ManTech International Corp (MANT) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the ManTech fourth-quarter FY16 earnings conference call.

(Operator Instructions)

As a reminder, this conference calls being recorded. I would now like to turn the conference over to your host, Stephen Vather, Executive Director of Corporate Development. Please go ahead.

Thank you Andrew, and welcome, everyone. On today's call we have George Pedersen, Chairman and CEO; Kevin Phillips, President and COO; Judy Bjornaas, 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 the anticipated results. For a full discussion of these factors and other risk factors 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 would like to turn things over to George.

Good afternoon, and thank you for participating in today's call. I want to begin by saying that I am pleased with our strong performance in 2016, which is a result of the hard work, steadfast dedication of our talented employees. In 2016, ManTech delivered solid revenue growth, strong bookings, and improved profit measures. Let me offer a few brief comments on the market environment.

The government is operating under a continuing resolution, at least through the end of April. It is possible that the continuing resolution may extend to the rest of FY17. However, our hope is that Congress enacts its FY17 budget. Our understanding is the President is expected to request a supplemental FY17 in March, and will address near-term readiness challenges within the Department of Defense.

The President's FY18 budget process has begun and is expected to be sent to Congress in the May time frame. We believe that the long-term budget outlook will reflect an increasing demand for our technologies and solutions.

ManTech has been at the heart of our customers' mission for nearly 50 years. Our capabilities and our market position are well aligned to the broad national security priorities laid out by the new administration. Now, Kevin will provide you with a view of our operations. Kevin?

Thank you, George. I'm pleased to see growth in all of our key metrics for the full year and continued strong performance in winning new business. In 2016, we delivered year-over-year improvement in revenue, [operating] income, and earnings per share.

Over the past few years with focused on enhancing our technical capabilities and integrating those capabilities into tailored solutions that will meet the requirements of our customers' critical long-term programs. As part of this positioning we have invested in offerings for cyber, IT, cloud, and big data. We recently received our ISO 27001 Certification for Information Security which, along with our ISO 20000 Certification for IT Services Management Processes, bolsters our market position in cyber defense and information security.

Furthermore, we made two acquisitions in 2016: Oceans Edge Cyber, which enhances our positioning within the cyber network operations market and expands our presence within the service elements of the US Cyber Command; and more recently, Edaptive Systems, which enhances our positioning within the health IT market, expanding our presence at the Department of Health and Human Services and, more specifically, Centers for Medicaid and Medicare Services.

We have a well-balanced and strongly positioned Company entering 2017. We have an even mix of work in both the intelligence and defense communities that, combined, represent about 85% of our business. We also have an increasing footprint in the federal surveillance sector that is focused on federal health IT and DHS. Within DHS, our largest customers are the Customs and Border Patrol and the Office of Cyber Security and Communications. We will continue to make internal investments in support of these cyber and information technology areas.

Now to some of the key operating statistics for the quarter and year. In Q4, we received $460 million in contract awards, representing a book-to-bill of 1.2, capping a very strong year of contract awards. For the year, contract awards totaled $2.3 billion, a book-to-bill ratio of 1.4 times.

New business comprised over 40% of the awards for the year. The mix of business we won during 2016 skewed toward cyber, IT solutions, intelligence and system engineering support. Total backlog at the end of the quarter stood at $4.9 billion, up 6% from our backlog at the end Q3 and up 19% from last year. Funded backlog remains at approximately $1 billion. We have seen an increase in the length of contract awards, which results in greater long-term revenue visibility.

Proposal activity remains high. We've submitted over $7 billion in proposals in 2016 and expect a similar volume in 2017. Our qualified (technical difficulties) is $18 billion, and we have about $4 billion waiting adjudication. For 2017, we are seeing increasing proposal opportunities within the intelligence community, select federal, civilian and health customers, and within the DoD. Given the uptick in priority around defense, intelligence, and homeland security sectors, I would not be surprised if the set of opportunities grows even more over the course of 2017.

We see increasing demands for cyberspace operations, cyber defense, enterprise IT and systems integration and engineering solutions. Our strength and worldwide sustainment, O&M and logistics support also offers our customers a full complement of capabilities needed to respond to today's national security demands.

I'm excited about ManTech's differentiated capabilities and the market positioning, and remain eager to continue to drive long-term value to our customers, our investors and our employees. As part of producing long-term value, we will continue to prioritize capital deployment for organic investments and select acquisitions to enhance our growth. Now Judy will provide you some with additional detail and specifics with respect to our financial performance and outlook. Judy?

