ManTech International Corp (MANT) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ManTech Second Quarter Fiscal Year 2017 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Stephen Vather, Executive Director, Corporate Development. Please go ahead.

Thanks, Shannon, 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 2 Group Presidents.

During this call, we will make statements that do not address historical facts and, thus, our 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 risk factors and other risks and uncertainties, please refer to the section entitled Risk Factors on our latest Form 10-K and our other SEC filings. We undertake no obligation to update any of the forward-looking statements made on this call.

Now I'd like to turn it over to George.

Good afternoon, and thank you for participating in today's call.

ManTech had another quarter of solid performance. I am proud of our ability to deliver revenue growth and win both new business and key recompetes. Since our first quarter earnings call, we have operated with the greatest level of uncertainty in the FY '17 appropriations. Additionally, the President released his FY '18 budget request with costs of $639 billion in defense spending. Current House and Senate FY '18 appropriation markups show potential funding levels well in excess of the President's request. We agreed to see additional funding to our customers' budget to deal with the overall Fed environment. Given ManTech's position as a premier national security company, our customers at both ends continue to be a priority.

Now, Kevin will provide you with a view of our operations. Kevin?

Thank you, George. In the second quarter, we delivered strong revenue growth in contract awards as well as improvement across all profit metrics.

Revenues, operating income and earnings per share were all up approximately 3% from the second quarter of 2016. Additionally, we are seeing year-over-year direct labor growth in Q2, which reflects the impact of new awards and the expansion of mission requirements on some of our existing contracts.

In the quarter, we received $499 million in contract awards, a 1.2x book-to-bill, which represents the 9th consecutive quarter of bookings at or above 1x. Approximately 31% of the bookings were for new business in Q2. Recompetes contributed heavily to award activity in the quarter. Later, Dan and Bill will go into greater detail on our recent contract rewards.

At quarter end, total backlogs stood at $4.9 billion and funded backlog at $1.1 million. The total backlog decreased sequentially driven primarily by a customer-reduced material procurement expectations from one of our contracts.

We are already seeing and expecting a very robust proposal activity in the second quarter of 2017. Based on the healthy level of proposal activity, we are still on track to submit over $7 billion in bids in 2017 with a potential to exceed that figure, and we anticipate strong award activity in the third quarter.

Exiting the second quarter, our total qualified pipeline sits at $19 billion, and we maintain approximately $4 billion awaiting adjudication.

The up-tempo in demand for the next 12 months appears to be strong and sustained, and as a result, our focus for the balance of this year is on supporting proposal activity, recruiting and retention, and successfully ramping up and performing on new and existing contracts.

The overall operating environment continues to strengthen. There is a clear focus by our customers on improving operational readiness and dispute of delivery. This focus is driving increased requirements and scope on existing contracts. It is also contributing to the continued movement away from LPTA procurements.

Protest activity remains elevated and, unfortunately, has become a routine component for the procurement cycle.

Lastly, we are focused on efforts to reduce the security clearance backlog so that we can increase the talent needed to support critical contracts.

Acquisitions remain the top priority for capital deployment. We will continue to make internal investments to enhance our position in key technology and capability areas where we see increased customer demand.

Now Judy will provide you with additional detail and specifics of our financial performance and outlook. Judy?

Thanks, Kevin. Revenues for the second quarter were $414 million, up $12 million or 3.1% compared to the second quarter of 2016.

Direct labor was up year-over-year and is the primary driver of our Q2 revenue growth coming from ramp-ups on our recent awards and some contribution from the small acquisitions we completed last year. The sequential revenue decrease was driven by lower material purchases.

Given increased demand from our customers, growth of our labor base remains a continued focus for us.

For the quarter, prime contracts represented 87% of our revenue. Contract mix was essentially unchanged, with 67% of revenues on cost-plus contracts, 14% on time and materials contract, and 20% on fixed-price contract.

Operating income for the quarter of $24.9 million was up 3% from the second quarter of 2016. Operating margin of 6% was flat year-over-year, and year-to-date operating margin of 5.9% is up 10 basis points from last year. Some onetime items, including fixed-price completions and some reserve releases, contributed to operating margin.

