ManTech International Corp (MANT) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the ManTech first-quarter fiscal year 2013 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 be given at that time.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to introduce our host for today, Mr. Stuart Davis. Please, go ahead, Sir.

Thank you, Karen, and welcome, everyone. On today's call we have George Pedersen, Chairman and CEO; Kevin Phillips, Executive Vice President and CFO, and Bill Varner and Dan Keefe, our two Group Presidents and Chief Operating Officers. In addition, Lou Addeo, Executive Vice President for Corporate Development and Strategic Acquisitions, 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 statement 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. Our financial performance for the first quarter was consistent with our expectations. Despite the disruption in our markets from sequestration and the uncertainty about funding levels, our revenues were up 4% from the fourth quarter based upon robust growth in our intelligence and cyber business.

We also had very strong cash collection, generating $58 million in operating cash flow and increased our cash balance from $135 million to $172 million. We intend to use our strong balance sheet to grow our corporation.

We will continue to invest in our core business and specifically in the strategic growth markets of cyber and healthcare. So far this year, we have made some small investments in new market areas that will create important discriminators for us. We are seeking -- or seeing more opportunities come to market and we are optimistic that they will be able -- we will be able to take advantage because of our excellent cash position to accelerate our growth.

Since the last call, our primary defense intelligence customers have received their full-year appropriations for 2013. That funding is subject to sequestration cuts, but we have seen only modest impacts from sequestration up to this point. Also, the President submitted his FY 2014 budget requests, which makes explicit the government's commitment to many core ManTech capabilities such as cyber security.

It is too soon to tell the ultimate outcome for next year's budget, but we are encouraged that a more normal process is underway and that there is support from the administration and both parties in Congress for defense spending at current levels.

Now, Kevin will provide you with the details of our financial performance and our outlook. And, thank you again for joining us.

Thank you, George. Revenues for the first quarter were $646 million. The substantial deliveries of [class] computing systems that we discussed on the last call spurred 4% sequential growth in the quarter. As a result, our intelligence and cyber business grew 35% compared to the first quarter of 2012 and 26% sequentially. Our intelligence and cyber business will be a growth engine for ManTech throughout 2013.

The MRAP family of vehicle support work contributed $142 million in the quarter, up slightly from last quarter, as we began to consolidate work across OEMs and other systems providers. S3 revenues were $133 million, which was down $38 million year over year and $6 million sequentially. As with last quarter, S3 and the completion of the mobile cell tower work were the largest drivers of the decline from the year ago quarter.

That said, ManTech offers a compelling value proposition for S3 customers, as well as those who will begin using the SSES NexGen contract awarded last year. And, we are pursuing several takeaway programs that will offer growth potential.

For the quarter, prime contractor work increased to 92% of revenues, up from 91% last quarter. Having such a large proportion of work as a prime gives us flexibility to deal with changes in work schedules. With the ramp-up of most of our 2012 awards complete, cost plus contracts increased 10 percentage points to 70%. Fixed-price contracts also increased to 18% and time and materials fell to 13%.

These ratios may fluctuate a bit each quarter, but the transition away from time and material contracts is virtually complete. And, there should no longer be a significant headwind to margins from this trend going forward.

Operating profit was $36.4 million in the quarter for an operating margin of 5.6%, consistent with our expectations. Margin was affected by a heavy flow of materials in AMBIANCE and the full impact of lower returns on recent in-theater awards. Even with the additional $24 million in revenue, G&A spending was lower compared to the fourth quarter and will continue to drop throughout the year. With an effective tax rate of 38%, net income was $22 million -- $20.2 million, and diluted earnings per share were $0.54 for the quarter.

Now, onto the balance sheet and cash flow statement. During the quarter we generated $58 million of operating cash flow, which is 2.9 times net income. With capital expenditures of $3 million, free cash flow was $54 million compared to the fourth quarter. DSOs improved 3 days to 76 days.

