as the shift to the Pacific continues so we're pretty excited about coming together and what we can do going forward against the new <unk>.
Peer threat focused.
Great. Thank you.
Thank you. Our next question comes from the line of Matt Sharpe from Morgan Stanley. Your line is now open.
Kevin Judy Matt.
Afternoon, and congrats on the Griffin deal.
Judy just a question on the revenue guide down of about 140 now I was wondering if you could maybe parse that between how much is tied to say the the Intel community and how much is tied to.
The supply chain and this is a revision reflective of a deterioration in your business environment or is it more just challenges that are persisting longer than expected.
I think it's.
It's more of the challenge is taking.
Taking longer than we expected I mean, the OTC is we had fully expected those to return to the levels. We were expecting in 'twenty one in the second half of the year and we're just not seeing that.
As far as bookings.
We did see some adjudication and the fed civil business for some of the larger bids we went after and unfortunately, we were unsuccessful there and we had assumed that the Intel.
Market would return so basic.
Basically any kind of new business, we have built into the second half of the year now for the most part we have de risked out of our guide.
And then just I think the Afghan and Sustainment, where it came on a little bit faster than it was a little bit larger than we were expecting.
This is Kevin I'll add about persistence because theres one persist scenario, that's the military support around fuel Sustainment and Afghan so that is fairly quick in terms of the draw down.
Low single digit, but Theres also use space support for systems that have supported that region for a long time and if you look from a 2020 to 2022 over a two year period.
The <unk> work as well as some of these systems that are going to be reducing significantly in terms of funding.
They are in total high single digit combination revenue headwinds more heavily weighted towards the back half of this year and into next year.
It's a good thing to support those programs, we've done that for decades, but you can see that the military is definitely shifting its focus as a result of that drawdown in terms of their support for some of these systems as well.
Yes.
We do think though that like the fundamental strategy that we have moved to in 2023.
Those things are getting funded and the right way, we still see opportunities there to be able to grow our business long term.
Got it that's helpful and then.
Kevin just on some of your introductory remarks around COVID-19, I think you sort of alluded to the risk tied to the December a vaccination mandate.
Are you able to provide any context around what the risk might be two to the back end of this year and into next year either by way of percentage of employees that are currently on vaccinated or otherwise or how should we think about the risk.
Associated with CEO.
That's a really hard thing to determined we have over 85% of our workforce is receive shops and as clear to the paperwork just needed to do that and it continues to trend in the right direction fairly quickly given that timeline.
That said, we don't have everybody, we need yet and how that plays out as we get closer to that date.
What exemptions are allowed under what construct by each of our customers all have to come together to get to the total risk but.
If it's already a tight labor market anything above zero is a risk that we think is important to note.
Got it thanks, I'll get back in the queue.
Yeah.
Thank you. Our next question comes from the line of Gautam Khanna from Cowen. Your line is now open.
Okay.
Hi, I was wondering if you could put it all together on the known headwinds for next year and.
So.
I heard about low single digit decline.
From the withdrawal from Afghanistan, So whatever that is 50 million box or something to the top line.
Yeah.
And then I heard something about a high single digit decline and some other related business.
But I just wanted to if you can aggregate the known headwinds and then if you could also in that 5% number for next year, how big is how.
How much of a bump.
Backfill is about and how large is that.
Anything you can give us so we can.
Modeling this correctly, let me Kevin just to be a high level. So when I say the high single digits. That's a combination of both Afghan and field Sustainment work. So thats in total going into next year about traditional military sustainment work.
We generally view that the OTC and supply chain.
Risk in terms of the upward option around that as well as the new business intelligence are likely going to be pushed to where the growth from them or the second half of the year. So we're being cautious about any growth from those in the first half.
Then we have into <unk> programs. So those are in aggregate and I think we're going to have to wait till.
Till February to talk about the overall composition.
Great.
Yes, we just wanted to kind of throw out some guardrails around 2022.
And given the headwinds and the acquisition kind of level Fat and then in February as Kevin just mentioned, we'll be able to scale into a lot.
<unk> had a lot clearer picture on 2020 is going to look like.
Okay could you give us a sense from a large griffin is at the top line.
Yes, I mean, right now we haven't projected it to be into.
In 'twenty, one guidance, but if it were to close it.
Early December we would see.
Low to mid 'twenty revenue.
Kind of on a monthly basis, if you want to look at that range for kind of a run rate into 2022.
Okay. Thank you I appreciate it.
Okay.
Thank you. Our next question comes from the line of Bryan Keane Klinger from Alliance Global Partners. Your line is now open.
Great. Thank you.
Can you share.
Any plan you have to fulfill positions, obviously, a tight labor market.
Assuming the unvaccinated cannot work on a program.
The plan to replace them how difficult is that what is the wages like right now for hiring staff and then.
Can you keep employees you can take can be.
Deploying the programs.
Order to protect margins.
Sure This is Matt.
So that's the kind of multi threaded question, there, but let me kind of start with what we're doing for our employees, which is where everything is customer base, so federal civilian versus defense versus Intel.
<unk>.
A unique requirements as we're going through that.
So we're being very proactive with our employee population I'm trying to make sure that we're giving them every opportunity to be able to hear either getting accommodation or continue to work with mantech.
We have plans in place to do that we also have proactively play.
Placed.
Analytics on our own staff, so we have.
Proactively looked at certain areas, where we're hiring maybe ahead of where there could be some issues from a hiring perspective.
To answer your question around.
The wage inflation item I don't think we've really seen that yet I mean, maybe just a hair, but I don't think thats.
Our concern really is really over the immediate future of <unk>.
December 8th State.
In China to make sure we work through that although we are fortunate in that we do have flexible customers, who will work with us through these kinds of issues.
And obviously, we have a majority of cost plus work.
Some ways that can benefit.
