ManTech sees civilian business with "very limited" exposure to civilian cuts

The current batch of quarterly earnings reports from government contractors has shifted to the more pure-play services companies a week after the large defense primes posted their results and gave commentary on the budget landscape.

A large civilian agency presence among several of the large government services contractors has led to analyst speculation over which players could feel the effects of President Donald Trump’s goal to dramatically cut domestic spending by $54 billion in the next fiscal year. That cut would be coupled with a raise in defense and security spending by the same amount at under Trump’s budget blueprint.

One company whose revenue profile appears to not be in the crosshairs of civilian cuts is ManTech International, which derived 90.8 percent of its sales last year from defense and intelligence agencies.

Excluding that, the civilian side of ManTech’s portfolio also shows a relatively safe distance from agencies targeted for cuts, the company’s chief operating officer told analysts Wednesday. Leidos executives reported similar exposure in their quarterly report.

“The exposures to risk areas are very limited in my view compared to the priorities of the new administration,” Kevin Phillips said in the company’s first quarter earnings call. “The upside is significant for us and we expect to see that in proposals in the next few years on contract awards.”

A look at ManTech’s last annual report on its civilian customer mix and government contract spending data seemingly confirms Phillips’ assertion during the call with investors.

ManTech’s federal civilian revenue represented 6.7 percent of the $1.6 billion total company sales last year, that annual filing says. Its customers in that group include agencies Trump has called for cuts to but also those he seeks to raise spending for.

The company raised civilian revenue from 3.4 percent in 2013 to 8.2 percent in 2015 through a mix of organic growth and acquisitions focused on areas such as cybersecurity and healthcare technology.

During the call, Phillips highlighted the ManTech cyber work for the Homeland Security Department and federal health IT presence as putting the company in a “very good position” outside of defense and intelligence.

Trump’s FY 2018 budget blueprint calls for a 28.7-percent cut to the State Department, a steeper 31.4-percent slash to the Environmental Protection Agency, a 17.9-percent reduction to Health and Human Services and a modest 3.8-percent trim on Justice spending.

Deltek data indicates the State Department obligated a mere $2 million in prime contract funds to ManTech in the government’s 2016 fiscal year. Within HHS, the number of prime obligations comes to $7.6 million.

Prime funds from the Environmental Protection Agency -- a prime target of cuts in Trump’s budget blueprint -- add up to a mere $1.5 million.

Within Justice, ManTech received $57.2 million in FY 2016 prime obligations. However, $41.5 million came from the FBI and Trump has proposed 3-percent higher spending for that agency in FY 2018.

Civilian agencies in ManTech’s portfolio Trump eyes budget increases for include the Homeland Security and Veterans Affairs departments. Trump seeks a 5.9-percent bump for the VA and a 6.8-percent raise for DHS in FY 2018.

On the financial front, ManTech lifted the low end of its full-year sales outlook to $1.65 billion from the prior $1.62 figure with the ceiling unchanged at $1.7 billion. Earnings guidance was also raised to $1.44-$1.52 per share from the previous $1.41-$1.51 range.

First quarter revenue climbed 7 percent to $418.4 million and exceeded Wall Street's consensus outlook of $400.1 million, while earnings of $0.39 per share topped analyst expectations of $0.35.