On the investing and financing side, we paid $10 million to purchase ALTA and $8 million in dividends. Given this cash flow performance, we grew our cash and equivalents balance to $172 million, up from $135 million at year end. Our balance sheet gives us the fire power we need to position the business for growth.

For example, ALTA provides our Evolvent business with an avenue into the Centers For Medicare and Medicaid Services through the $4 billion enterprise systems development contract which supports IT modernization efforts at CMS. Looking ahead to next quarter, the Board has authorized a $0.21 per share dividend to be paid in June, consistent with our intent to distribute $0.84 over the course of the year.

Onto business development, bookings for the first quarter were $306 million for a book-to-bill ratio of 0.5 times. Over 50% of the bookings were for new work. The bookings total excludes $110 million in re-compete wins that have been protested or are in final negotiations. Backlog at the end of the quarter stood at $6.1 billion and funded backlog was $1.4 billion. Both figures were up nicely from last year's -- last year, based on strong 2012 bookings, but backlog is down from last quarter as a result of delays in award decisions.

We believe that customers have been [hesitant with] resources throughout the year, so they may be in a position of needing to obligate funds at the end of the fiscal year and award activity could be robust in the September quarter.

Business development activity continues to be very high and our pipeline metrics rose again. At the end of the quarter, we had $32 billion of qualified opportunities and $4 billion in bids awaiting adjudication, many of which should be adjudicated in the second and third quarters and generate revenue in 2013.

In total, we have about $12 billion in expected adjudications remaining this year.

We are maintaining the revenue guidance of $2.6 billion that we gave on the last call, based on on-plan performance in the first quarter. We have received preliminary planning guidance for decreases in overseas mission requirements, which will impact the level of new and replacement personnel headed into Afghanistan. We will be tracking our customers' plans for reductions in requirements and reflect them as they are decided. As a counter balance, the strong proposal activity and large pipeline of submitted proposals will support growth in our non-OCO business.

Compared to our expectations at the time of the last call, more of our revenue for the remainder of year will come from the ODCs and cost-plus contracts which will negatively impact our profitability. We now expect to achieve net income of $84.5 million and diluted earnings per share of $2.28. This corresponds to an operating margin of 5.9%, which is 10 basis points lower than the guidance we gave last quarter. We continue to expect margins to expand from Q1 levels.

We believe our guidance appropriately reflects sequestration risk. We had relatively little direct impact from sequestration in the quarter because our customers have been holding back funds for some time now, which has limited both growth on existing programs and awards on new programs. We do not expect the effects to accelerate because we believe that most customers are on track with funding levels. We are tracking our customers' obligations very closely.

Now, our Group Presidents will speak to the performance and outlook of our two operating groups. Dan?

Good afternoon. As I mentioned on the last call, we were consolidating the labor from OEMs and other providers onto our MRAP contract. Since then, after putting the majority of the staff transitions onto our new program, our customer instructed us to stop the buildup and to reduce slightly our footprint in Afghanistan. We are continuing our support in-theater at levels consistent with prior requirements.

However, the mission requirements may cause the program to begin to draw down in 2013 instead of 2014. Our customers are currently working these draw down scenarios. Still, with the [flighting] season beginning, and potentially additional activities that will be required in a draw down, it's hard to forecast the final financial impact to us at this time.

This is not a sequestration issue. Just the uncertainty that surrounds overseas contingency operations.

As an example of the uncertainty, the President's FY 2014 budget requests only has a place holder for OCO funding. Throughout the rest of our business, we have seen relatively little impact of sequestration. We do have some customers that will close their facilities one day per week when, and if, their civilians are furloughed. In that event, our people will not be able to work but the numbers are relatively small.

We are focusing our business development activity on areas of our business that are not affected by OCO. For example, our largest win in the quarter was to support the custom and border protection within the Department of Homeland Security. Under a five-year $96 million award, we will provide comprehensive training services for IT systems, wireless, voice communication equipment, non-intrusive inspection equipment, and enforcement technology to all CBP personnel as well as other federal, state, and local law enforcement agencies. We see training as a growth area for ManTech, so we are excited by this new business win.

