ManTech International Management Discusses Q4 2012 Results - Earnings Call Transcript

Feb.20.13 | About: ManTech International (MANT)

ManTech International (NASDAQ:MANT)

Q4 2012 Earnings Call

February 20, 2013 5:00 pm ET

Executives

M. Stuart Davis

George J. Pedersen - Co-Founder, Chairman, Chief Executive Officer, Chairman of Executive Committee and Member of Special Programs Oversight Committee

Kevin M. Phillips - Chief Financial Officer and Executive Vice President

Louis M. Addeo - Executive Vice President for Corporate Development & Strategic Acquisitions

L. William Varner - President of Mission, Cyber & Intelligence Solutions Group and Chief Operating Officer of Mission, Cyber & Intelligence Solutions Group

Daniel J. Keefe - President of Technical Services Group and Chief Operating Officer of Technical Services Group

Analysts

Mark C. Jordan - Noble Financial Group, Inc., Research Division

George A. Price - BB&T Capital Markets, Research Division

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

Gautam Khanna - Cowen and Company, LLC, Research Division

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

Brian Kinstlinger - Sidoti & Company, LLC

Operator

Good day, ladies and gentlemen, and welcome to the ManTech Fourth Quarter Fiscal Year 2012 Conference Call. [Operator Instructions] Today's conference is being recorded. I would now like to turn the call over to Stuart Davis. Please go ahead, sir.

M. Stuart Davis

Thank you, Jamie, and welcome, everyone. On today's call, we have George Pederson, Chairman and CEO; and Kevin Phillips, Executive Vice President and CFO. In addition, we have Lou Addeo, Bill Varner and Dan Keefe, who is now in his new role as Executive Vice President for Corporate Development and Strategic Acquisitions. And Dan joins Bill as the Group President and Chief Operating Officer.

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 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.

Now I'd like to turn the call over to George.

George J. Pedersen

Good afternoon, and thank you for participating in today's call. We entered the year with record levels of bookings, backlog and cash. From this foundation, we believe revenues can grow in 2013 based upon momentum on current programs. As evidence of this, we have added more than 600 people to the direct staff and our headcount in the past 4 months.

In 2012, despite record levels of bookings, revenue did decline primarily from reduced material and subcontractor income flows. We had very little offsetting revenue growth from acquisitions because we adopted a very conservative approach due to the uncertainty of the government appropriation plan. We believed caution around acquisitions in the defense industry at that time was warranted, and we have focused on our acquisition strategy for health care, commercial, cyber and other nondefense-related marketplaces.

We had 2 small acquisitions early in 2012 in the health care and commercial side, but we have gained experience in these new markets -- growth markets. And we are now ready to add to our capability that we set up there. With our strong balance sheet and visibility into future cash flows, we can be more acquisitive this year.

Last month, we made our second acquisition in health care IT, ALTA Systems, which extends our involvement offering into Centers for Medicare & Medicaid Services, or CMS. Around our core defense and intelligent business, we will act when funding is known.

To accelerate our M&A program, I have asked Lou Addeo to take on a new role and spearhead our efforts to identify companies that can open up totally new markets and position the company for long-term growth.

With Lou moving up, we were able to promote Dan Keefe to President and Chief Operating Officer of the Technical Services Group. Dan has been with ManTech since March 2011, previously as Executive Vice President and General Manager of TSG. The gentleman is a retired Army Brigadier General. He understands our customers and has been instrumental in guiding our operational direction and strategic planning.

I will be working directly with our health care business, and we are aligning our other markets, emerging markets group businesses and DoD space, federal, civil, environmental support under Bill and Dan.

We will leverage operational support, infrastructures and improve our competitive position. Bill will continue to lead our cyber initiative and he has continued success in 2012. Our deep leadership team has enabled a seamless transition.

Kevin will now provide you details of our financial performance and our outlook. Kevin?

Kevin M. Phillips

Thank you, George. Revenues for the fourth quarter were $622 million, which was lighter than anticipated as a result of 2 major factors: First, $49 million in deliveries of cloud computing systems that we expected in the fourth quarter remained in the first quarter, of which $35 million is included in contractual inventory on our balance sheet and cash flow statement as of December 31. Second, $24 million in material purchases from our MRAP and S3 businesses were pulled back due to reduced customer demand.

