ManTech International Corp (MANT) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ManTech third-quarter FY15 earnings conference call.

(Operator Instructions)

As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Stuart Davis, Executive Vice President for Strategy. Please go ahead, sir.

Thank you, Watif. Welcome, everyone, to today's call with George Pedersen, Chairman and CEO; Kevin Phillips, Executive Vice President and CFO; and Dan Keefe and Bill Varner, our two Group Presidents.

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

Good afternoon, everyone, and thank you for participating in today's call. The third quarter marks the second consecutive quarter of strong bookings and sequential growth and revenues. In the past two quarters alone, we have won nearly $2 billion in new contract awards. Our solutions are in demand by our key customers and we are taking market share in key markets. These awards will lead to the continued growth of our Corporation. Cash generation was another metric that stood out for me in the quarter. Cash flow from operations was $103 million, its highest quarterly level in more than four years. Our business model generates significant cash, which we use to pay dividends and acquire companies that bring us new customers and new technology growth. We have, at this point in time, about $21 million cash in the bank, and a $500 million line of credit that's available for us for growth.

As expected, the government is now operating under a Continuing Resolution which fully funds programs through December 11. We are pleased that a two-year budget agreement that would increase military and domestic spending and raise the debt ceiling is currently working its way through the Congress. You've read about in the past day. The agreement sets a base Defense budget for the government's FY16 at roughly $521 billion -- about $24 billion above the 2015 level -- and adds $8 billion to the President's budget request for OCO, Overseas Contingency Operations. This is all a very positive development for ManTech. Our customers will be have significantly more resources to meet their expanded missions, and they will have certainty and stability they need to obligate funds and begin new programs. Now Kevin will provide you with details on our financial performance and outlook. Kevin?

Thank you, George. ManTech's third-quarter results demonstrate that we have moved into a growth mode. Revenues for the third quarter were $393 million, up $9 million or 2% compared to the second quarter of 2015. Direct labor was up 2% sequentially and up 1% year over year. We are growing our direct labor base and expect continued growth in the higher-end skills we offer. Our support for Overseas Contingency Operations contributed $32 million, which was up about $2 million from the second quarter. In total, revenues were slightly lower than expected at the new programs that we were awarded, and the second quarter staffed more slowly than expected, and some material purchases at the end of the government's fiscal year did not occur. Our continued strong awards and associated ramp-up will result in sequential growth in the fourth quarter.

There was little change in the standard revenue breakouts that we report. Prime contractor mix was 88% of revenue. Contract mix was essentially unchanged, with 69% of third-quarter revenues on cost-plus contracts, 11% on common material, and 20% on fixed-price contracts. Operating income in the quarter was $21.1 million, which was unchanged from the second quarter. Quarterly operating margin of 5.4% decreased 10 basis points compared to the second quarter, as a result of the early termination of a lease for a facility that housed some of our Army field sustainment-related work. This one-time expense reduced operating income by $1.3 million. We will continue to evaluate our facilities' usage for optimizing long-time performance. Net income was $13 million, and diluted earnings per share were $0.35 for the quarter, which were up 5% and 6% compared to the second quarter of 2015. We recognized a gain from the sale of our cyber products business, which added about $1 million to net income and $0.03 to earnings per share. The gain was recorded as other income source, so it is below the operating income line on the income statement.

On to the balance sheet and cash flow statement. During the quarter, cash flow from operations was excellent at $103 million, or 8 times net income. DSOs were 69 days for the quarter, an improvement of 14 days compared to the second quarter of 2015, and five days compared to the third quarter of 2014. This marked the highest operating cash flow since the second quarter of 2011, and the lowest DSO in three years. This performance was aided by the government's rush to pay by the end of the fiscal year, and it reflected excellent work by our entire team. Our balance sheet at quarter end shows $1 million in cash and $10 million of debt. We will continue to strengthen the balance sheet, while we continue our focused acquisition activity.