Bill?

Thanks, Dan. The intelligence and cyber business showed strong growth in revenue and profit in the first quarter and we are forecasting robust organic growth in 2013. In addition to the cloud computing systems deliveries, we also had good growth across our law enforcement business, especially at the FBI.

HBGary showed an uptick in revenue, which reduced our net investment to $1 million in the quarter. We expect HBGary to generate positive returns by the end of the year.

We begin the second quarter with strong awards in our cyber and intelligence programs, including two large awards that represent new business for ManTech. Sequestration provides minimal overhang and I feel confident in our growth outlook based on the continued ramp-up of existing programs, our large pipeline of submitted proposals that should be adjudicated soon, and the high degree of activity in our proposal wins.

In addition, there is strong support for cyber in the President's FY 2014 budget request. And, just last week Defense Secretary Hagel emphasized that cyber is one of his top priorities. We are seeing momentum on cyber legislation with three bills now through the House. Most importantly, they would limit liabilities on companies sharing cyber attack data, which is critical to encouraging private companies to participate in data sharing initiatives.

ManTech is well-positioned to support all of the government's data sharing initiatives.

George?

Thank you, sir.

In summary, we see positive signs for ManTech across our business base and are encouraged that the Congressional appropriators are looking to restore normal order to the process. We are seeing the early signs that will lead to a long anticipated draw down in OCO missions we support.

We are proud of the work we are doing to support war fighters, and other key government agency customers, and will provide whatever support they require. ManTech is a vital partner in securing the nation. Even as we look to expand into new growth markets, such as cyber healthcare, we will always do all that we can and must to help our national security customers perform their most important missions.

We are now ready to take your questions.

(Operator Instructions)

Tobey Sommer, SunTrust.

Thank you. I was hoping to get some further color, to the extent you are able to provide it, on the growth that you are seeing within cyber and the cloud. Does this relate to the one major contract that you won some time ago or are there new sources of funding or contract vehicles that ManTech is benefiting from?

Yes, this is Bill. The answer to your question is, it's in both of those areas. We are seeing increased activity on the AMBIANCE program.

You remember, probably from a couple of calls ago, that the program was ramped up a little bit more slowly than we expected. And, we are now at about the level we thought we would be for AMBIANCE.

We are also seeing continued new opportunities. And as I mentioned a few minutes ago, we've just won two large awards that we can't really talk about yet, that are going to offer great growth opportunities for us this year in 2013. So, I think it is a good combination of growth on existing programs, that is organic growth, and growth through brand-new programs that we are winning.

Relative to the overall Company's margin profile, how do -- how does the work in cyber and cloud, both the AMBIANCE as well as what you expect on the new awards, how does that compare?

It's Kevin, I will speak to that. When you look at the non-OCO business at large, the returns on that business exceed 7%, and the cyber and intelligence components are on the upper scale of the range of the non-OCO business. So, we are fairly happy with the performance of the returns in the types of work that we do within the new cyber and intelligence communities.

And, my last question, I'll let someone else get in the queue. You've got an awful lot of firepower, whether it's cash or available liquidity.

I'm just curious in this environment, in the areas in which you would like to invest, is sequestration keeping sellers at bay? Or is there something else going on? Because we've ridden out a couple of quarters where the cash balance increased, which I guess speaks to good cash flow.

I think sequestration is an issue for both the buyer and the seller, because we really don't know what that term means, at this point in time, in terms of forecasted sales, profits, etc. We, over the past year and a half, have had a policy of looking to the marketplace for the moment other than defense. We have continued on the intel side, but other than defense, it's who we know.

So, I don't think sequestration is having that much of an impact, if that's the right way to put it. We have not been hurt by sequestration, to my knowledge, at this point in time.

Thank you.

Edward Caso, Wells Fargo Securities.

Hi, great, thank you. I want to drill down more on your sequestration comments. You indicated that it is not, at this time -- I would be curious what -- are you hearing -- is that your view? Or that is what your clients are telling you?

