ManTech International Corp (MANT) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the ManTech International Corp first-quarter FY15 conference call.

(Operator Instructions)

As a reminder, this conference is being record. 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, Amanda, 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.

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. For the first quarter ManTech shows strong margin driven by stability in direct labor and lower indirect expenses. We experienced some reduction in revenue, which was the result of pullback in subcontracts and materials primarily that was used in Afghanistan. The in-theater staffing today is about 300 people compared to 2400 in early 2013.

In addition, we had excellent cash generation with operating cash flow more than double net income. Our ability to generate cash enables us to invest in the growth of the Company.

On that note, earlier this week we acquired Welkin Associates, which strengthens our ability to provide high-end systems engineering and business solutions, especially in the intelligence community. Welkin is an excellent addition to ManTech, and we are actively looking for other promising acquisition candidates. With $44 million in cash and -- net cash and a $500 million line of credit, we have the cash and a balance sheet to acquire more and larger firms, and we will if we find the appropriate ones. The current industry dynamics support our acquisition plans. Given the great uncertainty around funding, we are seeing more high-quality companies of all sizes become available for acquisition.

In addition to full appropriation for the FY15, there appears to be more normal appropriation -- a more normal appropriation process for 2016 with budget resolutions passed in both the House and the Senate. It is encouraging to see both Houses of the Congress are looking for ways to increase defense spending, whether through increased OCO funding, that's overseas funding, or sequester relief. We see funding -- we see the funding environment as a very positive for the industry and for ManTech. Now Kevin will provide you with details on our financial performance and outlook. Kevin?

Thank you, George. Revenues for the first quarter were $370 million compared to $452 million in the first quarter of last year and $411 million in the fourth quarter of last year. The year-over-year revenue differences are mostly explained by declines in the Afghanistan-related contracts and pressures on the overall Army budget.

Revenues for the quarter are below last quarter's as a result of two factors. First, we experienced reduced subcontractor material requirements, primarily from the Army and OCO-related demands. Annualized direct labor, which is central to our value proposition as a services company, was up compared to the fourth quarter after adjusting for two fewer workdays.

Second, projected new contract awards did not materialize. Almost $2 billion of awards expected in the first half of this year have slipped to the right, causing delays in awards. Our support for OCO contributed $23 million, which is down $8 million from the fourth quarter. We still expect OCO-related work to contribute about $75 million for the year.

There was little change in the standard revenue breakouts that we report. Prime contractor mix remained it at 89% of revenue. 68% of first-quarter revenues were on cost-plus contracts. 11% were on time and material contracts. And 21% were on fixed-price contracts.

Operating income for the quarter of $20 million was essentially unchanged from the first quarter of 2014. Quarterly operating margin of 5.4% increased 100 basis points year over year as result of the direct labor mix, strong contract performance and improved cost management.

General and administrative expenses dropped 6% sequentially and 7% year over year. Net income was $12 million, and diluted earnings per share were $0.31 for the quarter, which were up 22% and 19%, respectively, compared to the first quarter of 2014. Net income and earnings per share benefited from margin expansion as well as reduced interest expense from redeeming senior notes in the second quarter of 2014.

On to the balance sheet and cash flow statement. During the quarter cash flows from operations were a superb $26 million, or 2.2 times net income. DSOs were 87 days for the quarter, which reflects a temporary increase as we upgraded the Company's financial management system. DSOs should come back down as we complete this transition.

Our balance sheet at quarter end shows $44 million in cash and no debt after paying $7.9 million in dividends. Our balance sheet provides plenty of firepower for acquisitions, such as the Welkin acquisition we just closed. The $34 million payment, which we were able to fund through cash on hand, will be reflected on our second-quarter financials. Welkin should contribute solid growth and operating margins, and be accretive to earnings per share in 2015.

