ManTech International Corp (MANT) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the ManTech International Corporation fourth-quarter FY13 conference call.

(Operator Instructions)

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

Thank you Sam, and welcome everyone. On today's call we have George Pedersen, Chairman and CEO; Kevin Phillips, Executive Vice President and CFO; Lou Addeo, Executive Vice President for Corporate Development and Strategic Acquisitions; and Bill Varner and Dan Keefe, our two Group Presidents.

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

Good afternoon, and thank you for participating in today's call. We closed the year with strong operational performance, posting our highest margin for the year, and generated a record level of cash. Overall, ManTech's revenue and earnings declined in 2013 because of the government's accelerated withdrawal from Afghanistan, and the unprecedented levels of uncertainty in the government services market.

Unsure of their budgets, our customers delayed procurements and held off spending. This has changed in recent weeks.

Despite these issues, I am extremely excited about our future. Our cyber and intelligence business shows vibrant double-digit growth, and generated strong new business awards in 2013. Most important, the future funding picture is becoming much clearer, which allows our customers to issue new contract awards, and enables us to aggressively use our balance sheet for growth.

What a difference a few months make. On the last quarterly call, we were talking about the government shutdown and the impending deadline to put out a new budget in place. Now we have a two-year framework for discretionary spending that eases harmful sequestration cuts.

We have a full year 2014 appropriations in place, which gives our customers more authority to prioritize their most important missions, and our customers are actively carrying out plans for the future. We expect to submit proposals in excess of $5 billion over the next six months, and $10 billion over the next year. For the first time in years, customers are accelerating procurements instead of delaying them.

The appropriation bills also give us clarity that allows us to move away from the conservative approach to corporate acquisitions that we've taken over the last two years. The appropriation provides relative stability across our business base, as operations and maintenance accounts were protected for the most part, with areas such as cyber, intelligence, health care, homeland security, each of them emerging as priorities.

Allied Technology Group, an acquisition that we closed yesterday, gives us a more robust platform in the department of homeland security. This was a company that we identify as a strategic priority, and we were able to convince ATG management of the mutual benefit of coming together.

We're currently looking at several additional acquisition prospects, especially those that expand our exposure to intelligence and health care. We have the financial capability to move forward quickly.

Our confidence in the future spending level also enables us to invest in new areas of growth from an organic basis. In the coming year we will invest building a commercial services business focused on selected software tools targeting such areas as banking and energy. We will also invest further R&D in some of the key cyber, mobility, and inside threat capabilities.

Over time I expect ManTech to be able to grow our returns as we enter a high growth, high value market. Now Kevin will provide you the details of our financial performance and our outlook. Thank you.

Thank you, George. I'm pleased that we were able to end the fiscal year with strong operating performance, generating improved margins and strong cash flow despite revenue pressures from customer uncertainty, the government shutdown, and the accelerated withdrawal from Afghanistan.

Revenues for the fourth quarter were $492 million compared to $622 million in the fourth quarter FY12. This difference is mostly explained by the decline in the MRAP and S3 contracts, which are heavily tied to Afghanistan. The MRAP family vehicle support work contributed $73 million in the quarter, down $68 million year-over-year and $32 million from the third quarter. S3 revenues were $105 million in the quarter, down $30 million from last quarter and $35 million year-over-year.

The government shutdown was another key contributor to the decline, accounting for about $15 million in lost revenue. In contrast, our primary strategic thrusts in cyber, intelligence, and healthcare grew compared to last year.

Fourth quarter revenues were light relative to guidance as a result of lower than anticipated material purchases across the business space. Some from delays in receipt of goods, others from further delays in expected commitments from customers.

For the year, revenues were $2.31 billion compared to $2.58 billion in FY12. Intelligence, cyber, and healthcare revenues grew double digits compared to 2012. Our revenues on S3 and MRAP were down $220 million, and the long-completed mobile cell tower program provided another $35 million headwind.

For the quarter, the percent of work as a prime contract remained steady at 91%. There were only minor shifts among contract type compared to the third quarter, with cost-plus contracts at 72%, time and material contracts 11%, and fixed-price contracts at 17%.