Revenues for the year were $1.6 billion, up 3% from FY15. The growth is a result of several new contract wins announced in late 2015 and throughout 2016, and the acquisition of Oceans Edge Cyber. Edaptive Systems did not contribute meaningfully to the quarter or year. For the fourth quarter, revenues at $394 million, down 2% compared to fourth quarter of 2015. The year-over-year decline was driven by lower ODCs in material purchases this quarter compared to last year and the loss of some smaller re-compete contracts in 2016. For the quarter, the percentage of work as a prime contractor and the contract mix were essentially unchanged. We performed 87% of our work as a prime, and our contract mix was 67% cost-plus, 13% time and materials, and 20% fixed price.

Operating income for the quarter was $21.3 million, for an operating margin of 5.4%. For the year, operating income was $91 million, up 7% from 2015. Operating margin also improved, to 5.7%, compared to 5.5% for the full year of 2015. Net income was $13.7 million for the quarter and $56.4 million for the full year, up 10% from 2015. Diluted earnings per share was $0.35 for the quarter and $1.47 for the year, up 8% from $1.36 in 2015.

The effective tax rate was 34.9% in Q4 and 37.5% for the full year, which was lower than expected due to some one-time tax adjustments and lower state tax expense. The lower tax rate added $0.02 of EPS in the quarter and the year.

Now on to the balance sheet and cash flow statement. During the quarter, we collected $13 million in cash flow from operations and $96 million for the year, which is 1.7 times net income. DSOs were 73 days in the quarter, a 5-day increase from the fourth quarter of 2015. The increase is due to the timing of the Edaptive acquisition and year-end funding modification delays at the start of the government fiscal year.

Free cash flow for the year was $85 million, given capital expenditures of approximately $10 million. During the year, we invested $61 million in the acquisition of Oceans Edge Cyber and Edaptive Systems. Additionally, we distributed $32 million in dividends, maintaining a steady return of cash to shareholders. At year end, we had $65 million in cash and no debt. The Board has authorized us to continue our current dividend level, with $0.21 per share to be paid in March. This equates to an annualized dividend of $0.84.

Now for the forward outlook. Before any acquisitions, we're calling for 2017 revenues of $1.625 billion to $1.7 billion, net income of $55.5 million to $59 million and diluted earnings per share of $1.42 to $1.51. At the midpoint of the range, approximately 80% of guidance is expected to come from current backlog, with re-competes lighter than usual. We have cleared through a number of the Army re-competes and have greater clarity in 2017 in that area. The net results of these re-competes is a 2% headwind to the overall business in 2017, which is included in our guidance. We have a clear path to growth with our recent awards. The timing of ramping of some awards may be impacted by clearance process delays, and in some cases a highly competitive demand for skilled labor.

First-quarter revenues are projected to be up slightly from fourth quarter of 2016, with a similar number of billable work days, and then we will build through the year. The implied operating margin guidance for the year is 5.6% to 5.7%, reflecting continued investments in key growth markets. A number of our contract awards in 2016 were bid when price was a major award criteria, and as such it will take time to see the impacts of a return to best-value contracting on our operating margins.

The ranges for net income and earnings per share compared to 2016 are impacted by a return to a more normalized tax rate and a projected increase in share count. Built into our guidance are an effective tax rate of 38.5% and a fully diluted share count of 39.2 million shares. Cash flow from operations should be between 1.6 and 2 times net income.

Overall, we are pleased with the improved market visibility and prioritization of needs within our customer requirements. Now Dan will speak to our defense and federal civilian business.

Good afternoon. ManTech Mission Solutions and Services 2016 financial metrics were the best in the four years I have led the business. Strong top and bottom line, excellent cash management, and continued strong bookings describe our 2016 performance. Investments to improve our business development talent and processes will continue to be a priority in 2017. Additionally, one of my strategic focus areas will be to continue our expansion of the business into emerging IT capabilities including cloud, agile, and dev ops where we are seeing strong demand from customers.

As Judy mentioned, we have cleared through the 2016 headwinds we faced in our Army business, with multiple re-competes. Key to our success was a late fourth-quarter award of $152 million award supporting the Army's CECOM Software Engineering Center, in which GAO denied a protest by our competitors.