Net income was $15.6 million, and diluted earnings per share were $0.40 for the quarter, which were up 5% and 3%, respectively, compared to the second quarter of 2016.

The effective tax rate was 37% in Q2, which was lower than expected due to the changes in accounting rules for stock options and some onetime tax adjustments. The lower tax rates added $0.01 of EPS in the quarter.

Now, on to the balance sheet and cash flow statement. Our balance sheet at quarter end shows $108 in cash and no debt. During the quarter, we collected $27 million in cash flow from operations or 1.7x net income, and our DSOs were 69 days for the quarter.

The board has authorized us to maintain our current dividend level of $0.21 per share to be paid on September 22, 2017.

Now, on to the forward outlook. As compared to our previously communicated 2017 guidance, we are maintaining the range on revenue but are raising the range of our net income and EPS guidance to reflect onetime gains in the first half of 2017 and a revision to the expected full-year tax rate.

Before any future acquisitions, we are calling for revenues of $1.65 billion to $1.7 billion, net income of $58 million to $59.7 million and diluted earnings per share of $1.48 to $1.53.

Achieving the higher end of the revenue range will be contingent on the timing and pace of material procurement as well as ramp on new contract awards. The applied operating margin guidance for the year is 5.7%.

For the balance of the year, we expect margins to be slightly lower than the first half of the year as we respond to heavy bid and proposal activities, continue to make investments, and support ramp-up on our new contracts as well as expected higher levels of material procurements in the second half of the year. This is similar to the revenue and profit profile we had in 2016.

At the midpoint of guidance, net income is expected to be up approximately 4% from last year, benefiting from revenue growth and an increased percentage of revenues coming from direct labor. Cash flow from operations should still be between 1.6x and 2x net income. Built in to our guidance are an effective tax rate of 37.7% and a fully diluted share count of 39.1 million shares.

Now, Dan will speak to our Defense and Federal Civilian business.

Good afternoon.

ManTech Mission Solutions and Services business had another strong quarter. I'm pleased to report that we were awarded several recompetes in the quarter. Within the navy market, we won an aggregate of $159 million in contract value across 3 contracts. The contracts include 2 contracts to provide engineering and technical services support to the Naval Air Systems Command and a contract to provide fleet support to the Naval Surface Warfare Center.

Additionally, we were awarded a 5-year $200 million multiple-award IDIQ contract to provide system engineering support to DARPA.

We cleared a protest for the DHS, Customs and Border Protection, business intelligence support services contract. This $229 million 5-year contract was successfully transitioned in June, adding 80 additional employees to our roles and will continue to ramp to support the expanding requirements in intelligence analysis, data analytics and threat assessment and visualization.

On a call earlier this year, I mentioned that one of my strategic focus areas would be to continue our expansion into emerging IT capabilities where we are seeing increased customer demand. I want to highlight that we recently won our largest managed service contract to date. A 10-year contract in excess of $150 million. The awards are Q3 booking, where it demonstrates ManTech's success in offering differentiated solutions to its customers. We are aggressively preparing for the transition to ensure that we meet our customer's requirements and look forward to begin performing on this award.

Bill?

Thanks, Dan.

I'm pleased to report that MCIS also had another good quarter. As a highlight, we received $124 million in contract expansions and new awards from the Air Force to provide full-spectrum security, integrated management and business systems solutions. These wins were enabled by excellent program execution and past performance as well as our ability to bring innovative approaches to solving the customer's needs.

Additionally in the quarter, we have several other new and recompete contract awards from classified customers.

Last quarter, I mentioned that we were seeing increased scope on our full-spectrum cyber programs, and now, we are seeing similar expansions on our program protection and enterprise IT efforts. Given the pace of new contract awards and expansions of requirements, we are experiencing strong labor growth, and our focus is on attracting and retaining critical talent to assure mission success. I am pleased to report that we continued to see staffing successes and we are fully staffed on our recent large win with the FBI.

