Stephen Vather - Executive Director, Corporate Development Kevin Phillips - President and CEO Judy Bjornaas - EVP and CFO Dan Keefe - Group President Rick Wagner - Group President.

Kwan Kim - SunTrust Rob Spingarn - Credit Suisse Gautam Khanna - Cowen & Company Edward Caso - Wells Fargo Securities Brian Ruttenbur - Drexel Hamilton Joseph Vafi - Loop Capital.

Good day, ladies and gentlemen, and welcome to the ManTech's Fourth Quarter Fiscal Year 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Stephen Vather, Executive Director, Corporate Development. Please go ahead..

Welcome, everyone. Thank you for participating on our fourth quarter call. On today’s call, we have Kevin Phillips, President and CEO; Judy Bjornaas, Executive Vice President and CFO, as well as, Dan Keefe and Rick Wagner, our two Group Presidents.

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 factors and other risks and uncertainties, please refer to the section entitled, Risk Factors, in our latest Form 10-K and our other SEC filings.

We undertake no obligation to update any of the forward-looking statements made on this call. Finally, 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 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 fourth quarter earnings release. With that, I’d like to turn things over to our CEO, Kevin Phillips.

Kevin?.

Good afternoon, everyone. Let me begin by briefly addressing the previously announced executive management changes since our last earnings call. Effective January 1, I became President and CEO; and George Pedersen, our Co-founder moved to an Executive Chairman role, and of course retained his position as the Chairman of the board.

This is a natural progression when George and I discussed regularly since I became President and COO in late 2016. George remains very much active in the business and remains focused on the overall strategic direction of the company, including our M&A strategy.

I'm excited about the opportunity that George and the board have given me and look forward to leading this business toward continued success. Additionally we named Rick Wagner, as Bill Warner’s successor to lead our Mission Cyber & Intelligence Solutions business. ManTech had another year of remarkable performance in 2017.

We delivered solid revenue growth, remarkable bookings and stronger cash flow. Our growth focus strategy continues to deliver value to our customers, our employees and our shareholders. This year we are celebrating our 50 year anniversary as a company.

Foundational to our success since 1968 has been a record of delivering innovation and the steadfast support of our customers important national and homeland security missions, no matter what the challenge.

We're extremely proud of the significant contributions ManTech has made across the government throughout our existence and remain committed to leveraging our expertise and supporting our customers and our nation for many more years to come.

On the current budget environment, our customers are operating under a continual resolution through March 23 as Congress works through the finer details of the agreed upon two-year budget deal.

The deal calls for Budget Control Act cap increases of $80 billion in FY 2018 and $85 billion in FY 2019 for defense, and $63 billion and $68 billion for civilian agencies for FY 2018 and FY 2019 respectively. If approved that the new BCA cap level the FY 2018 National Defense Budget including OCO funds will increase approximately 10% over 2017.

The DoD base budget increasing 15% year-over-year within that total.

The long-term budget outlook remains optimistic and we believe that across our customers, there will be an increased demand for our technologies and solutions, particularly for full-spectrum cyber, IT modernization and emerging technologies with cloud, digital, mobile and data analytics.

Over the past few years, we have significantly invested in strengthening our business development organization and enhancing our technical capabilities in anticipation for increased customer demand.

As a result of those investments throughout 2017, we were awarded a number of new large contracts within the Department of State, Jet Propulsion Laboratory and the Department of Homeland Security among others.

In Q4, we received $1.1 billion in contract awards and for the year, contract awards totaled $4.2 billion, representing a book-to-bill of 2.4 times in both periods. This marks our strongest bookings year and the highest annual book-to-bill ratio in the company's history. New business comprised approximately 50% of awards in the year.

The mix of business we won during 2017 continues the way towards cyber, IT solutions, intelligence, and systems engineering support. Additionally in Q4, we closed our acquisition of InfoZen, which enhances our positioning with an IT modernization and managed cloud services and expands our presence within Homeland Security missions.