Despite the delay in cloud computing system deliveries, our intelligence and cyber business grew 16% in the quarter. But this was offset by slowing ODCs on the [indiscernible]. The MRAP family of vehicle support work contributed $140 million in the quarter. The services portion is ramping up as we consolidate work across equipment manufacturers and other systems providers. S3 contributed $139 million in the quarter, which was down $42 million in the fourth quarter of last year and down $17 million from the third quarter.

The wins from the third quarter have been slower to ramp and material purchases have gone down as more spare parts are available from existing systems being decommissioned in theater.

For the year, revenues were $2.58 billion. Intelligence and cyber revenues were up $84 million compared to 2011, but revenues from S3 were down $319 million. For the quarter, the percentage of work as a prime contract remains steady at 91%. The trend away from time and material contracts continued dropping from 33% to 23% of revenues.

Cost-plus contracts increased 8 percentage points to 60% and fixed-price contracts increased 2 percentage points to 72% [ph]. By the end of the year, we expect to stabilize at about 20% time and materials contracts.

Operating profit was $37.7 million in the quarter for an operating margin of 6.1%, down from last quarter. The largest driver of the change is a $1.2 million impact for short fixed-price transition period on the new CLSS contract.

HBGary incurred a loss of $1.8 million on continued R&D investments, which was more than planned. We're still capturing new customers for HBGary platform, but sales are smaller and more incremental than expected. G&A was lower sequentially but higher as a percentage of revenues, given the slipped AMBIANCE sales.

Net income for the quarter was $20.2 million, and diluted earnings per share for the quarter were $0.55. The effective tax rate was 40%, 140 basis points above last year's fourth quarter, which equates to about $0.02 a share.

For the year, operating profit was $171 million. Net income was $95 million, and diluted earnings per share were $2.57. Profitability was affected primarily by the migration away from time and material contracts and increased price competition on in-theater support. Except for the investments in commercial cyber, the profit margin on our expanding intelligence and cyber work was consistent with last year.

Now on to the balance sheet and cash flow statement. During the quarter, we used $62 million of net cash to fund operations. Operating cash flow for the year was $126 million or 1.3X net income. This performance for the year is consistent with our long-term model. With capital expenditures of $15 million, free cash flow was $111 million.

DSOs increased to 79 days for the quarter and the year. Across the business, we experienced delays in customer payments compared to the third quarter, attributed in part to some new contracts and end-of-year holidays. We lost several days in receivable DSOs to the onetime setup of billing arrangements for the $2.85 billion CLSS contract.

Over the year, we grew our cash and equivalents balance, ending at $135 million, which was a record year-ending balance and gives us the fire power we need to position the business for growth. To that end, in January, we invested $10 million to purchase ALTA, which provides an entrée into CMS through the $4 billion ESD contract.

The board has authorized $0.21 per share dividend to be paid in March. Given the market uncertainty and our intent to pursue acquisitions more aggressively, we expect to maintain the annual dividend at $0.84 for 2013. We believe that an annual yield in excess of 3% is an appropriate and compelling return of cash to shareholders. Our first objective for capital deployment is to pursue repositioning and growth, but we will revisit capital allocation during the year if there's clarity around appropriations and acquisitions did not materialize.

Turning to business development. Bookings for the quarter were $222 million for a book-to-bill ratio of 44X. 57% of the bookings were for new work. The record $4.8 billion in awards for the year provides a great foundation entering 2013.

Backlog at the end of the quarter stood at $6.5 billion, which is up 38% from last year, and funded backlog was a record $1.8 billion, which is up 34% from last year. At the end of the quarter, we had a total qualified pipeline of $29 billion, of which $3 billion is submitted and waiting adjudication. Our pipeline increased by about $3 billion, primarily within our health care business.

We entered 2013 with strong awards, backlog and growth in our direct labor workforce. However, we must also account for uncertainty in the market. Accordingly, our initial expectation is for revenues of $2.6 billion, reflecting lower material purchases but increased labor.