Turning to business development, bookings for the quarter were $149 million for a book-to-bill of 0.4 times. As result, backlog at the end the quarter stood at $3 billion, of which $900 million was funded. Approximately 44% of awards were for new business, primarily in the areas of health, software support and systems engineering. We also won a $44 million contract in the quarter that was subsequently protested. We continue to be optimistic that a significant number of proposals outstanding will be awarded during 2015.

At the end of the quarter we had a total qualified pipeline of $21 billion, of which $5 billion was outstanding and awaiting adjudication. The total pipeline is overweighted to cyber, intelligence and heath, with those areas adding over $2 billion in qualified opportunities over the last six months. Since the last call we have identified $2 billion in additional proposals that we expect to submit in 2015 for a total of nearly $9 billion. This would be about $2 billion more than last year, which was more than double the volume of 2013, and a record for us, excluding the overseas activities. Despite delays and protests, the market is set to rebound and revenues will accelerate as we win work from the substantial pipeline of submitted proposals or near-term opportunity.

Now to the forward outlook. We expect to achieve revenues of $1.6 billion to $1.7 billion, net income of $53.7 million to $57.9 million and diluted earnings per share of $1.43 to $1.54. The guidance reduction reflects the slower than anticipated award flow and lower materials and subcontractor volumes than previously expected. We have high proposal activity with continued uncertainty around the timing and outcome of award decisions. As a result, we believe the guidance ranges are most appropriate at this point.

Our revised revenue guidance assumes about $100 million of new business and future acquisitions. We believe this is reasonable given our substantial pipeline, strong balance sheet and a market environment that is turning more favorable. If customers stick to their announced adjudication schedules, we should be closer to the upper end of that range.

On the bottom line, the revised guidance shows an improved margin outlook from labor mix and lower G&A expense. Operating margin for the year should end at about 5.7%. Expectations for other items such as tax rate and operating cash flow will remain unchanged. Now Bill will speak to our cyber and intel business. Bill?

Thanks, Kevin, I'm extremely pleased to welcome the highly skilled employees of Welkins to ManTech and to MCIS. They bring deep experience and demonstrated expertise, and virtually all of them are directly supporting intelligence missions and are cleared at the highest levels. Welkins delivers mission-centric services and high-end systems engineering and advanced national security technology and business services. Welkins' contribution to its customers are notable for their technical depth and for their criticality to mission execution. Their primary customer is the national Reconnaissance Office where they have performed work in nearly every directorate in office, supported dozens of major system acquisitions and aided in the operations of dozens more.

In addition, Welkins supports a number of other key customers, both within the intelligence community and across the Department of Defense. Welkins' expertise is consistently sought by both customers and teaming partners. This acquisition strategically positions us to pursue large engineering and support activities in the intelligence community and the Department of Defense. Together we are focused on a seamless transition of existing work and aggressive pursuit of new business.

In other news, I spent last week at the RSA conference, which is the world's largest information security event. My discussions with existing and potential customers and partners highlighted the need for our cyber security services and products.

The conference also showcased the momentum we are seeing on the commercial product side, as we rolled out the Linux edition of Responder Pro, which analyzes physical memory from servers and hosts, and enables deep forensic analysis of malware artifacts in memory. Our products suggest a gap in today's market currently filled with signature and indicators of compromise-based security products, which are limited in their effectiveness and unable to defend against sophisticated advanced persistent threat. Our patented approach performs behavior-based analysis of physical memory to detect malicious processes. With 200-plus commercials -- 200-plus customers and ManTech's deep cyber security experience in the federal government, we deliver differentiated value and are poised for growth.

In our services business, our customers are actively engaged in moving procurements along. Many are still experiencing delays, but we're seeing promising signs that our intelligence community customers will be making significant awards over the next several quarters. Our position in cyber should benefit from legislation that is currently working through Congress. After a series of false starts, it appears that we will finally get cyber legislation that would push companies to share access to their computer networks and records with federal investigators.

Lastly, the House passed two bills that are similar to a measure approved by the Senate Intelligence Committee. There are still some issues around the balance between privacy and liability protection, but I'm hopeful that legislation will be enacted this year. Dan?