During the fourth quarter, we recorded an $86 million after-tax goodwill impairment related to our defense technical services business. As part of our year-end process, we evaluated the level of goodwill and determined that a goodwill charge was necessary. The charge recognizes the impact of a more rapid withdrawal of forces from Afghanistan, as well as slowed services spending across our defense customers.

Continued delays were compounded by the government shutdown and delays in budget appropriations until January. Since going public in 2002, acquisitions have been an integral component of our growth strategy, resulting in 10-plus years of accumulated goodwill. No impairment was found across our cyber and intelligence business.

Excluding the goodwill impairment charge, adjusted operating income was $33.6 million, for a margin of 6.8%. Adjusted operating margin improved 120 basis points from the third quarter, reaching the high point for the year. The margin reflects outstanding award fee performance, stronger direct labor, and execution on cost-containment initiatives. But it also included a one-time pickup from the closeout of a program.

Excluding the goodwill impairment charge, adjusted operating income was $140.8 million (sic - see press release "$140.7 million) for the year, for a margin of 6.1%. This operating margin is just a bit above the original guidance given for the year. Although I am disappointed that changes in the demand environment limited revenue, I am pleased with our ability to maintain profit margin within a predominantly cost-plus contract mix.

Adjusted net income was $20.1 million for the quarter and $79.6 million for the full year, resulting in adjusted diluted earnings per share of $0.54 for the quarter and $2.14 for the full year. Because of the impairment charge on a GAAP basis for the quarter, the Company reported an operating loss of $84.8 million and a net loss of $65.6 million, or $1.77 per share fully diluted.

On a GAAP basis for the year, the operating income was a gain of $22.2 million with a net loss of $6.1 million, or $0.17 per share fully diluted. Information about our use of non-GAAP financial information is provided in our press release under non-GAAP financial measures.

Now onto the balance sheet and cash flow statement. For the quarter we generated $22 million in operating cash flow, or 1.1 times adjusted net income. For the year, cash flow from operations was outstanding at $188 million or 2.4 times adjusted net income.

With capital expenditures of less than $14 million, free cash flow for the year was $175 million. DSOs moved up to 84 days. The government shutdown created delays from contracting activity as well as an increase in incremental funding.

Over the year, we grew our cash and equivalents balance, ending at $269 million, which is a record balance for us. Our strong and steady cash flows enable us to support organic growth, diversifying acquisitions, and our ongoing dividend program.

After the close of the quarter, we acquired Allied Technology Group for $45 million, still leaving ample cash on hand. In April, the no-call provision on our high yield debt expires, and we expect to pay off the $200 million note at that time. Our debt expense will have initial impact on earnings per share for 2014, given the fees to call the bonds. But we will save $15 million annually in interest-related expenses beginning in the second half of the year and in the future years.

The Board has authorized us to continue our current dividend level, with $0.21 per share to be paid in March. We expect to maintain the annual dividend at $0.84 for 2014.

We believe that an annual yield of about 3% is an appropriate return of cash to shareholders. Given the enhanced clarity in our end markets, we are actively pursuing acquisitions for growth.

Turning to business development, bookings for the fourth quarter were $358 million for a book-to-bill ratio if 0.7 times. For the year, contract awards totaled $1.7 billion, again for book-to-bill of 0.7 times.

Consistent with revenue trends, new business awards were excellent in cyber and intelligence with a book-to-bill ratio of 1.2 times for the quarter and 1.4 times for the year. Contract awards for the quarter and for the year reflected industry-wide delays, and we expect bookings to increase substantially in 2014, beginning at some point in the second quarter.

Backlog at the end of the quarter stood at $3.9 billion, of which $1.1 billion was funded. Greater visibility on reduced future period demand on OCO activities, primarily on MRAP and route clear support, was the prime contributor to our decrease in backlog.

At the end of the quarter we had a total qualified pipeline of $22 billion, of which $3 billion is submitted and awaiting adjudication. In just the last few weeks, we have seen a surge in proposal activity.

Where we had $400 million of proposals in process as of December 31, we now have over $1.4 billion in active proposals. We expect the logjam to clear as the newly appropriated funds are making their way now to programs.

