ManTech International Corp (MANT) 2011 Q4 法說會逐字稿

Good afternoon. My name is Kevin and I will be your conference facilitator today. Today's call is being recorded. At this time I would like to welcome everyone to the ManTech fourth-quarter 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (Operator Instructions).

Mr. Davis, you may begin your conference.

Thank you, Kevin, and welcome everyone. On today's call we have George Pedersen, Chairman and CEO; and Kevin Phillips, Executive Vice President and CFO. Terry Ryan, President and Chief Operating Officer of our Systems Engineering and Advanced Technology Group will describe our recent Evolvent acquisition, and Lou Addeo and Bill Varner, our other two Group Presidents and COOs will join us for the Q&A session.

During this call we will make statements that do not address historical facts and thus are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to factors that could cause actual results to differ materially from anticipated results.

For a full discussion of these factors and other risks and uncertainties please refer to the section entitled, Risk Factors, in our latest Form 10-K and our other SEC filings. We undertake no obligation to update any of the forward-looking statements made on this call.

Now I would like to turn the call over to George.

Good afternoon, and thank you for participating in today's call. ManTech's positioning on high-priority programs enabled us to sustain strong financial performance for the year despite uncertainties in our markets.

Revenues were just under $2.9 billion, up 10% compared to 2010. In the fourth quarter revenue dipped slightly year-over-year from $698 million to $682 million due to fewer ODC purchase orders than had been anticipated.

We expect revenues to increase as new contracts are awarded and newly appropriated funds are made available. We have more than 1,000 active contracts that enables us to grow in all of these markets.

I am especially pleased with the $221 million in operating cash flow for the year. The cash flow machine that Kevin and his team have built is second to none. It provides us with the fuel to drive our business growth.

Our customers are operating under full appropriations which ended in December, about four months earlier than last year. This provides much more stable funding environment through September 30, and our customers are pushing through contract actions to meet their mission requirements.

For the federal fiscal year 2013 the Obama administration submitted a defense budget of $525 billion, with another $88 billion for overseas contingency operations. This request responds to budget realities and keeps the defense spending essentially constant. Both President Obama and Secretary of Defense Panetta have been outspoken in their support of defense spending and the inability for the Defense Department to withstand further cuts as part of the sequestration process.

Within this budget request the administration has made clear choices, specifically calling out intelligence, surveillance, reconnaissance, counterterrorism, counter weapons of mass destruction and cyber and space superiority. In addition, the government is increasingly focused on IT as a means to be more efficient. Our customers are actively looking to cloud-based solutions and data center consolidations to save money. Based on these priorities we believe ManTech is well-positioned for growth.

Turning to mergers and acquisitions, we are actively targeting firms to extend our business presence in new growth areas and strengthen our position on core business. Since the last call we closed the WINS acquisition, and as anticipated we are seeing a growing pipeline of opportunities on the DIA SITE contract. And the State Department is taking an expanded role in Iraq as the military withdraws. WINS puts us squarely in these markets.

Earlier this year we were able to establish a strong presence in the federal health care IT market with the acquisition of Evolvent. We have been looking for the right property for two years and we found it. Terry will describe the company in detail later in the call.

Looking forward we're optimistic that we will be able to complete additional acquisitions and bring us into new growth markets over the next year, and so we have the financial capability to do so.

Now Kevin will provide details on our financial performance and outlook. Kevin.

Thank you, George. For the year, revenues grew to just under $2.9 billion, up 10% overall and 4% organically, even though we operated for more than half a year under a series of continuing resolutions. Quarterly revenue of $682 million were down slightly compared to last year's fourth quarter of $698 million.

We had growth in the quarter on our mobile cell tower program and some Security Operations Center support. The MRAP and route clearance support contracts also contributed $147 million in the quarter, which was up $9 million from the fourth quarter of 2010. For the year the MRAP and route clearance support contracts contributed $555 million, which was up $17 million from last year. Our bridge contract has options to fund and extends to October.

This growth was offset by reductions in biometrics and ISR support in Iraq. We await expansion from some of the ISR opportunities in Afghanistan and adjudication on sizable, prime ISR opportunities on the S3 contract, as well as other new contract opportunities.

Looking at the standard revenue metrics we continued to gain direct customer access of 89% of our revenue as prime contractor. And contracts mix is still moving away from time and materials towards cost-plus and fixed-price contracts.

For the quarter 43% of revenues came from T&M contracts; 41% came from cost-plus, and 17% came from fixed-price contracts.

