ManTech International Corp (MANT) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the ManTech International Corporation third quarter fiscal year 2012 conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's presentation, Mr. Stuart Davis. Sir, you may begin.

Thank you, Howard, and welcome everyone. On today's call, we have George Pedersen, Chairman and CEO; Kevin Phillips, Executive Vice President and CFO; and have three Group Presidents and Chief Operating Officers Lou Addeo, Bill Varner, and Terry Ryan.

During this call, we will make statements that do not address historical facts and thus are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to factors that could cause actual results to differ materially from anticipated results. For a full discussion of these factors and other risks and uncertainties, please refer to the section entitled Risk Factors in our latest Form 10-K and our other SEC filings. We undertake no obligation to update any of the forward-looking statements made on this call. Now I'd like to turn the call over to George.

Good afternoon and thank you for participating in today's call. The third quarter of fiscal year 2012 marked a continuation of strong bookings growth for ManTech. We achieved bookings of $1.2 billion in the quarter across our entire spectrum of business. The bookings reflect 72% win rates and a reasonable amount of award activity as customers rush to obligate expiring 2012 funds. Also, the Government Accountability Office denied a competitor's protest of our $2.85 billion MRAP win which, when combined with the strong bookings, enabled us to achieve record backlog of $7 billion.

Finally, we had another outstanding quarter for cash collections. Cash flow from operations was $97 million for the quarter which makes $188 million year-to-date. As a result, we ended the quarter with $209 million in cash, another record for us. ManTech is healthy and growing and positioned for success.

Turning to the market environment, since October 1, government has been operating under a six-month continuing resolution which will keep the government spending at 2012 levels through March of 2013. Having the steady flow of funding is extremely good for ManTech. As you are aware, our industry faces potential cuts through the sequestration process. Congress is in recess until November 13 so no action will occur until at least the lame duck session is underway. In the first quarter of the government fiscal year, most of our customers are following the guidance from Ash Carter, which is to spend at authorized level as if sequestration will not occur. This will be good for ManTech. We are in a period of uncertainty but that will clear up substantially by early next year. By then, we will be beyond the election and the fiscal cliff issues.

National priorities will be clearer and the merger and acquisition market will accelerate. We are actively targeting funds as we always have to strengthen our position in cyber and healthcare. And we look to other markets once we have clarity on the funding levels in those markets. We expect that the market environment will create an outstanding opportunity to pick up attractive assets at reasonable multiples. We have the capital and the integration experience to capitalize on that opportunity. Now Kevin will provide details on our financial performance and outlook. Kevin?

Thank you, George. Overall, execution in the third quarter was strong and the directional indicators were positive despite the tough market environment. I am pleased to report that revenue for the third quarter of $645 million was up $6 million from the second quarter. Revenue had come down for several quarters primarily as a result of headwinds on our S3 contract. We have turned the corner and see more growth ahead. Also as a percentage of revenues, direct labor including applicable fringe and overhead increased compared to the third quarter of last year. Once again, we've experienced year-over-year growth on cyber and intelligence programs and from our acquisitions of WINS, Evolvent and HBGary.

Our AMBIANCE program, which provides full spectrum systems integration services to support the analytic modernization of efforts for a major DoD customer, began to ramp up at the end of the quarter. We received numerous new task orders that will require rapid expansion and support in the fourth quarter and into 2013. Looking at the major drivers, S3 contributed $156 million in the quarter, which was down $92 million from the third quarter of last year but up $13 million from the second quarter. Our work under this contract has now stabilized. It should grow through 2015 based on the strong contract awards this quarter.

The MRAP Family of Vehicle Support contributed $150 million in the quarter which was up $3 million from the third quarter of last year and up $7 million from last quarter. Across our standard revenue break-outs, 91% of our work came as a prime contractor. This is the highest it's been as a public Company. We have made being a prime a strategic imperative and as a result, we will be in a better position than most to deal with a tightening budget environment. 52% of revenue came from cost-plus contracts, 33% from time-and-material contracts, and 15% from fixed-price contracts. This move toward cost-plus is as expected and should continue through 2013.

Operating profit was $42.8 million in the quarter. Operating margin of 6.6% was down 40 basis points from last quarter when we had a better labor mix and some strong award fees [for] exceptional program performance. Looking at the year-over-year comparison, operating margin was down from 8% while gross margin is essentially flat. So G&A has risen from 5.5% of revenue to 6.9%. Compared to last year, we brought on additional and direct expense from three acquisitions and we're still scaling the core business infrastructure to align with our current revenue base. Those of you who have followed ManTech know that we will run lean and G&A will decline heading into 2013.

