ManTech International Management Discusses Q2 2013 Results - Earnings Call Transcript

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 |  About: ManTech International Corporation (MANT)
by: SA Transcripts

Operator

Good day, ladies and gentlemen, and welcome to your ManTech Second Quarter Fiscal Year 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. And now I'd like to introduce your host for today's conference, Mr. Stuart Davis. Please go ahead, sir.

M. Stuart Davis

Thank you, Nova, and welcome, everyone. On today's call, we have George Pedersen, Chairman and CEO; Kevin Phillips, the Executive Vice President and CFO; and Bill Varner and Dan Keefe, our 2 Group Presidents and Chief Operating Officers. In addition, Lou Addeo, Executive Vice President for Corporate Development and Strategic Acquisitions, will join us for the Q&A session.

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 the 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. The government service market is currently in an interesting phase, but we are beginning to see a path to growth and stability and planning. Secretary Hagel has vigorously defended the President's fiscal year 2014 budget request, and he is obviously very much involved in doing the planning. We are in a phase at this point in time that they have to make hard decisions between now and 1 October, the beginning of the next fiscal year, but we are confident that they will get there.

Fiscal year 2013, 2014, could be a low point for certain base defense levels, with out-year budget projections showing modest growth. Again, this will be decided sometime between now and the 1st of March when they have to make some decisions.

The operations and maintenance accounts [ph], which fund most of the service programs, have been impacted in 2013 under the cuts to date. But none of this is carved in stone at this point in time, and we see opportunities for growth, particularly in the marketplaces that we serve in cyber and other areas.

I, personally, am pleased with the way we're managing ManTech's business. Yes, there are difficulties because of sequestration, furloughs, CRs, the drawdown in Afghanistan and all these other issues, but I think we and others in our industry are dealing well with them.

Our cyber and intelligence business is driving our -- and our control of indirect costs as you will see, is driving our competitiveness and profitability. Even as we address a reduction in requirements for warfighter support, our reputation and contract portfolio in critical areas, such as cyber, intelligence, information technology, health care, are indicating we're on the right path. We also are very fortunate to have a strong balance sheet that supports our future growth plans.

The growth has been enabled by our marketing and business development focus and a disciplined acquisition program over the years. We have always been able to use our cash and our balance sheet, and we have given Lou Addeo the mission of identifying acquisition candidates and the strategies going forward. We will use our balance sheet to grow. We will do it wisely. And you'll see the numbers shortly. We're optimistic we can take advantage of this balance sheet, financial condition and the experience we have had in doing acquisitions over the years. We've been at it for 40 years.

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

Kevin M. Phillips

Thank you, George. Revenues for the second quarter were $605 million compared to $639 million in the second quarter of last year. This difference is fully explained by the overseas contingency operations support in Afghanistan, which fell $41 million to $186 million for the quarter. The largest driver of the OCO decline was the completion of the mobile cell tower work. As a whole, our non-OCO business grew compared to last year, and our primary strategic thrusts, including cyber, intelligence and health care, grew rapidly.

Labor revenue was essentially unchanged, and total revenues fell compared to the first quarter, when we had substantial deliveries of cloud computing systems under the AMBIANCE program. We expect to deliver more solutions with a large material component throughout the life of the program, which will create quarterly fluctuations, but AMBIANCE continues to grow favorably in direct labor and in scope.

Prime contractor work was 91% of revenue for the quarter. There was some shift among contract type compared to the first quarter, with cost-plus contracts increasing to 73%, time-and-materials falling to 11% and fixed-price falling to 15%. The primary driver of the change were the AMBIANCE deliveries in the first quarter, which were mostly fixed-price.

Moving on to the high-profile contracts that we track. The MRAP family of vehicles support work contributed $140 million -- $141 million in the quarter, down $2 million year-over-year. S3 revenues were $135 million for the quarter, down $8 million year-over-year. We will continue to support -- continue our support of the in-theater mission, where we can offer a compelling value proposition to the Army. Case in point, we began the third quarter with a takeaway award on S3 for $180 million over the next 2 years, which will require support of 500 additional people in Afghanistan. This contract is currently under protest.

We can think about our business in 3 components, each with separate growth momentum and profitability. Our cyber and intelligence business is growing rapidly and generates strong margins. Our OCO business, which is our least profitable work, is declining with the drawdown in Afghanistan. The remaining business should be relatively stable and generate corporate average profits. Looked at in these terms, cyber and intelligence revenues and profits are up double digits compared to the second quarter of 2012, whereas OCO revenues and profits are down double digits.