As a result of our recent contract awards and the InfoZen acquisition, our business mix has changed meaningfully since the beginning of 2017. We entered 2018 with the well-positioned company driving about 45% of our revenue from the intelligence community, 35% from defense and 20% from federal civilian customers.

Furthermore as a result of our recent contract awards, we exited 2017 with a total backlog of $7.1 billion up 14% from our backlog at the end of Q3 and up 45% from our last year. Funded backlog stood at approximately $1.4 billion, proposal activity remains robust.

We submitted about $7 billion of proposals in 2017 and we expect to submit between $10 billion to $12 billion in 2018. In order to position for this abundant market opportunity we are making considerable investments back into the business which is expected to increase our abilities to win an outsize share of these opportunities.

Our qualified pipeline has grown to over $20 billion and our proposals outstanding figure remains over $4 billion. Our proposal in the word volume is expected to be high in 2018. We expect variability in the timing of awards and book-to-bill has the potential to be lumpy in 2018. In summary 2017 was another strong year for ManTech.

We want to thank each and every member of the ManTech team, who's diligent efforts and tireless dedication have enabled that success. I'm invigorated by our employees steadfast passion for our customers mission and I am proud that together we are raising the bar on performance.

Earlier this year, we were recognized by Thompson Reuters as a Top 100 global technology leader which is a testament to the innovation our employees bring to our customers every day. In addition for the second year in a row, we were recognized by Monster.com as the number one better employer.

With approximately 50% of our workforce as veterans we understand our customer’s needs, their missions and the speed at which critical outcomes must be accomplished. Our people have been and will be our most important asset.

Given that I'm pleased to report we continue to make excellent progress in recruiting, training, developing and retaining a highly skilled talent in a competitive market. We will continue to invest in our talent, capabilities and innovation to build on our success in 2018.

Now Judy will provide you with some additional detail and specifics with respect for our financial performance and outlook.

Judy?.

Thanks Kevin. I'm pleased to report that the financial performance in the quarter and for the year met our expectations even after adjusting out the beneficial impact in the fourth quarter from tax reform. Revenues for the year were $1.72 billion up 7% from 2016, that's approximately half of our revenue growth coming from organic performance.

The growth was driven by new contract wins announced in late 2016 and throughout 2017. For the fourth quarter, revenues were $462 million, up 17% compared to the fourth quarter of 2016, nearly 11% of the growth in the quarter was organic, attributable to new contracts and growth in existing business.

In the quarter, we performed 89% of our work as a prime, and our contract mix was approximately 63% cost plus, 10% kind of materials and 28% fixed price. In the quarter, we saw an increased amount of our revenues coming from fixed price contracts with slight reduction to our cost plus and time and materials mix.

Operating income for the quarter was $25.7 million for an operating margin of 5.6%. For the year, operating income was $98.2 million up 8% from 2016. Operating margin for the year was 5.7% in line with our guidance.

The enactment of the Tax Cuts and Jobs Act of 2017 had a favorable $51 million provisional tax impact related to the re-measurement of our net deferred tax liabilities. This resulted in GAAP net income of $68.4 million for the quarter, and a $114.1 million for the year. Diluted earnings per share was $1.73 for the quarter, and $2.91 for the year.

We're moving the impact of tax reform. Our effective tax rate was 29.7% for the quarter, 34.7% for the full year, lower than expected due to the impact of stock option exercises in the quarter.

Our adjusted net income was $17.8 million for the quarter up 29% compared to the fourth quarter of 2016, and $63.5 million for the full year, up 13% compared to last year. Adjusted diluted earnings per share was $0.45 for the quarter up 29% compared to the fourth quarter of 2016, and $1.62 for the full year, up 10% compared to last year.

Now, onto the balance sheet and cash flow statement. During the quarter we collected $38 million in cash flow from operations and a $153 million for the year. DSOs were an exceptional 61 days in the quarter, a 12-day improvement from the fourth quarter of 2016. For the year we had capital expenditures of approximately $39 million.