And also, what is your view as to the tail nature, although they may cut down probes this year, the actual cash outlays may be diminished in out years, do you see a scenario like that? If you could flesh out the sequestration. Who's telling you what and what you think -- how you think it's going to roll out? Thanks.

It's Kevin, I'll speak and if others want to add they can. You have seen some level of decline in the services business ManTech has, for an example over the last over six or nine months, as customers have been planning for a more tightening budget environment. So, when we do a review of the sequestration specific activities, we are looking at a handful of people in our Company who may be furloughed.

We are looking at a handful of people who may be impacted by reductions in scope on programs because the customers have already focused very heavily. And, I think that's something that may be more of a trend in our services area where we have mission support, that's a little bit more protected. We have customers that have already been planning through it.

And, what we don't see is we don't see a lot of customers saying in a month, in two months, in three months we have a large number of people who are going to be impacted. It seems to have been relatively small even in the forward planning cycle, given that there is only five months left in the government's fiscal year.

Can you offer some metrics here on your guidance stock comp, D&A, and tax rate, please?

Tax rate 38.3%, D&A for the full-year is 30%, and stock comp is at 6.5%.

6. 5%?

Yes.

And, the final question is, sequestration -- I'm sorry, sequential organic growth Q1 year over year? Thanks.

Sequential growth is down 5%.

I'm sorry, organic growth year over year?

5% down.

Thank you.

Bill Loomis, Stifel.

Hi, thank you. On the OCO, Kevin, can you just -- I'm a little confused, because you commented that OCO is probably peaking, and clarify that if I misread that. But, you left your guidance unchanged, but yet OCO will be a higher part of the mix, but you have S3 dropping off which has a lot of OCO in it.

Intel and cyber, you mentioned, is growing quite rapidly. You mentioned two new wins that are going to have strong growth. How could OCO be a higher part of mix driving revenues down if it's declining and everything else is growing so much quicker?

Well, Bill, I said the cost plus business is a higher part of the mix. That's not just the OCO component of our business. What we've seen is a leveling off of in-theater requirements for people to go into Afghanistan. Do we, we do expect it to peak.

And then, depending on the mission requirements, it will start coming back down. But, it's not saying -- I'm not saying that OCO is going to become a higher portion, I'm saying it's the cost-plus component which is driving down our expected returns.

Got it. And so, the AMBIANCE contract, just as an example, is cost-plus type?

As an example, right.

And then, on that AMBIANCE contract, you mentioned the margins were hurt with a lot of equipment coming through. What would be -- any way you can give us a direct labor figure on your cyber and intelligence business excluding any of the lower margin equipment? What kind of growth that was in the quarter?

I don't have the specific number.

Is it fair to say there was -- most of it was equipment or any way you can just quantify that a little bit on the intel cyber side?

I would say the majority of it, over 75% for the quarter, would be equipment, but there's also growth in the personnel side of the business supporting both cyber and cloud.

And then, just one more final question on the intelligence. I know the 2014 budget is a long ways from being set, but we had a 8% reduction in the budget for the national intelligence programs. And, clear language in there of reducing contractors to sustain government workers. That's the second year in a row.

I know your program -- AMBIANCE in particular is growing quite rapidly, but broader, what are you seeing in the non-defense intelligence agencies? Because certainly, from a high-level budget standpoint, it looks like it's getting a lot tougher over the next couple of years.

Well, Bill, this is Bill. I think the way to address that is, you are correct, AMBIANCE is growing and is staffed up fully.

And, to elaborate on Kevin's comment a minute ago, while a lot of the direct revenues in Q1 were related to hardware, we also built the direct labor substantially. And, of course, the direct labor stays. That's revenues that we intend -- that we fully expect to stay for the life of the program and grow.

Generally, in my belief, and I'm sure you've seen the same thing, as we find that the defense budgets are reduced, the need for intelligence becomes greater, not less. So, as we have fewer military people in-theater, we need more intelligence not less. And, I think most of the customers we are supporting are not seeing significant declines in their budgets.