<unk> us and allow us to work through this maybe in a way that others cannot.
Great and my follow up.
First you mentioned attrition being an issue.
Learning attrition these days compared to historically and then a follow up on the Griffin is their EBITDA margin similar to Mantech.
A quick comparison would be helpful. Thanks, so much so I'll give the turnover and then Judy I'll hand, it over to you. So.
So what we're really just seeing is.
Turnover going back to what I would call pre pandemic normal levels.
From a turnover perspective.
And then from a margin standpoint, and the full impact of <unk> is in that <unk>.
94%, 95% range that it is the early look to 'twenty, two and I would say in general the pro.
Graham margins are in line with our or the rest of our Dod business.
Thank you.
Thank you. Our next question comes from the line of Tobey Sommer from <unk> Securities. Your line is now open.
Thank you.
Similar in.
Zane to some of the preceding questions could you.
Talk to us about.
Wage inflation, which is probably the primary aspect of inflation that's relevant to your business.
And what a faster pace of wage inflation would mean.
To your ability to.
We're organically either make it easier or harder.
And.
Preserve our fan margins either make it harder to make it easier.
<unk>.
So Kevin let me just make a comment and then if Matt wants to add look when we have.
High demand for the right talent in the customer sets.
Wage inflation, if it does start increasing above.
That can be built in or it's already built into escalation that we can manage with women each program.
We often go to customers and theirs.
Flexibility and going through those discussions because of the need for the talent I mean, thats something that we have.
Mutually and across the industry come to learn to work through it. It's a matter of how much that escalation is so we'll have to see how it plays out again, Matt has mentioned that it really isn't something we've seen that is creating the level of concern.
That that you would want us to speak to but we are tracking it just given the overall market today and holders also the potential impact of vaccination if any.
And could you comment about.
Whats you.
I guess I got we got some comments about your expectations into 'twenty two.
In the context of.
Of a continuing resolution.
Does your initial sort of.
Guardrails as you put it for 22 does that contemplate.
A CR extending into the first quarter and if so how how long images.
Yes, I think we've kind of taken that into account obviously, the government shutdown with not taking into account that but yes, I don't think.
Given the timing that we're looking at for new business and things like that that CR, continuing its not going to meaningfully change what we may have thrown out for those guardrail.
Okay and then last question for me is sort of on the recruiting front, just kind of delving into that a little bit more.
Are you.
Doing anything different in your.
And youre recruiting activities either.
Because my life, perhaps utilizing more.
Outsource providers to try to try to land. The challenge is the recipe that you've historically used to attract and retain talent.
Largely the same.
Yeah.
So I would say overall, so we already will supplement with outside.
Resources.
In certain areas, where we need that.
That's always something is a lever that we use so I would say from while we might be doing more of that right now I would say the processes that we are using and the approach is still the same.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Mariana Perez Mora from Bank of America. Your line is now open.
Good afternoon.
My question is going to Abbvie regarding being intolerant war environment, It's been 18 months.
And what I would like to understanding from your point of you in your conversations with customers.
How long do you think it will take for them to get back to normal.
Burden of inventories are biden.
Once they have and.
Can any of the pumps, you're exposed to die of the oxo led by the time that they are able to award them.
So I think.
On this we really don't expect to them to really it's still going to be several quarters I think the back half of 'twenty. Two is what we are anticipating.
For that to answer your question.
But what makes you comfortable that they'll get back there.
And I know you have like you kind of give some limited information, but any color that you can provide us to something that's kind of why you feel comfortable that we'll get back to those levels and this is not just nine months.
Sure, Yes, without yet like you said that speaking on their behalf.
I think the things that we are seeing is there are.
The return to the workforce because of the vaccine mandate.
<unk> is actually bringing more people into the business now so there is an uptick in what I would call a normal workflow.
Not there yet, but they're getting there so that's why you're starting to see more signs of that.
Okay, and then I'll switch gears to then <unk> segment, you mentioned that you.
<unk> was slower than expected can you give us some clarity to offline teen type of Uniti tablets and strategy going forward.
Sure on federal civilian.
So really we've had a great win rate there over the last couple of years and so we wanted to go after some bigger opportunities and what we really need to do and so and those didn't pan out and what we really just need to do there is focus on our customer intimacy.
We do have a good pipeline moving forward in federal civilian and it's just unfortunate that some of the competitive new opportunities at new customers.
Not work out in our favor.
Okay. Thank you.
Thank you you have a question. Please press Star then one key on your Touchtone telephone.
Our next question comes from Louie Dipalma from William Blair. Your line is now open.
Kevin, Matt Judy and Steven Good evening.
Good evening.
Matt You mentioned, how your intelligence community bookings as a percentage of total bookings have recently only been 25%, whereas previously they were approximately.
50%.
As it relates to this topic are you maintaining your win rate and here you are prevailing market share or have you seen any fluctuations in that regard.
I think.
So I think the overall industry has seen delays so I think from the.
Market share perspective, I don't feel like we're losing anything at this point, we feel we like the future of where that opportunity pipeline that we do have within Intel and that we expect to continue to retain the recompete and be consistent with our our win rates and market averages like that had been in the past.
Great and also related.
The prior answer.
On the business development commentary you also mentioned that you were unsuccessful for several large civil program pursuits, do you need to make more acquisitions to be successful on these larger programs with <unk>.
There anything specific that.
You were lacking we know that.
Booz Allen, obviously recently acquired Liberty and they acquired like low code No code talent for software development is there any particular skill set whether it's data analytics software development artificial intelligence cloud computing that.
You feel you are lacking or like was there any specific error analysis that you can point to for to these these awards.
Sure. So I think so we were not lacking in any capabilities.
And we will continue to level leverage both organic investment and M&A as appropriate to advance our business within federal civilian as well as across the entire business.
I think for US these were newer customers and so we.