Looking at the specifics, margin was slightly impacted by the investments in our growth business areas. HBGary reduced operating profit by $1.6 million, which was slightly better than the second quarter but we had expected a faster ramp towards profitability in 2012. Evolvent is accretive but is not yet generating the revenue and returns that we expected. The healthcare IT market has presented so many opportunities that bid-and-proposal expense is running heavy. That said, both businesses are on track to double bookings within the first year and their returns should be above the corporate average in 2013. We see significant opportunities and expansion within these markets for years to come.

Net income for the quarter was $24.4 million and diluted earnings per share for the quarter were $0.66. The effective tax rate was 37% which was consistent with the third quarter of 2011.

Now onto the balance sheet and cash flow statement. Operating cash flow for the quarter was once again strong at $97 million or almost 4 times net income. This is not just a one-quarter result but a testament to the strength of the Government Services business and our own efficiency. For the year-to-date, we have generated $188 million in operating cash flow, or 2.5 times net income. Days sales outstanding were strong at 66 days, a seven day improvement from last quarter. Capital expenditures were a bit higher than normal at $4.5 million for the quarter as we built out the AMBIANCE facility to support growth. We still expect to end the year below $15 million in capital expenditures. During the quarter, we grew our cash and equivalents balance, ending at $209 million, which is a record quarter ending balance for us.

The Board has authorized the next quarterly dividend payment of $0.21 per share, which will be paid on December 21. Our strong and steady cash flows enable us to support organic growth, diversifying acquisitions and our ongoing dividend program. We view our strong balance sheet as an essential asset in this period of uncertain funding.

Turning to business development, bookings for the third quarter were excellent at $1.2 billion for a book-to-ratio of 1.9 times, which is larger than last year's third quarter. The Group Presidents will discuss some of the key awards but let me give you a high level overview. Awards were spread across the business space and they reflect the strategic decisions to focus on C4ISR, engineering and integration, cyber and healthcare. The win rate for the quarter was high and a third of the bookings, almost $400 million, were for new work. We also had excellent success in capturing new indefinite-delivery/indefinite-quantity contract vehicles and winning task orders on some of our recent IDIQs such as CIO-SP3, SITE, and ENCORE.

Backlog at the end of the quarter stood at a record $7 billion, which is up 75% from the second quarter and funded backlog was $1.6 billion, which is up 15% from last quarter. This increase reflects the strong bookings as well as including the full value of the CLSS contract in backlog based on the GAO action. Recall that the $2.85 billion award was reflected in the second quarter bookings but only the initial funding increment of $248 million was recorded in the second quarter backlog. At the end of the quarter, we had a total qualified pipeline of $25 billion, of which $3 billion is submitted and awaiting adjudication.

On our outlook for the rest of 2012, we now expect revenues to be about $2.65 billion. Last quarter, we spoke of variability of around $100 million around the $2.7 billion mark. Although awards were very strong, most of them came in the last two weeks of September. This implies that the fourth quarter will show a sequential increase of about $40 million which is the result of a ramp-up of third quarter awards as well as execution of the new AMBIANCE task orders. We now expect net income of $101 million and diluted earnings per share of $2.72 which is consistent with the profitability challenges for the growth businesses that I addressed earlier. Although we are not ready to give formal guidance, our initial view of fiscal year 2013 suggests revenue growth as we execute on record backlog and strong awards. That, of course, will depend on sequestration which is the big unknown right now. Now we will speak to developments within the Technical Services Group. Lou?

Thanks, Kevin. The third quarter was very successful for TSG on all fronts. The CLSS protest is now resolved and the $2.85 billion program is underway. Although we recognized a lower fee, we can take advantage of the expanded scope of the new contract. The Army is looking to leverage our universal workforce as vehicles are fully in [sustainment] mode and we could add significant direct labor over the next six months. In addition, the Army has tentatively set the disposition of the MRAPs which consists of 6,000 vehicles in the active force; 13,000 in pre-position stock; with another 4,000 spread across the other services. Sustaining this large base of vehicles will require service work for years to come.