Now to the forward outlook. We see 2014 as our transition year. Continued wind-down in Afghanistan and lingering effects of delayed awards, given the prior budget environment, will weigh on our results through the first half of 2014, which should represent the revenue and earnings trough for ManTech.

We expect the increased flexibility and clarity that our customers now have to translate into a sharp increase in new awards, revenue, and earnings as we progress through the year. Following this pattern, we are calling for 2014 revenues of $2 billion, net income of $56 million, and diluted earnings per share of $1.50.

Now, let me give you a little more color on these metrics and how our performance this year will set us up for 2015 and beyond. Absent material new acquisitions, we expect full-year revenues to be in line with our fourth-quarter 2013 run rate. We expect to see a rush of procurements as customers obligate additional funding, which will translate into growth in the second half of the year. We anticipate further declines in our OCO business throughout the year, with MRAP level of support being approximately one-half of our fourth quarter 2013 run rate by the end of 2014.

The drop in the MRAP program alone accounts for the drop in revenue between 2014 and 2013. The implied operating margin guidance is 5.4%. Excluding investments in commercial services, cyber products, and expanded IR&D into new cyber and intelligent solutions, operating margin would be 5.8%. We're convinced that there is a compelling case for these investments, as they will includes the margin over time and open up new markets for ManTech.

Our first quarter operating margin will be lower than full-year guidance from the full impact of historic government procurement delays and our internal investments. We will see operating margins above 6% exiting 2014.

Built into our guidance are an effective tax rate of 39.7% and a fully diluted share count of 37.3 million shares. Cash flow from operations continue to be strong in 2014 at about 2 times net income, and return to our usual range of 1.2 to 1.5 times net income later in the year. And we will aggressively work towards reducing DSOs to the mid-70s.

The outlook for revenue and earnings heading into 2015 is very positive. As we move through the latter part of 2014, we will guide G&A savings through IT investments made this year. We will have much lower interest costs, given the retirement of high yield debt. We will begin to see positive returns from investments in cyber products and commercial services, along with our acquisition strategy. These activities will help reshape our business with greater exposure to healthcare, DHS, intel, and other customers or capabilities we identify as national or commercial priorities.

Now, Lou will speak to HEG and our acquisition outlook.

Thank you, Kevin. The acquisition of Allied Technology Group represents the first significant fruits of our invigorated acquisition process. We've analyzed our current end markets, looked for a logical sequence -- adjacencies, and conducted outreach with dozens of companies.

The increased budget coincided with the stand-up of a fed civ practice within Dan Keefe's NSS group, and we're ready to move out to bolster our position with the Department of Homeland Security. We initially reached out to Allied Technology based on its Department of Homeland Security TABSS prime position. When they also won a position on EAGLE II contract in the fall, they became one of the three companies holding both contracts. We intensified our outreach and began an exclusive negotiation process.

We believe we paid a fair price, especially given the number of opportunities that should be coming out from DHS on TABSS and EAGLE over the next five years. Our M&A team is prepared to respond to George's mandate, and we are actively looking at companies in health, intelligence, and enterprise IT.

We still have plenty of dry powder left, and we expect to complete several more acquisitions in 2014. Now our Presidents will speak to the performance and outlook for our two operating groups. Bill?

Thanks, Lou. As Kevin indicated, the intelligence and cyber business showed strong growth in revenue, profit, and bookings in 2013. And we look for more of the same in 2014.

To capitalize on our growth areas including cyber, insider threat, and counterintelligence, we will invest more heavily in IR&D in 2014. We are gaining traction on the commercial front, and we believe that expanding our suite of proprietary solutions will enable us to continue our growth trajectory and to command higher returns across all customer sets.

Last month, President Obama proposed some reforms to NSA surveillance programs as a result of the traitorous Snowden disclosures. Although the President proposed changes to the programs, he clearly defended those programs, and he has maintained continuity by nominating Vice Admiral Rogers to lead both NSA and the US Cyber Command. After talking with our customers, we believe that NSA continues to be well funded and that there will be no major changes in our support.

Last week the National Institute of Standards and Technology released its Cyber Security Framework Document designed to encourage better protection of our critical infrastructure as a follow-up to the President's Executive Order last year. While the framework is more about guidelines than requirements, it does tell us that the Administration is taking the issue of cyber security seriously, and this bodes well for ManTech.