We are kind of refocusing and making sure we have a better customer intimacy moving forward.
Great and for.
<unk>.
These large.
Civil program pursuits or are they more price competitive is like could you point to the fact that like perhaps those vendors that one the programs, we're willing to take a lower margin.
There.
Is there a intense price competition for like very large civil programs.
I think there is always price competition within not just federal civilian but across the.
The market.
But that I would call that a normal competitive pressure not something.
Like if you're asking relative to LPTA, we're really not seeing I mean, when you see that in a couple of places, but that the pendulum has not swung back to that within the market.
Okay.
Yes that was.
I was just referring to how it seems like as it relates to all.
Ultra large.
And cloud contracts.
There is a lot of competition, taking place between light OS and general dynamics.
And per tonne.
CACI and it seems for these mega contracts that there is.
It's intensely price competitive and.
It might be.
Difficult for for Mantech to break in to those types of contracts given how a lot of those providers have to have a lot of heritage with these.
Mega.
Slash cloud contract so I was wondering.
If there is any deficiency in terms of scale or if it's just like the margins on those types of contracts or an appealing to you.
Sure No I think that from a from a I'll say from a pricing perspective, we've been able to be competitive with all of those folks for those for those types of.
Opportunity sets and.
And Thats, our expectation is to be competitive within that within those environments as well as others.
Within the federal civilian.
Sure.
He said, we're looking to expand our footprint.
But I think for US what we have found is we do have the capabilities to customers have recognize those.
We do have the right pricing and capability there to be competitive and for US. It's just like to your point these are newer.
Areas that we are working to get into and so that is where we're working on the customer intimacy aspect of it.
I'll also add that we're more cautious on the Mega enterprise deals in terms of how many years. We go after to your point Brian.
Great that makes that makes sense. Thanks.
Yeah.
Thank you. Our next question comes from the line of Gautam Khanna from Cowen. Your line is now open.
Hey, just a follow up if you don't mind.
I was wondering this year.
How far.
The OTC shortfalls were relative to the initial guidance and then just.
Because there are a lot of moving pieces like you mentioned.
So how much was OTC securities.
<unk>.
No.
Relative to the.
Last quarter this quarter.
Next quarter well.
Yes.
Hi.
We're not going to go into the specifics of the number but I do think in.
As I mentioned, we were expecting it to accelerate in the second half of the year and it didnt. So.
It's one of the components that resulted in the.
And then on the revision to the 'twenty one guidance.
Judy does it does the absence of OTC is whether it would be routers or whatever.
Impair the companys ability to actually ramp direct labor is there like a secondary impact.
Because until you have the product you can't.
Execute the work I'm just curious.
Is that maybe one of the knock on effects.
I'll, let Matt take out.
Yes, I mean, there is a little bit of labor that goes with that but I think when we're expecting.
Got him to your question is supply chain relief kind of in the later part of 2022, but thats.
Because.
The revenue contribution is.
Delayed by how we putting this together and its components from suppliers that we're kind of bringing together in unique ways.
And so when we have some supply chain supply chain constraints.
What's happening at how we're doing that work so.
Hopefully that gives you a little bit more clarity because we're doing things that are on our platform level and so that's what you need to kind of make it happen.
Okay, and then you guys talked about the normal Recompete year next year are there any kind of individually large.
Once that we should be monitoring.
We don't have anything that's over 5% of our revenue.
Thank you.
Okay.
Thank you. Our next question comes from the line of Bryan Keane Slinger from Alliance Global Partners. Your line is now open.
Yes, just a couple of small numbers question.
Realizing that most of your bookings were from existing work can you just give us that number for the September quarter of what was new and expansion of our business as a percentage of the total.
Yes, I can do the quarterly bookings.
For this quarter it was about 10% new 90% Recompete.
And the other question you gave a lot of numbers, it's probably you can back into it.
For the third quarter, the nonrecurring benefits I see at $205 million reversal for bad debts in Houston that helped but also maybe what were the total nonrecurring benefits that include.
Contract Closeouts in the quarter.
Yeah, I mean, I think that clearly wasn't.
A big part of it.
Then Phil so thats, probably about half of that plus the indirect spend carrying forward.
So margins would've probably been more like the second quarter, if not for those benefits is that how I should think about it.
Yes.
Again, we were kind of looking at it for the full year.
Normalizing the revised guide at <unk> down to the normalized 94.
Okay alright, thank you.
Yeah.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Stephen Baker for closing remarks.
Thank you Gigi and for all of you for joining on today's call and for your interest in Mantech as usual the senior team and I will be available for any follow up questions have a good evening.
Ladies and gentlemen. This does concludes today's conference. Thank you for your participation and have a wonderful evening you may now all disconnect.
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Ladies and gentlemen, good afternoon, and welcome to the Mantech third quarter fiscal year 2021 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, if any once you require assistance during the conference. Please press Star then zero on your touched on telephone.
As a reminder, this conference call is being recorded.
Now I'd like to turn the conference over to Stephen Byrd, Vice President corporate development and Investor Relations.
Welcome everyone. Thanks for participating on Mantech third quarter call. Joining me today is Kevin Phillips, our chairman CEO and President Judy <unk>, our CFO and Matt <unk> our CFO.
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 995. 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.
Undertakes no obligation to update any of the forward looking statements made on this call.
On today's call, we will discuss some non-GAAP financial measures, which we believe provide useful information for investors. These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures you can find a reconciliation of the non-GAAP measures discussed on this call our third quarter earnings release with that let me.
I hand, the call over to Kevin.
Thanks, Steven and good afternoon, everyone Mantech delivered exceptional profitability and cash flow in the third quarter, However, revenue growth and bookings fell short of expectations.
We are navigating a complex and uneven industry operating environment, which is creating certain challenges for us.
That said the foundational drivers for our long term growth remained favorable and we are positioned in higher priority areas of the market.