Turning to business development, bookings for the quarter were $1.3 billion, our highest total since the second quarter of 2012. This performance provides an exceptionally strong book-to-bill ratio of 3.2 times. 30% of the bookings were for new business, primarily in the areas of intelligence, cyber security, health, and systems modernization. In addition to the prime awards listed in our press release, ManTech is a significant subcontractor on two blockbuster procurements: the $4.3 billion Defense Healthcare Management Systems Modernization program, or DHMSM, and the $1 billion DHS cyber security program called DOMino. These awards demonstrate our valuable capabilities in the exciting growth areas of health and cyber, and our status as a preferred tactical solutions provider.

The strong awards quarter brings our year-to-date book-to-bill ratio to 1.8 times, and our trailing 12-month book-to-bill ratio to1.6 times, which support our growth objectives. All awards have cleared through their respective protest periods with no protests. Our business development investments are paying off for the second-straight quarter with industry-leading book-to-bill, including takeaway wins of major programs from entrenched incumbents. Fall backlog at the end of the quarter stood at $4.1 billion, and funded backlog was $900 million. Total backlogs increased 20% sequentially, the second-straight quarter it has risen. Our funded backlog is expected to increase in fourth quarter, as customers ramp up work on recent awards. We now have a total qualified pipeline of $7 billion, of which $3 billion is outstanding and awaiting adjudication.

Now for the forward outlook for 2015. We expect to achieve revenues of $1.55 billion to $1.6 billion, net income of $50.9 million to $51.8 million, and diluted earnings per share of $1.35 to $1.38. Compared to ranges from last quarter, we are holding to the lower end and trimming the upper ends of guidance. We are narrowing the ranges primarily as a result of third-quarter results, which are based on the slower-than-expected staffing of new programs and material purchases. Operating margin for year should be 5.5%. The lower end of our revenue guidance is consistent with our year-to-date performance plus incremental expansion from recent awards. We can achieve the upper end through rapid staffing of third-quarter new business awards and material purchases on current contracts. We are in the process of building our 2016 plan. Our first look suggests mid-single-digit organic growth, based on strong awards to date in 2015. We could potentially do better if award activity continues at elevated levels. We expect margins to be steady as we focus on growth and program execution. Our investments in business development and solutioning will continue to be supported. Now Dan will speak to our defense, health and federal civilian business. Dan?

Good afternoon. ManTech Mission Solutions and Services Group has always focused on being the very best partner to our customers. So it was especially gratifying to have that effort recognized by one of our top customers. We recently received notice that we were selected as a tier one supplier to the Army under the Superior Supplier Incentive Program. We were one of only 13 companies in total, and four pure play service providers to receive this honor. This recognition demonstrates our commitment to helping our customers meet their most difficult missions. Award activity was very strong for MSS in the quarter. We won nearly $130 million in awards from the Army Communications Electronics Command, much of it new to us, for support to biometrics and intelligence, surveillance and reconnaissance systems. We also won almost $50 million in VA work under the T4 vehicle. As Kevin mentioned earlier, we are also a key subcontractor on the winning team for the Department of Defense $4 billion Electronic Health Records Modernization Program. Our expertise and interoperability makes us an important player in health systems implementation programs.

As you can see in our results, OCO is a relatively small but stable piece of our business. OCO-related work should contribute about $110 million for the year. With the President's recent announcement that he will maintain the current force structure in Afghanistan through most of 2016, and then keep 5,500 troops in 2017, we expect that our support will be near current levels for some time. Bill?

Thanks, Dan. The highlight for MCIS was also our strong awards, the highest quarterly awards total in our history. The $400 million Air Force security award took out the largest component of our re-compete risk for 2016. The $250 million cyber range job significantly expands on one of our most compelling discriminators. We design, build, test and operate some of the most sophisticated cyber range and training environments capable of simulating full-spectrum computer network operation scenarios, that prepare future warfighters anytime, anywhere across the globe. The $200 million Defense and Intelligence Community modernization support contract is a takeaway from a longtime incumbent, and strengthens our position with a key Intelligence Community customer. This project is critical mission work supporting worldwide operations.