Operating profit was $38.7 million in the quarter, up $2.3 million compared to the first quarter despite lower revenue. This translates to an operating margin of 6.4%, which is 80 basis points higher than last quarter.

Margin improvement reflected 2 primary factors: First, we had excellent award fees across our entire business. The second and fourth quarters had the most award fee determinations for our current contracts, and our performance was excellent. Second, we proactively manage our indirect structure, and our general and administrative expense is at its lowest level in 3 years, which increased profitability for our time-and-material and fixed-price contracts. We are extremely pleased with increasing profitability, and though there will be quarterly fluctuations, we believe that our operating margin troughed in the first quarter. With an effective tax rate of 38%, which is unchanged from last quarter, net income grew to $21.6 million and diluted earnings per share grew to $0.58.

Now onto the balance sheet and cash flow statement. During the quarter, we generated $32 million of operating cash flow, which is 1.5x net income. With capital expenditures of $2 million, free cash flow was $30 million. DSOs remained steady at 76 days.

On the financing side, we paid $8 million in dividends, and the board has authorized a $0.21 per share dividend to be paid in September, consistent with our intent to distribute $0.84 over the course of the year.

On the business development, so far, the greatest effect from sequestration has been on contract awards. Sequestration has exasperated the award delays originally caused by a lack of acquisition capacity and increased protests. For example, within our pipeline, the government has awarded only 30% of the opportunities that they had expected to over the last 4 quarters.

With that as a backdrop, bookings for the second quarter were $368 million for a book-to-bill ratio of 0.6x. The book-to-bill ratio for our cyber and intelligence business was 1.5x for the quarter, most of it from new business takeaways, which is to support continued growth through 2014.

Of the $110 million in pending awards mentioned on our last call, a protest on a $25 million recompete was adjudicated in our favor and is in the second quarter total. And an $85 million award will be finalized in the third quarter.

There has been enough business development activity to support robust awards in the second half of this year. We have $4 billion in bids awaiting adjudication, which remained steady from last quarter. The key will be whether procurement shops can obligate the remaining funds, while many of their employees are on furloughs 1 day a week through the end of September.

Our total qualified pipeline is now $26 billion, down primarily in the health care arena, which reflects DoD direction on electronic health care record initiatives and a stricter focus by us on federal health IT. We still are pursuing about $1 billion of health care opportunities, which offers tremendous growth potential for a $40 million business.

Backlog at the end of the quarter stood at $5.3 billion, and funded backlog was $1.2 billion. Total backlog is down from last quarter, primarily as the result of the reductions in the scope of work for MRAP support on the CLSS contract.

We are adjusting the guidance that we gave on our last call to reflect the Army's decision to reduce the maintenance requirements for MRAP vehicles and stockage requirements for Route Clearance Vehicles. Based on requirements levied on us since May, we have begun to reduce our staff supporting MRAPs in Afghanistan. Compared to our first quarter view, our in-theater staff levels on this contract will fall by 1,000 people by the end of the year.

The Army's decision to reduce its support was a significant shift, moving from a rapid ramp-up to a rapid drawdown in the space of 2 months. As a result of this change, we now expect the MRAP family of vehicle contracts to generate around $400 million to $450 million for the year. The decision to reduce MRAP support levels quickly this year is causing us to reduce our enterprise-wide revenue guidance to $2.4 billion.

Consistent with the revenue revision, we now expect to achieve net income of $81 million and diluted earnings per share of $2.18. Operating margin will be about 6.1% for the year, which is up 20 basis points from our prior guidance. We expect margins to continue to increase as higher-margin work grows more rapidly and lower-margin OCO work declines.

Looking beyond our OCO work, we are pleased with the vibrancy of the remainder of our business. Within our guidance, cyber and intelligence represents roughly 30% of our business with strong profitability. Conversely, the overseas work represents about 1/4 of our revenue, with less of our profits. As OCO requirements diminish, the remaining business within ManTech will drive growth in revenue, earnings and cash flow.

Now our presidents will speak to the performance and outlook of our 2 operating groups. Dan?

Daniel J. Keefe

Good afternoon. As indicated in the earlier statement on this call, in May, our customer provided direction to implement a drawdown of Mission Support on our CLSS contract. Based on customer decision, retrograde [ph] requirements are now reaching the point of impacting our contract. In terms of the 3 main components that were combined into the CLSS contract, virtually all of the labor impact is tied to the MRAP component; material purchases will diminish support of MRAP and Route Clearance Vehicles; there are no changes anticipated in our support of SOCOM.