Operationally, we continue to feel the lingering impacts from the pandemic, namely on three fronts.
The slower return to normal within our intelligence community customers, continuing supply chain challenges and a tight labor market and.
Unfortunately, our expectations outpaced the recovery trajectories for both our intelligence business and the supply chain.
We remain confident in the attractive fundamentals of serving hard to penetrate intelligence community customers and our position in that market.
We see durable demand across our solutions and full spectrum cyber secure mission and enterprise.
Data analytics and other key mission focused offerings.
However, in the near term the intelligence component of our business continues to face meaningful pipeline and award delays and.
And we expect that a return to normal may take several more quarters.
Mantech has higher relative exposure to Intel customers amplifies that impact, which is evident in our overall performance.
Next the supply chain, while customer demand is clear the supply chain challenges become much less predictable significantly impacting the timing and level of material procurements.
Similarly, we expect this trend to linger, but are hopeful that our path to normal is on the near horizon.
Finally, we are seeing the effects of a tightening labor market and I have uncertainty about what effects the executive order on requiring vaccinations among our workforce will have in the fourth quarter and entering 2022.
We have made concerted efforts to comply with this mandate, but still have some work to close the remaining gap prior to the December deadline.
Turning to the U S departure from Afghanistan, we are proud to have supported this overseas contingency operations over the last two decades and thank our employees for their dedication to that mission over the years.
The withdrawal from Afghanistan in March what we see is a clear shift in national defense strategy around overseas counterterrorism operations and related support.
To one that is focused on near peer threats.
In the short term this shift will create a low single digit headwind in our overall revenue for the balance of the year and into 2022.
Additionally, we anticipate and are beginning to see reductions in select syncom focused field support operations within the army.
Mantech is a product of the Cold war over the course of greater than 50 years, we are well understood the need to adapt to evolving mission requirements.
The mission moves to near peer focus the vast majority of our portfolio is well aligned and we are pivoting to balance to this future mission.
In aggregate the factors discussed in my earlier remarks, coupled with natural program conclusions that occur every year will constrain the level of near term organic growth compared to the last few years.
We are recalibrating, our expectations for 2021 and 2022 as a result of our year to date performance these headwinds and uncertainties.
Judy will review our revised outlook later on the call.
Moving to a quick budget update we began the government fiscal year under a continuing resolution, which currently last through early December.
Congressional agenda remains focused on infrastructure the debt ceiling and other priorities that may cause appropriations to continue to shift to the right.
Irrespective of the status of appropriations, our customers continue to have clearly defined priorities that align well with <unk> core capabilities and investment roadmap.
First the growth of both cyber and space Warfighting domains, partly driven by near peer focus.
Second the need to modernize <unk> software and systems to meet the challenges of today and tomorrow.
The needs within this trend are broad and complex, but notably we are seeing greater customer need for automation analytics and delivering data at the edge.
Lastly, the full and rapid implementation of digital warfare in traditional into traditional operating technology emissions is the increasing importance.
Recently, we announced our intent to acquire Griffin technologies for $350 million.
The acquisition builds on our position within important department of defense customers and it has enhanced digital and systems engineering capabilities.
Demand for these capabilities has been robust and we see this as a continued growth Avenue organically.
As the near peer focus ramps into higher gear.
We look forward to welcoming <unk> nearly 500 employees to the Mantech family.
We intend to maintain an active posture for value accretive M&A and our balance sheet is certainly supportive of additional acquisitions.
Judy will discuss how you should think about the pro forma business going into 2022.
Now I'll turn it over to Matt to cover the business development and operational highlights for the quarter Matt.
Thank you Kevin.
In the quarter, we booked $716 million in contract awards, resulting in a book to Bill of approximately one one times on.
On a last 12 months book to Bill ratio also sits at one one times with a majority of the bookings for existing work.
Bookings in the quarter were propelled by the retention of important recompete as well as incremental on contract growth.
The major awards in the quarter include winning a $476 million contract to continue providing space force with launch enterprise systems engineering and integration.
As well as a $51 million contract to continue providing the navy acoustic engineering services to support the naval submarine and surface signature silencing programs.
These contract awards continue to demonstrate our capabilities strength and intelligent systems engineering.
Furthermore, we are pleased with the outcome of a multiyear strategic pivot into resilient O&M and R&D priorities within the Navy Air Force and other parts of the Dod.
That said Q3 bookings were seasonally light and came in below our expectations.
There were two principal drivers for that trend.
First as Kevin discussed earlier, we lacked meaningful adjudication within our intelligence community customers.
To add a bit more color.
Over the last 18 months Intel bookings have comprised less than a quarter of mantech overall bookings versus prior to the pandemic. It was averaging close to half of the company's total bookings.
Second we were less successful than desired on new large business pursuits, and our federal civilian business.
This is a part of our concerted effort to penetrate into new markets that will have persistent demand.
We will continue to position ourselves to support existing Intel defense and homeland security customers, while we make strategic moves to advance our expansion into other federal agencies.
As a.
<unk> of these bookings our total backlog was $10 1 billion at quarter end, representing 3% year over year growth with funded backlog at $1 3 billion.
We exited the quarter with nearly $8 billion in proposals outstanding which had a healthy mix of new business and recompete opportunities.
We are continuing to prosecute our pipeline and are seeing steady proposal submissions.
The volume timing and competitive positioning on adjudication remain a key driver to the cadence of our quarterly bookings.
We are continually fine tuning our business development process to maximize optimal outcomes with respect to pipeline conversion.
Before I turn the call over to Judy I would like to take a minute to welcome the newest member of our leadership team.
We are excited to have David Hathaway join us as the head of our defense business.
David has significant experience leading high performance teams focused on bringing technology solutions to an array of defense missions.
