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spk08: Ladies and gentlemen, good afternoon, and welcome to the Mantec Third Quarter Fiscal Year 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be brought at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Stephen Vetter, Vice President, Corporate Development and Investor Relations.
spk07: Welcome, everyone. Thanks for participating on Mantec's third quarter call. Joining me today is Kevin Phillips, our chairman, CEO, and president, Judy Bejornas, our CFO, and Matt Tate, our COO. 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. On today's call, we will discuss some non-GAAP financial measures, which we believe provide useful information for investors. These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures. You can find a reconciliation of the non-GAAP measures discussed on this call in our third quarter earnings release. With that, let me hand the call over to Kevin.
spk06: Thanks, Stephen, and good afternoon, everyone. Mantec delivered exceptional profitability and cash flow in the third quarter. However, revenue growth and bookings fell short of expectations. We are navigating a complex and uneven industry operating environment, which is creating certain challenges for us. That said, the foundational drivers for our long-term growth remain favorable, and we are positioned in higher priority areas of the market. Operationally, we continue to feel the lingering impacts from the pandemic, namely on three fronts. The slower return to normal within our intelligence community customers, continuing supply chain challenges, and a tight labor market. Unfortunately, our expectations outpaced the recovery trajectories for both our intelligence business and the supply chain. We remain confident in the attractive fundamentals of serving hard-to-penetrate intelligence community customers and our position in that market. We see durable demand across our solutions in full-spectrum cyber, secure mission and enterprise IT, data analytics, and other key mission-focused offerings. However, in the near term, the intelligence component of our business continues to face meaningful pipeline and award delays, and we expect that a return to normal may take several more quarters. Mantec's higher relative exposure to Intel customers amplifies that impact, which is evident in our overall performance. Next, the supply chain. While customer demand is clear, the supply chain challenges become much less predictable, significantly impacting the timing and level of material procurements. Similarly, we expect this trend to linger, but are hopeful that a path to normal is on the near horizon. Finally, we are seeing the effects of a tightening labor market and have uncertainty about about what effects the executive order on requiring vaccinations among our workforce will have in the fourth quarter and entering 2022. We have made concerted efforts to comply with this mandate, but still have some work to close the remaining gap prior to the December deadline. Turning to the U.S. departure from Afghanistan, we are proud to have supported this overseas contingency operation over the last two decades and thank our employees for their dedication to that mission over the years. Withdrawal from Afghanistan marks what we see as a clear shift in national defense strategy around overseas counterterrorism operations and related support to one that is focused on near-peer threats. In the short term, this shift will create a low single-digit headwind in our overall revenue for the balance of the year and into 2022. Additionally, we anticipate and are beginning to see reductions in select CENTCOM-focused field support operations within the Army. MANTEC is a product of the Cold War. Over the course of greater than 50 years, we have well understood the need to adapt to evolving mission requirements. As the mission moves to near-peer focus, the vast majority of our portfolio is well aligned and we are pivoting the balance to this future mission. In aggregate, the factors discussed in my earlier remarks, coupled with natural program conclusions that occur every year, will constrain the level of near-term organic growth compared to the last few years. We are recalibrating our expectations for 2021 and 2022 as a result of our year-to-day performance, these headwinds, and uncertainties. Judy will review our revised outlook later on the call. Moving to a quick budget update, we began the government fiscal year under a continuing resolution, which currently lasts through early December. The congressional agenda remains focused on infrastructure, the debt ceiling, and other priorities that may cause appropriations to continue to shift to the right. Irrespective of the status of appropriations, our customers continue to have clearly defined priorities that align well with Mantec's core capabilities and investment roadmap. First, the growth of both cyber and space warfighting domains, partly driven by near-peer focus. Second, the need to modernize IT, software, and systems to meet the challenges of today and tomorrow. The needs within this trend are broad and complex, but notably we are seeing greater customer need for automation, analytics, and delivering data at the edge. Lastly, the full and rapid implementation of digital warfare into traditional operating technology missions is of increasing importance. Recently, we announced our intent to acquire Griffin Technologies for $350 million. The acquisition builds on our position within an important Department of Defense customers and adds enhanced digital and systems engineering capabilities. Demand for these capabilities has been robust, and we see this as a continued growth avenue organically as the near-peer focus ramps into higher gear. We look forward to welcoming Griffin's nearly 1,500 employees to the Mantec family. We intend to maintain an active posture for value-accretive M&A, and our balance sheet is certainly supportive of additional acquisitions. Judy will discuss how you should think about the pro forma business going into 2022. Now I'll turn it over to Matt to cover the business development and operational highlights for the quarter. Matt?
