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Edited Transcript of MANT.OQ earnings conference call or presentation 5-Nov-20 10:00pm GMT

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Q3 2020 ManTech International Corp Earnings Call FAIRFAX Nov 17, 2020 (Thomson StreetEvents) -- Edited Transcript of ManTech International Corp earnings conference call or presentation Thursday, November 5, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Judith L. Bjornaas ManTech International Corporation - Executive VP & CFO * Kevin M. Phillips ManTech International Corporation - Chairman, President & CEO * Matthew A. Tait ManTech International Corporation - COO * Stephen Vather ManTech International Corporation - VP of M&A and IR and Executive Director of Corporate Development ================================================================================ Conference Call Participants ================================================================================ * Gautam J. Khanna Cowen and Company, LLC, Research Division - MD & Senior Analyst * Jasper James Bibb Truist Securities, Inc., Research Division - Associate * Joseph William DeNardi Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Airline Analyst * Louie DiPalma William Blair & Company L.L.C., Research Division - Analyst * Mariana Perez Mora BofA Merrill Lynch, Research Division - Research Analyst * Scott Deuschle Crédit Suisse AG, Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, good afternoon and welcome to the ManTech Third Quarter Fiscal Year 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to Stephen Vather, Vice President, Corporate Development and Investor Relations. -------------------------------------------------------------------------------- Stephen Vather, ManTech International Corporation - VP of M&A and IR and Executive Director of Corporate Development [2] -------------------------------------------------------------------------------- Thank you. Welcome, everyone, and thanks for participating on ManTech's third quarter call. Joining me today is Kevin Phillips, our Chairman, CEO and President; Judy Bjornaas, our CFO; and Matt Tait, 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 the anticipated results. For a full discussion of these risks -- these factors and other risks and uncertainties, please refer to the section entitled Risk Factors in our latest Form 10-K and 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. Kevin? -------------------------------------------------------------------------------- Kevin M. Phillips, ManTech International Corporation - Chairman, President & CEO [3] -------------------------------------------------------------------------------- Thanks, Stephen, and good afternoon, everyone. We hope that you and your families are remaining safe and healthy. ManTech and its talented people continue to show great resilience amidst an unprecedented national and global backdrop brought on by the ongoing pandemic. I want to thank the team for their unwavering commitment to our customers and the mission. Their perseverance and steadfast focus produced another set of strong quarterly results. We delivered healthy organic revenue growth, EBITDA expansion, exceptional cash flow and robust contract awards. I'm pleased with the continued momentum of the business and believe that we are well positioned for sustaining our growth trajectory and impressive performance. This confidence is deeply rooted in the fact that customers are exhibiting strong enduring demand for ManTech's differentiated solutions and services, as evidenced by our contract awards this quarter. As a result of this performance, we are raising and narrowing our guidance ranges for the year, which Judy will discuss in more detail shortly. Now let me offer some thoughts on important drivers to our market environment. As many of you know, we are operating under a continual resolution until at least December 11. Our current expectation is that the CR will be extended into next year. However, we are hopeful that progress resumes towards finalizing the FY '21 National Defense Authorization Act as well as appropriation. We are pleased that embedded in the CR was an extension for the coverage reported under CARES Act section 3610. We have seen a significant reduction in the number of individuals who must utilize this coverage, yet it remains critical to retaining some very important talent. We believe that many companies, particularly those in the intelligence community, continue to need the coverage to sustain their operations. It is our hope that Congress values the necessity of this coverage. As the nation awaits for the final results of the election, I would like to note that we expect either administration to focus on key areas, such as countering near-peer threats, bringing advanced technology to missions across the government and shifting towards the use of technology in all future domains of conflict. We are well aligned to provide our differentiated offering against these strategic national priorities. Let me offer some brief thoughts on the business development front. We experienced a healthy level of adjudications this quarter, which resulted in a 2.1x book-to-bill. Additionally, we had a strong quarter of proposal submissions. We are on track to exceed 2019 proposal submits and are seeing consistent customer demand for ManTech's differentiated capabilities in full spectrum cyber, advanced analytics and intelligent systems engineering. The demand is evident across our customer set, and we believe that it will remain steady, given the persistent global threat environment and the mission criticality of our solutions. Our current view is that next year's proposal volume should