We began the year in a new organization structure necessitated by the dramatic growth we have experienced over the past few years. Dan and I did a project-by-project review of our businesses with the goal of making NCIS a pure play intelligence and cyber group. Dan gained oversight of the health, space launch, and the fed civil IT businesses, and NCIS gained some IT and cyber work with DISA.

I consolidated all of our cyber business under Paul Gentile, who joined us in December, and promoted Chris Goodrich to Group Chief Operating Officer, allowing me more time to focus on high level customers and industry calls, key marketing events, and supporting our M&A activities. I also brought in Yvonne Vervaet to run business development.

Our new organization is leaner and better able to pursue the large capture opportunities in our pipeline. We have the right structure and the right personnel in place to continue to drive growth in intelligence and cyber. Dan?

Thanks, Bill. As part of the reorganization that Bill described, I renamed the technical service group to become the mission solutions and services group, which better reflects our offerings as a solution provider, and aligns it in a customer-facing organizational structure. Within the group I've put a focus on business development, with the additions of Chris Bishop as our Senior Vice President for Sales, and an advisory board to keep us informed of the latest plans and priorities within our key customer set.

Within the group I am putting a special focus on the growth factors of health and fed civ. For that reason, I'm delighted to begin the year by acquiring ATG as a platform for expanding our presence at DHS.

Mission solutions and services has key contracts in training and system engineering for customs and border protection. In addition, Bill's group has an emerging presence with DHS around cyber security.

ATG brings another roughly $50 million in revenue, most of it with DHS, around IT and engineering support. Together, we can leverage our capabilities through the EAGLES II and TABSS ID/IQs, which provide $33 billion in potential ceiling value for use by all of the DHS components.

ManTech is well positioned to help DHS perform its growing cyber mission, secure the nation's border, and keeps America safe. Back to you, George.

Thank you. In summary, I'm excited about our future opportunities. We have a much clearer funding picture, which allows us to use our strong balance sheet. Some OCO revenues that will trail off in 2014, but during the year we will return to an aggressive growth profile that is characteristic of ManTech.

This is going to be generated by new acquisitions and organic growth, keyword organic growth from enhanced new business awards. With that, we're ready to take your questions.

Thank you.

(Operator Instructions)

Our first question comes from Gautam Khanna of Cowen and Company. Your line is now opened.

Yes. Kevin, I was just wondering if you can walk us through, again, the puts and takes year over year in the guidance. I think you mentioned the CLSS-related contracts will be down about 50%, is that right, for the year?

And then you mentioned ATG's, I think, $50 million in incremental revenue, roughly. But what are the other things that are rolling off again?

Okay. So, yes, the -- if we look at the MRAP revenues for Q4 of 2013, the decline that will occur over the course of 2014 will end, based on the 10,000 troops in 2015 and beyond in Afghanistan to where the revenue from MRAP actually here will be somewhere about half of that at a run rate. So it will drop, and we'll also see some level of drop on the OCO-related work in the S3 programs as well.

We'll continue to see a strong increase in cyber. We'll also have about $50 million in revenue from the acquisition, and we'll also see de-stable to increasing revenues from the other components of our business.

On the expense side, we are adding investments in R&D. We're adding investments in some commercial services, and continuing to invest in the commercial cyber capability. And that's in aggregate included into our 5.4% operating margin.

Can you give us any more granular feel on the MRAP-related contracts? I mean, are we going to be in the $200 million range for all of calendar 2014? And then what do you think about S3 as well? You go from $500 million this year to -- I mean in 2013 to what?

So MRAP in 2014 will be somewhere around $150 million in revenue.

Okay.

S3 combined (multiple speakers) S3 combined will be likely about $100 million down, with the balance of the growth happening in the higher margin components of our business.

Okay. And then is there any visibility beyond the $150 million this year? I mean at MRAP, does it go down to $0, or I mean, where does this actually bottom?

Yes, this is Dan. With respect to Afghanistan, certainly until the Status of Forces Agreements, and those agreements are done, it's a little unclear. But it's worth noting that right now there's 125 people on MRAP in the continental United States.