spk12: Thank you, Kevin. In the quarter, we booked $716 million in contract awards, resulting in a book-to-bill of approximately 1.1 times. Our last 12-month book-to-bill ratio also sits at 1.1 times, with a majority of the bookings for existing work. Bookings in the quarter were propelled by the retention of important re-competes as well as incremental on-contract growth. The major awards in the quarter include winning a $476 million contract to continue providing Space Force with launch enterprise systems engineering and integration, as well as a $51 million contract to continue providing the Navy acoustic engineering services to support the naval, submarine, and surface signature silencing programs. These contract awards continue to demonstrate our capability strength in intelligent systems engineering. Furthermore, we are pleased with the outcomes of a multi-year strategic pivot into resilient O&M and RDT&E priorities within the Navy, Air Force, and other parts of the DoD. That said, Q3 bookings were seasonally light and came in below our expectations. There were two principal drivers for that trend. First, as Kevin discussed earlier, we lacked meaningful adjudications within our intelligence community customers. To add a bit more color, over the last 18 months, Intel bookings have comprised less than a quarter of Mantec's overall bookings versus prior to the pandemic, it was averaging close to half of the company's total bookings. Second, We were less successful than desired on new large business pursuits in our federal civilian business. This is a part of our concerted effort to penetrate into new markets that will have persistent demand. We will continue to position ourselves to support existing intel, defense, and homeland security customers while we make strategic moves to advance our expansion into other federal agencies. As a result of these bookings, our total backlog was $10.1 billion at quarter end, representing 3% year-over-year growth, with funded backlog at $1.3 billion. We exited the quarter with nearly $8 billion in proposals outstanding, which has a healthy mix of new business and re-compete opportunities. We are continuing to prosecute our pipeline and are seeing steady proposal submissions. The volume, timing, and competitive positioning on adjudications remain a key driver to the cadence of our quarterly bookings. We are continually fine-tuning our business development process to maximize optimal outcomes with respect to pipeline conversion. Before I turn the call over to Judy, I would like to take a minute to welcome the newest member of our leadership team. We are excited to have David Hathaway join us as the head of our defense business. David has significant experience leading high-performance teams focused on bringing technology solutions to an array of defense missions. I look forward to leveraging his valuable expertise to further affect our strategic, operational, and technology initiatives across our DoD customer base. With that, I'd like to turn it over to Judy to discuss our financial results in more detail.
spk01: Thanks, Matt. Quarterly revenue was $638 million, which was flat compared to Q3 of 2020. Q3 revenue fell short of expectations, most notably due to the delays in ODCs that Kevin referenced earlier. Additionally, an uptick in PTO usage and increased turnover pressured direct labor contribution in the quarter. We also saw some programs come to their natural end in Q3. Q3 EBITDA was $73 million, up 27% from Q3 of 2020. This resulted in an EBITDA margin of 11.4%, up 240 basis points year over year, as margins continued to benefit from stronger overall labor mix, continued indirect cost underspending, and a one-time benefit related to a contract closeout for some international work. Net income for the quarter was $38 million, and diluted EPS was 93 cents. up 28 and 27 percent from Q3, respectively. Adjusted net income was $41 million, and adjusted diluted EPS was $1.01, up 23 and 22 percent from last year, respectively. Our effective tax rate was higher than expected at 27.9 percent in the quarter. Turning now to the balance sheet and cash flow statements, cash flow from operations was a robust $139 million in the quarter, which represented 3.6 times net income and was driven by a strong VSO of 55 days. At quarter end, the balance sheet showed $145 million in cash and no debt. Additionally, we distributed $15 million in dividends in Q3, maintaining a steady return of cash to shareholders. The Board has authorized us to continue our current cash dividend of 38 cents per share to be paid in December. The acquisition of Griffin Technologies reflects our commitment to capital deployment for long-term value creation through M&A. As mentioned by Kevin earlier, we intend to remain active on M&A and are continuing to review opportunities that we view are additive to our competitive position. Following the acquisition of Griffin, we expect to have approximately 1.0 times leverage. Moving on to guidance, we are decreasing our previously communicated guidance for revenue and increasing our adjusted net income and adjusted diluted EPS to reflect year-to-date performance and likely outcomes for the remaining quarter based on current market factors. The drivers behind the revised guidance are continued impacts from delayed ODCs, pressures from a more competitive labor