We are seeing awards occur, sometimes they are delayed, but sometimes they are right on schedule. We are seeing a lot of RFP activity, which means a lot of proposal activity for us. And, normally the government will not issue RFPs until they are sure they have the funding. So, I think we are seeing a lot of solid progress in the budgets for those parts of the intelligence community that we directly support.

And, Bill, it's Kevin. I think that within that budget decline it has a little bit more targeting towards specific programs rather than across the board.

Okay. Thank you.

Brian Kinstlinger, Sidoti & Company.

Hi, good afternoon. The first question I had in relationship to the declining requirements overseas, as part of your guidance, how do you view the MRAP contact where you hit $142 million of revenue in the first quarter? Will that be coming down over the course of the year, will it be flatlined? Could you just maybe give us some specifics on that?

Yes, it's Kevin, I'll have Dan follow up. We're expecting the continuous current run rate based on the mission requirements. That said, there is planning going on that could reduce it, depending on the timing of actual execution of these plans. There are finally working plans, they started that in the last month or two.

And so, we have to plan for that ourselves. But, the actual timing of those actions isn't something that we have been communicated, in terms of contractual modifications. And, we do not want to get ahead of the customer. Dan, do you want to --?

And, I would just add to that, Brian, that we still are working upsides from our S3 wins in the fall. And, for example, we've just taken over from an OEM the mine rollers to go on the front of the MRAP and maintain those. And, we picked up that work. So, it is a bit of the balance of actions like that, that come to us versus what the planning scenario may be down the road.

And, as the volumes do come down, will it be an equal amount of the labor portion versus the hardware portion that you have?

Yes, I would expect it to be generally an equal volume as there is less systems to maintain.

Okay. And then, you mentioned the margins getting better throughout the year, and I'm curious, what drives that? Is that reducing costs? Is that you had a lot of that hardware from the cyber side of the business in the first quarter? I'm just curious with all of the pressures on, with cost-plus, especially for the year, what drives the increase in margins?

It's Kevin, we are expecting our G&A as a percentage to come down. I think that it's going to be in the 7.1% range, which will increase our returns. Also, the mix, and I think that the intelligence side of the business will have more services-based growth that will increase our returns. And, obviously Q1 had a heavy ODC component that pushed that down a little bit.

And, that growth from the Intel services work, is that mostly booked work already? It's coming from backlog or do you need to go win that?

We are off to a very good start with wins so far already this year. So, I think most of the growth we are seeing, we are pretty -- if it is not already booked, it's certainly growth that we are well aware of and have high expectations of seeing.

Bill, I think you mentioned you had two awards. Can you -- were those first-quarter awards included in the bookings? Were they second-quarter awards? And, can you give size if you can't name customers, obviously?

The answer to most of those questions, Bill, is no. But, let me try to elaborate a little bit. They're second-quarter awards, early in the second quarter. And, we actually received more than two, I just cited two, because they are especially large.

But, these are -- I'm not permitted to talk about the specific customers. We will be able to, at some point, but we are not able to yet. But, they are awards that are large enough to make a difference which is why I called those two out, specifically.

Understood. Last question I have is, re-compete rates have -- are at the lowest point they have been probably in a decade. I'm curious how that has impacted your business for the better and for the worse? And, what that is doing to margins on re-competes?

If you look at re-competes last year, 2012 was a heavy re-compete year for ManTech. This year, I think less than 8% of our revenue is at risk from re-compete. And, it's fairly backend-loaded.

So, from a current year risk standpoint it's low, but you can see coming into the year the overall return change, based on moving to cost plus contracts, being more competitive in overseas work. And, that pattern is very much dependent on the type of work we do for the customers and their level of demand for the service.

And, has your win rate come down with the market as well, like everyone else's has, or have you been able to hold that a little bit more steady?

I'd say that our win rate has been down a little bit, but not nearly as much as many of our competitors have communicated to you.

Great, thank you so much.