As we speak, we are approximately halfway through the transition on the new Air Force win I mentioned earlier.

We are and we'll be responding to a robust level of proposal activity for the balance of the year.

Additionally, we are continuing to invest in the business to enable future growth. Some of the key investment areas include cloud computing, full-spectrum cyber and managed services. We are collaborating across the company in these key investment areas, which is leading to the development of innovative solutions to help solve our customers' most demanding technical challenges.

In summary, we remain optimistic about the market environment and strongly believe that our positioning continues to be well aligned with our customers' strategic priorities. We look forward to leveraging our strong balance sheet to accelerate our growth.

With that, we are ready to take your questions.

(Operator Instructions) Our first question is from Gautam Khanna with Cowen and Company.

It's Lucy on for Gautam. Can you please talk a little bit more about this one contract where you're seeing lower material purchases, which drove the sequential sales decline?

It's actually a backlog decline, not a sales decline in terms of the backlog number we mentioned. And what happened is basically, we had a modification of the contract, where positively it basically provided us an extension and a continuation of the labor. But the government decided not to have the level of ODC procurements that they had originally expected on that contract, which is fine by us as a company, but they basically moved that off of that contract.

Okay, so this -- you won't -- essentially, not recover this amount going forward, right? It's a new baseline in terms of your backlog, funded and total?

Yes.

Was there any deep booking in the quarter?

That was all just deep booking. Everything we just talked about was strictly related to the backlog, and so it was the debooking related to that. No impact on operations or revenue or anything.

Got it. Okay. But you also addressed the sequential revenue decline citing lower material purchases, right? And what was that?

It wasn't related to that contract. It's just we have a number of contracts that part of what we do is make purchases on behalf of the government and those can be very lumpy, and it was just a little bit down this quarter compared to last quarter.

Got it. And you talked a little bit about one contract that you -- one award that you have booked in Q3 already, the 10-year $150 million emerging IT contract. Can you -- and it sounds like Q3 bookings will be pretty strong. Can you maybe talk a little bit more on that?

Yes, this is Dan. I mean, since we haven't got a release from the government agency, we don't release information -- we don't make a press release on an actual customer until we've got a release from the government agency. Pretty standard practice for us.

To that point, though, the amount of adjudications and potential awards in Q3 are expected to be strong based on the amount of bids that we have outstanding and their expected decision date.

Right. Would it be fair to say -- I mean, it sounds like across the board, most of the industry is expecting a nice year end, a fiscal year end to Q3 in terms of bookings. What would be considered a strong quarter for you for the September Q? Would it be closer to 1.5x to 2x book to bill?

Well, we -- our last 12 months has been about 1.6x book to bill. It would be great if we can achieve the same, but I can't -- we can't guarantee that. We just know there is a heavy amount of activity. Customer has money to obligate, and they're moving fairly quickly to try to work through that. So we're fairly confident in the industry at large that there's a lot of movement in terms of decision making and obligations.

That's good to hear, and one last one before pass on is if you can address the larger recompetes that you have coming up over the next 12 to 18 months and what -- where are they in the process?

So in the balance of this year, each quarter our amount of revenue coming from recompetes has declined, and now, it's about 3% for the balance of the year. We do have our MRAP contracts coming up for recompete in the second half of this year, with the start date some time in Q1 of 2018 if the government stays on schedule. And then otherwise, we do have -- that's our largest recompete coming up. We do have a number of smaller ones that are weighting to, I think, over the term of 2018, a slightly higher amount of recompete than we normally see.

Our next question is from Joseph Vafi with Loop capital.

Good quarter. I was wondering if we could talk a little bit about trends in direct labor margin. Sounds like direct labor is picking up and there's been more hiring recently as a result. And I was just wondering how the margins in direct labor are looking right now.

We'll talk about direct labor and a little bit about margins, but I'll also let Judy add more flavor. So we have been very focused on, as you know, investing in and going after contracts. We're starting to see good movement on that. The staffing of the contract awards that we've received in all of our business, we've been successful at ramping those up. And we're seeing the fruit of that in terms of the labor growth, which is very healthy and very good for our business. And that's not only on new contract awards, but that's also on expansion of work on existing contracts, which is an indicator of the customer's demand in the type of work that we do. So those are all good trends.