So there are vehicles to be maintained in the brigades of the US Army, vehicles that will go into storage, and then potential foreign military sales. So there's certainly a future on the CLSS MRAP contract.

Last thing, and I'll turn it over to others. You mentioned, Kevin, the interest expense. It should just drop, it's about $7 million to $7.5 million to $8 million for the year, then. Is that how we should be modeling it?

Well, there will be a heavier expense in Q2 as we clear it out, roughly -- Q1 will be roughly in line with the past interest expense. Q2 will be somewhere around $11.5 million, and it will drop significantly because of the removal of that debt, unless we have acquisitions that require new debt to below $300,000 net for Q3 and Q4.

Thanks a lot.

Thank you. Our next question comes from Brian Kinstlinger of Sidoti & Company. Your line is now opened.

I'm just curious, you've it mentioned it on a couple of occasions, getting more aggressive with acquisitions throughout the year. Does your revenue guidance assume anything for acquisitions that you're currently pursuing?

Outside of the acquisition we've made, no.

Great. And last quarter actually you highlighted the backlog. It dropped by what seems to be almost $2 billion. Can you just go over what parts of your business that came out of, from going from $5.4 billion to where it is today?

Yes, so it's $5.4 billion to $3.9 billion. We had a 0.7 book-to-bill which will drop a little bit on the net backlog, but out of the MRAP contract that we won a few years back, it assumed a run rate of about $575 million a year in its full value. And clearly from the de-obligations and de-scopes, that has reduced significantly, which is why we adjusted that down about $1.3 billion, $1.4 billion, and that is the [other] driver.

Great. And then you've talked about the heightened investments you're making, heard MRAP -- I'm sorry, I heard cyber and I heard commercial. Maybe just give us a sense, at least on the commercial side, what it is that you're looking for.

Is that also related to cyber? What kind of solutions are you looking at commercially?

I'll speak to commercial briefly, and then hand it over to Bill because that's where the bulk of this investment, this discussion revolves around. So we are looking at expanding in commercial services.

If we take the capabilities that we have that Bill will describe, as well as some of our capability around data analytics, big data, we're starting to expand with some parties who have other software to do those types of things, entering into, on a combined basis, more of a banking focus and energy focus potentially. And so we're doing a seed startup on that so that we can expand into those markets, knowing that we have a strong cyber capability that will support our other commercial services. And that's why I'll let Bill take on the balance of the question.

Brian, this is Bill. Thanks for your question, and what we've decided to do is do a little more investing in ourselves in the commercial cyber business. As you know, sometimes the multiples have been a little bit unreasonable in that part of the business.

And we believe that we're as capable as anyone else in developing the capabilities that we need to augment our HBGary business with. So we've identified four to five different projects that we're going to be investing internally in this year during 2014 with the expectation, and I think the very realistic expectation that it is going to augment the product and the services capability that we have in today's commercial cyber business.

And that will end up being a software product, or is that just a services offering?

I think it will be both, Brian. We're heavily leveraging ManTech services with HBGary's products. That was one of the plans all along with the acquisition of HBGary. And now we're discovering that we think there's some ideas and some areas that are not too heavily captured already by our competitors that we can invest in and augment our product offering with HBGary at the same time. So products and services is the answer to that.

Okay. A couple of real quick numbers questions. First of all, you mentioned award fees in the fourth quarter as well as the benefit from a closeout program. Can you just identify what the -- those maybe benefits were to the quarter?

Yes, the one-time award fee was $2 million -- the one time closeout was about $2 million. Award fees were very strong, and again that's cyclical, but this time we had over $4 million of award fee strength in our performance, and that's 6.8%.

So net/net it was a very good quarter for us. It shows the strength in our ability to perform against customers, but those were some one-time items.

And the last question I've got is the percentage of awards, I think you mentioned it, sorry Kevin, that were in the fourth quarter that were new, or expansion as well as for the year?

For the year, the new business is around half, a little bit over. For the quarter, the new awards component was about a third.

Great. Thank you very much.

Thank you. Our next question comes from Bill Loomis of Stifel Nicolaus. Your line is now opened.