The increase in capital expenditures in the fourth quarter was driven by contractual requirements from a managed services contract we won in 2017. During the year we invested a $177 million in the acquisition of InfoZen. Additionally we distributed $33 million in dividend, maintaining a steady return of cash to shareholders.

At the year-end, we have $9 million in cash and $31 million of debt. Before I’ll get to our forward outlook, I want to spend some time discussing our capital deployment strategy, especially in light of tax reform. We expect to continue our strong cash flow generation and maintain a strong balance sheet.

Our focus remains on deploying capital that creates long term value for our customers and shareholders. We view this strategy to be threefold; internal investments to support organic growth, making acquisitions that offer force multipliers and providing a cash dividend to our shareholders.

When I get through our guidance I will address the specifics of the increased investments in the business to support organic growth.

From an acquisition standpoint, we’ve remain very active in reviewing opportunities and we will continue to focus on businesses that are additive from a customer capability and technology standpoint and that take us into high growth and higher end areas.

Given that our strong balance sheet can accommodate future acquisitions and other investments coupled with the incremental cash flow from tax reform, the board has authorized us to increase our current dividend level from $0.21 per share to $0.25 per share to be paid in March.

This equates to an annualized dividend of $1 resulting in an industry-leading dividend yield. Now onto our 2018 guidance. Before any acquisitions we are calling for revenues of $1.88 billion to $1.95 billion, net income of $78.6 million to $82.3 million, and diluted earnings per share of a $1.96 to $2.5.

At the midpoint of the range approximately 85% of guidance is expected to come from current backlog and we have a clear path to growth with our recent awards. In Q4 earlier than expected, we successfully won our largest re-compete and $847 million contract with the Army which Dan will speak to later.

This is driving a lesser than usual re-compete level in our guidance. Furthermore, in our recent contract awards, we continue to see an increase in contract length, which provides for greater long-term revenue visibility. The implied operating margin guidance for the year is 5.7% to 5.8%, reflecting up to a potential 10 basis point margin improvement.

Our first half of 2018 operating margins will be impacted by increased transition and ramp up costs, related to a number of new major programs start, to ensure our mission success.

Additionally, our operating margin reflects continued investment in business development throughout the year, but it’s weighted more heavily in the first half of the year given the volume of proposal activity that Kevin mentioned.

Lastly, our operating margin for 2018 reflects increased intangible amortization resulting from our acquisition of InfoZen. The ranges for net income and earnings per share compared to 2017 are positively impacted by the new reduced corporate tax rate and reflect a projected slight increase in share count.

Built into our guidance are an effective tax rate of 26% and the fully diluted share count of 40.1 million shares. Cash flow from operations should be between 1.5 times and 1.7 times net income. In addition, to increasing our quarterly cash dividend as a result of tax reform, we have decided to make additional capital investments in the business.

As such, we expect capital expenditures to be around 2% of revenue and related depreciation and amortization to be around 3% for 2018.

We will have continued program related capital requirements in support of our managed services contract and we are increasing our investments in internal IP systems and facilities expansion to accommodate our current and future growth. Now, Dan will speak to our defense and federal civilian business..

ManTech Mission Solutions and Services had a strong 2017, particularly in winning new business. As Kevin mentioned, the mix of our business has shifted in a large part that is thanks to the record number of large new contracts we have secured with federal civilian customers as well as the acquisition of InfoZen.

In 2017, we won contracts to provide data analytics to the Customs and Border Protection, provide enterprise wide managed services to the Jet Propulsion Laboratory and provide comprehensive security solutions to the Department of State.

We are ramping up on these programs among others and are already seeing expansion opportunities to live or additional capabilities. As Judy mentioned, in Q4 we cleared through a major recompete and successfully won the vehicle, engineering, maintenance and operational support contract with the Army.

This contract is a five year effort valued up to $847 million where we will continue to provide a wide range of sustainment and logistics support services to the Army's MRAP fleet. Winning this contract substantially reduced our recompete risk in 2018, and my focus will be on program execution and capturing new business.