We also won the successor contract to our Solutions for the IT Enterprise, or SITE, contract with the Defense Intelligence Agency. The new contract is called E-SITE for Enhanced SITE. This multiple-award, indefinite-delivery, indefinite-quantity vehicle has a five-year period of performance, with a potential value of $6 billion. We will compete to provide worldwide coverage for IT requirements and technical support services for the DIA and other members of the Intelligence Community. Many of our current DIA programs are administered under SITE, and we anticipate that the DIA will drive a significant number of opportunities to E-SITE as well. We are committed to working with the DIA and our IC partners to enhance the security of our nation and continue our successful support through all stakeholders supporting the intelligence mission. Finally, we won, as a subcontractor to Raytheon, the large DHS DOMino program, one of the most important cyber security jobs in the country, although the award is currently under protest. Results like this quarter's outstanding awards are a team effort, and we have the best team I've ever been associated with. George?

Thank you. In summary, ManTech is positioning to grow organically based upon [zone] awards over the past two quarters. We have excellent prospects for expansion based upon synergies within the KCG, and welcome acquisition, both of which are working out very nicely. And we acquired them earlier this year. Our strong balance sheet and cash flow allows us to pursue additional acquisition. And I mentioned before, we have a $500 million line of credit, and a lot of cash in the bank. We are ready to take your questions at this point in time. Any questions?

Tobey Sommer, SunTrust.

Thanks for taking my question. I wanted to know what normalized DSO will be going forward, given the performance in the quarter? And then how we should think about that cash flow in 2015 and 2016?

It's Kevin. I think that our normalized cash flow should somewhere be in the mid-70s -- 73 to 75 days. It will be lumpy, but I think that there's more focus by the government to work towards a more constant payment.

Okay. And the bookings in the quarter are very strong. Is that mostly from federal 4Q activity? Or do you think there's a change afoot in adjudicating awards going forward?

I'll comment and let others speak up. But over the last year, there's been a large amount of [submit] activity, the government has had, had a large amount of acquisition activity, and they're finally moving towards a more constant flow of awarding them as well. So the awards activity is fairly consistent with what we anticipated. And going forward, rough order, we see requirements in the $2 billion-a-quarter range for requirements for the government. And they're going to adjudicate anywhere between $1.5 billion and $2 billion that we are looking at. So I think there's a new up-tempo that is here to stay for little bit of time.

This is Dan. I would just add, in addition to that, in the last two years, we have really focused on improving the quality of our team and the quality of our processes. So obviously a reflection of that book-to-bill is winning new awards.

I think just to follow up, we're seeing what we had expected and we had believed we would expect to see in this time period. So I think it's, as Dan said, the result of some very good, solid proposal activity, and I think that's the result of that.

Okay. And last one for me. Could you talk a little bit about growth rates and pricing on the cyber system side? You had some nice wins there.

The growth rates -- what we are expecting going forward is the cyber and intelligence business will be above-average growth, based on the requirements of the government and the overall flow of demand. The returns on the business are fairly mixed; it depends on the customer set and their requirements. But they're certainly going to be above-average as well. So I would say that the demand is certainly there. Cyber itself is more matured as a contracting requirement, but the demand still solicits an above-average fee.

Great. Thanks very much.

Ed Caso, Wells Fargo.

Hi, good evening. It's Rick Eskelson on for Ed. Just following up on the earlier question on the bookings, and you guys are expecting more activity to flow on a normal quarterly pattern. What sort of behavior do you think has happened for the customer to drive that? Has it just been enough stuff has backed up and it really just had to shake loose? Or do your customers seem like they're feeling better about life? And if so, how do you think that the budget deal that's out there on Capitol Hill might change that further?