Income metrics followed the same pattern as revenues, with increases for the fiscal year and declines in the fourth quarter. Operating profit was $53.8 million in the quarter and $227 million for the year. Operating margins for the fourth quarter and full year 2011 were consistent with our expectations at 7.9%.

Net income was $30.5 million for the quarter and $133.3 million for the year. Diluted earnings per share were $0.83 for the quarter and $3.63 for the year.

We completed one of our best-ever cash collections years in strong fashion with operating cash flows of $43 million or 1.4 times net income. Operating cash flow for the fiscal year was $221 million for a 1.7 conversion ratio on net income.

DSOs came in at 71 days for the quarter and the year. Capital expenditures returned to a normal level in the fourth quarter after larger than usual levels in the second and third quarters with the purchase of cell tower equipment.

Even with these expenditures driving nearly $60 million in CapEx for 2011, free cash flow for the year was greater than last year's and more than 1.2 times net income. Subject to future requirements for similar cell tower equipment, we expect CapEx return to the $10 million to $15 million range for 2012.

In the fourth quarter we invested $90 million to acquire WINS and paid $15.4 million in dividends, leaving with us with $114 million in cash and equivalents at year-end.

In January we purchased Evolvent, which brings us great capability in federal health care IT, and did about $42 million in revenue in 2011. Based on FY12 projections, the enterprise value to EBITDA multiple should be about 9 times.

As noted in today's press release, we are moving from semi-annual to quarterly dividend payments. The Board has approved the first quarterly payment of $0.21 per share, which will be paid on March 23. We expect to maintain the annual dividend at $0.84 per share for a total payoff of about $31 million.

We have visibility into strong cash flows that will support organic growth, targeted acquisitions, as well as dividends, all in a fluid market. We think the continuation of a 2.5% annual yield is a compelling return of cash to shareholders.

Turning to business development, bookings for the fourth quarter were $907 million for a book to bill ratio of 1.3 times, a very strong result in a quarter considering expected more delays resulting from a continuing resolution.

For the year bookings were $3 billion for a book to bill above 1. Even in a difficult market we are able to complete and win, which gives me confidence as we prosecute a large pipeline of opportunities.

Backlog at the end of the quarter stood at $4.7 billion, and funded backlog was $1.3 billion. With a 1.3 book to bill ratio, total backlog was up 8% from last quarter.

Although there are some uncertainties around timing of awards, procurement activity continues to be very heavy. At the end of the quarter bids outstanding stood at $8 billion, which was up $1 billion from the end of the third quarter and $5 billion from last year. Based on the government's stated adjudications schedule we should see $12 billion of single award opportunities adjudicated in fiscal year 2012, with over half of these being new opportunities for ManTech.

Now to the forward outlook, our guidance for fiscal year 2012 is roughly consistent with the preview we gave on the last call. We expect to achieve revenues of $3.15 billion, which equates to about 10% growth. The guidance reflects some delays in awards and a slower ramp up on certain recent awards which are now underway, and expect to generate strong revenue growth from Q2 through the balance of the year.

As part of the topline estimate we expect in-theater vehicle maintenance support to remain roughly constant and S3 revenues to grow as we move into the year based on the number of pending awards and future opportunities, all with ManTech bidding in a prime position.

Since the completion of the 2012 appropriations in late December we have seen numerous expansion opportunities arise, as customers worked to fund requirements consistent with their future direction. We consider ourselves well-positioned in many areas such as cyber, IT, systems engineering, health care, and intelligence support programs, as well as with customers who have critical forward-looking missions, and we believe these areas will see double-digit organic growth.

We recognize the uncertainty and volatility in our support of critical overseas contingency operation missions and have factored this into our 2012 expectations.

On the earnings side we are forecasting net income of $131 million and diluted earnings per share of $3.56. This implies an operating margin of about 7.3%. We're seeing margin compression, primarily on in-theater procurements due to further moves towards cost-plus contracts, and increased competition on these programs.

The earnings estimates assume an effective tax rate of 38.3% and a fully diluted share count of 37 million shares. To help set the quarterly pattern we expect organic growth to expand throughout the year. First-quarter revenues will be roughly consistent with fourth-quarter levels. Recent and anticipated large program awards will start a rapid ramp-up in the second quarter and we expect to build revenues and cover the costs we are incurring thereafter with new large WINS, most of which have already been submitted to customers, where we are very well-positioned with over 700 contingent hires identified and positioned to start upon award.

Operating margin should be fairly constant throughout the year. We believe our historic ability to achieve operating cash flows of around 1.2 times net income for the full year will continue.