We continue to expand our sales approach across the Navy warfighting centers in SPAWAR, NAVAIR, and NAVSEA. In 2016, the award of new work supporting SPAWAR at the United States Naval Observatory exemplifies that approach. Also of note, we won $87 million re-compete providing combat weapons system support to NAVSEA.

In December, as Kevin mentioned, we closed the acquisition of Edaptive Systems, and I'm pleased to welcome them to the Group. The company fits precisely with our strategy to expand our presence within the federal health IT market. Edaptive provides talented employees, exceptional capabilities, past performance, and deep customer relationships at HHS and CMS. The integration is off to a great start, and we're excited by the enhanced positioning and are already pursuing new work together.

With the strong execution, recent awards, investments made, and momentum built in 2016, I look forward to continued success in 2017. Bill?

Thanks, Dan. The Mission, Cyber and Intelligence Solutions Group had a great year and quarter. We had many wins in 2016, both new work and re-competitions. We continue to staff our current work as well as the new wins with highly qualified people. Within MCIS, full-spectrum cyber support is a core foundational capability.

Over the course of the last quarter, we continued to expand in the area (technical difficulties) and cyber operations. We continue to experience substantial and growing demand, and we are consistently able to win both new work and re-competitions based on our exceptional technical staff, innovative tools and frameworks, and proven performance.

From a defensive cyber perspective, we continue to expand our presence within the FBI, now serving as the largest cyber security provider on the Enterprise Information Assurance and Cyber Security Support, or the EIACSS blanket purchase agreement, where we are providing cyber engineering, information assurance, threat monitoring and detection, incident response, and security operations center support. We continue to leverage our acquisition of Knowledge Consulting Group, or KCG, and Oceans Edge Cyber, and have successfully realized the synergies we expected as part of our acquisition plans, winning re-competitions within the federal government, military services, and commercial customers.

With wins in mid-2016 and the subsequent staffing this quarter, the combined ManTech team now has the largest presence on the Continuous Diagnostic and Mitigation, or the CDM, program at the Department of Homeland Security. We provide continuous monitoring as a managed cloud-based service across 44 agencies, and we're also implementing privilege-access management for 65 government agencies.

Building on our cyber capabilities, we also won a significant contract valued at $323 million within the intelligence community which couples defensive cyber with enterprise management, which we noted in last quarter's earnings call. This provides a new vehicle for ManTech's ITSM, or IT services management, model to expand in support of a large geographically dispersed organization, the National Geospatial Intelligence Agency. I am pleased to report that we are well on our way to being fully staffed on that program.

We will also build on our experience elsewhere in the intelligence community as we support the customer in their efforts to migrate to eyesight services. From a defensive cyber perspective, we leverage our qualifications in cyber engineering, endpoint security, network security, and security operations center support.

In summary, we're optimistic about the market environment and strongly believe that our positioning is well aligned to our customers' strategic priorities. We look forward to leveraging our strong balance sheet to accelerate our growth through acquisitions. With that, we're ready to take your questions.

(Operator Instructions)

Brian Kinstlinger, Maxim Group.

My first question is I'm curious about the Army outcome. It sounds like it was a 2% headwind. Could you update us? Were you consolidated out, or did you just lose some share? And maybe is that ramp already reflecting in 4Q or will we see that sometime in 2017?

I will speak briefly to it and then if Dan wants to add to that. There were three, broadly three, competitions within the Army that we had worked on that had scale to them.

We won one, another one we won as a partner and another one we lost and were not successful on the protest. Combined those were the 2% headwind and that actually started to affect a little bit in Q4 and will level off as we execute Q1 in terms of the overall impact on the business, but it is still an overall 2% headwind year over year.

Then quick one on the bookings in backlog. It seems like revenue and bookings are $70 million apart, yet backlog went up by about $300 million sequentially. Can you go over the dynamics or explain what I'm missing there in terms of the increase in the backlog?

Yes, obviously Edaptive added some to the backlog that we did not include in bookings. And then our CLSS contract has been performing higher than we expected. If you recall there were a couple of years ago we had to reduce the backlog on that contract significantly and it is now outperforming those expectations so we actually put some back into backlog that we had removed in the past.

That's great. The last question I have is ManTech clearly has significantly more cost-plus than your peers. Do you see this, when you look at your backlog and proposals submitted, changing in the next year or two years or three years? I'm trying to gauge or potential to narrow the gap of your margins versus your peers.