We are investing heavily in the second half of the year based on a combination of just a heavy proposal volume expected. Not just award volume, but a heavy proposal volume expected for the next 6 to 12 months, and we want to continue our investments and differentiation and preparation for that activity so that we can continue our growth pattern in the out-years. And so for this -- the second half of this year, that's going to kind of restrict our overall returns on the bottom line in terms of improvement, and we'll have to see in 2018 how everything plays out in terms of how that positions itself. Judy, you want to add that?

Yes, I think just in general, we see a higher growth in operating margin coming -- the higher percentage of revenue coming from direct labor, but as Kevin mentioned, yes, we are making these investments. Also, typically, we see in the second half of the year a higher level of ODC procurement on behalf of the government, and that we have planned kind of into our modeling for the year, especially this year, as they've thought, funding that they're trying to get under contract and that's one of the ways that they can do it.

Okay. And then, just kind of a higher-level question. On this managed service deal and kind of just the inevitability of more cloud computing and things like that. I think some of your peer companies have made the investment in doing some kind of near-shoring or on-shoring and lower geographic -- lower-cost geographic areas where access to labor may be better than the northern Virginia area. I was wondering if that is something that may fit into your business model at some point in the future.

So yes, this is Kevin. A lot of the work that we're seeing -- I'm going to go back to contract types first. The government cost-plus, T&M and fixed pricing, which is a fixed price, they're going to transition the overall risk profile into a "you manage the whole thing" type of procurement. That's just the baseline. I think you know that, obviously. But within that, the customers that we're dealing with, we're pretty much dealing with work on their premise and asking us to manage certain IT capabilities on their premise, not nearshore. And I think that some of our customers also are still focused on retaining, I guess, access to their information, locally as well and trying to work through how they would do that long term away from their premise.

So we see a lot of shift towards managed services, which is positive. There's a risk transference, which has positive and negatives with that from a return standpoint. The risk is the endpoint. We have yet to see a shift in moving away from their premise, the type of work that you're talking about. I'm sure that's out there. I'm sure it could move over time, but we haven't seen that in terms of our desired state right now.

Okay, fair enough. And then, if I just look at your funded backlog number, and I know you indicated that there were some ODCs that were taking on a backlog. Were those taken out of the funded, too?

No, they weren't funded.

Our next question comes from Brian Kinstlinger with Maxim Group.

With the improving budget environment, can you talk about your appetite for more sizable acquisitions? I think mentioned -- clearly, your guidance is before any acquisitions, right? When you say it that way, I wonder, does that assume something -- maybe your appetite for acquisition's a little greater in the past?

Yes, I'll speak to that. So capital deployment preferences around acquisitions, with more certainty in the budget environment, we'll have more comfort if acquisitions come along in terms of executing because we look to follow customer budgets, their priorities in our decision-making process in acquisitions. So we cannot time when acquisitions come out, obviously, but we do have a stronger appetite for them as they come through. Size-wise, we're still at a 3x to 3.5x leverage. We haven't seen anything that would change that view because the combination has to provide a greater top line from the combination, meaning 1 plus 1 equals 3 versus just getting bigger for the sake of getting bigger. And that view within ManTech has not changed. So yes, we're interested in acquisitions. Yes, we want to use capital for that purpose. No, we're not going to look for sizable ones just for the sake of getting bigger.

Got it. And I joined the call late, I just missed the awards awaiting adjudication and the proposals you're expecting bid over whatever timeframe you provided. I missed that.

So awards expecting -- adjudication that we have $7 billion, this year, we're expecting to submit. The back half of this year has about $4 billion or more, depending on whether they stay on pace for the contract awards. They could extend, as they often do. But right now, based on customer decision dates, those -- they're about $4 billion we'd expect in the second half of this year.

Can you give any awards awaiting adjudication?

Yes.

So what was that number, sorry?

$4 billion.