I look forward to leveraging his valuable expertise to further affect our strategic operational and technology initiatives across our customer base.
With that I'd like to turn it over to Judy to discuss our financial results in more detail.
Thanks, Matt quarterly revenue was $638 million, which was flat compared to Q3 of 2020.
Q3 revenue fell short of expectation, most notably due to the delays in OTC is that Kevin referenced earlier.
Additionally, an uptick in PTO usage and increased turnover pressure direct labor contribution in the quarter.
We also saw some programs coming to their natural end and Q3.
Q3, EBITDA was $73 million up 27% from Q3 of 2020.
This resulted in an EBITDA margin of 11, 4% up 240 basis points year over year as margins continued to benefit from stronger overall labor mix continued indirect cost under spending and a one time benefit related to a contract closeout for some international work.
Net income for the quarter was $38 million and diluted EPS was <unk> 93.
Up 28, and 27% from Q3, respectively.
Adjusted net income was $41 million and adjusted diluted EPS was $1 <unk> up.
Up 23, and 22% from last year, respectively.
Our effective tax rate was higher than expected at 27, 9% in the quarter.
Turning now to the balance sheet and cash flow statements cash flow from operations. Once they bought best $139 million in the quarter, which represented three six times net income and was driven by a strong DSO of 55 days at.
At quarter end, the balance sheet showed $145 million in cash and no debt.
Additionally, we distributed $15 million in dividends in Q3, maintaining a steady return of cash to shareholders.
<unk> has authorized us to continue our current cash dividend at <unk> 38 per share to be paid in December.
The acquisition of Griffin technologies reflects our commitment to capital deployment for long term value creation through M&A.
As mentioned by Kevin earlier, we intend to remain active on M&A and are continuing to review opportunities that we view are additive to our competitive position.
Following the acquisition of Griffin, we expect to have approximately one point O times leverage.
Moving on to guidance, we are decreasing our previously communicated guidance for revenue and increasing our adjusted net income and adjusted diluted EPS to reflect year to date performance and likely outcomes for the remaining quarter based on current market factors.
The drivers behind the revised guidance are continued impacts from delayed ldc's pressures from a more competitive labor market and reduced new business contribution.
Our revenue guidance is now 255 billion to 2.5 dollars 75 billion, representing a 1% to 2% growth year over year.
We are increasing our outlook for adjusted net income to be in the range of $150 2 million to $152 2 million with adjusted diluted EPS of $3 66 to.
To $3 71.
We are also increasing our expected EBITDA margin for the year to be 10, 2%, which represents a 110 basis point improvement over 2020.
Many of the same tailwind for the Q3 outperformance are responsible for the full year increase which includes a lighter level of lower margin otc's.
Indirect cost management, and some onetime contract closeout fee pickups.
Year to date margins continued to average higher than our full year guide, but there are known trends that will drive fourth quarter spend higher primarily M&A related expenses and greater PTO utilization.
In total when adjusting for these factors our normalized 2021 EBITDA margin.
Approximately nine 4%, a nice uptick of 30 basis points from 2020.
The adjusted net income and adjusted diluted EPS ranges assume a slightly higher effective tax rate of approximately 25% and a consistent fully diluted share count of approximately 41 million shares.
Finally cash flow from operations is still expected to be at least $200 million with capital expenditures expected to be a touch lighter than previously thought at less than two 5% of revenue for the year.
During this call we have gone through a number of factors that will impact our expected financial performance for 2022.
While it is premature to provide detailed 2022 guidance, we wanted to offer some directional commentary.
We expect total revenue growth of at least 5%, which is inclusive of the full year contribution from Griffin.
We are considering a number of factors and our assessment of 2022, many of which are a continuation of the issues. We are dealing within the second half of 2021.
Given the change in our expected near term growth trajectory I wanted to crosswalk each of the major factors impacting our current view.
As Matt mentioned earlier the headwinds to growth include the fact that year to date bookings have been disproportionately related to existing programs versus new work. The full year impact of natural program conclusions inclusive of but not limited to Afghan and certain field sustainment related efforts.
And the lingering uncertainty on the level and timing of Intel new business efforts and the supply chain with respect to OTC.
Furthermore, it is our expectation that we will have another normal year of recompete approaching 25% of revenue.
Moving on to margins, our EBITDA margin expectations for next year are in the nine 4% to nine 5% range, which implies flat to potentially up 10 basis points against our normalized 2021 EBITA margin.
The business risks that we are closely monitoring but are not fully factored into our guide or the impact of the vaccination executive order and disruptions to the business from a potential extended labs and government funding.
Our 2022 preview is confined to the current visibility into the business and market factors.
We expect to refine this preliminary guidance on our year end earnings call in February.
Let me hand, the call back over to Kevin for some closing remarks.
Judy in closing our team is keenly focused on pipeline conversion, attracting and retaining talent leveraging our recent acquisitions to drive growth and continuing to deploy capital to deliver to deliver long term shareholder value.
As discussed in great detail, we experienced a market shift in some areas of our work, but we are seeing greater demand towards more cyber and technology enabled mission needs.
Our differentiated portfolio of capabilities and customers sets are well aligned to national priorities.
We're now ready to take your questions.
If you have a question at this time. Please press the Star then one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
As a reminder, please limit yourself to one question and one follow up if you have additional questions. Please re enter the queue. Our first question is from Matt Akers from Wells Fargo. Your line is now open.
Yeah, Hi, Thanks, good afternoon.
I Wonder if you can comment a little bit more on kind of the slowdown in.
Intel.
And specifically I guess, what do you think needs to happen for that business to start coming back again, I mean does your customer need to add staff to kind of get through some of those contracts or Sydney or funding or what do you think will lead us to sort of get.
Get out of that slowed I understand.
Yes, it's Kevin I'll speak.
Speaking of minutes, Matt was to add he can.