Growth will come primarily from the minimum [ph] on our current programs. For example, we have already delivered systems in the first quarter of our AMBIANCE program that exceed the total revenue and the total program for 2012. And we have added more than 500 employees on our CLSS program over the past 4 months.

92% of revenue guidance should come from current business, which is higher than normal given that we are going into the year. Funded backlog accounts for more than 2/3 of guidance, up from a historical average of 45% to 50% at this time [indiscernible].

We expect net income of $88 million and diluted earnings per share of $2.36. The Implied operating margin of 6% is consistent with the fourth quarter. We expect to reach a margin inflection point this year, as this year margins stabilized and the OCO percentage falls in relation to faster growing and higher-margin work in intelligence, cyber and health care.

Built into our guidance are an effective tax rate of 38%, a fully diluted share count of 37.2 million shares. Incorporating the cash collected from the contractual inventory delivered in the first quarter, we will push cash flow from operations from our usual 1.2X to 1.5X net income to 1.6X to 1.9X net income for 2013.

Finally, DSOs should be around 70 days.

Now Lou will speak to his new role. Lou?

Louis M. Addeo

Thank you, Kevin. I'm excited to help reposition the company for long-term growth as we prepare for a smaller footprint in Afghanistan. ManTech has an enviable balance sheet and platform of capabilities, customers and geographic reach to effect this change.

Since 2012, we have acquired 3 smaller companies in the health care and commercial cyber markets. With experience in these markets, we are able to be more aggressive. As we exit 2014, I would expect these business areas to be generating $300 million in revenue and at least $30 million of EBITDA.

I'll also seek out new areas of growth for ManTech in other adjacent markets. We're actively reviewing expansion areas, and I look forward to reporting back as we acquire companies in these markets.

ManTech has a long history of adapting to changes in the market and finding new areas to accelerate top line growth and generate solid returns. Even with this initiative, though, we will remain primarily a national defense provider.

Now Bill will talk to the cyber business.

L. William Varner

Thanks, Lou. As Kevin indicated, the intelligence and cyber business showed strong growth in revenue and profits in 2012, and we are positioned for even more in 2013. Our growth is driven by the convergence of cyber, cloud and IT consolidation. And our positions at NSA, DISA and DIA place us in the center of that movement.

Cyber, in particular, will be a growth market for years to come. Next week, ManTech is organizing a panel discussion at the RSA Conference in San Francisco on active defense. We are truly thought leaders in this area. And as policy becomes clearer, we expect that commercial businesses will seek to shore up the security of their data and networks. To that end, last week, President Obama issued an executive order on cyber which focuses on data sharing but stops short of requiring participation. It does not take the place of legislation but it is a promising start.

As part of the realignment, NCIS is adding the state space work at NASA and the U.S. Air Force and work with DARPA from EMG.

With cross-agency sharing initiatives growing between the state space agencies, intelligence agencies and the government R&D centers, we will maximize the capabilities for our customers and provide scale within ManTech. We are also picking up work that requires substantial systems development, such as our work for the patent and trademark organization.

Dan?

Daniel J. Keefe

Thanks, Bill. I appreciate the opportunity to lead TSG as we continue to support our customers on their most critical national security missions. In addition to our support of the Department of Defense and Department of State, TSG will now house the engineering practice focused on border security and environmental studies.

We've completed the transition on the CLSS contract, are in the midst of consolidating the labor from other providers as the vehicles are fully in sustainment. We are looking to add another 200 people to the 500 that we have added on the contract since award. We expect to begin to ramp back down to previous levels starting near the end of the year.

Similarly on S3, we are expanding our direct labor from the new third quarter wins and the expanded work share requirements, but procurement levels are falling. We also have significant ceiling available under the existing S3 task orders, which our customers can use should mission requirements arise.

Netting all these factors out, we expect that our OCO work should be fairly stable through 2013 and be better protected if we go through sequestration.

Back to you, George.