This is Kevin; I'll speak first again. They, in our view, have more certainty around what they need and more certainty around the base budgets, and have managed through, I'll call, the floor that they have to expect. So they have a confidence around procuring -- and that's not consistent in all agencies, but it is much more definitive in terms of their comfort around procuring. And those agencies that tend to have more budget certainty are awarding more quickly than they used to. So it's a combination of those things. And in my view, that the budget agreement, once it's in place, will certainly provide them a lot more comfort and certainly over the next two years. And that's very good for our industry and our nation.

This is Stuart. I'd just add that I don't think anyone should expect that the industry is going to be delivering book-to-bills north of 2% in upcoming quarters. That being said, we would certainly look for and expect that the book-to-bill above 1% in the fourth quarter is reasonable for us. Which would obviously make a very strong year.

Okay, that's helpful. I wonder if you talk a little bit more broadly on pricing? Do you think clients really have moved beyond LPTA for everything but the most commodity-type things? What are you seeing overall in pricing?

It's Kevin. Price and cost still matter. Technical still has -- is moving towards a better weighting then just purely low-cost. But again, that's customer-specific as well.

This is Dan. And especially in the DoD, we still see a lot of customers that are pressed on price. So LPTA is certainly still alive and well.

This is Bill. In my part of the business, certainly price and cost are important. On the other hand, as Kevin noted, we have won some programs where we were not the low bidder. So that's a refreshing approach, and seeing technical and management being weighted more heavily than cost in proposal evaluations.

Very customer-dependent.

Thank you. Then the final question here is on business development. I know you guys have made investments there. It seems like industry is returning to a better growth path and visibility. Are there further investments that you need to make, or do you think you've made them and you are able to leverage them now that the awards are shaking free? Thank you.

Yes, this is Dan. I think we certainly don't see that we're at a point where we won't do more investments. As we look at the enterprise IT market, that analytics cloud computing, we continue to look for strong talent to improve upon the solutions we've built so far.

This is Bill. I think in terms of BD, like Dan, no one would ever claim that we are finished and we have exactly everything we need. But I will make the comment that we certainly have the best-built business development and proposal team that I've ever worked with. So we are real pleased with where we are, and that's directly seen in these nice awards that we had in the third quarter.

Thank you very much.

Gautam Khanna, Cowen and Company.

Hi, thanks, this is Bill Ledley on for Gautam Khanna. I've got a couple questions for you. First, thanks for the clarity around the OCO work. Could you perhaps comment on the profitability of that work this year and next? Is that above-average profitability? And I have a couple follow-ups.

I would say that the OCO work is leveling off, and it has leveled off. The variability around it is a matter of degrees. There's not going to be huge changes like it used to be. So I would say we're expecting a fairly consistent pattern going forward into 2016, and then we'll see what happens from there based on national strategy.

Sure. And the profitability on that work -- is that in line with the rest of the business?

No, it's still below the average of the business.

Okay, thanks. And then on the new work that you guys announced, could you perhaps comment on the profitability of that? Is there a potential for mix shift towards higher-margin work as you gain share?

The type of work that we're winning is generally higher-end, and the margins generally should be at or above average, but that's going to be consistent with all awards.

Okay, thanks. And then on the M&A pipeline, what are you guys seeing, what are you guys looking at? We've obviously seen some larger assets come to market, or will be coming to market. Can you talk about perhaps consolidation, if you have any appetite for larger awards or see the need for further scale?

This is Kevin. We've been very focused on our acquisition strategy, as George has been fairly consistent over the last few years as to acquired capabilities or customers' entree, where we see budgets growing.

We will not buy a sale.

And I think that, that is going to continue. That said, if there are quality properties of scale that fit that profile, we'll certainly consider it, and have the financial capacity to do it.