Good afternoon. Like Bill, I've just returned from a major conference highlighting one of our key growth initiatives. Earlier this month I attended the Health Information and Management Systems Society, or HIMS Conference, in Chicago. This event was massive. It underscored how robust the health market will be for years to come. The conference also serves as a launch of our ManTech Health brand.

Over the past three years we've invested in three acquisitions to build our capability and customer presence in health IT. Now we are aggressively investing and building out the leadership team to sustain and accelerate our growth.

Under the leadership of Steve Comber, our new General Manager, we've just hired three stellar executives that bring ManTech Health tremendous credibility and thought leadership. John Dorman joins us as Chief Information Officer, responsible for the development of ManTech Health's IT solution strategy and technology focused services to improve healthcare outcome. Dr. Takesha Schulterbrandt now leads our Health and Human Services business, and Dr. Carl Buising will start next week of as our Chief Medical Officer. All three are nationally recognized experts who have demonstrated an ability to manage and grow large federal health businesses. ManTech will be a significant -- ManTech Health will be a significant growth driver for MSS and ManTech.

Turning to other parts of our business, as Kevin indicated we have stability on our OCO work. Over the last quarter we have received plus-ups on some in-theater work to maintain current levels of support. We do not see further down-size to our in-theater business, which provides us a stable platform from which to grow additional foreign military sales. However, our business overseas is very much dependent on political decisions. George?

In summary, ManTech is moving out aggressively on acquisitions and new proposals for missions as we await awards from our large pipeline of submitted proposals. We are seeing a number of high-quality companies coming to market, and Welkin is the first of what we hope to be several additional acquisitions in 2015. I am excited by the volume of opportunities that Bill and Dan are pursuing in very high priority missions.

In closing, I want to highlight two recent commendations that speak to the commitment and dedication of our employees and the work environment and ManTech. President Obama recognized ManTech employees Christina Nichols with the Energy Rockstar award for developing a pioneer training program to help transition military veterans to the clean energy workforce. In addition, the Military Times recently ranked ManTech as one of the best employers in the nation for veterans. We greatly value the contributions of our veterans -- our veterans have made, and are proud that so many of them are making another career for themselves at ManTech. With that we are ready to take your questions.

(Operator Instructions)

Edward Caso with Wells Fargo. Your line is now open.

Hello, good evening. It's Rick Eskelsen on for Ed. Thank you for taking my question.

The first one, George, you talked a lot about M&A. Just curious, sort of the size of the transactions you're looking, or more maybe the size of the transactions that you're comfortable with and whether you've seen larger properties now in the pipeline?

We have seen larger properties, and I must say the volume of candidates that we are interested has increased in the past two months. For a period of time there, it was a little dry; but it's turning around.

And I'll let Bill talk a little bit more about the acquisition we made. But that's a good profile of what we're looking for.

Talk a moment about why we picked what we did.

I'll be happy to. Thank you, George.

The Welkin Associates acquisition represents opportunities for us in customer spaces that we know very well, but markets that are adjacent to where we are currently performing. So it provides us some opportunities to prime some large upcoming procurements, where neither company could prime by themselves; but together, we are able to. It offers us, I think, great expansion opportunities in areas where we are very interested in moving.

And again, from the acquisition point of view, we just reported to you our cash position. It's unusual for us over the years to have been without debt, but we've been in that position for a while.

But we will continue to look aggressively for companies large and small. We will not buy sales. We must get new technology, new customers, new people. And we have to be able to make it accretive. That's our policy and it's worked for us.

Just on that last point, I believe you said that Welkin would be accretive to 2015 EPS. Curious if you could give the expected run rate for revenue or maybe what the 2014 revenue was?

The 2014 revenue was about $33 million. And the run rate will be that, or slightly above that, from the date of acquisition forward. And we'll see growth from that going forward

On net sales alone, without the combination with others.

Yes.