market, and reduced new business contribution. Our revenue guidance is now $2.55 billion to $2.575 billion, representing a 1% to 2% growth year over year. We are increasing our outlook for adjusted net income to be in the range of $150.2 million to 152.2 million, with adjusted diluted EPS of $3.66 to $3.71. We are also increasing our expected EBITDA margin for the year to be 10.2%, which represents 110 basis point improvement over 2020. Many of the same tailwinds for the Q3 outperformance are responsible for the full year increase, which includes a lighter level of lower margin ODCs, strong indirect cost management, and some one-time contract closeout fee pickups. Year-to-date, margins continue to average higher than our full-year guide, but there are known trends that will drive fourth-quarter spend higher, primarily M&A-related expenses and greater PTO utilization. In total, when adjusting for these factors, our normalized 2021 EBITDA margin would be approximately 9.4%, a nice uptick of 30 basis points from 2020. The adjusted net income and adjusted diluted EPS ranges assume a slightly higher effective tax rate of approximately 25%, and a consistent fully diluted share count of approximately 41 million shares. Finally, cash flow from operations is still expected to be at least $200 million with capital expenditures expected to be a touch lighter than previously thought at less than 2.5% of revenue for the year. During this call, we have gone through a number of factors that will impact our expected financial performance for 2022. While it is premature to provide detailed 2022 guidance, we wanted to offer some directional commentary. We expect total revenue growth of at least 5%, which is inclusive of the full year contribution from Griffin. We are considering a number of factors in our assessment of 2022, many of which are a continuation of the issues we are dealing within the second half of 2021. Given the change in our expected near-term growth trajectory, I wanted to crosswalk each of the major factors impacting our current view. As Matt mentioned earlier, the headwinds to growth include the fact that year-to-date bookings have been disproportionately related to existing programs versus new work, the full-year impact of natural program conclusions inclusive of but not limited to Afghan and certain field sustainment-related efforts, and a lingering uncertainty on the level and timing of Intel new business efforts and the supply chain with respect to ODCs. Furthermore, it is our expectation that we will have another normal year of recompete approaching 25% of revenue. Moving on to margins, our EBITDA margin expectations for next year are in the 9.4% to 9.5% range, which implies flat to potentially up 10 basis points against our normalized 2021 EBITDA margin. The business risks that we are closely monitoring but are not fully factored into our guide, are the impact of the vaccination executive order and disruptions to the business from a potential extended lapse in government funding. Our 2022 preview is confined to the current visibility into the business and market factors. We expect to refine this preliminary guidance on our year-end earnings call in February. Let me hand the call back over to Kevin for some closing remarks.
spk06: Thanks, Judy. In closing, our team is keenly focused on pipeline conversion, attracting and retaining talent, leveraging our recent acquisitions to drive growth, and continuing to deploy capital to deliver long-term shareholder value. As discussed in great detail, we experienced a market shift in some areas of our work, but we are seeing greater demand towards more cyber and technology-enabled mission needs. Our differentiated portfolio of capabilities and customer sets are well aligned to national priorities. We're now ready to take your questions.
spk10: If you have a question at this time, please press the star then one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. As a reminder, please limit yourself to one question and one follow-up. If you have additional questions, please re-enter the queue. Our first question is from Matt Akers from Wells Fargo. Your line is now open.
spk11: Yeah, hi. Thanks. Good afternoon. I wonder if you could comment a little bit more on kind of the slowdown in Intel, and specifically, I guess, what do you think needs to happen for that business to start coming back again? I mean, does your customer need to add staff to kind of get through some of those contracts, or do they need more funding, or what do you think will lead us to sort of get out of that slowdown you're seeing?
spk06: It's Kevin. I'll speak in, and then if Matt wants to add, he can. You know, the government and the intel community has needs. They are persistent. But what we found is the timing of their ability to send out awards or make the adjudications continue to be impacted by a combination of COVID, you know, coming back open, coming back in, and then having to shut down again when they physically have to be in the office to do that role. as well as staffing constraints within their organization. It's a bit of both. It's not about the budget or the mission requirements. It's more about a combination of their ability to do their job and get outcomes in a timely fashion, where that has definitely been disruptive to the intelligence community over the last 18 months.