Okay, thanks. And then on the re-compete pipeline, how much work do you have coming up for re-compete, and what percent of your sales are potentially at risk?

So for the next 12 months, the re-compete level is around 30% of our business, is at re-compete. It is more heavily weighted into the DoD because of the combination of the DoD moving toward a shorter contract lifecycle and the continued delays on procurement. So it may be the new norm in terms of being about 25%, but that's generally the mix. And it's more heavily weighted on the DoD side, and less weighted on the Intel side.

Okay, thanks very much, guys.

Brian Kinstlinger, Maxim Group.

Great, good evening. The first question I had is, if you could quantify how much was put into backlog related to DHMSM and Domino, if any?

Zero.

Zero. And then a follow-up. DHMSM, which doesn't sound like that much is under protest. I know you said Domino was. Is your expectation that you'll play a significant role? Will you play a modest role? Could this be a very large win for you? Maybe some quantification about what that means for ManTech?

Yes, this is Dan. So currently, that's in the pilot phase, and we all pick up people on contract with prime in the pilot phase. We expect it to grow upon deployment again, recognizing full deployment is 12 to 18 months now. It certainly won't be one of our largest programs. But given our past performance and interoperability, we are certainly a significant player. So hard to quantify at this point, but we are already seeing revenue on it.

So it all has to be very incremental based on the requirement that comes to us as that work starts to expand.

Another analyst asked a question, but I want to ask a little bit differently. Last quarter, you talked about your awards being heavy towards ODCs, I believe. I'm curious, this quarter is it more direct labor content as a percentage of the total, or is a similar to the third quarter?

It's a mix, but it's more heavily weighted toward labor-based growth in some of the higher skilled areas. But it provides for some ODC requirements as well.

When you about initial plan of organic growth for next year, you're talking direct labor in addition to ODCs, am I right?

Yes, we are talking in total that the overall organic growth will be mid-single-digits.

And then did I miss -- did you mention proposals outstanding?

Proposals outstanding is at just under $3 billion.

And the engine on business development, do you see that growing, where demand is right now? Is it going to remain level around $3 billion, take us through the next six to 12 months, based on what you're seeing?

I think the submit volume, the amount of requirements for the government are still strong over the next three to four quarters. And that's going to hold up the proposals outstanding in a fairly consistent manner, in our view.

Okay, thanks so much.

Steven Cahall, Royal Bank of Canada.

Thank you. Maybe first just on the guidance. As you continue to get strong bookings and the revenue is filling in, what is going outside of expectations? Because we've had a couple changes to both sales and EPS as we moved through the year. So I'm just wondering, with all the positivity on the wins, what's moving the other way? Is it just timing?

Well, it's timing, but also because of the re-compete levels, we're trying to be cautious about when and how that ramps up. And some the DoD work may come in at a lower level of requirement than it has in the past. And there still is a trend toward some movement on small business set-asides that we have to factor in as well.

And so do you feel like you've taken a more conservative view, when you think about that mid-single-digit target for the future that's factoring in the new sales cycle, a more conservative view?

Yes. That's factoring the sales cycle, what we see today in the government trends. And I would note, though, the rough order of that $2 billion a quarter in submittals or requirements for the government, 75% of that is for new work to ManTech. So if our proposal engine and win rates continue, if we start seeing more of that activity, then there could be upside as we go throughout 2016. But we have to see that come through.

Okay. And then in the quarter, it looks like you had a big contributor in the other income line. I was wondering if you can tell us what that is? And is that anything that's going to repeat going forward, or is that more of a one-off?

It's a one-off. It's related to our merger of our commercial cyber business with Countertech, and a one-time gain.

Okay. And then on the cash flow side of things, obviously a great quarter there. Do you still expect 150% to 160% conversion? Or is that going to go up, since you had such a solid Q3?

It will be higher for 2015. Their normalized run rate is still going to be about a 1.5% or above run rate. So next quarter might actually be a little bit down, based on the surge we need to do this fund to growth in the quarter. But overall, it's still going to be that going out-years, and this year, it will be stronger.