remain very healthy. ManTech's competitive market positioning, coupled with our size relative to the broader addressable market, creates ample opportunity to take additional market share. Before I turn the call over to Judy, I want to acknowledge our Co-Founder, George Pedersen and the news that we announced in September regarding his transition from Executive Chairman and Chairman of the Board to Chairman Emeritus of ManTech. George is a pioneer in our industry and has grown ManTech into the industry leader it is today since the company was founded over 5 decades ago. I'm grateful for his leadership and guidance, and all of us at ManTech look forward to his continued contribution in his role on the Board. I'm humbled and honored that the Board named me Chairman and look forward to serving the company in this new capacity. Now Judy will walk through the details of our Q1 financial performance and revised outlook. Judy? -------------------------------------------------------------------------------- Judith L. Bjornaas, ManTech International Corporation - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thanks, Kevin, and I echo your comments about our talented people. They are truly foundational for the exceptional results we continue to produce. I am pleased that ManTech's financial performance in the quarter exceeded our expectations across all key measures. The contract awards Kevin discussed and that Matt will build on in a few minutes continue to translate into strong top line growth. Revenue for Q3 was $636 million, up 10%, and virtually all of the growth was organic. Direct labor remains the bedrock of our revenue growth. EBITDA for the quarter was $57 million and grew 10% over Q3 of 2019. EBITDA margin held steady year-over-year at 9%. Margins continue to be bolstered by healthy direct labor and excellent indirect cost management. Our solid operational execution demonstrated by our strong revenue growth and healthy profitability cascaded through the P&L. The lower-than-expected tax rate of 23.8% contributed only $0.01 to EPS. Net income was $30 million and diluted EPS was $0.73 for Q3, both up 6%. For the quarter, adjusted net income was $34 million and adjusted diluted EPS was $0.83, up 7% and 6%, respectively, from last year. Now on to the balance sheet and cash flow statements. For the quarter, we collected $112 million in cash flow from operations, representing 3.8x net income. Customers continue to pay on a timely basis, and our DSO was 54 days at quarter end, a new company record and a 3-day improvement compared to last year. At quarter end, we had $102 million in cash and no debt. Our strong balance sheet and cash flow position provides us with great financial flexibility to invest for future organic growth, value-enhancing M&A and to continue returning cash to shareholders, the key components of our capital allocation approach. The M&A market remains very active, and we are focused on candidates that will sharpen our customer and capability portfolio. We distributed $13 million in dividends for the quarter. The Board has authorized us to maintain our quarterly dividend level of $0.32 per share to be paid in December. The yield continues to be attractive at approximately 2%. Now on to our revised 2020 guidance. Based on the strength of the performance to date, we are raising and narrowing our ranges for revenue, adjusted net income and adjusted diluted EPS as compared to our previously communicated guidance. We now expect revenue to be between $2.5 billion and $2.51 billion (sic -- slide 17 "$2.49 billion and $2.51 billion"), which represents 12% to 13% year-over-year growth. At the midpoint of guidance, we are anticipating to generate a little over 10% organic growth. Our guidance now assumes an EBITDA margin of 8.9% for the year, representing a 20 basis point improvement over last year, a significant outperformance against our initial expectations at the beginning of this year. Let me note the factors that could influence our ability to meet our revised revenue and margin guidance. They include the pace of hiring and ramping lease and contract awards, the level of material procurements and CARES Act 3610 coverage beyond December 11. Although on the last point, I would reemphasize that we have limited reliance on this coverage at this time. Shifting to the bottom line. We expect adjusted net income between $131.6 million and $133.2 million and adjusted diluted EPS between $3.24 and $3.28. Underlying these guidance ranges are an effective tax rate of 24.4% and a fully diluted share count of 40.6 million shares. Now to cash flow. We are meaningfully increasing our expectations for cash flow from operations to now be at least $200 million for the year. This represents a 14% increase from our prior guide. We anticipate capital expenditures to be close to 3% of revenue. Now on to Matt to cover the business development and operational highlights in the quarter. -------------------------------------------------------------------------------- Matthew A. Tait, ManTech International Corporation - COO [5] -------------------------------------------------------------------------------- Thanks, Judy. I am pleased with the business development performance in the quarter. Bookings totaled $1.3 billion, resulting in a 2.1 book-to-bill. Our robust contract awards demonstrate we are driving and delivering innovation across the federal market. Approximately 2/3 of our contracts were related to cyber, analytics and supporting intelligent missions with the balance of the contract awards from intelligent systems engineering and systems modernization efforts. Nearly half of the awards in the quarter were on a sole source basis, a testament to the