Oh, $4 billion is awaiting adjudications, not the submissions.

Yes, correct.

Got it, okay. Sorry. And then of that $4 billion, how much of that is new versus recompete?

It's a mix that's much heavier towards new work than recompete work just based on the timing and the lower recompete year we had this year.

Great. And then the $150 million IT contract that you haven't PR-ed yet, is that a single award IDIQ? Or is it a firm number over 10 years?

It's a single award contract, not an IDIQ.

But my question is, IDIQ, is it -- Have you put $1 in the backlog? Or is there a much bigger portion you put in the backlog knowing that you'll recognize certain revenues?

There's nothing in backlog right now because it's a Q3 award.

Okay. And that's all new business, right?

Yes.

Great. And then you mentioned twice the onetime benefits and awards piece. Can you quantify that in the quarter?

I think it was kind of similar to last quarter. I think it was $0.01 to $0.015 of onetime items. We would've been about 5.7% operating margin without those onetime items.

Our next question comes from Tobey Sommer of SunTrust.

In terms of the increased investment on proposal activity, could you quantify like just the order of magnitude of -- that you're thinking about investing? And did I hear right that you said maybe 6 to 12 months of elevated investment?

We have -- based on the pipeline in front of us, there's a lot of demand for the services we provide today. It has been that way for the last year, 1.5 years. We expect, based on the visibility we have, the proposal activity for the next 12 months to be as elevated as it has been for the first 6 months and, frankly, potentially more than last year in total, which was, I think, $6 billion to $7 billion.

So yes, for the next 12 months, we see a lot of proposal activity, and that will require business and proposal investment, and it will require solutioning, and it will require an above-average amount, even though we've already baked in to the organization some of that proposal activity. It is going to be a little bit higher, based on the up-tempo that we see within our customer set and the opportunities in front of us.

So is it a handful million dollars? What's the financial impact on the back half?

Well, I guess, about 68% cost-plus. So it's not going to be huge, but at the same time, we are trying to make sure we temper the fact that we have a lot of expenditures in that 5.7% margin. Maybe temper it down a little bit from that as we spend money towards the top line over the next 12 months -- 6 to 12. We'll see how the first half of next year plays out.;

Okay. Could you -- where does direct labor stand today in terms of its contribution to the company? And do you have a goal for driving that higher in it is -- like over several years? Not asking for a guidance or something like that, but do you have a target? And could you kind of frame where we sit today numerically to where we might be able to go?

That is a hard thing to answer because we are a services company. The more we win, the more we want to staff and it becomes a demand issue in finding the right talent to do that. But I would say that as long as we continue our strong book to bill and we're not going to change the profile of the type of work we do. You should expect the labor component of our business to continue to grow and it will be fairly good.

And we still have subcontract works we have provided to small businesses to meet goals, and that's not going to change. And we have partnerships in order to win business, and that's not going to change. But overall, we're seeing a significant increase in the type of work and demand for the work that we do, of ourselves and the partners that we team with.

Another follow up on M&A. You referenced kind of your markets and demand being good for your services so that increases your propensity to kind of want to be involved in acquisitions. Conversely -- like what's happening on the other side in terms of properties for sale? Could you characterize today's climate versus last year's?

It's spotty. I would say that just based on the overall market environment, there are more businesses that we're seeing come out, and that's a good thing for our industry at large as well as ManTech. But I wouldn't say that it's going to be that the full year any different than in the other year. I just think that more companies are looking at the market and are seeing a greater opportunity to exit if that's what was their plan and get a return.

Okay, last question for me. You mentioned, I think, when you discussed the guidance that net income and diluted shares -- and diluted earnings, excuse me, were benefited from the onetime. What was the benefit to both of them, just so we can compare it to the prior guidance?

For the tax rate? Yes, it was about 0.5% tax rate. So in general, it's now trending down lower than we have projected. We had started the year at 38.5%, and now, we're projecting 37.7% for the whole year.

And that's the only difference?

Yes. I mean, so the change in the stock options. And then in Q1, we also had some other discrete onetime items -- tax items.