And, I'd also note that our new business win rate has gone up.

Thanks.

George Price, BB&T Capital Markets.

Great, thanks very much for taking my questions. Just I'd like to just push a little bit more on sequestration. And then, I have a couple of other questions.

But, on -- again, you talked about the minor impacts. Based on what I've heard, the cuts haven't really been fully communicated, much less implemented.

And, I wanted to, I guess, hear if you could be specific about your assumptions in guidance going forward. For example, you mentioned some of your customers might see furloughs, a minor impact, but is that baked in? You talked about that there is ongoing planning potentially for reduction in levels on the MRAP contract, is that factored in your guidance?

Well, the sequestration components are baked in. The overseas work on the MRAP program, what we are providing is what we expect based on current statements from the customer, built into our contracts modifications, i.e., no more incoming staff, things like that. If that changes, based on their decisions, then there is a more rapid modification to what we have to do to support the number of systems, things like that, it could bring that number down. But, we don't want to get ahead of customers op-tempo as they start this summer season and project what that range to be.

Okay. And, you mentioned that your customers, you weren't having -- your customers weren't telling you that a lot of people are going to be furloughed or taken off contract. But, are they -- or they're not telling you that a lot of people will be.

But, are they specifically telling you that they won't be? Or are they just not saying anything too specifically about those levels?

Well, I think, George, you've seen in the press on the furlough, what the government plans are, it seems to go back and forth. As we said, what they are telling us is, I think, what they know at the level of our customers on what is being -- what is to be furloughed, and it is minimal across my business.

Okay. Shifting gears over to cash and capital. Where do you stand, based on the environment that you see now, and where do you stand in terms of capital deployment for M&A versus returning possibly additional capital to shareholders?

We are going to continue to focus on M&A programs. We actually, with Lou's assistance, are going to be more focused on that. And, I think that the overall capital deployment strategy we have will continue as is.

Okay. And, you may have commented on it, but I apologize if I missed it, but are you going to be primarily -- continue to be focused on areas like cyber and healthcare and commercial as opposed to the core DOD Intel space? Or is that view on the DOD Intel space, core DOD Intel space, changed as a result of the appropriation that we have or what you're seeing in the market?

Yes, this is Lou. I think that we are going to focus on the investments that we've already made over the past few years, continue in the healthcare area, particularly with the Health Care Act, in the areas of IT, in the areas of analysis. So, healthcare is a good place for us to continue to look and to add to our business.

Similarly, in the cyber area and intelligence, we continue to examine opportunities for Bill to improve his capabilities and his business.

The core, we get a lot more information relative to the budget. We will continue to look at core from the value perspective. And, as relative to other areas, whether it's commercial or other capabilities, we are going to examine -- I think sequestration has allowed us to be patient. But, we are really looking at things in earnest.

Okay.

We talk about the intelligence business, we obviously focus on that coming from the agencies where we are seeing significant growth. But, there is a much broader definition of the intel community. And we are reaching out and we are being chartered with working for a number of other agencies that are not classified as intel, let's say, the FBI, where we see enormous potential growth.

Okay. All right. Great. Thank you very much.

Robert Spingarn, Credit Suisse.

Good afternoon. Talking about the guidance, George, you've had a couple of quarters here in a row where the book to bill is shy of 0.5%. Yet your sales guidance holds at $2.6 billion. Kevin did note some near-term opportunities, so in essence, the question is, what type of bookings do you need in the second and third quarter to make your revenue guidance?

Because we have some numbers in here in terms of --.

Sure, did you have a second part of that question?

I was simply going to say or do you rely a little bit more heavily on acquisitions there? And, maybe you could talk about the mix of the two.

Sure, well, we don't have acquisitions built in to the $2.6 billion. If that happens, that will certainly help us get to higher growth targets and expanding customer basis.

There is a lot of -- there's the $4 billion worth of proposals outstanding. We are starting to see more movement and actually more op-tempo within the intelligence committee.