We also had great success winning work with our CECOM customer. On S3, which still has about $6 billion in ceiling, we won over $700 million total including $166 million in new business. 10 prime task order supports some of the Army's most mission-critical intelligence and command and control systems were won, including a Distributed Common Ground System -- Army, Army Battle Command Systems, BETSS-C, Guardrail, and the Elevated Sensors programs. We are leveraging the capabilities across the breadth and depth of our business to provide our customers with high-end systems engineering and integration solutions that are reflected in several of our new task order awards.

Combining our C4ISR integration and engineering work from MTCSC acquisition, with our existing field engineering support work, we are extending our solutions and services across the broader range of the acquisition lifecycle of our customers' systems while protecting our future engineering and integration work. The DCGS-A work is significant in that, that this work is supporting and maintaining DCGS-A Cloud and critical network components. With customer directed 20% minimum work share on all awarded task orders, our direct labor content and contribution to mission accomplishment was able to grow significantly. Further evidence of our improved market position in system engineering and integration is being awarded the Software Engineering Center's $7 billion software and system engineering services next generation contract. This multiple award contract enables us to continue to pursue higher end services and solutions work while protecting our base of work currently on the S3 Vehicle.

Finally, we formed a Limited Liability Corporation with Fluor Corporation to pursue new markets for us including base operations work. The Fluor ManTech Logistics Services LLC was awarded a basic ordering agreement under the $24 billion Enhanced Army Global Logistics Enterprise, or the EAGLE Program, by the US Army Sustainment Command. The structure of the arrangement and the resulting implications on our financials will be resolved on a contract-by-contract basis but we expect that Fluor and ManTech will be roughly equal partners. The Army Sustainment EAGLE Program will compete 72 single logistics provider task orders over the next five years to manage logistics on an installation basis covering maintenance, supply, and transportation. Additionally, the Army will compete for the support for each of its pre-positioned stock regions on this contract. EAGLE offers us ample opportunities to diversify away from OCO work and balance our logistics support portfolio. Bill?

Thanks Lou. As Kevin indicated, the AMBIANCE Program is truly ramping up now and in fourth quarter, we should be at the full contract run rate consistent with a contract value of about $450 million over seven years. This is high-end work where we are serving as the integrator for a large refresh of our customer's analytical environment. In addition, we are helping spearhead the intelligence community's approach to cloud computing on several programs. This quarter also saw the investment thesis around some of our 2011 acquisitions play out. We believe that DIA would play a key role in data center consolidation within the intelligence community and that DISA would interact more closely with the US Cyber Command around cyber initiatives. So we acquired WINS and its SITE contract and TranTech and its ENCORE II contract.

This quarter we saw a surge of SITE and ENCORE task orders as we are now trusted providers to both DIA and DISA. We see an increased willingness on the part of our customers to acknowledge the growing cyber problem. For example, Defense Secretary Panetta and House Intelligence Committee Chairman Rogers and Ranking Member Ruppersberger have recently appeared on national media and have been much more willing to identify bad actors and press for the passage of cyber legislation through Congress. The cyber problem is enormous and growing in urgency and ManTech is well positioned for success, especially with the additional capabilities our HBGary acquisition brings to us. Terry?

Thanks Bill. Good afternoon. In the third quarter, we had two healthcare IT awards, both new business including the government's first large business award under CIO-SP3. Together, these awards should result in organic growth above 20% for Evolvent in 2013 and this is just the start. The first award is the Armed Forces Health Longitudinal Technology Application-Theater, or AHLTA-T, contract. ManTech will provide new development and sustainment support for AHLTA-T to include code optimization, database conversion, mobile computing enhancements and code upgrades. AHLTA-T is the electronic health record for every soldier, sailor, airman, marine, and beneficiary entitled to DoD healthcare in theater. This award combines Evolvent's strong capabilities in medical systems software development with ManTech's strong capabilities in software sustainment.

The second award is to support the Virtual Lifetime Electronic Record, or VLER, for the DoD and the Department of Veterans Affairs. This task is critical for emerging health requirements of the DOD/VA Interagency Program Office. VLER allows full sharing of information about an individual's health and benefits as well as personnel and administrative information. It gives our veterans, service members and their families, caregivers and service providers a single and secure source of information about health status and benefits. These two wins position ManTech as a key player in the growing military electronic health records market and augments an existing core competency that can be leveraged into the commercial markets. Across the healthcare markets, we have qualified $1.6 billion of potential new opportunities for next year. Back to you, George.