Now Terry will discuss our entry into the health care IT market.

Good afternoon. As George said, we have been looking to enter the federal health IT market for two years, and we're delighted to have Evolvent as the platform around which we can build a robust health care services business. Evolvent has an exceptional leadership team and a strong record of innovation. Over time we expect to make additional strategic acquisitions to augment Evolvent's capability and expand to other federal health agencies.

Evolvent is indeed a pure play provider of federal health care IT that combine market-leading technical skills and systems integration, software development and data management with strong domain understanding of the health care systems for the Department of Defense and the Departments of Veterans Affairs and Health and Human Services.

What is unique about Evolvent solutions and competencies is that they enable better decision-making at the point of care and full integration of medical information across different platforms. Their work helps lower the cost of care and improve health outcomes.

At ManTech we are always looking for force multipliers in an acquisition. This acquisition allows us to take skills that we have gained in our core national security business, like analytics, information assurance and visualization, and apply them to new customers with similar IT challenges.

Now ManTech can deliver IT solutions through Evolvent's existing relationships and contractually vehicles, and Evolvent has the scale now to compete and win against the larger health care providers.

Evolvent has won two major contracts in the six weeks since closing, which validates our assessment of their market position. First, Evolvent received one of seven full and open prime positions on a $958 million ID/IQ to support the Air Force Medical Service, a $2 billion a year agency with global operations supporting the warfighter and their families.

Second, Evolvent received a subcontract to provide support for IT architecture development, program management, and senior clinical systems technology to the VA as it integrates its health records and medical IT infrastructure with the DoD's service oriented architecture.

These wins put Evolvent in a great position for growth, as both the VA and DoD health programs fared well in the President's 2013 budget submission. This move into health care IT is a deliberate strategic action to expand our addressable markets and deliver strong organic growth. Back to you, George.

Thank you, Terry. This month marks the 10th anniversary of our IPO. At the time we had about $400 million in revenue, in annual sales, and $30 million in operating profit. I am tremendously proud of ManTech's success over the past decade. We have grown to nearly $3 billion in revenues by generating double-digit organic growth and acquiring 18 businesses in key technology areas using the model that Terry described.

Within a year of the IPO we acquired Aegis, CTX and IDS and fundamentally transformed our business. These acquisitions put us on a map in the intelligence community and established cyber security and IT capabilities. We are now one of the intelligence community's largest and most trusted service providers and one of the leading cyber security firms in the world.

I'm excited about entering complementary new markets, such as health care, and expanding our position in cyber and other technology areas. Our next step is to get to $5 billion in annual revenue, and the next decade will be another good one for ManTech.

Operator, we are now prepared to take your questions.

(Operator Instructions). Ed Caso, Wells Fargo.

It is actually [Rick Eskildsen] on for Ed. Just the first question, can you provide the S3 revenue in the quarter?

Let me dig up that stat for you. We will get it just in a couple of minutes. Do you have another (multiple speakers)?

Then just to follow-up, in terms of the MRAP, the contract award for the re-compete had been sliding, and I was wondering if you had updated expectations for when the re-compete is expected to be awarded?

This is Lou. The MRAP is supposed to be decided around March 29. It is on the current schedule. And hopefully it will stay on schedule, but if not, as Kevin had mentioned previously, government has already got this contract bridged through October.

Then just last thing, I was wondering if you could -- you mentioned it somewhat in terms of the operating margin guidance, but just if you could talk a little bit more about price pressures and areas where you may be seeing that? Thanks.

So the pricing pressures we are seeing are more related to the overseas contingency work we support as a lot of those -- whether it is MRAP or ISR task orders Move toward a cost-plus environment. For some of the cyber work and systems engineering work we are seeing strong growth and no decline in expected returns on those businesses based on our positioning. So it is more OCO-related pressures.

Thanks a lot.

Michael Lewis, Lazard Capital.

(inaudible). George, I was wondering if we could get an update on the ILSS contract, since it has gone back into re-compete?

This is Lou. Again, the ILSS re-compete has not been initiated. We would expect it in this quarter or early next quarter.

Then, Kevin, if I could just ask you a question about SG&A. It came in a bit higher. It had about a full $0.01 impact to my EPS estimate. What were the moving parts to the higher SG&A in the quarter, could you break that out for us?

We have for both Q4 and also in Q1 of 2012 a very heavy B&P component, very heavy activity, and that is certainly helping to drive that. And have a little bit of excessive legal expenses in the fourth quarter as well, but that should not continue at that level going forward. That is the primary drivers.