spk11: Got it. Thanks. And then I guess if I could do one more just on On Griffin, are you able to comment kind of what multiple you paid for that or maybe just in general sort of what, how kind of competitive that deal is or what you're seeing just in terms of kind of multiples for M&A in the space in general?
spk01: Yeah, I think, you know, we paid a market multiple, you know, for comparable assets, and we're really focused on being able to leverage that, you know, the systems engineering side digital engineering capabilities across the enterprise.
spk06: We're excited about the combination of Griffin and Temantec. We have a heavy Navy presence, but this is very complimentary. The type of work they do around naval surface and the combination of their investments about systems engineering, digital engineering, and data analytics, along with what we've invested in, I think offer a very compelling view of how we're going to support the Navy as the shift to the Pacific continues. So we're pretty excited about that coming together and what we can do going forward against the new peer threat focus.
spk11: Great. Thank you.
spk10: Thank you. Our next question comes from the line of Matt Sharp from Morgan Stanley. Your line is now open.
spk00: Kevin, Judy, Matt, good afternoon, and congrats on the Griffin deal. Thank you. Judy, just a question on the revenue guide down of about 140 mil. I was wondering if you could maybe parse that between how much is tied to, say, the Intel community and how much is tied to the supply chain. And is the revision reflective of a deterioration in your business environment, or is it more just challenges that are persisting longer than expected?
spk01: I think it's... It's more that the challenge is taking longer than we expected. I mean, the ODCs, we had fully expected those to return to the levels we were expecting in 21 in the second half of the year, and we're just not seeing that. As far as bookings, we did see some adjudications in the Fed civil business for some of the larger bids we went after, and unfortunately, we were unsuccessful there, and we had assumed that the Intel... market would return. So, you know, basically any kind of new business we had built into the second half of the year now, for the most part, we have de-risked out of our guide. And then just, you know, I think the Afghan and sustainment work came on a little bit faster and was a little bit larger than we were expecting.
spk06: Kevin, I'll add about persistence, because there is one persistent area, and that's the military support around fuel up sustainment in Afghan. So that is fairly quick in terms of the drawdown. That's the low single-digit. There's also U.S.-based support for systems that have supported that region for a long time. And if you look from 2020 to 2022, over a two-year period, the OCO work as well as some of these systems that are going to be reduced significantly in terms of funding, they're in total high single-digit combination revenue headwinds. more heavily weighted towards the back half of this year and into next year. It's a good thing to support those programs. We've done that for decades. But you can see that the military is definitely shifting its focus as a result of that drawdown in terms of their support for some of these systems as well.
spk12: We do think, though, that the fundamental strategy that we have moved to in 2023 – those things are getting funded in the right way. We still see opportunities there to be able to grow our business long-term.
spk00: Got it. That's helpful. And then, um, Kevin, just on some of your introductory remarks around COVID-19, I think you sort of alluded to the risk tied to the December 8th vaccination mandate. Are you able to provide any context around what the risk is? might be to the back end of this year and into next year, either by way of a percentage of employees that are currently unvaccinated or otherwise, or how should we think about the risk associated with the EO?
spk06: That's a really hard thing to determine. We have over 85% of our workforce has received shots and is cleared through the paperwork that's needed to do that, and it continues to trend in the right direction fairly quickly given that timeline. That said, we don't have everybody we need yet, and how that plays out as we get closer to that date and what exemptions are allowed under what construct by each of our customers all have to come together to get to the total risk. But, you know, if it's already a tight labor market, anything above zero is a risk that we think is important to know.
spk00: Got it. Thanks. I'll get back in the queue.
spk10: Thank you. Our next question comes from the line of Gautam Khanna from Cowen. Your line is now open.
spk13: Hi. I was wondering if you could put it all together on the known headwinds to next year. And so I heard about, you know, low single-digit decline from the withdrawal from Afghanistan. So, you know, whatever that is, $50 million or something to the top line. And then I heard something about a high single-digit decline in some other related business. But I just wondered if you could aggregate the known headwinds, and then if you could also, in that 5% number for next year, you know, how big is Griffin? How much of a backfill is that? How large is it? Anything you can give us so we can model this correctly.