George J. Pedersen

In summary, ManTech is well positioned for growth. Our core business consists of high-priority programs, and we have emerging businesses in new growth markets. We have seen basic changes in budgets and missions in the past, and we were able to transition to new and expanding marketplace here and around the world. We believe we have the technology strength, the cash flow and market position to continue to grow and adapt to change. Most importantly, we have the financial wherewithal in terms of cash, which is $190 million today, and $500 million in line of credit to drive in the new markets.

With that, we are ready to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Mark Jordan from Noble Financial.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

A question that relates to how the revenues may fall in the year on a quarterly basis. You allude, I think, to $49 million worth of hardware delivered on the cloud computing AMBIANCE contract. Is there additional system hardware that will go on that contract? And could you comment, again, sort of the dynamics on how you see the revenues fall through the year?

L. William Varner

Sure. So given the uncertainty in the market with the exception of the bump in the first quarter for this cloud computing flow-through projecting a fairly flat quarter-to-quarter revenues through the end of the year getting to the $2.6 billion. So a little bit of a bump up in Q4. And frankly, projecting some level of growth, even amid uncertainty from intelligence community customers, health care, offsetting some of the DoD uncertainties that are out there.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Okay. This is a question for George. As we get closer to the potential sequestration deadline, have you gotten a sense of how your customer base is going to be treating you or existing funded backlog relative to sequestration?

George J. Pedersen

We've had conversations with everyone we could possibly talk to. The problem is no one really knows what the Congress and the President are really going to implement. I can tell you, they have all spent a lot of hours preparing for it, but nobody can sit today and tell you how it will play out. But they're really working the problem.

Operator

The next question comes from George Price from BB&T Capital Markets.

George A. Price - BB&T Capital Markets, Research Division

Just to follow-up on the second question or on the question that was just asked around sequestration. Obviously, there's a lot of uncertainty. But just to be clear, what are you and are you not factoring in your guidance for 2013?

Kevin M. Phillips

Well, nobody has a crystal ball on what's going to happen with sequestration. But as we indicated from a percentage of guidance, our funded backlog [indiscernible] business, we're taking a conservative view based on the uncertainty. So we're trying to factor in that uncertainty into the $2.6 billion, recognizing that we have growth on AMBIANCE, growth in headcount to come to a $2.6 billion mark. We believe that this is reasonable. Does it cover the worst-case scenario? No ability to tell right now. But we would see that the OCO work, the cyber work and their component or several components of the intel work, we think are going to be more protected. And as a mission-focused company, we think that we are in fairly good shape.

George A. Price - BB&T Capital Markets, Research Division

Okay. And do you have any sense, I guess -- well, I guess shifting from the margin side, flattish revenue, down EPS, implies margins down in '13 following the decline in '12. What's driving that in '13? Because you mentioned you had a higher mix of labor versus materials, which I guess wouldn't be consistent with that? Is that more decline in competition in OCO? Or is there something else driving that?

Kevin M. Phillips

All declines in margin are OCO-competitive related. So if you think about the year-over-year decline from the $171 million down to $157 million, there's a greater amount of that, that's related to the overall fee returns from overseas work, which is offset by above-average returns on some of the intelligence community, health care and cyber work that we have. And that nets out to a 6% estimate.

George A. Price - BB&T Capital Markets, Research Division

Okay. So there's no -- I guess, Kevin, there's no flow-through of just broader transition away from T&M to cost-plus in other parts of your core business unrelated to OCO?

Kevin M. Phillips

The Army has been the greatest mover towards cost-plus from T&M, and the greatest component of that has been related to OCO-type programs and S3 type programs. So they tend to be as one. There hasn't been a significant shift in some of our intelligence community. They've actually contributed to some of the increase in the fixed price. So that's why we tend to think that the mix of our business between cost-plus, time and material and fixed price for 2013 will level off with the 20% mix on T&M.

George A. Price - BB&T Capital Markets, Research Division

Last question. As you mentioned acquisitions, you're going to be more acquisitive. And I guess, can you talk about -- maybe beyond just cyber, health care, can you talk in what areas in particular will there be any focus, for example, on purely commercial areas? Maybe Lou, you could comment on -- given your increased focus in this area, what the key areas are that you're looking at, what we can kind of expect as the year goes through?