Our next question comes from Ed Caso with Wells Fargo.

It's Rick Eskelsen on for Ed. Just first question is, you've talked in the past about finding people as being a gating factor to revenue growth. Could you talk a little bit more about sort of the ability to find people with the steps you're taking in terms of your recruiting efforts, maybe your training efforts? And if there's any steps that the government or the industry can do to help on that talent-acquisition front?

Yes, it's great question, and I'll lead in and let Bill or Dan add behind it. So the market -- the environment, generally, not just in our sector but in the economy where at large, is very open to technologists. So there's a broader opportunity for people to go different places. And so we have to be very focused on how we attract and retain talent, spend a lot of investment on that as well, along with the business-development side. We're seeing success from that. Our turnover -- voluntary turnover has leveled off. Our ability to attract and retain talent has increased. That is hard, hard work, but it's important. We're also focused on in creating specific training programs to try to make sure that we can get the talent in-house for areas where we know clearly that there's going to be a demand in the market, and we're focused on that as well.

So a lot of effort in and around that. The biggest constraint that I see is more around the clearances and getting people cleared just because the backlog is high. And that's why we're focused on that to make sure we work with our customers as well as the visibility on getting people cleared through that pipeline just based on the demand and the amount of time it takes to get a clearance.

That's helpful. Also, just wondering, you've mentioned the MRAP recompete. I wonder if you could put some size parameters around that in terms of length and then also, the potential size of the contract. And then, just remind us what the rough revenue contribution of that is at this point in time?

So that's a contract that's under recompeting. For competitive reasons, we're not going to discuss that information.

Last question. Just in terms of the pricing environment, you've talked about it moving away from LPTA in terms of more desk value. Just maybe a little more details on the pricing dynamics as you see it in the market.

This is Dan. Certainly, there is a movement away from LPTA. I think there's been some lessons learned within the agencies. That said, however, it is somewhat specific on customers. And although we see the move away from LPTA, still a large number of best-value contracts are won by the person at the lowest price. So it's definitely trending, but it's still -- cost is still a customer dynamic.

Ed, this is Bill. As you probably are aware, LPTA has really never been much of a big issue in my business, the intelligence community. That said, we are very careful, as Dan said, with cost on everything we did.

And just in terms of -- when does business overall kind of anniversary the impact of the move towards lower pricing? I mean, are we getting towards the end of really seeing an impact on -- especially on the margin side this year? Or is it more into next year or beyond?

I think it's beyond next year. I mean, if we had 5-year contracts that were awarded 2 years ago, they still have 3 years left. So I mean, it will start to shift, but we will be all the way through it for a couple of years.

Our next question comes from Brian Ruttenbur with Drexel Hamilton.

First of all, I -- a lot of my questions have been asked and answered, but on the CR, I don't think anybody said that. Can you talk about timing? What I've been hearing pretty consistently is that probably a CR is through the end of this calendar year and a January pass, are you hearing anything different from that?

No, that's what we're hearing. The only add to that is the debt ceiling, sometime at the end of Q3 being a primary focus, and that will drive the CR until January, sometime in that for a timeframe.

Okay. And then, moving on to some -- just details on LPTA. With that going down, what does that potentially mean for you guys? Is that a general drifting up of margins? You say that it's positive but it's not super positive. I'm just trying to figure out what that means for you guys.

So I would say, in general, it's positive in that it allows us to bid a better solution, higher-quality people, and some margin assistance there, because price isn't going to be the ultimate decider. For us, though, for it to -- for margins to ultimately see an increase, it's not only away from LPTA but a shift in the mix of business, too, from cost plus to fixed price.

Okay. And then my last question is about recompete is coming up over the next 12 months. Can you talk about your percentage of your portfolio coming up for recompete? Is that 15%? 20%? Can you give us some kind of number?

Yes, we have said that we're looking at potentially about 30% of our revenue at some point in '18 coming up for recompete. It's a heavy recompete year for us next year.

Our next question comes from Robert Spingarn with Crédit Suisse.