I've mentioned on previous calls that my strategic focus has been on continued expansion of the business into emerging IT capabilities. I'm pleased to report that we successfully began to execute against that strategy in 2017, by investing organically in our tactical and sluicing talent and through our acquisition of InfoZen.

In 2018 we will continue adding to our capabilities and further leverage organics assets and the capabilities we have gained through acquisition. We are seeing strong demand signals for these capabilities. I believe that ManTech has a compelling set of services and solutions that are well aligned with the robust market opportunity.

With the strong execution in 2017, I look forward to maintaining our current momentum. I would like to welcome Rick Wagner, who is President of our Mission, Cyber & Intelligence Solutions Group. Rick has already made a strong and positive impact to the business.

Rick?.

Thank you, Dan. It's a pleasure to be here. And thank you, George and Kevin for giving me the opportunity to lead the Mission, Cyber & Intelligence Solutions Group. I'm excited to bring my energy and passion for the mission to the business and to carry forward the success that my predecessor brought in his tenure.

I'm pleased to report that MCIS had a great quarter and year marked by strong organic growth and a number of key wins across both new awards and recompetes.

In the quarter, we won a new $133 million contract from the Army's Intelligence & Security Command to provide intelligence analysis in support of counterintelligence and counterterrorism missions.

Over the course of the year, we experienced strong customer demand for our full-spectrum cyber, IT modernization and Mission Operations Services & Solutions from several classified customers and expect that trend to continue in 2018.

Additionally in 2017, we continued our focus on recruiting, training, developing, and retaining our highly clear and highly skilled talent. We experienced record hiring, expanded training opportunities and improved retention.

In summary, we are optimistic about the market environment and strongly believe that our positioning is well aligned to our customer strategic priorities. We look forward to leveraging our strong balance sheet to accelerate our growth. With that, we are ready to take your questions..

[Operator Instructions] Our first question comes from line of Tobey Sommer with SunTrust. Your line is now open..

Hi, this is Kwan Kim on for Toby. Thanks for taking my questions. First off post tax cuts in addition to raising the quarterly dividend by $0.04, do you plan on increasing the compensation expense as well as part of your internal investment strategy and what are your priorities, I guess when it comes to your internal strategy? Thank you..

So the dividend is a direct result of the cash availability from the taxes. Our objective from capital employment continues to be focused on targeted acquisitions to build into the business where we can advance our topline and our positioning in the market.

We do not have any components of our cash from the taxes which is about $6 million, so it's not a significant amount against your growth cash flow that we get from the business in towards of additional compensation..

And are you seeing the same level of challenges on the small business sell side and the protest environment?.

Small business set asides are very much dependent on the customer and their overall trends. We think it's fairly stable at this point and some trending more favorable others still trending more toward small, protest environment remains very active. It's about consistent with last year's history..

Our next question comes from line of Rob Spingarn with Credit Suisse. Your line is now open..

I don't know if this is for Kevin or Judy, but could you talk a little bit about the 2018 guide and what portion of the sales there is currently in the $1.4 billion in funded backlog?.

At the midpoint of our guidance about 85% of our guided revenue is in existing Backlog, not all of that funded, but currently under contract. So, but 15% to be warned to hit these numbers between recompetes and new business.

Does that answer to your question? The majority of our funded backlog will burn in 2018, some of it - some customer’s funds slightly longer than a full year but not too many..

No, I understand, I was trying to get an idea you have this big order quarter, but a lot of it I guess is unfunded or options and so forth, how do we look at book-to-bill from a funded perspective? Is that the right way to think about it?.

I don't think so. Our customers typically have you know their standard funding is between three to six months of funding and we're operating under CR. So I'm not too concerned about the fact that the funded backlog didn't go up proportional to the total backlog..

We don't see downside from the funded level..

What I'm getting at Kevin and Judy is trying to think about the longer term growth - organic growth rate and the revenues, because the bookings are coming in strong, but there's a difference between funded and unfunded.

I guess you're growing - what’s your organic growth embedded in the 2018 guide?.

At 7%..