What was the legal expenses for?

We just have activities related to the procurements and acquisitions we have done. We are very acquisitive and basically the activity that we had around WINS, beginning Evolvent, our bank revolver, all just pushed into the quarter.

I got you. Then just one more question. Do you have a full-year expectation for S3?

We aren't providing a full-year revenue expectation on that. We expect very strong growth on the program as we enter into the year based on ISR activity we are bidding on. It can vary within a range that I think we would rather hold until we see the awards come through, but a very good vehicle still and we're looking forward to it.

Okay, thank you.

And there is plenty of ceiling on S3. I mean, the government had recently over the last year or so -- two years when we acquired STI there were about five more years in the bridge to S3. They just re-competed at the Software Engineering Center, the SSES contract -- we submitted that last month. And so Aberdeen, whether it is S3, the ATEC, Seacom work effort and S3 is a pretty active place right now.

S3 has been one of our most successful acquisitions.

Robert Spingarn, Credit Suisse.

I don't know if I caught it, George, when you were talking about organic growth for 2011, I think you said 4%. What organic growth is embedded or is behind the 2012 guidance?

We are expecting a 6% organic growth in the 10% guidance for 2012.

Then what kind of bookings are you looking for, and to what extent are you contemplating a CR on the 2013 budget in your numbers?

So for the bookings we are expecting very strong bookings each quarter to be each quarter based on the timing of awards to be above 1, and that is excluding the CLSS competition. So we have a very big heavy bid and proposal activity, again, $8 billion submitted. we submitted another very strong amount of proposal activity for both single award and ID/IQ vehicles this quarter, and we're expecting strong bookings.

In terms of the CR, we're expecting based on -- and folks can add here, but based on the clearing of the CR in December and the (multiple speakers).

He is talking about the previous year.

Yes, the previous year. And the direction that the government is headed, we see them very active on allocating funds, putting in bids, awarding contracts so that a lot of the activities will be positioned going into the end of this year, and we see little impact on that for us.

2012 has been totally funded. The next key point in the road, as you know, is in October 1, 2013 appropriation bill. The prevailing opinion here in Washington is there will not be an appropriation bill at that point. It will be a continuing resolution until after the Presidential election. All that implies that the funding will be there for at least our programs and our plan throughout the year.

So, George, I think you just said, you are fully funded in your current funded backlog for 2012 revs?

Are we saying the right thing?

2012 sales are fully funded?

No, no, no. He is talking about going into the 2013. So if you look at our backlog about half of the backlog that we have, the $4.7 billion at the end of 12/31/11 is expected to be used in 2012. We have a large amount of proposal activity that is to be adjudicated. And what we're expecting is that the majority of those awards will occur prior to any CR that happens in Q4 and will be ramping into 2013 based on customer requirements.

Then a question on Evolvent. There are a lot of folks getting into the health care IT area. What kind of organic growth does that business have?

The market right now, these companies typically do double-digit growth from what we have seen. Evolvent has a combined annual growth rate of double digits over their several years. So they're doing a lot better than what we see by the other defense discretionary accounts.

Okay, thank you very much.

Brian Kinstlinger, Sidoti & Company.

Kevin, you mentioned that you expected the second half of the year revenue to ramp based on awards that are in proposals right now. Can you maybe give us a sense for how much of your revenue guidance is in backlog versus how much may be needed to be won from those proposals?

So, again, about half of the backlog we had at the end of 2011, the $4.7 billion, so think $2.8 billion, $2.9 billion of backlog going into the year would be spent -- think $2.8 billion. And we're going to see ramp-ups beginning in Q2, not the second half, but in Q2, as the government has already started funding and ramping-up procurements that we won in the later part of 2011 now that the CR is done, as well as the submittals that we have. So we think that there is going to be a strong growth beginning into Q2 that go into Q3 and Q4 of this year.

So $2.8 [million] to $2.9 [million] is what is coming out of backlog -- going in, sorry.

Yes, sir.

Please remember these proposal numbers you are hearing far exceed what we have seen in the past.

Now also I'm curious in the assumptions in your guidance for the MRAP contract, what are the margin assumptions? Is that strictly going to cost-plus, and are you assuming that further is pressured in the second half of the year on profits?

What we have built into the guidance and expectation, we don't know the specific timing of the award because the government has the ability to extend, as I think as we mentioned, to October. And so we're trying to ratably build in when that may happen after this quarter based on the timing of awards, and we're building that into our overall returns. So it is not going to -- we're not building in a significant drop in any one quarter, we're trying to trail it in, and we going to have offsets based on the other strong wins that we have.