Broadly, you follow the customer's procurement patterns as to the type of contract that they lead. We're not going to shift our customer mix in order to respond to their contract performance type.

That said, in the pipeline we do see a slightly higher mix of work that is either TNM or fixed price. We see a higher set of solutions because the government is looking for more opportunity for responsive answers to how we can improve things and over time I think that will, or may, shape towards a more -- a less cost-plus mix. That said, it is very much dependent on how the customers procure.

Brian Rittenbur, Drexel Hamilton.

Couple of little housekeeping things, then some real questions. Tax rate, can you repeat that tax rate for 2017 again?

We're expecting 38.5%.

Then can we talk about the revenue was essentially in line but EPS was below consensus. Is that because higher G&A, lower gross margin on a year-over-year basis, operating margin shrink. Can you help me decipher what is going on, on a year-over-year basis? Revenue's growing earnings are not.

In fourth quarter, obviously fringe is higher. It was higher this year than last year with some healthcare costs and then people taking vacation and things like that. Primarily it's the indirect cost driver for that going up.

You expect gross margins to essentially be flat on a year-over-year basis, but the difference between 2016 and 2017 earnings is a higher SG&A, is that correct?

Some of it will -- fringe impact both cost of sales, and to a lesser extent the G&A line.

The cost of sales gross margins are going to be weaker on a year-over-year basis versus -- 2017 versus 2016? I'm trying to get where is it going to come out of? Is it a weaker operating gross margin, which it sounds like it is on the growth side, is that correct?

No the gross margin should be flat year over year. So it will be -- you're right, the SG&A side.

It's not an SG&A impact as much as it is a gross margins being flat, tax rates being essentially flat to slightly up. Then I'm just trying to understand what is built into your assumptions on the revenue. You say 80% of your revenue is already in backlog. What happens with the CR as well as the Trump affect? What have you factored it on that, both positive and negative?

Generally over the last few years our customers have already gotten used to a CR. I would say that is the norm. The procurement activities they are fairly confident on in terms of being able to execute upon an award.

We're really not seeing a slowdown on whether requirements to submit a response proposals, adjudication timeline, there are some delays in some agencies just as they transition to senior leadership, but broadly we're not -- in the customer sets we're seeing, we're not seeing or hearing of any concern as a result of the CR and the expectation is that with the new administration they're going through the process of talking about a supplemental and deciding which components of the overall budget that they will potentially approve. If those get -- if actually budgets get approved on the DoD side or the supplemental comes in, I think for the industry that could provide some upside that frankly is not built into procurement requirements that have been laid out to date. Having said that, I'll ask Dan if he's seen or has any different view on that on the DoD side. Dan?

No, I agree with you just stated. I don't see different on the DoD side.

A couple other minor ones. Re-competes, you mentioned that there's going to be less re-competes that you're going to have this year. Can you give us a percentage of what it's going to be in 2017 versus what it was in 2016?

Built into our guidance at the midpoint is about 10% of coming from re-compete wins, which is last year we were looking at about 15% in our initial guidance.

Okay, that's helpful. Last question, progression of EPS, similar to 2016? Should I be looking for anything different on a quarter-to-quarter basis? Is there going to be any blips in there?

No. It should be relatively consistent with last year.

Tobey Sommer, SunTrust Robinson Humphrey.

Hi. This is Kwan Kim on for Tobey. Thanks for taking my questions. First of, regarding small business (inaudible) sites, has the issue abated recently or is the magnitude of the impact still the same? Are you expecting any changes to the rule under the new administration? Thank you.

On the second we really cannot respond to that. It is a policy decision that we will have to wait and see. Just like any administration, what becomes a priority and how it gets built into their future acquisition plans.

We're not banking on any change on that. It could be upside if it does happen. The overall headwinds from 2016 to 2017 still exist. That is part of a factor that we have come into our guidance because for the last few years that overall policy direction has been consistent and has created a headwind, and we have built that into the overall view of the 2017 guidance range.

What are some of the trends you are seeing on the protest side? Are you seeing the same level of protest this year compared to the level last year? Any comments there? Thank you.

Protest levels are consistently high. It just adds time to go through the process. That said, I would say that within the business, both components of the business, we're going after larger procurements, we're going after more new business within our overall pipeline.