spk06: Yeah. Let me, Kevin, just be a high level. So when I say the high single-digit, that's, a combination of both Afghan and field sustainment work. So that's in total going into next year about traditional military sustainment work. We generally view that the ODC and supply chain risk in terms of the upward option around that, as well as the new business intelligence, are likely going to be pushed to where the growth from them are the second half of the year. So we're being cautious about any growth from those in the first half. And then we have end-of-life growth. programs. So those are in aggregate, and I think we're going to have to wait until February to talk about the overall composition. Is that correct?
spk01: Yeah, we just wanted to kind of throw out some guardrails around 2022, given the headwinds and the acquisition to kind of level set, and then in February, as Kevin just mentioned, we'll be able to go into a lot. We'll have a lot clearer picture on what 2022 is going to look like.
spk13: Okay, could you give us a sense for how large Griffin is at the top line?
spk01: Yeah, I mean, right now we haven't projected it to be in 21 guidance, but if it were to close in early December, we would see, you know, low to mid-20 revenue kind of on a monthly basis if you want to look at that range for kind of a run rate into 2022. Okay, thank you.
spk13: I appreciate it.
spk10: Thank you. Our next question comes from the line of Brian Kinslinger from Alliance Global Partners. Your line is now open.
spk04: Great. Thank you. Can you share any plan you have to fulfill positions? Obviously, it's a tight labor market. Assuming the unvaccinated can't work on a program, the plan to replace them, how difficult is that? What is the wages like right now for hiring staff and then can you keep employees if they can't be deployed on the programs, you know, in order to protect margins?
spk12: Sure. So this is Matt. So that's a kind of multi-threaded question there. But let me kind of start with what we're doing for our employees, which is, you know, everything is customer-based. So, you know, federal civilian versus defense versus intel, you know, all have, you know, I'll say unique requirements as we're going through that. So we're being very proactive with our employee population, trying to make sure that we're giving them every opportunity to be able to either get an accommodation or continue to work with Mantec. So we have plans in place to do that. We also have proactively placed, we have analytics on our own staff. So we have proactively looked at certain areas where we're hiring employees. maybe ahead of where there could be some issues from a hiring perspective. To answer your question around the wage inflation item, I don't think we've really seen that yet. I mean, maybe just a hair, but I don't think that's our concern really is really over the immediate future of this December 8th date and trying to make sure we work through that. Although we are fortunate in that we do have flexible customers you know, who will work with us, you know, through these kinds of issues. You know, and obviously, you know, we have a majority of cost plus work. So in some ways that can benefit us and allow us to work through this maybe in a way that others cannot.
spk04: Great. My follow-up. First, you mentioned attrition being an issue. Where is attrition these days compared to historically? And then a follow-up on the Griffin. Is there EBITDA margin similar to Mantec's? Maybe just a quick comparison would be helpful. Thanks so much.
spk12: So I'll give the turnover and then Judy hand it over to you. So what we're really just seeing is turnover going back to what I would call pre-pandemic normal levels from a turnover perspective.
spk01: And then from a margin standpoint, the full impact of Griffin is in that 9.4% to 9.5% range that it is the early look to 22%. And I would say in general, their program margins are in line with the rest of our DOD business.
spk04: Thank you.
spk10: Thank you. Our next question comes from the line of Toby Sommer from Truist Securities. Your line is now open.
spk02: Thank you. Similar in vein to some of the preceding questions, Could you talk to us about wage inflation, which is probably the primary aspect of inflation that's relevant to your business, and what a faster pace of wage inflation would mean to your ability to grow the firm organically, either make it easier or harder, and preserve or expand margins, either make it harder or make it easier?
spk06: Kevin, let me just make a comment and then if Matt wants to add. Look, when we have high demand for the right talent in the customer sets and wage inflation, if it does start increasing above an amount that can be built in or is already built in to escalation that we can manage between each program, we often go to customers and there's flexibility in going through those discussions because of the need for the talent. I mean, that's something that we've mutually appreciated. and across the industry come to learn to work through. It's a matter of how much that escalation is. So we'll have to see how it plays out. Again, Matt has mentioned that it really isn't something we've seen that is creating the level of concern that you would want us to speak to, but we are tracking it just given the overall market today and also the potential impact of vaccinations, if any.
spk02: And could you comment about what you – I guess we got some comments about your expectations into 22. In the context of a continuing resolution, does your initial sort of guardrails, as you put it, for 22, does that contemplate a CR extending into the first quarter? And if so, how long into it?