On the back of that pricing question, I was just going to ask you, in terms of competition, have you seen any change -- not so much from a pricing perspective but from a competitive targeting perspective, do you see your competitors narrowing their focus or widening the aperture? In other words, we went through this period where the budget was compressing and everybody was reaching for -- bidding more, if you will, to offset the pressure. Has that reversed?

Not really. I mean, I think that there are clear opportunities. There are clear players who have the capability to go after those opportunities. And we're in a competitive environment in that regard and people are still working towards that. I think the customers have made clear and are making clear what their priorities are, and that is a positive thing. And I think that different companies are in different positions around reacting to that, but that's kind of the forward-positioning play that you are seeing and will see play out.

So I did get the impression at one point that you just had a lot of extra players showing up for competitions who maybe didn't have the expertise or experience in a particular area. I think what you're saying is that if that was the case, that really hasn't dropped off, that you just might not be positioned to win, but they're still there.

Yes, the universe for competition is fairly fixed, if that's your question.

Well, yes, I suppose. I guess, what I was saying is people were reaching further afield from their normal core strengths in order to capture more business and then coming in and talking about bigger bid numbers and greater opportunities when a lot of those weren't necessarily realistic. And I just wondered if a more supportive budget environment would mitigate some of that and allow people to focus on what they're...

Yes. If you're asking if they're making a lot of stretches in the areas that they really don't have core competency, I don't think that's the case. I think it's more positive for their companies. Yes. Sorry, I cut you off...

Okay. And on that note -- okay. On that note, are there any areas -- you already got asked about M&A. Are there any areas that you don't focus on and that you would like to build a capability in organically?

I think that we have fairly clear line of sight of what we're building organically right now. I think that Bill spoke to some of that in terms of the capabilities. And if you think about our strong position in cyber; our increasing position in secured enterprise IT; the demand for data and analysis and what we call Mission IT, how to collect and analyze data specific to missions, those are not changing in the underlying technologies. And the underlying capability sets that we have to offer is defined or definable, and we're very heavily focused on that.

Okay. And then, just one last one on competition. Where you have seen some competitors acquire and become much, much larger. There are a few out there that have done that, has that changed the landscape at all? Have you seen that having any impact on the competitive nature of the business with some of these larger companies coming through now with bigger capability sets?

Yes, thanks. This is Dan. Actually, I haven't. I mean, we have successfully won contracts this year against some of those large competitors you're talking about. We've certainly lost some, but I don't see it at a greater rate. And our book-to-bill is much stronger in the last 12 to 18 months than it was in previous years. So at this point in time, no, I haven't seen an effect.

This is Bill. I would echo that. I don't think -- just scale itself doesn't really help someone bid for our job that they're not qualified to bid for, so I don't think we're seeing any difference at all.

Even where they might be putting together some disparate capabilities that once together allow for a different solution set?

Well, if you look at those large combinations you referred to, they were all companies that existed before those large combinations, so it hasn't really increased their capabilities, in my view.

Okay. Has it married certain things that therefore make them a stronger option?

Well, as Dan said, I think our book-to-bill and our win rates and everything this year would indicate that we're not seeing any difficulty brought upon by those companies.

Our next question is a follow up from Tobey Sommer from SunTrust.

I wanted to ask a question about the slow pace at which political appointees are filling jobs broadly in federal agencies. Is that impacting contract awards for any kind of new larger programs that you may be involved in bidding on? Or is that not a factor in your business and pipeline in kind of getting deals across finish line?

I think it's a factor in the industry for those companies who require a ACAT 1 program or have multiyear funding or large platforms that just need the executive level sign-off on the types of procurements that exist. So I think that's a very real issue for some companies. For us, given the work that we're doing and the demand for that and the -- frankly, the level of procurements, we're not seeing that impact our business nor the opportunity set.

Shannon, it appears that we have no more further questions at this time.

As usual, members of our senior team will be available for any follow-up questions.

Thank you all for your participation on today's call and your continued interest in ManTech.

Ladies and gentlemen, this does conclude today's conference. Thanks for your participation, and have a wonderful evening. You may now all disconnect.