You add $7 billion to the pipeline last year that we submitted. We expect $7 billion this year. A higher portion of those are all for new efforts, and we're increasingly successful on those. Directionally, even if there is a 100-day period of delay from protest, we are fairly bullish on our outlook moving into 2018 just based on our market position.

Got it. Lastly, are there more candidates now for acquisitions under the new administration? How would you rank the assets and capabilities you would like to add to your portfolio in the near future?

The capabilities are fairly consistent I think, and Dan and Bill can add if they want any flavor because they've definitely matured the areas that we want to focus on over the last few years. But the businesses are fairly known, and it is a matter of the timing of when they want to come out.

I would say that it is somewhat consistent, it has been a little bit disruptive going into and exiting an administration change. That is not unusual, but we are seeing some decent businesses that we have interest in out of the market and we're looking at. Bill, you want to talk any about the areas that you are focused on?

Sure. I can say that I agree with what Kevin said. We're seeing some good businesses. We all believe we will see more this year, which is good. But we focus, at least in my part of the business, we're focusing on businesses that have capabilities that would be additives and in addition to what we do to the intelligence community and in the cyber business.

Dan, do want to add flavor to your area?

Yes, I think along the same lines that Bill highlighted there. Certainly I see companies that they are looking for success, potentially an upturned market. And they may wait a little bit, a couple of companies are in a wait and see mode if the market turns with a new administration. Otherwise, pretty steady what we have seen the last year or so.

Gautam Khanna, Cowen and Company.

Wanted to just touch on a couple of things. One, you mentioned sales in 2017 still reflect some of the weaker pricing in the backlog. When does that start to move more favorably, and maybe if you could comment on the pipeline of opportunities you are bidding on? Should we expect that the cost-plus mix starts to move toward more TNM and fixed price in the coming years, or are we going to have the same type of mix but maybe with better pricing?

I think it will be a combination of both. I think we are seeing a little bit more returns and best value in evaluation criteria.

We heard a lot of talk on the DoD side about moving away from cost-plus but we continue to see RFPs that way. We are seeing, though, as one of the areas Kevin mentioned was in the managed services area which is a more of a fixed price service where we would expect to see margins start to improve.

In a very high level, for the many years (inaudible) had reduced costs as a result of some debt constraints, and now you can tell from the DoD and other folks that they have capabilities gaps, they have skill gaps and that supply and demand mix and that availability to prioritize that over debt reduction helps with those decisions from a policy level as well, which helps our whole industry.

Got it. Would you say in recent quarters you have had much more best-value type awards in the bookings? Is that a fair statement compared to a year ago or maybe even earlier in 2016?

No, I would say the proposals we have submitted in the last quarter or so have been starting to gear towards that way, but the things that we've won in the last couple of quarters were bid, 9, 12-plus months ago.

Fair point. That make sense. Judy, by the way, what is the inorganic contribution in the 2017 sales guidance?

At the low end, the inorganic? Is that what you asked?

Correct. The acquired sales, yes.

We roll them into our operations so we cannot really contribute -- or determine how much is going to come from the sales. Edaptive was really a capability play. We're using them to be able to bid on a lot of our health IT areas, so it is not really going to be attributable to them, if that makes sense. They were both pretty small acquisitions that were we had more capability plays.

Got it. Is it fair to assume under 1%, 2% that rang? $20 million, something like that?

Yes.

Okay. One thing I was wondering is on paper it seems like you have great exposure to many of the favored agencies and areas under Trump, under the new administration. But just so I'm calibrated, do you guys have much exposure?

Maybe you could explain where you have it to the unloved agencies under the Trump Administration? I'm thinking of the EPA, Department of Education, I am spit-balling here, but anything where you worry that maybe the work does not have as long a tail under the new administration?

I would say given our business mix, there is very little that we worry about as a result of that. There's certainly more upside than downside based on the prioritization that is happening, at least from a discussion of budget priorities.

We have very little work. That is why I mentioned that the highest profile we have in DHS is in CDP, in the cybersecurity office within DHS.

Okay, that's helpful. Kevin, what were the CLSA sales in 2016 and in Q4, and then what do you anticipate they will be in 2017 and beyond, if you have a view?

It has been flat from 2015 to 2016, about $100 million to $110 million and we expect that into 2017 as well.

Does the profitability of that stay relatively constant year to year?

Yes.

One last one on the M&A pipeline. You guys have a great balance sheet, obviously, and a little more budget certainty than you have had in the past. How comfortable are you stretching the balance sheet beyond the tuck-in acquisitions you have done the last several years for something bigger? A, in terms of you comfort level and B, in terms of the opportunity set? If you could comment on that. Thank you.