spk01: Yeah, I think, you know, we've kind of taken that into account. Obviously, a government shutdown was not taken into account. But, yeah, I don't think, given the timing that we're looking at for new business and things like that, that, you know, a CR continuing is not going to meaningfully change what we have thrown out for those guardrails.
spk02: Okay. And then last question for me is sort of on that recruiting front, just kind of delving into that a little bit more. Are you... doing anything different in your recruiting activities, either something that comes to mind, like perhaps utilizing more outsourced providers to try to land the talent, or is the recipe that you've historically used to attract and retain talent largely the same?
spk12: So I would say overall, so we already will supplement with outside resources in certain areas where we need that. That's always something as a lever that we use. So I would say from while we might be doing more of that right now, I would say the processes that we are using and the approach is still the same.
spk02: Okay. Thank you very much.
spk10: Thank you. Our next question comes from the line of Mariana Perez Mora from Bank of America. Your line is now open.
spk09: Good afternoon. Hello. My question is going to be regarding the Intel Award environment. It's been 18 months, and what I would like to understand is from your point of view and your conversation with customers, how long do you think it will take for them to actually get back to normal burden of inventories or backlog of awards they have? And can any of the programs you are exposed to die or be obsolete by the time that they are able to award them?
spk12: So I think, you know, on this, we really don't expect them to really get, it's still going to be several quarters. I think the back half of 22 is what we are anticipating, you know, for that to answer your question.
spk09: But what makes you feel comfortable that they'll get back there? And I know you have, like, you can give limited information, but any color that you can provide us to understand why you feel comfortable that they'll get back to those levels and this is not just the new normal.
spk12: Sure. Yeah, without, like you said, speaking on their behalf, I think the things that we are seeing is, you know, there are, you know, the return to the workforce, you know, because of the vaccine mandates. is actually bringing more people into the business now. So there is an uptick in what I would call a normal workflow. Not that they're there yet, but that they're getting there. So that's why you're starting to see more signs of that.
spk09: Okay. And then I'll switch gears to the federal civilian segment. You mentioned that your win rate was lower than expected. Can you give us some color if it was like pricing, capabilities, and what's the strategy going forward?
spk12: Sure. On federal civilian, you know, so really, you know, we've had a great win rate there over the last couple years, and so we wanted to go after some bigger opportunities. And, you know, what we really need to do, and those didn't pan out, and what we really just need to do there is focus on our customer intimacy. But, you know, we do have a good pipeline moving forward with federal civilian. It's just, you know, unfortunate that some of the competitive new opportunities at new customers, you know, did not work out in our favor.
spk10: Okay, thank you. Thank you. If you have a question, please press star then one key on your touchtone telephone. Our next question comes from Lou DePalma from William Blair. Your line is now open.
spk03: Kevin, Matt, Judy, and Steven, good evening. Good evening. Matt, you mentioned how your intelligence community bookings as a percentage of total bookings have recently only been 25%, whereas previously they were approximately 50%. As it relates to this topic, Are you maintaining your win rate and your prevailing market share, or have you seen any fluctuations in that regard?
spk12: I think the overall industry is seeing delays. So I think from a market share perspective, I don't feel like we're losing anything at this point. We feel good. we like the future of where the opportunity pipeline that we do have within Intel, and that we expect to continue to retain the re-competes and be consistent with our win rates and market averages like they have been in the past.
spk03: Great. And also related to the prior answer, on the business development side, You also mentioned that you were unsuccessful for several large civil program pursuits. Do you need to make more acquisitions to be successful on these larger programs? Was there anything specific that you were lacking? We know that Booz Allen obviously recently acquired Liberty IT and they acquired like low-code, no-code talent for software development. Is there any particular skill set, whether it's data analytics, software development, artificial intelligence, cloud computing, that you feel you are lacking? Or was there any specific error analysis that you can point to for these awards? Thanks.
spk12: Sure. So I think we were not lacking in any capabilities. And we will continue to leverage both organic investment and M&As as appropriate to advance our business within Federal Civilian as well as across the entire business. I think for us, these were newer customers, and so we are kind of refocusing and making sure we have better customer intimacy moving forward.
spk03: Great. And for these large companies, civil program pursuits, are they more price competitive? Could you point to the fact that perhaps those vendors that won the programs were willing to take a lower margin? Or is there intense price competition for very large civil programs?
spk12: I think there's always price competition within not just federal civilian but across the market. But I would call that a normal competitive pressure, not something – like if you're asking relative to LPTA, we're really not seeing – I mean, you see that in a couple places, but the pendulum has not swung back to that within the market.