And do you expect that to be a run rate going forward or with this robust budget environment might there be upside to that over time?.

I would say there is going to be upside, we’re seeing a lot of proposal activity going on right now..

Okay. And then from our….

By the way it’s based on how well we work against the competitions and bids, right. Just like anything else there is a high volume of bids, but we’ve to win our fair share and see that growth that could be of help..

Of course, that makes perfect sense and then, sort of in that light, Kevin, what do you make of the consolidation that we continue to see in the group? And how do you guys – where do you see ManTech playing within that? You've obviously done some smaller add-ons, but do you still see yourselves participating in bigger consolidation?.

So ManTech’s objectives haven't changed. We think that the tuck-in acquisition strategy is very good and our market positioning is strong.

I think, our contract awards last year, our pipeline, our win rates, all support that we are of a reasonable size and if you think about the contract awards, our size hasn't precluded us from winning two $800 million contracts. It hasn't precluded us from winning $4 billion of bookings.

So every company has its focus and where it wants to head, we think we're confident in our current focus, our M&A strategy and where we want to take the company going forward..

Has anything that we've seen - does it change the competitive landscape.

Does it do anything with regard to best value versus LPTA?.

I don't think so. Every acquisition we look at very closely to see if the combination immediately and over time changes the landscape. The more recent announcement about General Dynamics acquisition, CSRA is an example. We see CSRA as a competitor in some components of the market. We see General Dynamics, the services side and others.

How that plays out over time in the market from a competitive standpoint, very much depends on the integration and the overall procurement patterns and strategy that the customer's going for..

Our next question comes from the line of Gautam Khanna with Cowen & Company. Your line is now open..

So, I think in the prepared remarks you mentioned that bookings can be lumpy which – which is always true.

Is there anything you want to calibrate us on Q1 versus Q2 versus Q3 this year? Eventually with $4 billion of outstanding bids, is there do you have visibility that geez, it's possible to actually do another similar to Q4 kind of level in Q1 or is it the adjudication dates fall outside of that window and we shouldn't be expecting as strong in Q1 given the CR and everything else?.

So very broadly, the proposal volume is going to be very heavy in the first half of the year, the award volume is going to be heaver in the back half of the year. That doesn't mean it's all or nothing, it just means that against the larger volume of bids the award activity will be more backend weighted in the year based on what we see.

The lumpiness is not only first half, second half but there are timing of contract awards say above $100 million that are on a bubble between quarters that is very hard to tell if the government whether they will execute on time or not. And it could significantly change the bookings level between these quarters.

So it's very hard for us to know that for the customer. We just know the expected timeline puts it in that range, so it could shift over between quarters fairly easily..

And you mentioned kind of this mixed dynamics - the ramp up cost if you will, the - on some of the new contracts.

I shouldn't say ramp up costs, rather they started up at a lower margin until you've actually optimized, what type of pressure should we see first half, second half in terms of EBIT margin?.

So we're expecting kind of the combination of those start-up costs and getting the programs off to a to a good strong start, as well as the proposal volume that Kevin mentioned, we're expecting that the first half margins will be similar to the second half of 2017. So 5.5% to 5.6% range, and then building in the second half of the year..

And to follow-up on Rob Spingarn’s question, Kevin, could you characterize the M&A pipeline a little bit.

I mean are you seeing InfoZen sized type acquisitions in your pipeline at this point or are we looking smaller in terms of what we might expect to trend going forward?.

No. I would say that given the upturn or the view of the budget movement over the next two years, there is more discussion about opportunities.

I don't know if they happen the first half or second half of this year or into early 2019, but there seems to be more discussion about potential M&A opportunities or candidates coming out over the course of the next 12 months. We're not - they have to prove that out but that there's more discussion around that..

About middle sized acquisitions, not some $100 million acquisition, is that what you mean?.

They're going to be broad. They're going to be the normal mix that can be $500 million, $300 million, $100 million. And as you know 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..

And last one from me.

Just any evidence that tax reform will actually put pressure on billable rates?.

