TOP 100: How ManTech weathered the down turn and is bouncing back
- By Ross Wilkers
- Jun 21, 2017
Like many of its government services peers, ManTech International felt the pinch of defense spending downturns from the winding down of operations in Afghanistan and Iraq.
The more recent high-water mark for Herndon, Va.-based ManTech came in 2011 at $2.8 billion in total revenue. ManTech then weathered defense spending reductions as its top line fell by nearly half through 2015 but that reversal was nothing new for the company and its founder and CEO George Pedersen.
“Dealing with those two frameworks and having that reduction underway (George) said ‘Don’t react, ManTech has been through these cycles many times before and it’s normal,” Chief Operating Officer Kevin Phillips told Washington Technology.
As our 2017 Washington Technology Top 100 shows, there are signs of recovery as the aggregate prime contracts for listed companies grew slightly by 2.6 percent to $99.8 million with ManTech a participant in that turnaround.
ManTech comes in at no. 30 in the 2017 WT Top 100 list on $896.2 million in prime contracts for fiscal year 2016. Although down two spots from last year’s rankings, ManTech registered a 3-percent increase in prime contracts over that recorded in fiscal 2016.
But the annual WT Top 100 is one merely tool to measure the progress of ManTech’s turnaround. In calendar year 2016, total revenue climbed 3.3 percent to $1.6 billion to snap the company’s four-year streak of sales declines.
That return to growth stems from steps ManTech took during that downturn to invest in “technology and where the customers were heading” once budget trend eased, Phillips said. Along with acquisitions, Phillips said ManTech made additional investments into its business development functions, new technology services and added technical talent among other areas.
And ManTech sees 2017 as a continuation of its return to successive year-on-year growth. The midpoint of its full-year guidance indicates revenue growth of around 5 percent to nearly $1.67 billion.
“What we’re seeing is natural, when the budget environment levels off customers basically know what they need, they’ve already prioritized it and now they’re working towards implementing those priorities,” Phillips said. “We’re in that phase right now where you can tell from what you hear your customers saying that they’re talking about a technology gap they’re trying to catch up on… more so than ‘we need to reduce cost.’”
ManTech’s trajectory will be split “half-and-half” between organic growth and contributions from last year’s acquisitions of Oceans Edge’s cyber services unit and health IT company Edaptive Systems, Phillips said. ManTech recorded $2.3 billion in contract awards last year and a 1.4 book-to-bill ratio, while Phillips also said the company will submit $7 billion in proposals this year to equal that from the prior year.
The company has been on a winning streak of late that includes a potential five-year, $322 million enterprise I T contract from the National Geospatial-Intelligence Agency in November and the $110 million worth of cyber and cloud services task orders awarded in August 2016 to support the Homeland Security Department’s Continuous Diagnostic and Mitigation effort.
There was also an April double-bill: an IT services contract worth up to $220 million over five years from the FBI and a potential five-year, $229 million order from Customs and Border Protection in April for business intelligence services to track cargo and individuals entering the U.S.
ManTech’s customer mix also indicates a company well-positioned to see its business grow in an environment with increased emphasis on national security spending under the Trump administration. Almost 90 percent of revenue comes from defense and intelligence agencies, Phillips said, with contributions of roughly 40 percent to 45 percent each from both sides.
The remaining balance of sales are in federal civilian and health IT markets but outside of agencies that face major cuts under President Donald Trump’s budget blueprint, Phillips said.
One of the more active buyers in government services, ManTech has made 52 acquisitions since its launch in 1968 with 27 as a public company since 2002 and 12 within the past five years.
At first glance ManTech looks primed to be the latest government services contractor to make a large deal with its $92 million in cash on hand, no debt and access to $500 million in credit.
But Phillips and ManTech executives including Pedersen have frequently touted several major taglines in earnings calls with investors: “we will not buy sales,” deals must be “one plus one equals three” and a “force multiplier” that gives ManTech access to new technologies and new customers in new locations.
That approach contrasts the major government services consolidation moves over the past few years: CACI’s buy of the former L-3 National Security Solutions, Science Applications International Corp.’s move for Scitor, the creation of CSRA and Leidos’ merger with the former Lockheed Martin IS&GS business.
“The premise we have which is fairly contrary for the last few years we don’t need the scale in order to compete,” Phillips said. “What we need is past performance, the access to the customer, knowledge of what they need and be known in that customer set to where we can team with others and take on new business.”
For example, the Oceans Edge cyber unit gave ManTech increased access to U.S. Cyber Command and filled a “skill gap” Phillips said.
Phillips said the company could “generally” work toward a maximum 3.0-3.5 leverage ratio of debt to earnings before interest, taxes, depreciation and amortization. But ManTech “very rarely” sees businesses with that kind of scale fit the company’s other criteria for a deal and candidate, Phillips said.
There are “quality businesses” out there, Phillips said, but the timing of their potential sales is up to them.
“They have to decide when they want to come to market or if they want to come to market,” Phillips said. “Those are individual entrepreneurs who’ve created companies and it becomes very much a relationship-based discussion with them so they have comfort about ManTech the company if they decide they want something they created to come to another company.”
Phillips first joined ManTech in 2002 upon its acquisition of intelligence community IT contractor CTX Corp. That transition to ManTech from a company he was “employee 22 or 23” at helped Phillips learn about an owners’ mentality of wanting a “safe or soft landing” for their business, he said.
In November 2016, ManTech promoted Phillips from his prior role as chief financial officer for 11 years to president and chief operating officer with Judy Bjornaas moving up to the CFO post from deputy CFO. Phillips added overall responsibility for general management and daily operations of the company.
Phillips started “doing a little more operational work” from 2010 in conjunction with his CFO duties, he said.
“Part of the new role is not new to me in that I was already working that function from a COO equivalent for many activities,” Phillips said. “The new part is more around the strategy, customer outreach, employee outreach and basically the overall focus on where we need to head. That’s pretty much the new part of it in having the operating leaders report to me.”
The new role for Phillips involves an increased number of visits to employees and customers on location to learn about “what their main issues are (and) what their main requirements are.”
“Whether they’re employees or customers, what causes them pain and what provides them the ability to get things done and succeed are both very important to us. That’s the most important thing I’m learning on both ends of that.”
Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at firstname.lastname@example.org. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.