The government and the Intel community has needs they are persistent.
But what we found is the timing of their ability to send out awards or make you dedications.
Continue to be in.
Impacted by a combination of Covid coming back open coming back in and then having to shut down again, when they physically have to be in the office to do that role.
As well as staffing constraints within their organization, so a bit of both.
It's not about the budgets of mission requirements is more about a combination of their ability to do their job.
Get outcomes in a timely fashion, where that has definitely been disrupted in the intelligence community over the last 18 months.
Okay.
Got it thanks, and then I guess, if I could do one margins.
On Griffin.
Are you able to comment.
Multiple you paid for that or maybe just in general sort of a what.
How can a competitive debt deal is or what youre seeing just in terms of.
Kind of multiples for M&A in the space in general.
Yes, I think we paid.
Market multiple comparable for comparable assets.
And we're really focused on being able to leverage that.
The systems engineering.
Digital engineering capabilities across the enterprise.
But we're excited about the combination Griffin and Symantec.
We have a heavy presence, but this is very complementary.
Of work, they do or enable surface and the combination of their investments about systems engineering digital engineering and data analytics, along with what we've invested in I think offer a very compelling view of how we're going to support the navy as the shift to the Pacific continues so we're pretty excited about coming together and what we can do going forward against the new <unk>.
Peer threat focused.
Great. Thank you.
Thank you. Our next question comes from the line of Matt Sharpe from Morgan Stanley. Your line is now open.
Kevin Judy Matt.
Afternoon, and congrats on the Griffin deal.
Judy just a question on the revenue guide down of about 140 now I was wondering if you could maybe parse that between how much is tied to say the the Intel community and how much is tied to.
The supply chain and then there's a revision reflective of a deterioration in your business environment or is it more just challenges that are persisting longer than expected.
I think it's.
It's more of the challenges.
Taking longer than we expected I mean, the OTC is we had fully expected those to return to the levels. We were expecting in 'twenty one in the second half of the year and we're just not seeing that.
As far as bookings.
We did see some adjudication in the fed civil business for some of the larger bids we went after and unfortunately, we were unsuccessful there and we had assumed that the Intel <unk>.
Market.
Return so base.
Basically any kind of new business, we have built into the second half of the year now for the most part we have derisked out of our guide.
And then Jeff I think the Afghan and Sustainment, where it came on a little bit faster than it was a little bit larger than we were expecting.
This is Kevin I'll add about persistence, because theres, one persist scenario thats the military support around fuel Sustainment and Afghans. So that is fairly quick.
In terms of the fraud down that's the law.
Low single digit, but Theres also U S based support for systems that have supported that region for a long time and if you look from a 2020 to 2022 over a two year period.
The <unk> work as well as some of these systems that are going to be reducing significantly in terms of funding.
In total high single digit combination revenue headwinds more heavily weighted towards the back half of this year and into next year.
It's a good thing to support those programs, we've done that for decades.
But you can see that the military is definitely shifting its focus as a result of that drawdown in terms of their support for some of these systems as well.
Yes.
We do think though that like the fundamental strategy that we have moved to in 2023, I mean, those things are getting funded and the right way, we still see opportunities there to be able to grow our business long term.
Got it that's helpful and then okay.
Kevin just on some of your introductory remarks around COVID-19, I think you sort of alluded to the risk tied to the December a vaccination mandate.
Right.
Are you able to provide any context around what the risk might be two to the back end of this year and into next year either by way of a percentage of employees that are currently on vaccinated or otherwise or how should we think about the risk.
Associated with the Eo.
That's a really hard thing to determined we have over 85% of our workforce is receive shops and is cleared through the paperwork. This needed to do that and it continues to trend in the right direction fairly quickly given that timeline.
That said, we don't have everybody we need yet.
How that plays out as we get closer to that date.
What exemptions are allowed under what construct by each of our customers all have to come together to get to the total risk but.
If it's already a tight labor market anything above zero is a risk that we think is important to note.
Got it thanks, I'll get back in the queue.
Thank you. Our next question comes from the line of Gautam Khanna from Cowen. Your line is now open.
Hi, I was wondering if you could put it altogether on the known headwinds for next year and.
So.
I heard about low single digit decline.
From the withdrawal from Afghanistan, So whatever that is 50 million box or something to the top line.
And then I heard something about a high single digit decline and some other related business.
But I just wanted to if you can aggregate the known headwinds and then if you could also in that 5% number for next year, how big is Griffin.
How much of the backfill is about how large is it.
Anything you can give us so we can.
Modeling this correctly, let me Kevin just give you a high level. So when I say the high single digits, that's a combination.
Of both Afghan and field Sustainment work, so thats in total going into next year about traditional military sustainment work.
We generally view that the OTC and supply chain.
Risk in terms of the upward option around that as well as the new business intelligence are likely going to be pushed to where the growth from them or the second half of the year.
So we're being cautious about any growth from those in the first half.
And then we have into <unk> programs. So those are in aggregate and I think we're going to have to wait.
Till February to talk about the overall composition.
Correct.
Yes, we just wanted to kind of throw out some guardrails around 2022.
And given the headwinds and the acquisition kind of level set and then in February as Kevin just mentioned, we'll be able to scale until app.
<unk> had a lot clearer picture on about 2020 is going to look like.
Okay could you give us some sense from a large griffin is at the top line.
Yes, I mean, right now we haven't projected it to be into.
In 'twenty, one guidance, but if it were to close in early December we would see.
Low to mid 'twenty revenue.
Kind of on a monthly basis, if you want to look at that range for kind of a run rate into 2022.
Okay. Thank you I appreciate it.
Thank you. Our next question comes from the line of Bryan Keane Flinger from Alliance Global Partners. Your line is now open.
Great. Thank you.
Can you share any.
We plan you have to fulfill positions, obviously, a tight labor market.