So in summary, the third quarter was a good one for ManTech. We grew revenue and backlog and we are confident of even more growth in the fourth quarter. Bookings and cash balance for the quarter set the foundation for future growth, both organically and through successful acquisitions, which we have learned to deal with very effectively over the years. With that, we are ready to take your questions.

(Operator Instructions)

Michael Lewis from Lazard Capital.

Kevin, the commentary in the press release, you said that you incorporated about $175 million in bookings and backlog on JITC. Was this a factored level or is this the full amount expected to convert to revenue over the next 12 months? Also, does this contract fall into Technical Services?

It falls into Technical Services. The booking value, based on our history of supporting that customer, provides us the estimate of the bookings value so it is what we expect to continue within the framework of the overall set of contract awards. I'll let Lou speak to the actual type of work.

Well, it's out of Technical Services and as you said, the way that just as we are currently billing and then we took the booking against the billing, so--.

But to be clear, Michael, that's not a one-year value. That's a --

That's a multiple-year value.

Got you there. Okay. It's a multiple year. Okay. Then just a second question. I just want to make sure I understood this comment correctly when we were talking about Evolvent. You expect to see 20% organic growth next year, does that take the revenue from this property to around $55 million to $60 million in fiscal year '13? Am I reading this right?

No, Mike, the current year revenue's running less than that. Just those awards alone are expected to increase the revenues and we have a lot of other bookings that we expect based on the bids outstanding so it won't be that high.

Mr. Bill Loomis from Stifel Nicholas.

(technical difficulty) -- contract, if you could just explain why you mentioned higher, I think, as Lou mentioned, higher direct labor on that program over the next few quarters. What's the driver for that? Then I have another question as well.

Yes, so the contract is built to support, as you know, all the activities that are going on in theater. It's also built up as a universal workforce. So the people who work in sustainment and maintenance and in logistics can support multiple variants whether they be MRAP, route clearance vehicles, et cetera. The direct labor increase has, we think a lot to do with some of the OEM business that was supported by other sustainment labor moving to us as well as new labor as they consolidate the work in various locations.

Okay. On the EAGLE contract with the joint venture with Fluor, what's the timing of, and size? Can you give us just a sense of that, say over what you see in the pipeline, over the next couple of quarters that you're bidding on? Just give us a flavor of the number of opportunities and size on that program. Thanks.

Right now, we're looking at two opportunities that -- with Fluor. In terms of total dollars, each of them can come up a couple hundred million dollars in total contract value, but the pipeline is being developed now. And as I said before, there is at least 70-plus task orders that would come out over the lifecycle of the contract.

Okay. I just have one quick one. On SSES, do you see any work that's on S3 going to that contract in the future? Or do you see just a whole new set of opportunities?

Well, both. So right now S3 has a software engineering center work done on S3. But we believe with the combination of us being the prime contractor over the past two years now as well as our ability to deliver services that are in the software engineering center a positive. Increasing our direct labor so that we can understand and deliver outcomes that are consistent with what the government's looking for in mission is positive. On the other hand there is a certain amount of opportunity that we have to protect that could go at the software engineering center where other competitors now are in play. We haven't really looked at sizing it but there is potential risk there.

Tobey Sommer from SunTrust.

This quarter, you've got a historically high cash balance. You mentioned in your prepared remarks, acquisition targets in cyber and healthcare. Can you talk a little bit about your view in terms of either increasing dividend or repurchase going forward? And how might sequestration impact that?

We constantly review the amount of dividends that we provide to our stockholders, the Board of Directors, at every meeting, reviews that opportunity. For the moment we believe the current rate of dividends is appropriate. We have looked at the past of the buyback of the stock. We do not believe that's in our best interest at this point in time. We think there are opportunities for growth in acquisitions and other opportunities that far exceed the benefit that might occur in using that technique. So we intend to use that cash and the cash we're continuing to generate in a positive way.

Okay. Great. Thanks. Can I get a quick numbers question? What was organic revenue in the quarter? Then finally, if you could comment on the hiring environment? You're ramping up some of the contracts there and increasing headcount going forward. What's hiring like out there and are you able to get decent pricing?

