Challenges ahead despite ManTech's record year

Company posts strong growth but Afghan drawdown will squeeze revenue

ManTech International Corp. ended 2011 with double-digit revenue growth, increased profits, key acquisitions and several large contract awards.

“Fiscal year 2011 was an excellent year for ManTech,” Chairman and CEO George Pedersen announced in February unveiling the company’s annual earnings results. (The company declined to comment for this story.)

For the first time, the company cracked the top 20 of the Top 100, capturing the No. 17 spot, up from No. 22. It had $1.9 billion in prime contracts in fiscal 2011.

ManTech revenues in 2011 were $2.87 billion, up about 10 percent from $2.6 billion in 2010, and operating income was $227.4 million.

The company reported a record $221 million cash flow from operations, aided by positive payment terms on a mobile cell tower program.

As of Dec. 31, the company had $114 million in cash and cash equivalents and $200 million in debt with no borrowings on its $500 million revolving-credit facility.

"As a result of our disciplined focus on cash, we generated record operating cash flow of $221 million for the year, which enables us to continue our robust acquisition program,” Pedersen said.

In February 2011, ManTech acquired TranTech for an undisclosed sum. The acquisition enables ManTech to deliver technology services through TranTech’s prime position on the Defense Information Systems Agency ENCORE II contract, a $12 billion indefinite-delivery, indefinite-quantity contract that runs through 2018.

It later bought Evolvent Technologies Inc., a privately held federal systems integrator, for an undisclosed amount.

After the acquisition closed in January, Evolvent was named to a five-year, $958 million multiple-award IDIQ prime contract for management and professional support services to the Air Force Medical Service.

ManTech paid $90 million in October to acquire Worldwide Information Network Systems Inc., a provider of IT services to the Defense Intelligence Agency, the State Department and other federal clients. The acquisition gave ManTech a prime position on the $6 billion DIA Solutions for the Information Technology Enterprise (SITE) contract.

Despite the expected slowdown in federal spending in 2012 and beyond, Pedersen said he is confident that ManTech can continue to thrive because of its current positioning in cybersecurity, C4ISR, intelligence and other priority missions.

However, Bill Loomis, managing director of Stifel Nicolaus Inc. and a Washington Technology contributor, said ManTech faces two big issues in the years ahead.

“Thirty three percent of their business is supporting our war efforts in Afghanistan now – it used to be Iraq and Afghanistan – so that revenue stream is going to be a function of our level of troops in the theater,” he said, noting that as the U.S. withdrew from Iraq, ManTech saw its business there decline rapidly.

With a scheduled U.S. troop withdrawal from Afghanistan by 2014, Loomis said, “We will likely see that one-third of business basically go away.”

Also, in addition to the fiscal and other pressures now being faced by the entire federal contracting industry, ManTech is experiencing increased competition on its Army S3 contract, the company’s largest, Loomis said.

“Revenue from that contract has been dropping much faster than the company thought it would a few quarters ago,” he added. “That has put pressure on overall growth.”

As a result, Loomis said, “we basically have seen [revenues and earnings] estimates, including our own, come down over the last year, and that has pressured the stock.”

Contract wins for 2011 totaled $3 billion, the year-end statement reported, for a book-to-bill ratio of 1.

Large awards included:

  •  Mine Resistant Ambush Protected Family of Vehicles Support, a $507 million, 10-month contract modification by the Army's TACOM Contracting Center for logistics sustainment and support.
  • Defense Advanced Research Project Agency Strategic Technology Office Support, a five-year, $205 million, multiple-award IDIQ contract for integrated systems engineering, scientific, technical, financial, programmatic and administrative support.
  • DARPA Tactical Technology Office Support, a prime position on a three-year, $150 million multiple-award IDIQ contract to provide scientific engineering and administrative support services.
  • Systems Engineering Support Program (SESP) for the Domestic Nuclear Detection Office, a prime position on the Homeland Security Department’s five-year, $99 million multiple-award blanket purchase agreement.

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