You mean, the unvaccinated cannot work on a program.
The plan to replace them how difficult is that what is the wages like right now for hiring staff and then.
Can you keep employees can take can be.
Deployment programs in order to protect margins.
Sure This is Matt.
It's a kind of multi threaded question, there, but let me kind of start with what we're doing for our employees, which is yes.
Everything is customer based so federal civilian versus defense versus Intel.
<unk> as a unique requirements as we're going through that.
So we're being very proactive with our employee population I'm trying to make sure that we're giving them every opportunity to be able to either get an accommodation or continue to work with mantech.
Have plans in place to do that we also have proactively.
Placed.
Analytics on our own staff right. So we have.
Proactively looked at certain areas, where we're hiring may be ahead of where there could be some issues from a hiring perspective.
To answer your question around.
The wage inflation item I don't think we've really seen that yet I mean, maybe just a hair, but I don't think thats. Our concern really is really over the immediate future of <unk>.
December 8th State.
In China to make sure we work through that although we are fortunate in that we do have flexible customers, who will work with us through these kinds of issues.
And obviously, we have a majority of cost plus work.
Some ways that can benefit us and allow us to work through this maybe in a way that others cannot.
Great My follow up.
First you mentioned attrition being an issue.
Moving to nutrition these days compared to historically and then follow up on the great thing is their EBITDA margins similar to Mantech.
A quick comparison would be helpful. Thanks, so much.
You have to turn it over and then Judy I'll hand, it over to you so on the <unk>.
So what we're really just seeing is.
Turnover going back to what I would call pre pandemic normal levels from.
From a turnover perspective.
And then from a margin standpoint, and the full impact of Griffin is in that 94%, 95% range that.
That is the early look to 'twenty, two and I would say in general.
Graham margins are in line with our or the rest of our Dod business.
Thank you.
Thank you. Our next question comes from the line of Tobey Sommer from <unk> Securities. Your line is now open.
Thank you.
Similar in.
Zane to some of the preceding questions could you.
Talk to us about.
Wage inflation, which is probably the primary aspect of inflation that's relevant to your business.
And what a faster pace of wage inflation would mean.
To your ability to.
So we're organically either make it easier or harder.
And.
Preserve or expand margins either make it harder to make it easier.
<unk>.
So Kevin let me just make a comment and then if Brent wants to add look when we have.
High demand for the right talent in the customer sets.
Wage inflation.
Does start increasing above.
That can be built in or it's already built into escalation that we can manage with women each program.
We often go to customers and there is there is.
Flexibility and going through those discussions because of the need for the talent I mean, thats something that we have.
Mutually and across the industry come to learn to work through it's a matter of how much that escalation is so we'll have to see how it plays out again, Matt has mentioned that it really isn't something we have seen that is creating the level of concern.
That that you would want us to speak to but we are tracking it just given the overall market today and there's also the potential impact of vaccination if any.
And could you comment about.
<unk> you.
I guess I got we got some comments about your expectations into 'twenty two.
In the context of a.
Of a continuing resolution.
Does your initial sort of.
Guardrails as you put it for 22 does that contemplate.
CR extending into the first quarter and if so how how long answers.
Yes, I think we've kind of taken that into account obviously, the government shutdown with not taking into account base, but yes, I don't think.
Given the timing that we're looking at for new business and things like that that CR, continuing is not going to meaningfully change what we've thrown out for those guardrail.
Okay and then last question for me is sort of on the recruiting front just a delta.
Let me add a little bit more.
Are you.
Doing anything different in your.
And youre recruiting activities, either something that customers, perhaps utilizing more.
Outsource providers to try to try to land. The challenge is the recipe that you've historically used to attract and retain talent.
Largely the same.
So I would say overall, so we already will supplement with outside <unk>.
Resources.
In certain areas, where we need that.
That's always something that is a lever that we use so I would say from while we might be doing more of that right now I would say the processes that we are using and the approach is still the same.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Mariana Perez Mora from Bank of America. Your line is now open.
Good afternoon.
My question is going to have the regarding day intolerant war environment.
Months.
And what I would like to understand is from your point of view on your conversations with customers. How long do you think you will take for them to ask let me get back to normal.
Burden of inventories our backlog of our warrants they have.
And.
Ken any of the Palm Gi exposed to die of <unk>, followed by the time that the DRA will to a warden.
So I think.
On this we really don't expect to them to really get it's still going to be several quarters I think the back half of 'twenty. Two is what we are anticipating.
For that to answer your question.
But.
What makes you feel comfortable that they'll get back there.
Do you have like you kind of give some limited information, but any color that you can provide us too. So I'm just kind of why you feel comfortable that we'll get back to those levels and this is not just online.
Sure, Yes, without like you said that speaking on their behalf I think the things that we are seeing is there are you the.
The return to the workforce because of the vaccine mandate.
It is actually bringing more people into the business now so there is an uptick in what I would call a normal workflow.
Not there yet but that they're getting there. So that's why you're starting to see more signs of that.
Okay.
Then I'll switch gears to then say Ltvs Ian said.
You mentioned that you <unk> was slower than expected can you give us some clarity tools like <unk> <unk>, what's the strategy going forward.
Sure on federal civilian.
So really we've had a great win rate there over the last couple of years and so we wanted to go after some bigger opportunities and what we really need to do and so and those didn't pan out and what we really just need to do there is focus on our customer intimacy.
We do have a good pipeline moving forward in federal civilian and it's just unfortunate that some of the competitive new opportunities at new customers.
Not work out in our favor.
Okay. Thank you.
Okay.
Thank you we have a question. Please press Star then the one key on your Touchtone telephone.
Our next question comes from Louie Dipalma from William Blair. Your line is now open.
Kevin, Matt Judy and Steven Good evening everybody.
Evening.
Matt you mentioned.