But we're not expecting it to decline enough to get to get to a 1.5 times ratio.

Right.

Got you, okay, that makes sense. And then just a final one for me. With all the wins that you've got -- and it sounds like we're expecting a stable dollar run rate for the OCO work -- I put the OCO at about 7% of sales for the year. I guess it would be a little less going forward, as everything else grows. If we try to bucket everything else between the cyber intel-type awards like Domino and the cyber ranges and the recent DIA, and then everything else either that's DoD or civil, can you give us rough percentage of revenue of how those buckets break out? Or does it not set up well that way?

Well, that's not something that we will consistently report. I will say this intel and cyber business is a strong component. But it's an even mix outside of the OCO work, between that and the traditional DoD and health business.

Great, thank you.

Brian Ruttenbur, BB&T.

Yes, thank you very much. The question I have is about guidance -- mid-single-digit revenue growth, I believe you stated during the call. What do you need in order to grow the mid-single-digits? I know in this year's guidance, you were going to need to win $100 million-plus in new awards. What I'm trying to dig at is, what is already in backlog and what all do you need to still win in order to hit that mid-single-digit growth?

We'll give you our formal guidance on our February call. We're just giving you some view on what we see, based on the awards to date and the amount of re-competes. But we'll provide that to you more formally on our February call.

Okay. And then as a follow-up, 30% of your re-competes -- what's the normal? Did you say it's 25%? What is the normal, like, in 2014, 2013, going back of what is usually up for re-compete?

It's hard to define normal anymore based on all the extensions that happen, and the then the term of contract awards. I would say that 30% is the new normal, simply because the shorter duration of contracts that happens on the DoD side.

Okay. And then last question. The flat -- I believe your initial guidance or directional guidance was flat operating margins. Yet what I thought I'd caught was LPGA is backing off some? Can you help me out with what's going on? It's still a very competitive environment. Is it because of the re-competes that you're assuming flat margins instead of expanding margins?

It's still a competitive environment that we want to reflect. And we're also going to continue to invest in those things that will support top line around business development, like R&D and the like. And we want to make sure we factor that in, because it's having success for our business.

Great. Thank you very much.

Bill Loomis, Stifel Nicolaus.

Thank you. Just staying on the margin talk, so your margins are only in the 5%, but as you've talked about in terms of wins being higher-end, more direct, more direct labor, and so forth, I know you said you were investing. But your margins are still some of the lowest, certainly among the public cure plays, by quite a bit. What exactly in the business is holding that back? Because the OCO business is only 7% of revenues now and has stabilized. So what are the other major contracts or areas that are really holding that overall operating margin down?

Well, generally, I think that across all of -- not university, but much of our work over the last few years, customers have had to renegotiate or discuss the overall returns to us as a contractor. And that's impacted it. And there have been some re-competes where we've had to bid lower fees. What I'd like to suggest is, exiting 2016, if these become more normal, we probably could do better than that. But we want to make sure that we don't factor that in for next year until we see the performance and the demand from the customers suggest that they're going to change their patterns a little bit.

So there's no structural area you're in, some group of contracts or what have you, like another supply chain that's really low margin, or anything that's really (multiple speakers)?

No, that's part of the OCO work. And Army generally has a little bit lower, just based on supply and demand for their services. But not other than that.

Okay. Can you just -- on the cyber range re-compete, can you, as an example, one of your major re-competes in the quarter, what was the structure of that on the re-compete the margins? Is it better or worse?

We're not going to speak to specific contract award margin.

Okay. And in terms of generally on your re-competed contracts, are you still seeing -- I know you're mostly cost anyway. But are you still seeing what little [T&M] you have still going to the cost? Or do think that pendulum has swung already?

It's leveled off. I think customers are kind of leveled off on what their procuring between cost-busting and then fixed price.