Organic growth was down 16% and 12% total. And on the hiring, I will provide a quick comment. We have over 600 openings. I think that there is still a strong set of demand and as Lou and Bill and others have pointed out, the contract awards that we have should support a continuing increase in the [DL] portion of our business. And the fact that we have a 91% prime position that's going to continue to put us in a position where we can drive the DL component within a reasonable basis with our partners. I don't know if any of you guys want to add anything to that.

Let me speak to that. We have about 400 vacancies right now across the TSG business, CLSS, C4ISR, and System Engineering. We expect starts by the end of the year to be around 322 of that 400. We have over 5,000 people in the business right now.

Brian Kinstlinger from Sidoti & Company.

One follow up on the organic revenue growth question. You mentioned direct labor grew this quarter. Was that organic or was that including acquisitions? If so, can you just give us a percentage of that?

It was an increase as a percentage of the revenue for the quarter. That would be a prime -- it would be a combination. I don't have the split out of how much that was from acquisitions.

But there was direct labor organic growth?

Yes.

Then I guess you mentioned revenue growth next year. It seems your contract awards year-to-date from new business is maybe marginally ahead of where it was last year. So I am wondering what gives you the confidence today when last year's similar bookings played out differently other than obviously the drop in S3?

I don't know if we can discount the drop in S3 because of its size and scope and it's a big headwind for the other new business to ramp against. So I think that we have a fair amount of confidence that S3 business and revenue has stabilized, that there is no other major driver or uncertainty that's significantly downward that we have to cover as we grow the new awards. I don't know if you guys want to add anything about what's underlying that? We have a better confidence this year based on that.

Okay. And then, I think in the discussion last quarter, you talked about cost adjustments given your revenue base. Do you expect the alignment of costs or do you actually expect costs will come out? Is there any more detail from the comments you made last quarter?

There are certain areas where costs will come out and there are other areas they will be invested, if you think about the HBGary R&D sales development, those will continue. But there are other areas that we continue to have efficiency and we expect those to come down.

Okay. The last question I have is, what percentage of revenue do you actually have in theater where people are in theater supporting? Then what's the total revenue of in theater plus contracts that are supporting in theater operations?

For 2012, about 30% of our business will be for in theater work in total. I think what we do when we review that is an aggregate. It's very hard to talk about [contracts] work that supports Army, Navy, whoever, and attribute it to OCO unless it's clearly defined by them from funding. So about 30% of our business in revenue is OCO-related.

Mr. Tim Quillin from Stephens Incorporated.

As you mentioned, the Countermine contract was up quarter-over-quarter and the S3 contract was up quarter-over-quarter but excluding those two, the revenue was still down sequentially. I'm wondering what is driving that?

There are other programs. The cell tower program that we had, if you recall, ended. That's the primary downward driver because it ended last quarter -- the revenues.

No. Understood. Yes. How about just generally? So when I think about this year for ManTech, you came into the year, I think with revenue guidance of over $3 billion, and I think now the revenue guidance is of about $500 million less. I think a lot of that is ODCs. I'm not sure if it all is. Maybe you can address that. But regarding that question on 2013 visibility, do you have -- what is, are we down to an absolute level of pass-throughs where you think it can't go any lower? What gives you the confidence you won't be surprised in a similar way in 2013?

When we relate to 2013, and 2012 there were a lot of changes where we expected a higher level of demand from things like biometrics, moving from Iraq and Afghanistan and frankly, there are a lot of disruptions, as you know, in some of the ISR-related work with the Army. I think that they have planned into next year except for the overall risk of responding to sequestration. We have strong awards. We have a ramping up of the direct labor based requirements in all of our groups. I think that just from discussions with commands that we have and the customers we have, there is just a little bit more certainty around what the requirements are going to be. Anybody want to add to that?

I think at least on the AMBIANCE program, we are seeing a lot of growth. We think we have a lot of confidence and continued growth on the program, and we think that all of our support to the intelligence community is going to remain strong over the next several years.

Right. And on your MRAP Maintenance business, do you have any increased clarity around what that business might look like as we get through the Afghanistan drawdown? There seems to be bipartisan support, or at least the two candidates running for President sound like they're going to honor that 2014 deadline. So it's not distant future now. So I'm just wondering if the customer is communicating with you about what those requirements might look like in 2015, for instance?

This is Lou. I'll take the question but I certainly don't have the answer. We have a strong and viable contract. We're going through and nearing past the phasing period. We're increasing our direct labor. In the near term, we don't expect the contract values to come down at all. As to end of '14 and into 2015, we certainly don't know but we have a five-year contract.