So your intelligence community bookings as a percentage of total bookings have recently only been 25%, whereas previously.
They were approximately.
50%.
As it relates to this topic are you maintaining your win rate and here you are prevailing market share or have you seen any fluctuations in that regard.
I think.
So I think the overall industry is seeing delays so I think from a.
Market share perspective, I don't feel like we're losing anything at this point, we feel we like the future of where that opportunity pipeline that we do have within Intel and that we expect to continue to retain the recompete and.
And be consistent with our our win rates and market averages like that have been in the past.
Great and also related.
The prior answer.
On the business development commentary you also mentioned that you were unsuccessful for several large civil program pursuits, do you need to make more acquisitions to be successful on these larger programs.
There anything specific that.
You were lacking we know that.
Booz Allen, obviously recently acquired Liberty in the acquired like low code No code talent for software development is there any particular skill set whether it's data analytics software development artificial intelligence cloud computing that.
You feel you are lacking or like was there any specific error analysis that you can point to for to these these awards.
Sure. So I think so we were not lacking in any capabilities.
And we will continue to level leverage both organic investment and M&A as appropriate to advance our business within federal civilian as well as across the entire business.
I think for US these were newer customers and so we are kind of refocusing.
And making sure we have a better customer intimacy moving forward.
Great and for.
These large civil program pursuits or are they more price competitive is like could you point to the fact that like perhaps those vendors that one the programs, we're willing to take a lower margin.
Is there.
As there are intense price competition for like very large civil programs.
I think there is always price competition within not just federal civilian but.
<unk>.
The market.
With that I would call that a normal competitive pressure not something.
Like if you're asking relative to LPTA, we're really not seeing I mean, when you see that in a couple of places, but that the pendulum has not swung back to that within the market.
Okay.
Yes that was.
He was just referring to how it seems like as it relates to.
Ultra large.
And cloud contracts.
That there is a lot of competition, taking place between light hours and general dynamics.
And Paris ton and SAIC and CACI and it seems for these mega contracts that there is.
It's intensely price competitive and.
It might be difficult for for Mantech to break in to those types of contracts given how a lot of those providers have have a lot of heritage with these.
Mega.
Slash cloud contract so I was wondering.
If there is any deficiency in terms of scale or if it's just like the margins on those types of contracts or an appealing to you.
Sure No I think that from a from a I'll say from a pricing perspective, we've been able to be competitive with all of those folks for those for those types of.
Opportunity sets.
That's our expectation is to be competitive within that within those environments as well as others.
Within the federal civilian.
We are.
As you said right, we're looking to expand our footprint.
But I think for US what we have found is we do have the capabilities to customers have recognize those.
We do have the right pricing and capability there to be competitive and for US. It's just like to your point. These are newer areas that we are working to get into and so that is where we're working on the customer intimacy aspect of it.
I'll also add that we're more cautious on the Mega enterprise deals in terms of how many years. We go after to your point Brian.
Great that makes that makes sense. Thanks.
Thank you. Our next question comes from the line of Gautam Khanna from Cowen. Your line is now open.
Hey, just a follow up if you don't mind.
I was wondering this year.
How far.
The OTC shortfalls were relative to the initial guidance and then just.
Because there are a lot of moving pieces like you mentioned.
How much was OTC.
Just otc's.
No.
Phil.
Last quarter this quarter.
Next quarter well.
Yes.
Hi.
We're not going to go into the specifics of the number but I do think in.
Sure.
As I mentioned, we were expecting it to accelerate in the second half of the year and it didn't.
<unk>.
It's one of the components that resulted in the.
And then on the revision to the 'twenty one guidance.
Does it does the absence of <unk>, whether it be routers or whatever.
Impair the company's ability to actually ramp direct labor is there like a secondary impact.
Because until you have the product you can't.
Execute the work I'm just curious.
Is that maybe one of the knock on effects.
Let Matt take out sure.
There is a little bit of labor that goes with that but I think when we're expecting.
To your question is supply chain released kind of in the later part of 2022, but thats.
<unk>.
The revenue contribution is delayed by how are we putting this together and its components from suppliers that we're kind of bringing together in unique ways.
So when we have some supply chain supply chain constraints. So that's what's happening at how we're doing that work so.
Hopefully that gives you a little bit more clarity because we're doing things that are on our platform level and so that's what you need to kind of make it happen.
Okay, and then you guys talked about the normal Recompete year next year are there any kind of individually la.
Large.
Once that we should be monitoring.
No we don't have anything that's over 5% of our revenue.
Thank you.
Okay.
Thank you. Our next question comes from the line of Bryan Keane Slinger from Alliance Global Partners. Your line is now open.
Yes, just a couple of small numbers question.
Realizing that most of your bookings were from existing work can you just give us that number for the September quarter of what was new and expansion of our business as a percentage of the total.
Yes, I can do the quarterly bookings.
For this quarter it was about 10% new 90% Recompete.
Great and the other question you gave a lot of numbers it probably you can back into it but.
For the third quarter of the nonrecurring benefits I see a $200 million reversal for bad debts in Houston that helped but also maybe what were the total nonrecurring benefits that include the contract closeouts in the quarter.
Yeah, I mean, I think that clearly was a big part of that.
And then so I thought that was probably about half of that plus the indirect spend carrying forward.
Oh.
So margins would've probably been more like the second quarter, if not for those benefits is that how I should think about it.
Yes, I mean again, we were kind of looking at it for the full year.
Kind of normalizing that the revised guide at <unk> down to the normalized 94.
Okay alright, thank you.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Stephen <unk> for closing remarks.
Thank you Gigi and for all of you for joining on today's call and for your interest in Mantech as usual the senior team and I will be available for any follow up questions have a good evening.
Ladies and gentlemen. This does concludes today's conference. Thank you for your participation and have a wonderful evening you may now all disconnect.