Okay. And then just the last question for me. You talked about seeing some awards not materializing, things slipping to the right. I know that's been the trend for a while now in the space. But curious what the recent behavior's been from clients, if it's been any different, and why you think those in particular slipped? Thank you

Yes, there's a lot of volume to customers, and I'll let Dan and Bill add to it. There are a lot of customers working procurements. I think the slips are a mix based on the customer. But generally, if they have the money, they are going make awards, which is different than two years ago.

I think they're being very cautious about reviewing everything and making sure that it's a reasonable decision on their behalf. And in some cases, I think different agencies are still going through internal reviews as to prioritization.

But we see a lot of volume. We see a lot of opportunity. We've been very focused on that. And I think it's more internal timing within the customer. I don't know if you want to add anything to that.

And in some cases in the intelligence community, we see that there just aren't enough people in the acquisition workforce. And therefore the review of proposals takes time, and the awarding of proposals takes more time than it should.

Thank you very much.

Steven Cahall with Royal Bank of America (sic). Your line is open.

Yes. Thanks very much.

Maybe just the first question on revenue and growth. Just looking at the range and guidance for the year, and maybe even excluding the OCO work. Is it reasonable for us to expect you to maybe exit the year with flat or even slightly growing revenues? Or, based on the instability that you're still seeing, would that be a little too optimistic at this point?

No. I mean, the timing of growth is very much dependent on the contract award volume. We certainly have enough submits out there. We do expect, all things moving in the right direction, in Q4 this year that we'll start seeing organic growth. And we do expect exiting the year based on the volume of activity that we'll start seeing a growth pattern again

And then maybe just a follow-up on the M&A theme. Maybe a couple questions here.

George, you mentioned that Welkin is a good example of some stuff you're seeing. It would seem that you could do a lot of things at the size of Welkin and still have a lot of cash left. Is there an appetite to do anything outside of the dividend or M&A? Or are we saving all of the cash for M&A, in terms of priorities, at this point?

It's Kevin. I'll speak to that.

As we've been fairly consistent that acquisition is our number one priority, dividend policy that we currently have is second. If we don't have any use of cash after looking at properties, which I think there are a number out there that, as George said, are becoming more active. And we look at other alternatives, and we have a discussion around that to make decisions. But acquisitions continues to be our number one priority for use of cash.

And then a final one for me and then I'll get off. When you talk about the M&A pipeline picking up and the interest picking up with the stabilization in the market, does the same thing happen where all of a sudden now you're getting interest as a target as well? Do you see that level of activity in the market? Or have the would-be buyers of companies really not gotten that comfortable with the situation as yet?

I think that the companies have to be focused on that as a strategy. And then they're being more open about that based on the market today rather than more strategic discussions like that. That's our view.

Thank you. I'll get back in the queue.

Brian Kinstlinger with Maxim Group. Your line is now open.

Hello, thank you.

I wanted to start with how many proposals are awaiting awards at the end of the March quarter?

We have $5 billion of proposals in process or awaiting award.

Okay. And then from that, I guess I understand there were delays. But as I look back, there were very few quarters where you had this little business from new awards. You had a few in the 2014. But in previous years, even in 2013 and 2012, nothing like the $60 million to $65 million of contracts from new awards or new revenue.

I guess I'm wondering if that's a function of delays getting worse? Is you win rate a little bit lower than in the past? Just maybe curious what you think behind the weaker bookings as opposed to the stronger bookings. Of course not March of last year, which we was one of the weakest quarters you ever had.

So just a couple observations. For the amount of proposals that we're going after, the vast majority, I'd say somewhere in 80% range, are for new work. And that is going to be harder to get win rates or wins. So it gets an average historic win rate is going to be less. But if we get those contract awards, then the upside is significant.

So we're very much focused on that. The re-compete levels this year are below average. And the timing, again, it depends on the customer set. But generally we see more activity but more cautious review cycles to get to the award. And I think that they will begin to award. It's just a timing issue.