Kevin, just looking at the margin guidance for 2014. If we look at the 40 basis points or so of added investment, it still seems low, given higher direct labor content margins at better than the implied fourth-quarter run rate. Why on the core business, kind of excluding the 40 basis points of investment, why isn't that a 6% margin, for example?

Well, I mentioned that we do anticipate exiting the year at a higher margin as we continue to build the business. Within that, though, we are expecting a lower margin return in the overseas work, even though it's declining, we're actually expecting a lower return out of that business.

And we are expecting higher than average growth and higher than average margins in the other businesses. But we are trying to filter in a little bit of compression in that margin, just to reflect the market uncertainty that we have today and intend to, or plan to, try to beat those numbers as we start performing against new [work].

So it sounds like the first quarter would be significantly lower than the fourth quarter, I mean the run rate for the full year 2014 guidance, the first quarter would be significantly below, and we could think of fourth quarter being significantly above the full year? Is it going to be that weighted?

Yes, sir. It will be weighted fairly heavily because we're investing now on some of those other items I mentioned.

Okay. In the fourth quarter, what was the growth in the intel and cyber, and as a percent of revenues in the fourth quarter only?

It was a fairly -- it was an increase in the single digit growth for the fourth quarter comparative, and we ended the year with somewhere in the $750 million of revenue out of that business.

Okay. And then with ATG, what's the breakout, I guess, all that would go into the cyber business? Where would you put that DHS business?

No, it's -- DH business, this is Lou. As I mentioned before, it's going to be going into Dan Keefe's group. But if you look at that as vertical, that's where it resides, but given that ManTech has capabilities in both groups, we would expect any and/or all cyber support to come through Bill's organization as well.

Utilizing their contracts?

Utilizing new contracts that Allied brings to us, utilizing the capabilities that Bill and his team brings to the prospective contract tasks.

And then Kevin, on the fees for refinancing, I thought you mentioned the second quarter is going to be some fees to refinance that. What, roughly what that going to be?

It's not refinancing. It's just --

Or not -- I'm sorry, to pay it off.

Yes. So that's about $7.25 million out of the $11.5 million I mentioned. And then there's some other fees associated with the initial transaction where you have to depreciate that we have to clear out. So net/net it's about $10.5 million, $10.7 million.

But you save.

Yes, but we will save a lot of money in out years, as you know, $15 million of interest expense.

Per year?

Per year.

And then finally, (inaudible) you mentioned traction in commercial when you talked about the investments in commercial. What does that mean exactly? If you got meaningful new awards on commercial, or is that -- can you just explain that traction comment a little more?

Yes. So we're establishing the right level of resources to go and enter these markets that have the right access points. We're establishing what our offerings are, and then utilizing that along with the strong capabilities we have within the cyber realm concurrently so that when we go into these customer sets we have a fairly complete offering to go into. I'd consider it an internal startup that we're trying to push forward.

Okay. So it's not based on like a new pilot program you have in hand or a beta or something with a commercial client? This is investments, and you're going to go out and seek the business?

Yes, sir.

Got it. Okay. Thank you.

Thank you.

(Operator Instructions)

Our next question comes from Tobey Sommer from SunTrust. Your line is now opened.

That is Frank in for Toby. Can you talk a little bit about the pricing environment for new contracts going forward?

It totally depends on the type of work. I'd say that some of the work where it's very much compressed is still preferable on low cost, technically acceptable, but the higher-end work is very much solution-based. We were reflecting that there's compression in the market that we're going to work through. But I do think that broadly given what we're seeing from a procurement standpoint, the government is going to move more into a normal procurement mode as they get through 2014.

Okay. And in that cyber- and intelligence-related work, the pricing in that area seems to be holding well?

It is. This is Bill. We're not seeing hardly any low-cost competitions at all. It just seems not to be a way the government's going in that business. So we think we have the opportunities to put together reasonable bids and keep on winning work in those areas.

Okay. And moving to the hiring environment, what are you seeing out there, and what's your ability to get talented people, especially in those key areas, such as cyber and intelligence?

Well, especially in the cyber and intelligence areas, for the past several years it's been a more difficult hiring environment than we're used to. But we find that we have been able to attract all of the people that we need, despite the difficulty of hiring.