Then finally, Kevin, what tax rate should we expect in fourth quarter?

The tax rate in Q4 should be 38.3%.

38.3%. Thanks.

Gautam Khanna from Cowen & Company.

Most of my questions have been asked and answered but George, just a follow up on Toby's. You mentioned that your capital allocation right now is reserved for M&A. But I just wonder how you reconcile trading at 4 times EBITDA or free cash flow roughly? Looking at acquisitions, which likely, in growth [lanes] that you mentioned that would likely sell for well in excess of what your stock trade is at and suggest that, that's still a better alternative? Could you help me reconcile that math? Thanks.

Well, you can look at the textbook opportunities for things that you could do. We are basically looking at a growth market because of the technology areas that we are in, particularly cyber and a numbers of others. We think the best approach we can take is continue to increase our technical capability by our acquisitions. As you know, we will not buy a sale. We have to get new technology, new people and it has to accretive in the short- and the long-term. We think that's the best approach. The other thing you have to realize, when you have $200 million in cash in the bank but we also have a $500 million line of credit with the banks that is not being used. So we don't have $200 million available for growth and acquisitions, we have $700 million. So our strategy is to achieve and prove value for the stockholders using that method.

George, I guess what I'm asking is when you talk about accretion, are you talking from a GAAP accounting basis or are we talking from an economic opportunity cost basis which is why I think most of your shareholders perceive it that way. (multiple speakers)

We think of it as a GAAP basis and frankly, synergies provide an offset to some of the multiple differences. Some of the multiples in the market and certain parts of the market are coming down. We also have tax advantage of certain structures that we acquire like the 338(h)(10) so there are other factors that are in there. As George says, businesses are in the business of locating future growth markets, expanding into that. And it's a prudent use of cash when you know where to expand so that two or three years from now, companies will be in good position. You can't do that with what you're suggesting.

Mr. Edward Caso from Wells Fargo.

My question is around pricing, particularly on recompetes. You mentioned the large $2.85 billion deal and that, that pricing would be lower. If you could maybe give us a sense on that transaction, how much lower it is going into 2013 and maybe more in general, what pricing discounts one has to make to be able to hang onto their recompetes?

This is Kevin on pricing. I think it's depending on the market and the customer that we have in terms of pricing strategies. Pricing strategies can be a combination of the cost of the service that we have to hire to support or the cost of the infrastructure, not just the fee. If you look at the CLSS program itself, some of the fees have come down this year compared to last year. There may be some pressure around that but we're also getting a higher labor content which is higher fee compared to the ODC flow throughs. Net-net, it depends on how quickly, with the higher margin programs and how some of these more [margin compressed] opportunities come together. We will provide you with that when we (inaudible) in February.

I continue to hear that the civilian government and civilian employee base is protecting their own, particularly around depots and in the next few years. I was wondering if that will have an impact on your business and some of these new contracts you're driving?

This is Lou. I think Kevin hit the nail in the head related to cost. If we can get to the cost structure as necessary to bid on depots, DLA, et cetera, we are going to do that. Certainly working with a Limited Liability Corp. in Fluor is going to help us. So if we can get where we need to win the business, that's a [positive].

Howard, do we have any more questions?

I am showing no additional questions in the queue at this time, sir.

Okay. Given that we don't have any more questions -- I am seeing one more question.

Mr. Robert Spingarn from Credit Suisse.

Thought I'd sneak in at the end. Quick question on organic growth. Could you talk about the contribution from acquisitions in the fourth quarter relative to the third quarter? Because if it's similar, this implies a big improvement in organic growth in Q4 relative to Q3, probably in the mid- to single low digits. I want to make sure I am thinking about that correctly. If I am, where is the strength coming from?

You are thinking about that correctly and the strength comes from the contract awards, the average life of the contract awards because they are shorter rather than longer and the implementation of programs such as the AMBIANCE that are actually moving in terms of their requirements. So it's a combination of executing to existing demand.

Kevin, you are fairly confident you are seeing that now through the first third in the quarter?

Yes.

I'm showing no additional questions in the queue at this time.

Okay. I think that's going to conclude our call, Howard. As usual, we've got members of our senior team available if there are any follow-up questions. But thank you all for participating on today's call and your interest in ManTech.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.