What we're hearing on the Hill is that there's current plans to increase the Defense budget by $38 billion for next year. That isn't in a formal proposal at this point in time, but that's the current belief -- that that's how the appropriation process will wind out, by adding $38 billion.

Now, I know in April you had expected a few very large awards, which is second quarter, to be adjudicated, hoping that you be the victors. That's new business, a couple large intel ones. Were those further delayed, or has April started off the same way the first quarter started?

Brian, this is Bill.

One of those large activities was mine. And I'm sorry to have to say that, unfortunately, we were not awarded that large job, despite providing a very compelling technical and management solution. However, we still have many large opportunities left within the intelligence community that we are either currently writing proposals, awaiting award, or in some phase of capture.

We were not the incumbent on that particular program, so it doesn't represent a decline in our revenues. And there still may be opportunities there for subcontracts.

But was there an incumbent at all on there? I think there was one where there was no incumbent, and it was a multi-$100 million to $1 billion award. Was that that one?

Yes, Brian. There was no incumbent

Okay. And then I have one more question on the bigger picture of guidance. I mean, it's not just you. I think the whole industry's had a difficult time meeting as we've seen subcontracting go down; we've seen hardware or material purchase go down; and we've seen protests. And you mentioned your guidance basically includes $100 million that you need to either win or acquire.

First of all, is that the low end or the midpoint? But secondly, given the pace of awards right now, coupled with the protest that usually will make you take a long time before you actually generate revenue, is that really reasonable? I mean, is that a difficult target, $100 million? Or do you think that is a challenging target? I'm just curious how you look at that.

When we look at the amount of new business awards we're going after, and the $5 billion of it actually is actionable. And I would imagine in our industry the biggest judgment call is, if you have that amount of activity from the government, you think your well-positioned, how do you incorporate that into your view of the business? And how much delay to build into the timing of awards?

And we have, over time, become more focused on that timing and trying to build that in. But I would say it's hit and miss. But if we hit more than our fair share of the new work, then it goes above that. And if not, then we continue to wait for those awards to happen.

The $100 million is the midpoint. And again, I think that were well-positioned, based on the investments we've made over the last 1.5 years, to start seeing new business awards and seeing that expansion.

All right. One last one. The second-quarter revenue, given the new awards -- not the re-competes -- were fairly low. Should it be similar looking to the March quarter plus maybe the acquisition revenue that you have? I mean, there shouldn't be a steep ramp in, like you're saying, the second half of the year hopefully would be much stronger, given contracts and awards? Is we should think about it?

It will be higher. There are more billable man days in second quarter than first. First quarter's the lowest billable man day of the total year. And we do expect some of the ODCs, not all, but of the ODCs that did not occur in Q1 to come back up because it's more of a timing issue.

And then in Dan's area, he's on pace to start getting more new contract awards. In fact, the first month's contract awards are already at or above our full prior quarter awards, subject to protest. So we're starting to see some of it.

Great. Thank you.

To your point, Brian, we do expect Q3 to the above Q2, and Q4 to be above Q3.

Got it. Thanks very much.

Bill Loomis with Stifel. Your line is now open.

Thank you. On the OCO revenue, I heard $75 million for the year. But what was it for the quarter again in first quarter?

$23 million.

And then on the $100 million of awards you need, did that include potential acquired companies, or was that just new organic bids?

It's a mix. If we have enough bids that if they get awarded we can see getting to the upside of our range with that $100 million. And then if not, then we have an acquisitive process that could help us get there if the contract awards don't happen. So you build them altogether, but we do think that there's enough contract award activity to support the range that we have and to be the primary driver of it.

Okay.

And then on Commercial Cyber, Bill, you talked about your new products, 200 customers. What's the run rate on that now, and is the Commercial Cyber profitable now?

Commercial Cyber is not yet profitable in that we're still investing in the business. We do have 200 commercial customers. We have also several government customers for the commercial products. These are products that can be sold either to the government or to others in industry. Is that what you're asking, Bill?

Yes, and then any way you can size what the revenue run rate is now in Commercial Cyber?