Louis M. Addeo

Okay. So we have a fairly substantial set of capabilities around services-related for the most part. And we get a head start relative to some commercial support on the -- out of Bill Varner's business and the health care business. So we'd look to see whether or not we can project our capabilities in those areas, at least initially. But using the rest of our capabilities and system engineering, Mission Support, procurement, supply chain management and logistics, we use baseline capabilities. That is our working map DNA [ph] to figure out where the long-term play is. And yes, commercial is a prospective play for us.

Operator

The next question comes from Bill Loomis from Stifel, Nicolaus.

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

Just a follow-up again on George's question, Kevin, on the margins. So all the declines in margin are OCO-competitive related, but there's a couple of things there. You talked about the higher direct labor and you're adding people on to your OCO contracts. So usually, the margin on that labor component on the CLSS, for example, was substantially higher than the pass-through margins. So I guess I'm still -- with that contract being roughly 18%, 20% of business, I'm still trying to understand why the margins still wouldn't be higher than 6% because you have the cyber and health care is going up, HBGary, hopefully, less losses. A lot of positive things happening on the direct labor side, even in CLSS. So I mean, that kind of implies that the margin on that CLSS program on the new contract must have been substantially below, even on the direct labor, the old one.

Kevin M. Phillips

Yes, it's a combination. When we think of OCO, it's the S3, which does have a lower labor-based margin than the S3 programs we had prior to September 30 awards and the final negotiations on those, as well as a combination of the fee that we're going to get from the CLSS labor, combined with the material purchases. So all of those are coming into play in combination for the returns. And yes, we're going to get less fee on a higher labor base in theater, both from the MRAP work based on the competitive environment. In addition, and equal or greater to, there's going to be the S3 work.

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

If we took that 35% or kind of the OCO impact of or [ph] related business out, can you give us -- I think this is important enough when we think about the business post-Afghanistan what the margin profile and trends are on the business if we remove that kind of OCO-related 35% of business, both CLSS and S3 out.

Kevin M. Phillips

Broadly, if we take for 2013 in the 6% returns and factor out the upside or downside from HBGary in the expected in-theater returns, the expected return from a margin basis would be somewhere in the 7.5% range on the balance of the business.

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

And is that flat or down? Or how is that trending?

Kevin M. Phillips

That's trending up from 2012.

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And just one quick question on the $49 million of the cloud, the structure. Is that equipment? I mean, typically, we don't see any margin or very, very little margin on that.

Kevin M. Phillips

Yes, so there is margin associated with the type of work we're doing in cloud computing because it does include fixed-price delivery with end systems integration components. That said, it has a much higher component of materials in it. So it's a mixture at this time, and we are going to get return on that.

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And so that will be a bump and so -- I mean, with that hitting in the first quarter, for example, I know you talked about revenues kind of being flattish sequentially until the fourth quarter. But wouldn't the first quarter be a little bit higher with that work getting shifted out?

Kevin M. Phillips

It could be higher. But I would caution against that because there's so many other factors in Q1, with new taxes and just all kinds of different stuff that you have to build into it.

Operator

The next question comes from Gautam Khanna from Cowen & Company.

Gautam Khanna - Cowen and Company, LLC, Research Division

Yes, just to follow-up on George's and Bill's questions on margins. When you go back to 2011 relative to 2013, it looks like sales would be down 9% over that period, but earnings down 35% roughly. And I understand the cost of goods sold, the gross margin pressure. But also just focusing on SG&A, it's crept up a bit over that period. Is that something that you think you still have leverage to take down? Or is that something that's sort of just a higher rate we're going to be stuck with for a while?

Kevin M. Phillips

It's Kevin. If you think about G&A, we're projecting rough order for '13 a gross profit of 13.7% and G&A of 7.7%. It will be creeping down for the non-HBGary component or non-component that requires R&D and sales for that piece of the business. As an example, in 2012, roughly $7 million out of $8 million increase in that G&A relates to supporting R&D and sales for that market. And we think there will be decline in G&A overall, but it will be offset in part by repositioning in that market.