Two more quick questions. The first one is how much of the bookings for the fourth quarter were new work versus re-competes? And with that number that was printed in the press release what was added into bookings for the MRAP contract?

Yes, the $507 million is what was added in. 20% -- a little over 20% was new work.

The last question I had was -- if we think about your total revenue base, you mentioned the shortfall to revenue was biometrics, and it sounded like some other C4ISR in the field in-theater. Outside of MRAP, how much revenue do you have of that kind of work that is either in-theater, biometrics, anything else that could be subject to pressures?

The activities we are seeing that were applying pressures are the ISR-related task orders that are specific to in-theater and biometrics and MRAP. And that is where we are seeing growth opportunities in ISR, sustainment in MRAP, but competitive pressures on the bottom line for those areas.

If you combine all of it what is the percentage of revenue it is, because it is not just MRAP, right?

30% of our work is related to OCO activity. And that is the piece that we see pressures the other 70%. We think we are very well-positioned to continue to provide good returns bottom line on the business.

Thank you very much.

George Price, BB&T Capital Markets.

On the 2012 guidance, just kind of curious, Kevin, but given the uncertainty, notwithstanding you sound pretty positive on the bookings front, but given the just general uncertainty, why a single revenue number for 2012 and maybe not a range?

In the past we have provided ranges and then we went to no less than the last couple of years, and I think that from our position we have had such heavy proposal volume that it is better to provide what we think the likely outcome given all the variables, because the range -- the upper end of that range could be much broader, and we just made a decision that it is better to give a point estimate for guidance just given the bid volume and activity.

We have been very focused over the last few years on going after prime procurements, positioning ourselves to go after $100 million bids. We have a huge amount of activity out there and we think that aggregating that into what we think the likely outcome will be is appropriate.

We have never seen a proposal pipeline as rich as the one we have right now.

So I guess just then we should think about this number as the low end of a hypothetical range that you might otherwise have given, is that fair?

I think it is just the estimate that we want to provide for guidance. And we can work from there up, or if there is uncertainty, down, but we think that that is a good baseline.

Okay, fair enough. Just, George, I wanted to -- and in general, but ask about the environment a little bit. First, maybe how you would characterize the funding and award environment now versus a few months ago? And it doesn't sound like it, but I still wanted to ask you if you're seeing any holding back of funded budget authority basically this year, given uncertainty looking forward to GFY13 and sequestration? The idea being that, hey, even though there are some things funded this year you don't know if it is going to be around next year, so the money might not be getting spent even if it is funded.

They slowed down a little bit in the end of last year, the November/December time period, and in part they didn't have the acquisition workforce really structured to handle the volume of funding they had to take care of. That seems to have passed.

Now we are not seeing anybody, I will call it, holding back. It is not to say they aren't doing the prudent thing and putting some money aside, but all of our conversations tend to indicate they expect to spend the entire appropriation.

They also, as best I can tell, are expecting no holdup in 2013. It will be a continuing resolution, so they will roll right into that. That would be at last year's levels. So we're seeing it as a positive environment, not a negative environment.

Then if I could just ask a couple of questions on Evolvent, what is the revenue expectation for 2012?

We are estimating at least a 15% organic growth out of Evolvent.

What was there prime revenue percent in 2011?

2011, I believe, that 65% of their business was prime. They have other contracts they held prior to the awards, Fitzsimons being an example. And the majority of that work and most of the subcontract work was directed sub, where that work will continue as well.

And if you remember, on our recent announcements we were very pleased to have them win a couple of large contracts very shortly after we completed the acquisition, particularly with the Air Force.

Right. Is there a big or significant small business component?

No, not at all.

Great. Thanks very much.

Bill Loomis, Stifel Nicolaus.

Kevin, you talked about you expected the margins to be relatively flat even though you expect accelerating revenue growth -- organic growth through the year, but margins to be relatively flat through the year. Did I hear that right?

Yes.

And what is the -- I guess, I'm trying to think if MRAP is going to get more competitive and then the OCO business, which you are seeing get more competitive, I assume that will continue through the year. You talked about the record new pipeline and awards off-setting. But those margins, even though you're not seeing pressure on them, I would imagine -- you're not seeing them go up. In this budget environment and competitive environment you are probably not seeing those go up. So why don't margins still come down, just not as much as they would if you weren't winning as much new business, but why don't they come down?