It's Kevin.

It's consistent with prior year, but their level of investment is less. We're actually closer to breakeven. Not breaking even, but closer to it than a year ago. It's a fairly consistent top-line number.

And I have to look back in my notes, but was that $5 million a quarter, then, in the past?

It was full year between $5 million and $10 million.

Full year between $5 million and $10 million, okay.

And then on the OCO revenue stabilizing, and you have good visibility on that $75 million. What happens if we extend the 9,000 troops for another year? Do you think you could actually see some potential growth in that, or is this kind of the floor number?

This is Dan.

As I mentioned in my prepared remarks, we did see additional funding. And that was really to the government recognized that the ramp down that they had planned was not going to occur as they had planned it. So I don't see additional growth. Again, that's all tied to political decisions, obviously. But I think what we're seeing is fairly stable -- given the national guidance for 2015, pretty stable for this year.

Okay. And then the margin on that OCO business, is that still kind of like 4%- or 5%-type business?

It's below that. It's the lower end of the range that we had for returns.

Okay, thank you

Robert Spingarn with Credit Suisse. Your line is now open.

Good afternoon.

I guess I have a couple of questions which relate to the revenue guidance, just like others before me. But before we get to that, one question. What was the organic sales growth in the quarter, and what's embedded for the year?

For the quarter, it was organic decline of 22%. And for the full-year midpoint, the organic would be around 9%.

Okay, about 9%. And then --

Negative. Sorry, yes.

Minus 9%. I'm hearing what you're saying about the pipeline. But at the same time, I can't help but notice that your funded backlog is at its relative low here at around $900 million. Total backlog as well. And at the midpoint of your guidance, which of course includes it sounds like some business you haven't won.

Yet the implied quarterly revenue is a good $50 million above what it was in the first quarter. So I'm just struggling to see how we get to the guidance number, the revenue number. Because when we knock off the $100 million, we knock off the three-quarter contribution from the new acquisition, I guess you should be somewhere in the $1.5 billion range. So it's not clear to me quite how you get there, how you have the confidence to get there.

Okay. In the first quarter, if you think about the revenues that we have there, about one-half of that, or roughly $20 million of that, is related to OCO drops or man-day differences. The man-day differences will come back up. And the other half are on ODCs that we do believe, based on visibility, will come back up at some level, let's say $10 million. So roughly $20 million on top of the $370 million gets us moving in the right direction.

We do have contract awards we are starting to get. And the $900 million we have in funded backlog is fairly consistent with last year. And the majority of the work that we're bidding on is new. So we do think that if we start getting contract awards, it will be new business. It'll start ramping up and should get us to the guidance range that we've provided.

Would you say, Kevin, that you've changed -- or maybe this is a question for George as well -- that you've changed your forecasting process at all over the past several quarters, given the challenge to meet projections?

I think we have changed that. We've also tried to work toward the range, based on what we have. So we are trying to modify what we're providing, moving to the ranges, looking at what we have, based on just the variability of having so many proposals outstanding, but the timing of the awards being uncertain.

We are trying to tie the current status to the appropriation process. It's frustrating to have so many proposals submitted and awaiting award, and they're not coming through the system. And we hope at this point in time that this additional funding and the additional staffing will accelerate that process.

Okay.

Rob, this is Stuart.

We're also trying to be very transparent about what we need to get that guidance.

I think you are being as transparent as you can be. But there's just been a trend here where somehow the numbers have been somewhat consistently optimistic relative to what's come through. And I'm just wondering if there's any time kind of systemic explanation.

It's based on the timing of awards. And if we are being overly optimistic about the new business, getting our fair share of it, then that would be our downside.

Okay. Thank you.

Gautam Khanna with Cowen and Company. Your line is now open.

Good evening.

Maybe I missed this, but could you articulate Welkin's contribution to the sales this year and to earnings?