Gautam Khanna - Cowen and Company, LLC, Research Division

Okay. And could you remind us how much HBGary lost in 2012?

Kevin M. Phillips

For 2012, it was around $5 million.

Gautam Khanna - Cowen and Company, LLC, Research Division

And when would those actually turn -- when do you expect it to turn at least breakeven?

Kevin M. Phillips

The investment should try [ph] to return coming into the second and third quarter this year based on all the activity we have in some of the commercial sets. And obviously, there's a lot of news out there about risks that people are finally adapting to.

Gautam Khanna - Cowen and Company, LLC, Research Division

And may I just ask, from your opening comments, with respect to the dividend. I think you mentioned a 3% number. Is that sort of a trigger if the stock were to go down? Or I mean, is that sort of how you calibrate, you have to be at 3% or better and then if there's a change in the stock price, you'd reconsider it? Or how do you think about the dividend policy? Because you did institute one a couple years back and haven't really increased it since. Just wondering what's the longer-term plan here?

Kevin M. Phillips

Our dividend policy is a judgment call between the use of operating cash flow, the return of the yield to the stock price. And just like with anyone, it's a judgment call as to how much more cash we deploy for that. And we just think that a 3%, 3.5% return is reasonable in the type of market we're in. And then we'll look at our capital deployment alternatives around that as we evaluate quarter-to-quarter what's happening.

Operator

The next question comes from Tobey Sommer from SunTrust.

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

This is Frank in for Toby. Quick question on kind of cash flow. Your DSOs are up a little bit, driven by that kind of onetime setup of billing arrangements. Is that expected to reverse over 1Q? Or can you talk a little bit about kind of cash collection throughout the year?

Kevin M. Phillips

Yes. So it will reverse through in 1Q. We've already received a fair amount of that cash collection. Again, it should be for the year about a 1.6X to 1.9X net income because of the Q1 offset for this inventory. So we should be fairly consistent, I think, with the exception of collecting the cash in Q1. With our prior years in the Q2 and Q3, we'll be a little bit heavier than Q4.

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

Okay, great. And could you give us the organic growth number for the quarter? And just to kind of confirm or ask, is there any acquisition revenue incorporated in the revenue guidance?

Kevin M. Phillips

There's no acquisition revenue in the guidance. Fourth quarter organic was 11% drop.

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

Okay, great. And then could you speak a little bit to the hiring environment? You guys have added a lot of folks and you continue to look to do so. What's the hiring environment out there look like?

Daniel J. Keefe

Yes, this is Dan. Positive. We have not had a difficulty in finding -- in question of CLSS, mechanics. And so I think that I have not seen really any change year-over-year in the hiring environment.

L. William Varner

And this Bill. We see -- we've had a lot of success in hiring in 2012 for the intelligence community business, and we expect that to continue and even grow in 2013. It was a good year for hiring all the intelligence professionals that we need.

Operator

The next question comes from Brian Kinstlinger from Sidoti & Company.

Brian Kinstlinger - Sidoti & Company, LLC

The first question I had as it relates to your guidance, how much revenue do you assume related to the just completed acquisitions? And did you just complete -- what would it be, the health care one and there was another?

Kevin M. Phillips

Yes. So the ALTA acquisition. The 2 acquisitions that were built in will be at least $60 million. It could be higher, but that's what we have built in.

Brian Kinstlinger - Sidoti & Company, LLC

Great. And then on the MRAP contract, maybe I missed it. Did you say what kind of trends you expect in '13 versus '12, maybe revenue and margin since the mix is shifting?

George J. Pedersen

Revenue will be fairly consistent to 2012. Margins will be down, basically, the competitive bid in the returns.

Brian Kinstlinger - Sidoti & Company, LLC

Right, okay. And then you talked about acquisitions. What kind of deal sizes should we expect? Are they seeing the larger deals that you made a few years back? Or do you expect that to continue to be smaller acquisitions?

Louis M. Addeo

This is Lou, and George told me they have to be larger.