First quarter was very heavy from a proposal perspective and beginning of the second quarter seems to be fairly successful from an award perspective. So, we do expect and would require that the book to bill in the second and third quarters to exceed by 1 times to be able to get there. And, it's going to be more focused, and the main point here, is it's going to be more focused on higher returns services business, if the OCO business, which is now lower return, starts to decline more quickly than expected.

So, what you're saying is the new business will be higher margin, so you don't need as much of it to offset what has been lost so far.

Not from an earnings perspective.

Right, okay. And, the interesting thing here is the trend as you have been holding up on your revenue guidance, but of course, we have seen margins erode. So, the implication there is a lot of the newer business has been lower margin. Except for, I suspect, intelligence and cyber, which I'm concluding is fairly small since it hasn't boosted the margin.

The timing of the awards for the bids, as they keep getting pushed to the right, we've had, we ManTech, and generally for the industry, have had somewhere in a 45- to 60-day extension on the timing between submittal and awards. And, that extension on the Intel side, which we have expectations of higher returns, is in part contributing to the decline in our margins.

Okay, and then, just Kevin, a clarification on the organic growth year on year in Q1, I think you said it was minus 5%. And, I believe it was minus 11% in Q4, so that's an improvement. But, on the other hand, you had some cloud computing move from one quarter to the other. So, when we think -- if that indeed ended up happening as you planned, does that equalize the two quarters on an organic basis?

It would equalize them fairly level, yes.

Okay. And then, just one other question, and I'm not sure, maybe this is for Dan on the MRAP. I know you talked about before how you are planning your long-term planning there. What happens if those vehicles end up going to other nations, as that has been discussed recently?

Well, it is, as part of our business plan, it's foreign military sales. There is a service component to that. And so, that is certainly an opportunity for ManTech.

Is that a better outcome than relying on reset, which may or may not actually happen?

Well, I think some of those vehicles are going to get reset, for sure. And, whether it's a better outcome, it's multiple avenues for our capabilities that we are pursuing.

Okay. And then, just a final question, maybe this is for Kevin, the employee count.

9,600.

Okay, great. Thank you.

(Operator Instructions)

Gautam Khanna, Cowen and Company.

Kevin, I know you mentioned the OCO requirements, you still have some timing questions as to when it winds down. Could you maybe frame for us what you think it ultimately re-baselines to? Because when I add up S3 and counter mine, which has some relationship to OCO, last year it was 46% of sales, $1.185 billion.

What do you expect those to equal this year, maybe the S3? And then, where does this end up going, two or three years out? Does it go to zero?

I can't predict the final outcome. I do know that the MRAPs, the S3 C4ISR work, is not going to zero and it is going to continue at some level. What that level is I think is exactly what the government is working to determine based on how many systems they need, where they are going to position them, and how much support is going to be needed.

So, we will know more as the next X number of months and quarters plays out from a planning perspective. So, for this year, as we started the year for guidance, I mentioned that we expect about $600 million out of the MRAP program. And, the S3 program could be up to $600 million of which about 50% would be OCO-related. It's fairly consistent with what we've provided in the past.

Can you give us an order of magnitude then, as it trends lower? What is the stable rate? Do you have any visibility on that?

It's too early to tell.

Okay, and could you comment on the Prompt Payment Act? And, how that might change the DSO trend going forward, if at all? Thanks.

Yes, I think it will. We are starting to see an uptick in the amount of time it takes to get paid. So, the government is working that. How much it impacts us, they've basically said they're going to go from 15-day payment to 30-.

I think it may have a five-day impact on us on average. But, we're going to have to play that by ear with customers, because they do work very hard to honor commitments within the constraints that they have. So, we may see a five-day increase in DSOs.

Thanks a lot.

Karen, it appears that we have no further questions at this time. So, I'd like to thank you for your help on the call.

And, remind the listeners that, as usual, we've got members of the team here to -- available for follow-up questions. And, I want to thank everybody for their participation on the call and interest in ManTech.

Thank you. Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and you may now disconnect.