It's just a matter of having the right sort of programs in place, and also accompanied with the reputation that we've developed for winning and executing cyber work. That makes our hiring much, much easier.

And you mentioned banking and energy focus. Any particular reasons or historical exposures you have there that are kind of driving that?

Well, the capabilities that ManTech has around big data, data analytics and the demands or the increasing demands that we see within the banking and energy industries align fairly well, if we can figure out how to take those and package them to a new customer set. So that's why we're targeting those.

All right, great. Thanks very much.

Thank you. Our next question comes from Steve Cahall of RBC Capital Markets. Your line is now open.

I just wanted to follow up maybe on some of the M&A discussion. You said that you're going to possibly be able to take a less conservative approach. I think you've spoken before about some of the expectations of the sellers.

As we're seeing stabilization and you're able to open up your efforts here a little bit, are you also seeing expectations of sellers come up? And maybe you can give us a little bit of a feel of what the sort of multiples were paid for Allied as well.

This is Lou. I think that expectations haven't really changed too much. The sellers are looking to optimize. Now that said, I do believe that markets are changing a little bit with regards to multiples.

It depends on where you are. So in areas that are relatively still warm, healthcare and cyber in particular, will see market-based multiples.

In areas of services, we may be able to find the right opportunities if there are new customers, new capabilities and contracts. And so that's part of the pipeline, if you will, of acquisition. We've mentioned that we paid for, relative to recent acquisitions. So that will give you an idea of what the multiple was.

And maybe just on the commercial business that you spoke about, are you now potentially growing that inorganically as well, or are you looking at companies out there in that space, which is obviously quite different from a multiple perspective, whether that's to bring in sales staff, to bring in technology, to bring in customer access, et cetera? Is that in the M&A pipeline?

No, we haven't looked at commercial companies, but I do believe that we like where we are. It's, like George says, the only place where you can get to read your customers' checkbook.

That said, I think Kevin and both Bill talked a little bit about leverage. And so if we're in the commercial business right now in services, it pays to be where problems are, where commercial banks and/or energy may be. So if there are cyber problems and if we can address them, which is really the intent, that's what we'll do.

In the past 1.5 years, 2 two years, we've been very reluctant to acquire firms in certain parts of the defense business because there were no appropriation bills. That process is behind us, and once again we see funding in those areas and we see it continuing into next year.

So we're back with a much more aggressive, aggressive is the wrong word, much more optimistic view of the technology in the defense area. So we're back. And because we have the financial capability, we're back to looking at more and more opportunities.

Okay. That's very helpful. Just one, maybe final one. I was wondering if you can give us a sense of the major buckets of your business. What the margin range was in 2013? And then maybe if you expect that range to be bigger or smaller, or lower at the low end, higher at the high end, et cetera in 2014? Thanks.

On the overseas work, the revenue will decline and the operating margins themselves will decline a bit. Should hold steady on some of the other pieces of the business, and it may decline a bit in some components, or at least we're factoring that in just to work through the first part of this year in the competitive pressures that were resulting from the budget uncertainty last year.

Did that answer your question, Steve?

Yes. I was also wondering, and is it going up in any parts of the business, as well?

It is not for the first half of the year. Depending on how the solutions come out and what the requirements come out, it could happen in the second half of the year.

Okay. Thank you very much.

Thank you, and our next question comes from Edward Caso of Wells Fargo. Your line is now opened.

Hi guys. This is actually Tyler on for Ed. Just had a question about the win rates on recompetes. Historically you guys had talked about it being in the 90% range, but that could be under some pressure. Just was wondering if you have any update or color on that.

Our win rate recompetes was lower than that this year. We've actually filtered in a lower recompete win rate in 2014 as well coming to our guidance estimates.

If we do perform better, then we'll have a fair amount of upside from that. It definitely was lower this year as a result of the market.

Okay. And then my other question was just a numbers question. What was the -- is the tax rate for guidance for 2014?

39.7%.

All right, great. Thank you very much.

Sam, it appears that we have no further questions at this time. As usual, members of our senior team will be available for follow-up questions. Thank you all for your participation on today's call and your interest in ManTech.

Thank you, sir. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a wonderful day.