So a couple of things. We, as I mentioned, have very heavy proposal activity in the first quarter of this year. And we're investing in a fair amount of activities that are supporting the ramp-ups that are pushing into Q2 forward. When we talk about that CR clearing, the activity picking up, there are certain investments that we are making to ensure that as we go into Q2 forward that the topline growth around non-OCO programs, thinking of the awards we had in the second half of last year, will ramp up fairly quickly.

And there are contract awards that we are making in cyber security, in intelligence, IT, where the margins are above the average and that is something that is likely to be available in the future.

One thing on the MRAP issues we have discussed before. There are $17 billion worth of MRAPs in Afghanistan, and the issue has not been finalized at this point in time as to what happens to them. Do they stay there? Do they go to a local country or do they come home? And we will play a role in that no matter what it is. But they cannot allow an asset of that magnitude to stay in country.

Then just looking at the margins going forward. I guess your assumption is that as the revenue grows, as you're saying, that you are offsetting your overhead or you are kind of -- as you invested in B&P and other growth initiatives, so it is not -- you're not saying that the gross margins, if you will, are going to go up, it is just that some of the costs that you invested in B&P and growth initiatives you start to see a return on those later in the quarter, right?

That is correct.

Later in the year rather?

That is correct.

Then what is your assumption on the MRAP now? I know in looking if we have this accelerated pull out of Afghanistan prior to 2014, is that -- shall we expect that business to drop off later in the year or are you assuming steady-state $500 million type for the year?

This is Lou. We do see steady-state. We have already seen when they drew down in Iraq most of those people, and in fact more, for even fewer systems were in the direct labor line. So we're going to see a steady-state in the MRAP deal work and perhaps procurement area.

And perhaps the what?

Procurement. So procurement make up a percentage of the contract.

Material buys.

Got it. Okay, thank you.

Gautam Khanna, Cowen and Company.

Kevin, a couple questions. What is your D&A assumption for next year, four 2012?

So we ended 2011 at $55 million. I think that the D&A for 2012 is going to be around $51 million, with $28 million of that, which is pretty normal, being not attributed to the cell tower activity.

And in Q3, if I recall, you guys took down the Q4 estimates a bit for a host of reasons. But I was just wondering in Q4 when did -- what sort of happened to bring it in a little below the adjusted range? Was it something late in the quarter, was there a loss, was there (multiple speakers) loss or was it just the Iraq stuff you mentioned?

No losses that -- we talked about three drivers. All three of those drivers -- Iraq, the logistics work, as well as our prime positioning, but we also had some ODC flows that we were expecting to the tune of about $20 million that didn't materialize in the quarter.

And those are ODCs outside of Countermine?

Yes, outside of -- they're more ISR-related.

You mentioned earlier that $12 billion, roughly, of single-award contracts will be adjudicated in 2012. This is all backend loaded, I presume, kind of a Q3, Q4 or when should we expect to see -- what do you expect to see in the first half versus the second half?

Based on the adjudication schedule of government today we expect it to be more loaded in the first half than the second, but there are likely to be delays. But it is more front loaded right now.

Then the decision to go to quarterly dividend, it is the same absolute dollar number, I just wonder, does it tell us anything about the M&A pipeline or --?

No.

No, it doesn't say anything about that. Once again, as you know, we only went to dividends last year. We had a lot of requests coming from long-term stockholders -- why aren't you paying dividends with this cash flow you have? And we did that and they're very appreciative of that. But then the next logical thing is they said to me -- why don't you do it quarterly? And since there is no difference in dollars and that pleased the stockholders, the Board decided -- the Board took this issue on and they decided we will do quarterly dividends, because the cash is the same.

As your guidance sort of implies a pretty substantial sequential ramp beginning in Q2, what are the challenges associated with being able to deliver on that? I imagine you have to make quite a few of contingent hires and the like. What are you doing now to position for it?

For every bid that we have these days, and folks can speak to it, we basically work on getting contingent requisitions. And we have a very strong number of those and a lot of sourcing for future bids as well. I mentioned the 700 and that is basically for activities that we are expecting to be awarded within the next quarter or so. But we're also doing sourcing for opportunities that will exceed that number significantly. It could be up to 1,000 additional people if we all -- if we decide to go forward for all these activities.

So a lot of it and a lot of our recruiting activity is actually getting prior to the competition, so that we have the people ready to go when we win.

Could you just give us a couple of updates? One, headcount at year-end.

Our certain headcount is 9,300.

I think I heard you right when you said the organic growth is 6%, so you are assuming about -- whatever there is $115 million of the organic growth from Evolvent wins and a little bit of TranTech, is that right?

That is correct.