I think, we're already having pressure on hiring people because of the supply and demand issues, but I don't see that, that being a driver in increased wages..

If you have a question it’s the margin compression that's - it’s effectively LPTA by in other means, and I don’t see that trend happening in our industry, if something changes we'll certainly destructive, but we don't see that..

Our next question comes from line of Edward Caso with Wells Fargo Securities. Your line is now open..

Judy you had a great idea so this quarter which usually means a good cash flow.

But there were some other working capital items I guess, can you articulate what held back the operating cash flow?.

It was pretty much kind of the impact of the tax reform that the changes in the deferred tax liabilities..

You mentioned IT modernization. I know that got stuck in one of the bills.

Are you actually seeing any money flow on that side?.

This is Dan. I'd say in the DOD, especially you know a lot of these systems require upgrade and we're absolutely seeing contrast along those lines additional cyber still is very important to all our customers across the board and we're seeing demands on SOX and operating centers to support customers inside. Was Rick kind of anything on there..

Yes, on the Intel side there's a large push to go to integrated enterprise management and that's forcing a lot of large contracts to integrate capabilities across the intelligence community. Those things - it’s gone a long time without significant modernization in their IP. And so that's now coming forth in that effort..

The budget again is coming late this year hopefully not quite as late as last year.

Is there a risk that this huge influx of money for government 2018 might not get deployed like it was not all deployed in 2017?.

The order of talent that are gapped out within our customer sets in ourselves or in order of talent for technical and then talent for acquisition. So acquisition work for us as low light I do think it's going to be a push to do that and we will collectively have to peer ahead out with that process, it's going to be a high volume..

And finally, just helped by math that I think I heard you said 7% organic implied in the guidance, but I think a quarter ago you were thinking more in the 8% to 9% range. Do I have my math right, and I think that….

That's the midpoint, that’s the upper end of the guidance that is 9%..

So it's similar - it's not - you haven't dialed back what you said a quarter ago?.

No..

Our next question comes from the line of Brian Ruttenbur with Drexel Hamilton. Your line is now open..

Just a couple of housekeeping, depreciation and amortization for 2018.

What do you have is it roughly $40 million, what is the norm?.

We said it's going to be about 3% of revenue, so it’s about $58 million..

$58 million. Okay.

And then tax rate again, can you repeat that for 2018?.

26%..

And then in terms of recompetes you are going to have a normal year or a light year or normal years 15% if I'm not confused and show - so it will be something less than 15%?.

Yes, normal year. I would say is between 20% and 25% and we're going to be less than 10%..

Less than 10%. Okay.

Any single contract that's large for recompete?.

No, the largest was the VEMOS contract that Dan spoke to..

Our next question comes from the line of Joseph Vafi with Loop Capital. Your line is now open..

Sorry, I'm on an airplane right now. So I missed a little bit of the early discussion. But did you say if Army INSCOM was new or renewal business? And then I have a quick follow-up..

Yes, that's the new business that we won Army INSCOM, IDIQ..

I'm sorry, Kevin, I didn't hear that..

It's new business..

It’s Rick Wagner. This was new business that we won..

Joe, it’s new, new business..

Just secondly, on the bid and proposal [indiscernible] do you work in the bid and proposal top line, should we expect the same thing out of your pipeline in 2018?.

You are breaking up a little bit, sorry, we didn’t get the full comment..

Just on the bid and proposal pipeline for '18, in '17 we saw a lot of more pure IT work come out of their pipeline into new bookings. And I'm just wondering if your pipeline is composed of more of that same mix of business that we saw won in 2017..

So yes, generally it is more shifted towards cyber enterprise IT, other IT related or mission IT components, some data analysis as well. We still have a lot of other work that we do, but the weighting is shifting more towards that type of work..

And I'm not showing any further questions in queue at this time. I'd like to turn the call back to management for any closing remarks..

Great. As usual, members of our senior team will be available for any follow-up questions. Thank you all for your participation on today's call and your interest in ManTech. Have a good evening..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day..