Brian Kinstlinger - Sidoti & Company, LLC

Can we define large? Are we talking a couple of hundred million dollars in revenues?

George J. Pedersen

It depends upon what the market bears. We're not going to do anything crazy. We have a good solid core business to look at as well as the new markets. But yes, we'd like to be in the market for the size the scope of business that we've done in the past. We will be a little cautious about anything coming out of the defense side until we see what the President and the Congress does. Last year, we only did 3 acquisitions and none of them in the defense or intelligence business, which is the first time in many years. But as I said a moment ago, we're sitting on $190 million in cash in the bank today, and we have a cash machine. So we will continue to luckily -- we're not afraid to go after larger deals providing it's in the technology area.

Brian Kinstlinger - Sidoti & Company, LLC

Great. And then do you have any large recompetes that are expected to be booked here this year? And if so, are they on T&M?

Kevin M. Phillips

It's Kevin. The recompete here [ph] this year is much lighter than the last 2. 20% of our business is up for recompete, with half of that built into the fourth quarter. So it's very back-end loaded, and it's likely to slip just based on normal bid process. So it's not that heavy. I would say that it's a mix of fixed price, cost-plus. And it's in customer sets that really haven't moved more towards a universal decision on cost-plus contracting.

Brian Kinstlinger - Sidoti & Company, LLC

Great. And then on award activity, can you just sort of -- given the current environment and potential sequestration, is it safe to assume 1Q will be light? And then in the fourth quarter, what were the new wins as a percentage of the total?

Kevin M. Phillips

So new wins as a percentage of the total for Q4 were 57%. I would say that the Q1 award activity so far has actually been better than Q4 of last year. It's already going to exceed that. So I wouldn't think -- there's not a freeze is my point. It's not slowing down anymore than it did in Q4. Now we've actually seen a pickup. There are about $13 billion of bids the government expects to adjudicative this year that we're targeting. So they haven't slowed down on the proposal activity as well. So I think that there's a disconnect between on their stated need and the amount of activity towards the award timing, and we'll have to see how that plays out in the sequestration.

Brian Kinstlinger - Sidoti & Company, LLC

Great. Last question I have. In case you need to go to your credit line as you use up your cash for acquisitions, can you just remind us the interest rate on that?

Kevin M. Phillips

It's LIBOR plus 1.5%.

George J. Pedersen

That, by the way, is $500 million, as you know.

Operator

[Operator Instructions] The next question comes from George Price from BB&T Capital Markets.

George A. Price - BB&T Capital Markets, Research Division

Just had a couple of quick follow-ups. First, Kevin, did you mention something about $60 million in acquired revenue? Is that acquired revenue in 2013?

Kevin M. Phillips

6-0, not in acquisitions but from the acquisitions we've made for the 2 health care business.

George A. Price - BB&T Capital Markets, Research Division

Got you. Okay. For -- I mean, what is -- I know ALTA is pretty small. You said it wasn't material. But what is that on an annual? Just for purposes of accuracy, I guess, what is that on an annual revenue base, $6 million or so?

Kevin M. Phillips

Annual run rate, $6 million going up, yes.

George A. Price - BB&T Capital Markets, Research Division

Okay. And did you -- I apologize if I missed this, but did you give any specific assumptions around level of S3 and MRAP for the year -- or yes, you said MRAP revenue, you expect it to be the same margin down. What about S3?

Kevin M. Phillips

Roughly consistent, margin down as well.

George A. Price - BB&T Capital Markets, Research Division

Okay. And then last thing is, was there anything unusual happening on the tax rate side in '13? Or 40%, a reasonable starting point?

Kevin M. Phillips

38% is our tax rate for '13. I think the 40% was an anomaly based on the amount the permanent differences we had to flow through.

Operator

At this time, I'm showing no further questions. I would now like to turn the call back over to the presenters.

M. Stuart Davis

Thank you, Jamie. I appreciate your help today. Given that there are no more questions, I guess we'll end the call now. As usual, we've got members of our team around. If you do have follow-up questions, just shoot me a note. Thank you, all, for your participation on today's call and your interest in ManTech.

Operator

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!