Q1 sales about level with Q4 despite the fact that Evolvent was acquired early in the quarter.

Right. Yes, right. If you look at the drawdown in biometrics work in Iraq, that happened throughout the fourth quarter, and so its full effect is Q1 and then we work the ramp-up. And also we're going to have less revenue on the cell tower work as it enters more of a sustainment and maintenance mode versus the initial build upfront. (multiple speakers).

Some of the contract awards we had in the latter part of last year, December, thereabouts, we expected them to immediately begin tasking. It has not worked out that way. But now the acquisition seems to be -- the acquisition mechanism seems to be in high gear.

Thank you.

Rama Bondada, Royal Bank of Canada.

You had mentioned 30% from OCO. What is the split now between Afghanistan and Iraq, given that Iraq is pretty much over now?

This is Lou. The business of Iraq is relatively small compared to the overall OCO business. We still have some residual business in C4ISR, but most of the other businesses have gone to Afghanistan and Kuwait, so I would think that it is relatively minor relative to revenue and profit (multiple speakers).

In the past you said 10%, so low single-digit now or --?

Sorry, repeat the question?

In the past I think you said it was about 10% from Iraq. Is that down to low-single-digit now?

Yes, it is 1% or less (multiple speakers).

How much -- and also in previous calls you had mentioned that as the Iraq work moved out of Iraq that you would see it move into the base budget. How much of that has moved into the base budget, and how much of it has evaporated as the demand has evaporated?

Most of it is probably still in -- there is still some OCO money, but it is hard to tell.

If you look at the MRAP work and things like that, they are programs of record, but it's hard to tell for a lot of our programs how much is attributable to the OPTEMPO in theater versus the sustainment work on the systems and the engineering and design that we do, and those would continue after any withdrawal.

Then you were talking about how you have seen pressures at the OCO margins. I am assuming that also, and some of your peers have mentioned this too that with re-competes that you are seeing margin pressures there, both because of competition and also because the customer. Can you just give us a little bit of color on what you're seeing with re-compete margins?

It depends on the customer, the type of work we do, and the competition. In some areas we actually see an increase in potential returns, in others we see a decrease. Net net though the work that is attributable to nonsystem sustainment work -- field sustainment work -- we're seeing a fairly healthy continuation of our returns.

Then maybe I missed it, did you guys give any cash flow guidance for FY12?

Cash flow will be about 1.2 times net income.

Great, thanks a lot.

Tim Quillan, Stephens.

I guess, following on with Gautam's question regarding the fourth quarter comparison of the first quarter, and you talked about -- Kevin, I think you talked about the biometrics work and cellular network work coming in lower than fourth quarter. I think typically you have had some seasonality in MRAP maintenance work. What are you looking for there and first quarter relative to fourth quarter?

A lot of the seasonality that I think that we felt two, three, four years ago, this last year, last six quarters really has leveled off. So I don't -- at least right now I think there is a lot of variability in material buys, as you know, but I don't see and are not projecting a significant decline in the material buys in Q1 compared to Q4 prior year.

Should Q4 be a pretty good run rate for the whole year, is that your assumption anyway?

Yes.

What would be the margin impact relative to your guidance if the award of the new contract is pushed out until let's say later in the latter part of 2012?

Again, we're trying to project a ratable movement in the middle of the year around that program. If it gets pushed it would obviously be a net positive for some period of time.

Right. So what would be the order of magnitude -- and you may have already answered this -- but the order of magnitude impact from quarter to quarter when you do see that change over?

Again, we will speak to that when we know the timing around that and have final negotiations on the fees with the customer.

Got it. And I guess you have had a couple of questions on this, but to get from the 1Q number -- or 1Q guidance to your full-year guidance, you need 10% or a little just a hair under 10% quarter-to-quarter growth for three straight quarters, which is pretty unusual. And it doesn't sound like the seasonality of the MRAP maintenance work is going to get you there. Is there something unusual about the timing of the way backlog flows into revenue this year?

It is more the -- and folks can add in -- it is more the activity within the customers to procure, to obligate and to hire. They have more certainty now around what their missions are. They have the CR out of the way from last year. And they're just more aggressive and we are supporting them and we're in the right positions.

If you think of the programs we won at the second half of last year, a lot of positions and opportunities are opening up now that we have entered into the first quarter that we are ramping up and investing in to make sure that we can support that growth.

Right. It seems like if you have that kind of ramp you're going to exit at the fourth quarter at very rapid growth rates.

That is correct.

Is that -- so you are thinking you can get to 20% topline growth by the fourth quarter of 2012?