The opportunity set, I think we've talked a little bit about it. I think that it's a normal operating set and there are some good businesses out there that we have constant dialogue with. I think we're all gaining weight from a lot of lunches to make sure we stay current and close with some of the better companies out there.

From a debt level, yes, we are gaining more confidence, but you know how budgets work when they have to hit the discussion points. I think that's going to happen in March and early April, and we will see how that plays out.

We have more confidence in where the priorities are headed, recognizing that it's still a fluid negotiation environment through the decision-makers and policymakers in Congress and the executive branch. We have a decent likelihood, if we find the right businesses which is the first priority, to be a little more aggressive and to accept a slightly larger amount of debt. But it's not going to be moving way out of what we call a normal debt capacity range within our business.

You define that as how, what is the normal range on an EBITDA basis?

We have a 3 times leverage level that we have comfort with, but very rarely do we hit that level. We are very focused on having a business that's got to be executed on one plus one equals three, and the synergies really work.

The larger those businesses are, the harder that is to work because the procurements we're going after now are largely the procurements that everybody that is larger than us is going after as well, because were able to play at that level. We have to have certainty around what the combination will bring.

Amit Singh, Jefferies.

Just a quick clarification of what was discussed earlier. You were saying around 1%, 2% inorganic in FY17. Just want to make sure that makes sense. Then if you could also talk about what was the organic revenue growth in the fourth quarter and full year FY16?

In fourth quarter it was a negative 4% and 2016 was 1%.

Just to clarify, in 2017 you are saying around 1%, 2% inorganic?

Yes.

Just wanted to come back to the margin thing again. If you could, maybe I missed this earlier, the margins, in 2016 were better than in 2015. Then if anything, over the last two years maybe the pricing broadly relatively speak, has been flattish. Why would it go from now 5.7% in 2016, which was up 20 basis points to now being down 17% again?

There's a couple of reasons for that. First and foremost, we're going to continue to invest in the business. We talked through how the recent awards and re-compete wins have been in the market era where profit and budget pressure was very high.

Then we did lose -- or had some fixed-price contracts that ended, and lost some smaller re-competes over the course of the year that were at higher margins. Those three things are driving why we're being conservative in our 2017 expectations for 5.6% to 5.7%.

Then you talked about in your guidance I think 80% of it is from the backlog that you currently have on file. Is the rest of the guidance assuming that the CR continues for the full year?

Some of it is just the timing of re-competes and the timing of new awards. If awards accelerate, that gets us towards the upper end of the range. If the CR causes delays, that gets us to the lower end of the range.

Ed Caso, Wells Fargo.

Good evening it is Rick Eskelsen on for Ed. I wanted to ask a question again on the margin front. I know in the past you've talked about a 6.5% longer term operating margin target. Does that still hold, and is it still doing, after this year, 20 to 30 basis points of margin expansion something that you are targeting and think you can achieve?

Yes, long term our goal would be to try to improve margin 10 to 30 basis points over the next couple of years. But it is all going to be dependent on the timing of the mix shift and the awards under an improved budgetary pressure environment.

From a pricing standpoint, do you think 2017 is the bottom in terms of when you see the impact from the tougher pricing environment flow through your business and then as you move into 2018 and beyond you start to get some benefit from pricing swinging back towards best value?

Yes.

The last one for me, just a question on the ability to find talent. I know in the past you talked about how some of your projects have been slow to ramp up because finding talent. It sounds like things have gotten better there, but maybe if could talk more broadly about the talent environment and how easy or not it is to find people?

This is Bill. We are seeing improvement in our ability to find people. We have made a lot of changes in our recruiting program, in our recruiting staff over the years and we are having much more success with retention.

Obviously the more people we've retained, the fewer people we have to hire to staff up. We think the environment is much better. We have seen a lot of improvement this year so far.

(Operator Instructions)

Brian Kinstlinger, Maxim Group.

Sorry, I thought I hit the star-2. I do not have another question.

(Operator Instructions)

No other questioners in the queue at this time.

Andrew, as usual members of our senior team will be available for follow-up questions. Thank you all for your participation on today's call and your interest in ManTech.

Ladies and gentlemen, thank you again for your participation. You may now disconnect at this time. Everyone have a great day.