The earnings are small, given the size of the deal. It's a $33 million revenue business in 2014. We expect it, from the date of contract award forward, to be at or above that run rate. So it'll be in the mid-$20 millions to low $20 millions in terms of contribution to top line.

Okay. All right. And you said it's de minimus to earnings, maybe $0.01 or $0.02 (technical difficulties), okay.

And then you mentioned I think, Kevin, that early in the second quarter, you've had a pretty good contract award pace. And I was wondering if you could just elaborate on that. How does it --

Well, it's more normalized to where we want to be. I wouldn't say it's robust, but it's moving in the right direction.

Okay. And to just to go back to this question on the sales guidance. Specifically how much go-get do still have? And do you need to book to hit the numbers -- to hit the low end and maybe to hit the high end?

The $100 million is the revenue contribution we need from new business awards. And the go-get totally depends on what the time of those contract awards are. So if we have $5 billion or $8 billion we expect to be awarded over the next 12 months, the timing of those awards and how much we get is what's going to drive that.

Okay. So just so I'm clear on this, though. That's $100 million of awards from today? So not including what you've already won in the quarter.

Correct. $100 million of new business. $100 million in revenue that is driven by new awards at the midpoint of the guidance.

Got it. Okay, of revenue. So the award number will have to be much higher, presumably.

Yes.

Could you comment on, with respect to what you're bidding on, does it come with a lot of subcontract and/or ODC work? I imagine it'd very difficult to hire enough people to convert $100 million of direct billable labor into sales in the year -- or not? I mean if you could just -- are there any (multiple speakers) bits that you're pursuing that bring a lot of ODCs with them?

It's mainly services-based. And it will be a mix of ManTech labor and subcontract labor. There are some ODCs; but it's not as heavily weighted, or nearly as heavily weighted, as it was in the past.

Okay. And the $100 million you've talked about, is that to get to the low end of the range? Or is that the midpoint of the range?

That's what we have as midpoint.

Okay. Thanks a lot.

(Operator Instructions)

Tobey Sommer with SunTrust. Your line is now open.

Thanks.

I was wondering if you could talk about the healthcare end market and what you're seeing there, both on the government side and any kind of commercial prospects you may have. Thank you.

This is Dan.

I think clearly within the government health market, which is where our focus area is, there's a tremendous effort going on in the government to standardize electronic health records. And that's what we do -- both in data analysis, cloud-based, the health records. So you see that in all the agencies, the DOD, Defense Health Agency, in the VA, and also in Health and Human Services.

And so that's really where, frankly, the largest growth within my business that we see. Commercial limited right now

Right.

Switching gears, just one I guess technical question. The temporary pick-up in DSO -- and I apologize if you mentioned this because I did juggle in a couple calls. Has that righted itself so far in 2Q, or do you expected it to soon?

Yes, we expect it to right itself. It's a conversion issue. We upgraded our system, our financial system. It'll correct itself over the quarter.

Okay. So from your perspective, just a temporary blip, almost behind us?

Yes.

Okay. And from a balance sheet perspective, I understand that you were pretty constructive on M&A opportunities. Are there any other plans to return capital to shareholders, kind of above and beyond the dividend that you've got? Because the capital structure perhaps could be enhanced? Thanks.

Sure. Right now we still want to use cash primarily for acquisitions. We do review the dividend policy every quarter. At this point in time, we'll maintain at our current dividend level. But if we don't see any path for acquisitions that are of interest to us, then we'll go back and review that again

Is there any kind of longer-term capital structure goal that you would have in mind? I understand it could be kind of chunky; and you could oscillate around it, depending on acquisitions you may consummate. But is there some sort of -- go ahead.

I think what we've found is that the dividend distribution that we have seems to fit within our operating cash flow. The desire what we want to maintain for potential acquisitions. I don't see that profile changing in the near future.

Okay. Thank you very much.

Amanda, it appears that we have no more questions in the queue at this time. I appreciate your help on the call.

As usual, members of the table be here available for follow-up questions. And so I thank you all for your participation on today's call and your interest in ManTech.

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