spk03: Okay. Yeah, and I was – I was just referring to how it seems as it relates to ultra large IT and cloud contracts that there's a lot of competition taking place between Leidos and General Dynamics IT and Periton and SAIC and CACI and it seems for these mega contracts that there's it's intensely price competitive and it might be difficult for Mantech to break in to those types of contracts given how a lot of those providers have a lot of heritage with these mega IT slash cloud contracts. So I was wondering if there's any deficiency in terms of scale or if it's just the margins on those types of contracts are unappealing to you.
spk12: I think that from a pricing perspective, we've been able to be competitive with all of those folks for those types of opportunity sets. And that's our expectation, is to be competitive within those environments as well as others. Within the federal civilian, we are, as you said, we're looking to expand our footprint But I think for us, you know, what we have found is we do have the capabilities. The customers have recognized those. We do have the right pricing and capability there to be competitive. And for us, it's just, you know, like to your point, these are newer areas that we are working to get into. And so that is where we're working on the customer intimacy aspect of it.
spk06: I'll also add that we're more cautious on the mega enterprise IT deals in terms of how many we go after, to your point.
spk03: Right. Great. That makes sense. Thanks.
spk10: Thank you. Our next question comes from the line of Gautam Khanna from Cowan. Your line is now open.
spk13: Hey, just a follow-up, if you don't mind. I was wondering, this year – how far the ODC shortfalls were relative to the initial guidance. And then just because there are a lot of moving pieces, like you mentioned. So how much was ODC if you were, you know, just ODCs? Now, you know, relative to the last quarter, this quarter, next quarter.
spk01: Well, yeah, I've, You know, we're not going to go into the specifics of the number, but I do think, you know, as I mentioned, we were expecting it to accelerate in the second half of the year, and it didn't. So, you know, it's one of the components that resulted in the revision to the 21 guidance.
spk13: Judy, does the absence of ODCs, you know, whether it be routers or whatever, impair the company's ability to actually ramp direct labor? Is there like a secondary impact? Because until you have the product, you can't, you know, execute the work. I'm just curious, like, is that also maybe one of the knock-on effects or not?
spk01: Yeah, I'll let Matt take a answer to that.
spk12: Yeah, I mean, there is a little bit of labor that goes with that. But I think when we're expecting, you know, got into your question, you know, supply chain relief kind of in the later part of 2022, but that's because, you know, the revenue contribution is delayed by how we're putting this together. It's components from suppliers that we're kind of bringing together in unique ways. And so when we have some supply chain constraints, that's what's happening. That's how we're doing that work. So hopefully that gives you a little bit more clarity because we're doing things that are on a platform level. And so that's what you need to kind of make it happen.
spk13: Okay. And then You guys talked about the normal re-compete year next year. Are there any kind of individually large ones that we should be monitoring?
spk01: Yeah, we don't have anything that's over 5% of our revenue.
spk13: Thank you.
spk10: Thank you. Our next question comes from the line of Brian Kinslinger from Alliance Global Partners. Your line is now open.
spk04: Yeah, just a couple of small number of questions. Realizing that most of your bookings were from existing work, can you just give us that number for the September quarter of what was new and expansion of business as a percentage of the total?
spk12: Yeah, I can do that. The quarterly bookings for this quarter was about 10% new, 90% re-compete.
spk04: Great. And the other question, you gave a lot of numbers that probably you could back into it, but For the third quarter, the non-recurring benefits, I see a $2.5 million reversal for bad debts. I assume that helped. But also, maybe what were the total non-recurring benefits that include the contract closeouts in the quarter?
spk01: Yeah, I mean, I think, you know, that clearly was a big part of it. And then still, you know, so that was probably about half of it plus the indirect spend carrying forward.
spk04: So margins would have probably been more likely. the second quarter, if not for those benefits? Is that how I should think about it?
spk01: Yeah, I mean, again, we were kind of looking at it for the full year, kind of normalizing the revised guide of 10-2 down to, you know, the normalized 9-4. Okay.
spk04: All right. Thank you.
spk10: Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Stephen Baser for closing remarks.
spk07: Thank you, Gigi, and for all of you for joining on today's call and for your interest in MANTEC. As usual, the senior team and I will be available for any follow-up questions. Have a good evening.
spk10: Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful evening. You may now all disconnect.
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