How ManTech sees growth hitting another gear in 2018

ManTech International had a near-record year in 2017 and expects growth to reach another gear in 2018.

The past two years gave ManTech International a foundation for its bounce back and the company looks poised to hit another gear for growth this year to continue that resurgence.

In their fourth quarter and full-year earnings call with investors Wednesday, ManTech executives said they expect this year to show organic revenue growth excluding acquired sales of nearly 7 percent after the company booked $4.2 billion in awards last year -- an all-time record for its five-decade history.

Herndon, Virginia-based ManTech is celebrating this year the 50th anniversary of its founding by Executive Chairman and former CEO George Pedersen.

When including sales acquired through InfoZen and other deals, the overall growth rate forecast comes to 9 percent-13 percent for this year for an annual revenue range of $1.88 billion-$1.95 billion. Underpinning that is an all-time record book-to-bill ratio of 2.4 for the year to measure contracts added to the backlog versus drawdowns for revenue.

That follows sales growth of 7 percent to $1.72 billion in 2017 and 3 percent to $1.6 billion in 2016, which was ManTech’s first increase in four years. And approximately half of the growth in 2017 was organic, ManTech Chief Financial Officer Judy Bjornaas told analysts Wednesday.

Like many government services contractors, ManTech saw its top line shrink during the drawdowns from Afghanistan and Iraq coupled with defense spending cuts. But its newfound resurgence is coinciding with wide expectations of increased spending in defense and possible higher civilian spending from the recent two-year budget framework agreement.

Also embedded in those expectations is agencies’ renewed focus on IT modernization, cybersecurity and other emerging technologies. ManTech CEO Kevin Phillips told analysts the company anticipates more demand for those along with cloud computing, digital, mobile and data analytics.

If that increased budget is any indication, ManTech’s revenue mix would appear to coincide with where the Trump administration’s priorities are regarding defense and national security. Phillips said the company is entering 2018 with “45 percent of our revenue from the intelligence community, 35 percent from defense and 20 percent from federal civilian customers.”

The $180 million acquisition of InfoZen brought to ManTech new IT modernization and cloud work, along with an increased footprint at the Department of Homeland Security.

So could the famously acquisitive company make more deals in what is already a busy year for government services deals? Even with InfoZen closed, ManTech’s relatively clean balance sheet suggests firepower to do so with its $9 million in cash, only $31 million in debt and access to $500 million in credit.

But amid an environment where players are looking to quickly add scale, ManTech’s selective approach to acquisitions looks unchanged. And its success in 2017 suggests that it would not even need a large deal to climb the food chain.

As Phillips pointed out, “our size hasn’t precluded us from winning two $800 million contracts.” Those were the recompete of its $847 million contract to support the Army’s MRAP ground vehicles and an $817 million win to provide electronic and physical security services to State Department facilities and personnel worldwide.

“We think that the tuck-in acquisition strategy is very good and our market positioning is strong,” Phillips said.

He added there is more discussion about acquisition opportunities in light of the upturn in the budget. But the strategy remains the same.

“ManTech will look at the capability on the customer side and the combination of what value it brings in determining for each acquisition its value in the combination,” Phillips said.

Another factor working in ManTech’s this year is its recompete profile, which for government services contractors is typically between 15 percent and 20 percent of revenue each year. Only 10 percent of ManTech’s contracts are up for recompete this year, Bjornaas said.

Also like many of its market peers, ManTech stands to benefit from the tax reform legislation enacted in December that substantially cut corporate rates. Under the old legislation, government IT and professional services companies typically saw effective tax rates in the high 30-percent range as full payers with nearly all of their revenues generated inside the U.S.

ManTech’s effective tax rate last year was 34.7 percent. Bjornaas said ManTech expects a 2018 effective tax rate of 26 percent.

The company is increasing investments in internal intellectual property systems and facility expansion to accommodate its growth, Bjornaas said. That includes several managed services contracts ManTech has won recently.

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