Right. If we look at the proposal activity and the volume that we had mentioned the last two quarters, the likely adjudication because the government is working to commit, and our positioning over the last few years, we believe that we're in a good position to expand our business, grow in areas that the budget is going to grow and get takeaways. And we feel like we're in a good position, yes.

And, Stuart, did you ever dig up the S3 contribution. Did I miss that?

Kevin has got it.

It was $180 million in the quarter.

$180 million. Thank you.

Tobey Sommer, SunTrust.

I wanted to ask a question. When you look back at the drawdown of troops in Iraq, I was wondering if you could give us some color on how your revenue and business either mapped against that troop drawdown or didn't? Thanks.

This is Lou. We don't generally map against troop drawdown, but as in Iraq, doing route clearance work, Countermine work, we're generally there up until the last troops are leaving on a forward operating basis or large basis. So the work that we have right now this year will stay steady. The contract that is being proposed right now is a multi-year contract. So depending upon what happens next year, the year after, our guess it is is as good as anybody else's. But right now we have a fairly substantial and currently sustainable business in Afghanistan.

You mentioned cyber as being one of faster growing markets. You have had some success there over the last couple of quarters. How rapid rate of growth do you assess this market to be going at right now?

Our cyber business grew in double-digits this year, and we're expecting also to hit double-digit growth in 2012, particularly as some of the large programs that we won begin to ramp up. And we're also making other investments and some strategic hires that will allow us to look at adjacent markets to grow cyber even faster.

At this stage is the AMBIANCE work ramped or is it still in a ramping phase?

AMBIANCE at this point is ramping up just about the way we expected to from a slightly slower start. We do believe that the work we have done to date and the interactions we have had with our customers have emphasized the strategic importance of the program to the government, so we expect it has the potential to grow significantly.

The net income -- or excuse me, cash flow that you -- guidance you gave at 1.2 times, is that lower ratio a function of the DSOs reverting because of the mobile cell tower program's impact?

Yes, it is DSOs and the cell tower program combined are the drivers.

Last question for me. I didn't quite get it when you were answering some other questions. What is the overall contribution from acquisitions to your 2012 revenue and EPS guidance, or if you want to answer it a different way what is the organic rate of growth that you (multiple speakers)?

So the organic rate of growth of the 10% is expected to be 6% or the guidance target topline.

Okay, topline. And what sort of EPS impact are the acquisitions expected to have so far on 2012?

I don't have a specific number to provide you; we don't provide that. But specifically the average returns on an EBITDA basis prior to amortization of acquisitions for acquired companies tend to be higher than the average for our business.

(Operator Instructions). George Price, BB&T Capital Markets.

Most of my other questions had gotten answered, but I guess just at a high-level, in looking at how you're looking at 2012, I know last year -- well, I know in your discussion this afternoon you have mentioned the existing schedule of awards and so forth. And I know last year things moved around a bit and caught you by surprise little bit relative to the guidance.

You have talked about some of the uncertainty that you still see, notwithstanding the good environment, I guess. Is it fair to assume, Kevin, that you guys have taken what you saw last year in consideration when you have looked at your guidance this year?

We have taken that into consideration -- into consideration that our proposals outstanding are $5 billion more than a year ago. It is a mix of -- and the volatility in the OCO, so we're trying to look at all of that. We know it is a fluid environment, so I think we have done a lot to head into this year with a lot of opportunities that provide growth.

And just to be clear, there is no unnamed acquisitions in the guidance that you have given, right?

No, there is no unnamed acquisitions. If volatility occurs that could create headwinds obviously acquisitions could certainly help us get there, but we think the bid activity supports it.

Great, thank you.

Michael Lewis, Lazard Capital.

Kevin, you said $180 million in S3 revenue. What was your bookings in Q4 on S3, and what the comparable year-over-year?

I don't have the specific bookings number for Q4 S3-related.

Was it above 1, below 1, do you know that?

It was below 1. We had a heavier amount of bookings above 1 in Q3.

That is fair. Thank you so much.

Michael, this is Stuart. That would be true for last year as well. The fourth-quarter S3 bookings in 2010 were below 1, and we were really guided by very, very strong bookings in the third quarter.

Got it, thank you.

This is Lou. I would also say that S3 has potential because of bookings were moved to the right while the work was moved to the right.

Kevin, I think that I am not showing anyone else in the queue, so if there are no further questions, I just want to thank everybody for their attention on the call and their interest in ManTech.

Ladies and gentlemen, that does conclude today's conference. We do appreciate everyone's participation.