differentiation and level of satisfaction that we are providing our customers. Lastly, over the last 12 months, approximately half of our contract awards came from new business. I want to spend a few moments highlighting some of these recent contract awards. We won an effort with DHS to continue providing predictive analytics solutions and services that enhance CBP's ability to identify and analyze threats to the homeland. This is a marquee analytics program within the federal government, and the award recognizes ManTech's excellence in this capability area. On the cyber front, we were awarded a $266 million new effort to assist an agency of the Department of Defense developing its full spectrum cyber capabilities. Also in the quarter, the Department of State meaningfully expanded an existing contract of ours to provide additional threat and risk analysis and technical security countermeasure services to safeguard their personnel operating globally. Last, but certainly not least, we won a pair of intelligent system engineering contracts totaling nearly $350 million with the Navy to support technology modernization efforts across platforms. As the Department of Defense increasingly shifts towards a model-based systems engineering framework, ManTech has been working closely with customers to demonstrate how to apply technology and cyber onto kinetic systems to operate effectively in a more digital environment. As a result of these contract awards, our total backlog was a record $9.8 billion, up 7% sequentially and funded backlog stood at $1.4 billion. Furthermore, our proposals outstanding figure stood firm at approximately $6 billion. Our business development success would not be possible without the tireless efforts of our talented people who are delivering innovation and successful outcomes for our customers every day. As such, growing, developing and driving satisfaction within our talent base remains a key priority for us. With that, let me hand the call back over to Kevin for closing remarks. -------------------------------------------------------------------------------- Kevin M. Phillips, ManTech International Corporation - Chairman, President & CEO [6] -------------------------------------------------------------------------------- Thanks, Matt. Before we take questions, let me leave you with a few observations. Our year-to-date performance clearly demonstrates our ability to navigate through a complex and unconventional environment with great resilience. We remain on path to close out another strong year of financial performance. Our growth prospects are unchanged despite external market uncertainty, given our differentiated market positioning in cyber, analytics, and intelligent systems engineering. Customer demand is not abating, and in fact, it is growing, given the persistent global threat environment as well as the need to modernize our nation's capabilities to address and increasingly multi-vector digital battlefield. ManTech is well positioned to meet this increased demand. We thank our customers for their continued and unwavering trust in us to deliver mission-critical solutions and service. We remain committed to further innovating, enhancing and growing our portfolio to provide our current and prospective customers with the highest quality and most mission impactful services and solutions. ManTech's value proposition to our current and prospective employees, customers and shareholders remains very strong. Operator, please open the line for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question is from Gautam Khanna of Cowen. -------------------------------------------------------------------------------- Gautam J. Khanna, Cowen and Company, LLC, Research Division - MD & Senior Analyst [2] -------------------------------------------------------------------------------- I wanted to ask if you had any preliminary view on 2021 revenue growth? Any sense for it, just given the potentially prolonged CR and contrast against all the bookings you've had in recent quarters? Any ballpark level you could point to for next year? -------------------------------------------------------------------------------- Judith L. Bjornaas, ManTech International Corporation - Executive VP & CFO [3] -------------------------------------------------------------------------------- Yes, Gautam, given those things that you just mentioned, we think it's a little premature to be giving 2021 guidance now. So we'll be doing that at our February call. -------------------------------------------------------------------------------- Gautam J. Khanna, Cowen and Company, LLC, Research Division - MD & Senior Analyst [4] -------------------------------------------------------------------------------- Okay. Relatedly, could you talk a little bit about the recompete percentage of the business up to rebid over the next 12 months? -------------------------------------------------------------------------------- Judith L. Bjornaas, ManTech International Corporation - Executive VP & CFO [5] -------------------------------------------------------------------------------- Yes. We've seen that decline from the start of the year. And in 2021, it's looking to be close to around 20% of revenue. So a light -- on the lighter end of an average year. -------------------------------------------------------------------------------- Gautam J. Khanna, Cowen and Company, LLC, Research Division - MD & Senior Analyst [6] -------------------------------------------------------------------------------- Okay. And lastly, any big shifts that you would anticipate if it is a Biden administration? I'm just curious, does that create opportunity or risk that we should be aware of? -------------------------------------------------------------------------------- Kevin M. Phillips, ManTech International Corporation - Chairman, President & CEO [7] -------------------------------------------------------------------------------- Gautam, this is Kevin. Look, we see the overall platforms for both administrations, looking for technology and advancing support of all national security activities and near-peer threats is staying important. So we'll wait and see how the composition of both executive and legislative branches come out. But right now, we think we're in a strong position to support the priorities in our customer sets, which, again, are intelligence, defense and federal civilian sectors. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Your next question is from Louie DiPalma of William Blair. -------------------------------------------------------------------------------- Louie DiPalma, William Blair & Company L.L.C., Research Division - Analyst [9] -------------------------------------------------------------------------------- I was wondering, could you provide more detail about the custom border patrol data analytics contract that you described as marquee? Are you using any of ManTech's home-grown software? Or are you primarily acting as a systems integrator for commercial offerings? And are there many of these types of contracts in your pipeline that you described, I think, at $6 billion? -------------------------------------------------------------------------------- Matthew A. Tait, ManTech International Corporation - COO [10] -------------------------------------------------------------------------------- Yes. So Louie, thanks for the question. So first off, the work that we're doing in terms of -- this is very high in predictive analytics and is really focused on stopping bad things and bad people from coming over -- from across the border. And so this is one of the -- if you talk about stand-alone analytics opportunities, this is definitely one of the key ones that everybody in the industry probably wishes they have. But they don't, we have it, so that's the good part for us. The second aspect, though, is there are -- this is an area where we see a lot of opportunity across the business, not just in the federal civilian sector but in defense and intel. And a lot of these are baked into opportunities versus stand-alone, but there is a mix out there. And so we already have some of that, that are in our pipeline and some of that we're waiting on to them, but there is a mix out there. And so we already have some of that, that are in our pipeline and some of that we're waiting on from an adjudication perspective. -------------------------------------------------------------------------------- Kevin M. Phillips, ManTech International Corporation - Chairman, President & CEO [11] -------------------------------------------------------------------------------- And it's Kevin. I'll add that over the last 5 years, we've been fairly consistent in terms of investing in certain technology as well as talent. In the technology front -- in the R&D what we're doing is allowing us to offer additional capabilities to our customers and the analytics side is no different. So that we can help provide a view of how to get to the next step with them. So it does include some of our own capabilities as well. -------------------------------------------------------------------------------- Matthew A. Tait, ManTech International Corporation - COO [12] -------------------------------------------------------------------------------- Yes. Thank you. I missed that part of the question. -------------------------------------------------------------------------------- Louie DiPalma, William Blair & Company L.L.C., Research Division - Analyst [13] -------------------------------------------------------------------------------- And on another note, there has been a lot of recent M&A in the space and missile defense area. And I was wondering if you could talk about your competitive positioning there. And I saw that in August, you extended your contract with the Air Force's space and missile systems launch enterprise. Can you comment on like what services you're providing for that contract? And I guess, just your overall competitive positioning in that area? -------------------------------------------------------------------------------- Kevin M. Phillips, ManTech International Corporation - Chairman, President & CEO [14] -------------------------------------------------------------------------------- Let me briefly high level, then I'll hand it over to Matt. So we do a lot of work in and around space within the DoD and the intelligence community in different aspects. We believe space, like other physical system components, are going to be able to long term take advantage of the systems engineering aspects that we propose and approach, and we're seeing that and space is no different. But specific to programs, I'll let Matt speak to that. -------------------------------------------------------------------------------- Matthew A. Tait, ManTech International Corporation - COO [15] -------------------------------------------------------------------------------- Yes. So some of the programs that you're talking about, Louie, those are ones where we are actually conducting and supporting the launches right out in Vandenberg, California and Cape Canaveral in Florida. We are doing model-based system engineering work there. And we also are working on the new launch entrant vehicles, so SpaceX, Blue origin, all of those new launch vehicles. We actually work with the government and do model-based system engineering work as well as some, I'll just say, very interesting analytics work as a part of that inhibition. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- Our next question is from Mariana Perez of Bank of America. -------------------------------------------------------------------------------- Mariana Perez Mora, BofA Merrill Lynch, Research Division - Research Analyst [17] -------------------------------------------------------------------------------- So my first question is related to capital deployment. With $100 million in cash and $500 million available in the revolving credit facility, what's the company's capital deployment strategy going forward? -------------------------------------------------------------------------------- Judith L. Bjornaas, ManTech International Corporation - Executive VP & CFO [18] -------------------------------------------------------------------------------- Well, we continue to be focused on M&A. The market is very active, and we're actively looking at a number of properties. We're going to continue to stay disciplined and focused on companies that are going to be additive from a customer capability standpoint. And then we're continuing to invest in organic growth, some of the IR&D and things that Kevin just talked about are things that we're going to continue to invest in. And then we have our dividend as a mechanism to return cash to shareholders. So we're going to stay focused in those areas for the time being. -------------------------------------------------------------------------------- Mariana Perez Mora, BofA Merrill Lynch, Research Division - Research Analyst [19] -------------------------------------------------------------------------------- Great. And then related to that, R&D and -- ManTech has done like a really good job positioning to key national security priorities from both, technology and mission perspective. What other areas you are investing today in technology, for missions, where -- that will make sure that you stay relevant that you'll stay aligned with the U.S. government priorities and that you'll grow faster than the addressable market for the next, call it, like 5 to 10 years? -------------------------------------------------------------------------------- Matthew A. Tait, ManTech International Corporation - COO [20] -------------------------------------------------------------------------------- Sure. So we're focused on 5 main technology focus areas. There are some others, but I would put it into these categories. The first is cybernet, right? We're developing the next-generation of cyber capabilities, full spectrum. The second one is, what we call AAA, in that automation, artificial intelligence and analytics. The third is intelligence systems engineering, which is around model -- actually the model-based system engineering that I alluded to with some of the space launch work that we do, but we're doing that at a multitude of agencies. And then we also have mission and enterprise IT, that's a very large category, but that's where we're doing a lot of information technology and with a lot of different technologies woven in. And then data at the tactical edge. So we're at the tactical edge right now with our customers, and we feel that we actually can bring technology, what in the phrase we use is bringing digital to the mission, in a unique way that can actually help our customers be more successful in the awards that they are in. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- Our next question is from Joseph DeNardi of Stifel. -------------------------------------------------------------------------------- Joseph William DeNardi, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Airline Analyst [22] -------------------------------------------------------------------------------- Kevin or Matt, sorry if you addressed this already, but the dollar value of your pipeline expanded pretty meaningfully quarter-over-quarter to $30 billion. Can you remind us over what period do you plan to bid on that? And is there something particularly lumpy that came in there or just broader growth in your markets? -------------------------------------------------------------------------------- Kevin M. Phillips, ManTech International Corporation - Chairman, President & CEO [23] -------------------------------------------------------------------------------- Look, I'll speak broadly. Look, we are focused on going after $100 million plus procurements to the prime contractor, investing to be able to do that and provide our customers a view of how we can do that, and we're seeing success. Our goal is to make sure we submit an increasing amount of bids each year and that pipeline needs to support that. So broadly, I wouldn't say there's anything lumpy. I would say directionally, a vast majority of it are in the technology areas we're focused on. You've seen the improvement in our revenue mix over the last 6, 7 years to where about 90% of our work today is in core technology areas. And we're going to continue to focus on that because providing that capability to mission sets in a highly active technology advanced world is really critical. And we're excited about where we are on... -------------------------------------------------------------------------------- Joseph William DeNardi, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Airline Analyst [24] -------------------------------------------------------------------------------- Okay. Okay. That's helpful. And just maybe as a follow-up, 3 years here, call it, high single-digit or low double-digit organic growth kind of proves that you're aligned with growing end markets. But how much of that has been share gain versus just pure growth in markets? And how much visibility there do you have that those markets continue