Okay. And then just one more on investments. You said margins are being held down on investments. Investments in what specifically? Outside of your typical bid and proposal, is there other centers of excellence or facilities or anything like that, that's causing some significant investments?

Is not facility-related. We've invested in more solution architects and people who can advance a more solution-based response to customers as well. So that we can move towards how they may have fewer requirements.

Okay. And then are you still investing in the commercial cyber business related to your --?

No.

Okay. You're totally out of investing in that?

We have stock ownership minority, but we are not investing in it.

Okay, great, thank you.

Sure.

Brian Kinstlinger, Maxim Group.

Great, thanks. One follow-up. I'm sure you wanted one more margin question, so I'm going to go at it.

(laughter) Hey, I'm here to serve. What can I do for you?

So heading back to my question about the mix of contract awards in the last two quarters, and seeing that the direct labor content mix should improve in spite of investments, should we assume that margins are going to continue to grow in 2016? If not, when can we get back to the 2013 sort of level?

There is potential for them to improve as things progress throughout the year, if the mix works and if the competitive nature levels off a bit. How it gets back to a level that existed two or three or four years ago, I think that across our industry, we'll have to wait and see how that plays out. Because it's still a very competitive environment.

Okay, thank you.

Robert Spingarn, Credit Suisse.

Hi, everybody.

Hi.

I wanted to -- there's definitely a change in tone here. You had a great bookings quarter. Clearly a lot of people are showing that. And so to some extent, it's driven by the government. But I also certainly do recognize the fact that you're turning toward growth. What gives you the confidence, though, that you can hit that mid-single-digit growth number? Or is there a way for you to frame your confidence level, just relative to what you're prior predictions -- there's always been some uncertainty and some variability. I want to understand better if there's just a higher level of confidence and why.

That's a good question. We appreciate it. Yes, we have a higher level of confidence, because there are factors that contribute to the governments delays in decisions were needing to reduce overall budget seem to have leveled off. And during that timeframe, we focused heavily on how to improve our business development and win rate. And we're going into 2016 with a larger capacity of new work that will help us. And capacity on contracts potentially ramp up, should the government need to surge towards more requirements. The cyber range is an example. The capacity on that allows for upside growth on top of what we currently do. So it goes and forth.

Now Kevin, the change at the high end of the revenue guidance for this year -- can we put that into context of the expectation for the growth next year? In other words, the visibility into next year sounds like it was better than into this year.

It is, and I would say that some of the delays that we have to deal with on the staffing side are related to how long it takes to get people through their clearance crossover process, and relates to (multiple speakers)l. It's more tactically how to work through to get the people placed, rather than do they even meet the requirements.

So in a way, is some of this just timing, that maybe some of this year's ending business moves into next year and you gives you that much for more work next year?

We should be able to move towards meeting the requirements of the customer on the contract work they've provided us for new business.

Okay, all right. And then just with regard to the timing on the bookings that came in the quarter ahead of the end of the government's fiscal year. And I know that you guys have been watching, just as we have, how this budget deal is getting put together, and there's been a lot of uncertainty up -- you know, it's still there. Could we go with a light bookings quarter here in December? I think you commented on the upcoming quarter before, but I just wanted to review it. Is there a possibility that there is an offset to some of the strength in this December quarter, just because the government's getting it ducks in a row, so to speak?

I'll comment, and then others can weigh in. I think that they're becoming more certain in their procurement methodology and timelines. There are some delays, but overall set of requirements that are outstanding in the expected award times are still there, and that's healthy. If there's a delay, it will just delay it into Q1. So I don't see us having -- people saying: we no longer have requirements and therefore we're going to make no awards in this quarter. We don't see that.

Okay. Thank you very much.

Watif, it appears that we have no further questions at this time. So as usual, members of our senior team are here for any follow-up questions. And with that, I want to thank you all for your participation on the call.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.