to grow? -------------------------------------------------------------------------------- Kevin M. Phillips, ManTech International Corporation - Chairman, President & CEO [25] -------------------------------------------------------------------------------- It's a mix. I mean you can see that in many existing areas, they're adding analytics, cyber into existing work because it's an increasing requirement. We're taking market share in some areas where traditionally people did not see us competing. And also customers are expanding scope on contracts we have in areas that have the highest demand. So it's a mix of all of those. But I would say market share is based on mission need and where they get the talent and the capability. -------------------------------------------------------------------------------- Joseph William DeNardi, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Airline Analyst [26] -------------------------------------------------------------------------------- Okay. Okay. And if I could just sneak one for Judy, just the cash strength in the year. Is that the new baseline that you can continue to grow off of in '21? Or are there kind of any payroll tax headwinds or other considerations that generally -- plus if you are going to tie in margins to your answer as well, that would be helpful? -------------------------------------------------------------------------------- Judith L. Bjornaas, ManTech International Corporation - Executive VP & CFO [27] -------------------------------------------------------------------------------- Yes. It was a really strong quarter with the DSOs. We really don't have a lot of unusual cash items that flow through. So the DSO really is the driver. I would love to say we can sustain 54 days, but that seems, given our customers and some of the issues they sometimes go through seems over a little bit tight. So I would say 60 days is probably a good goal to kind of target long term. So I think that's kind of where we'll stick with the operating cash flow. -------------------------------------------------------------------------------- Kevin M. Phillips, ManTech International Corporation - Chairman, President & CEO [28] -------------------------------------------------------------------------------- I would add, though, that you can see trends about the improved cash flow, and Steve, Judy have done an excellent job compared to a prior CFO of the company. -------------------------------------------------------------------------------- Joseph William DeNardi, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Airline Analyst [29] -------------------------------------------------------------------------------- Congrats on your new role. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Your next question is from Tobey Sommer of Truist securities. -------------------------------------------------------------------------------- Jasper James Bibb, Truist Securities, Inc., Research Division - Associate [31] -------------------------------------------------------------------------------- This is Jasper Bibb, filling in for Tobey. Some of your peers have noted some kind of indirect expense benefit in the third quarter, mostly related to T&E and higher utilization. Could you just comment on the extent to which that might have benefited your margins in the quarter, if at all? -------------------------------------------------------------------------------- Judith L. Bjornaas, ManTech International Corporation - Executive VP & CFO [32] -------------------------------------------------------------------------------- We actually saw a greater benefit of that, I think, in Q2 than Q3. In Q3, we actually took some of that money that we were saving and reinvested it into some additional R&D projects and other activities to kind of improve the business. And also with our high percentage of cost plus work when indirect drop, we're only seeing a slight benefit of that because it just goes through in lower rates for the government. -------------------------------------------------------------------------------- Jasper James Bibb, Truist Securities, Inc., Research Division - Associate [33] -------------------------------------------------------------------------------- Excellent. And then last week, a competitor sided some issues in hiring and onboarding talent for some of their intelligence programs. Just curious what your experience has been on that front? And kind of how you view the hiring environment more broadly? -------------------------------------------------------------------------------- Matthew A. Tait, ManTech International Corporation - COO [34] -------------------------------------------------------------------------------- So I think for us, it's a competitive market, but that's -- I mean, I don't think it's changed from our perspective. We've been able to hire and recruit in this COVID environment no different than we've been able to recruit in the past. So I wouldn't say that it's gotten harder or more difficult. It's still competitive, but we're obviously up for the challenge. -------------------------------------------------------------------------------- Kevin M. Phillips, ManTech International Corporation - Chairman, President & CEO [35] -------------------------------------------------------------------------------- I will add that the available new talent cleared, did slow down during COVID, and I think that's picking back up. So our industry did see a little bit of a delay on new entrants into the cleared community. -------------------------------------------------------------------------------- Jasper James Bibb, Truist Securities, Inc., Research Division - Associate [36] -------------------------------------------------------------------------------- Okay. Last question for me. The company has a pretty significant presence in the intelligence community. Given some of the disruption related to COVID, I was wondering if you've seen any momentum to do things in a manner, but it's more friendly to your business. I know in the past, there have been some pushes to expedite the clearance backlog and kind of narrow the scope of Class 5 activities? -------------------------------------------------------------------------------- Kevin M. Phillips, ManTech International Corporation - Chairman, President & CEO [37] -------------------------------------------------------------------------------- So for our industry, not just ManTech, there are more moves afoot to make sure people are working safely on-site where appropriate to have secured facilities at contractor facilities to help with expansion and mitigation and where appropriate to have select work done in an unclassified environment. So those things are all being considered. But in terms of how it plays out long term, I think we'll have to see. Matt, do you have anything to add? -------------------------------------------------------------------------------- Matthew A. Tait, ManTech International Corporation - COO [38] -------------------------------------------------------------------------------- No, no, I think you nailed it. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- Our next question is from Robert Spingarn of Crédit Suisse. -------------------------------------------------------------------------------- Scott Deuschle, Crédit Suisse AG, Research Division - Research Analyst [40] -------------------------------------------------------------------------------- Scott on for Rob. Judy, just following up on Joe's question, can you clarify how much benefit the payroll tax holiday is expected to be this year? -------------------------------------------------------------------------------- Judith L. Bjornaas, ManTech International Corporation - Executive VP & CFO [41] -------------------------------------------------------------------------------- We actually decided not to take advantage of that. We're getting paid by our customers. So as good citizens of the country, we decided to take advantage of that and are just continuing to pay in our payroll taxes. -------------------------------------------------------------------------------- Scott Deuschle, Crédit Suisse AG, Research Division - Research Analyst [42] -------------------------------------------------------------------------------- Okay. Great. And then I think in your remarks, you brought down the CapEx guide to the low end of the prior range. Just curious if that's a pushout of spend that will elevate next year's CapEx levels or if that's just coming in below budget? -------------------------------------------------------------------------------- Judith L. Bjornaas, ManTech International Corporation - Executive VP & CFO [43] -------------------------------------------------------------------------------- We just -- we came in a little low in Q3, and Q1 and 2 were a little bit more elevated. So I think Q4, we expect to get more normalized and then going into 2021, I think that's a good long-term number for right now. -------------------------------------------------------------------------------- Scott Deuschle, Crédit Suisse AG, Research Division - Research Analyst [44] -------------------------------------------------------------------------------- Got it. And then, Kevin, one for you. One thing we hear about other services companies, CACI or Leidos, they're talking a bit about getting more involved in the hardware space to drive margins higher, and it's generally niche, low volume hardware solutions that they're after, but it's -- nonetheless, it's product revenue and it carries good margin. Just curious if that's a focus for you at all? Or is your margin expansion strategy a little bit orthogonal for that? -------------------------------------------------------------------------------- Kevin M. Phillips, ManTech International Corporation - Chairman, President & CEO [45] -------------------------------------------------------------------------------- We're still focused on solutions and services. We have good capabilities in supporting the government where appropriate in a more fixed-price and delivery basis. I don't think we're prepared to go into a hardware business right now and not be taking the best available that's already in market by being -- prioritizing our own specific assets and inventory. -------------------------------------------------------------------------------- Matthew A. Tait, ManTech International Corporation - COO [46] -------------------------------------------------------------------------------- Yes. I think we're seeing with our customers the solution differentiation we bring is to be being that honest broker without having any allegiances elsewhere has proven a great strength for us. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- (Operator Instructions) -------------------------------------------------------------------------------- Stephen Vather, ManTech International Corporation - VP of M&A and IR and Executive Director of Corporate Development [48] -------------------------------------------------------------------------------- Great. Looks like we have no further questions. So thank you all for your participation on today's call and your interest in ManTech. As usual, members of our senior team will be available for any follow-up questions. Have a good evening, and please stay safe. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and you have a wonderful evening. You may now all disconnect.