Since the last call, civilian furloughs have begun, and we have experienced a slight increase in ManTech personnel impacted by sequestration. Still, the direct sequestration impact is fairly minor and we're able to manage through it.

In the second quarter, we won a prime position on the decision superiority [ph] support contract with SPAWAR. Under this $900 million multi-award ID/IQ, ManTech will be positioned to provide full lifecycle support for command, control and decision support systems.

Decision superiority is key to winning in today's multifaceted battlefield, and we look forward to leveraging our extensive experience providing lifecycle support to C4ISR and other decision superiority [ph] systems in support of SPAWAR.

As Kevin mentioned, we also began the third quarter with $180 million 2-year award under S3, which has been protested by the incumbent. This was a takeaway of existing work from an entrenched OEM competitor to provide specialized field service support. This will demonstrate ManTech's ability to offer our customers cost-effective field-to-field support options that avoid costly OEM dependency.

Our business development strategy builds on our core competencies and excellent past performance in the areas of integrated logistics, C4ISR, enterprise IT, Test and Evaluation and system engineering. In these areas, we have multiple opportunities of scale, pending award, or in our pipeline that are not impacted by OCO.

Bill?

L. William Varner

Thanks, Dan. I'm calling in from the Black Hat USA conference, which is one of the most important cybersecurity conferences in the world. General Alexander, Director of NSA and Head of U.S. Cyber Command, gave the keynote address earlier this morning that highlighted the ongoing national debate on national security versus privacy, one of the concerns that we are helping our customers address. I also spoke on a panel today addressing the need for information sharing between agencies in the intelligence community and the Department of Defense.

Based on what I'm seeing out here, I am more convinced than ever that the market for cyber will grow and that, as a true leader in cyber, ManTech is well-positioned to benefit from that growth.

The intelligence and cyber business showed strong growth in revenue and profit in the second quarter, and we also generated strong bookings. We had 2 large takeaway wins that are already fully staffed. On one of these wins, we are running an integrated security program, and on the other win, we are operating a 24/7 Security Operations Center. Both of these wins are for major intelligence agencies.

In addition, we had a small but very strategic award for a large quasi-governmental organization that manages a key part of the nation's critical infrastructure. We are mapping their cyber strategy, and we look forward to implementation in 2014.

I'm comfortable with our forecast of continued robust organic growth in 2013, and I expect that to continue in 2014 as well.

Finally, I want to address the classified disclosures made by Edward Snowden. It is too soon to tell if there will be any fallout in terms of reduced mission scope for the intelligence community or for contractor support to that community. That said, ManTech is one of the preeminent providers of counterintelligence and insider threat support. We expect both counterintelligence and insider threat to receive more attention and funding and that our capabilities will be a major discriminator on all intelligence work going forward.

George?

George J. Pedersen

In summary, ManTech is well-positioned and performing well in our markets. Investments that we have made in key areas, such as cyber, intelligence, health care, C4ISR and information technology, have created a platform for growth as the requirements to support our overseas contingency ramp down. We continue to be, as you will hear elsewhere in this, to operate in 18 countries with many people around the world, but the concentration in Afghanistan obviously is going to ramp down.

I think at this point in time, we are ready to take your questions. How do we proceed?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Tobey Sommer from SunTrust.

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

This actually Frank in for Tobey. I wanted to ask you, on the cyber and intelligence piece of business that continues to grow, do you think the growth rate there is being impacted at all by sequestration, or do you anticipate any deceleration moving into 2014 due to that?

George J. Pedersen

Bill, you want to take a shot at that?

L. William Varner

Sure. The -- what we are seeing -- we are truly seeing some effects of sequestration, but so far, it has been very, very minor. If you think of a couple of people, maybe out of a 50-person program, we are seeing some of our customers do some very, very minor furloughs. Once again, it's nothing that is affecting our numbers or our projections in any way. I think I -- we would have our heads in the sand if we said that sequestration will not affect us at all, but I have to say, so far, it has not been anything major in the cyber and intelligence business. And we do believe that the need for cyber and intelligence work will continue. And we also believe that we're extremely well-positioned in terms of a very important set of customers that we support.

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

Great, that's helpful. And then 2 quick numbers questions, what's the tax rate embedded in guidance, and what was organic growth in the quarter?

Kevin M. Phillips

The tax rate is 37.8%. Organic growth in the quarter was down 6% organically, 5% total.

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

Okay, great. And if you could speak to the acquisition environment that you're seeing right now and as you look to deploy capital off of your strong balance sheet, that'd be great.

Louis M. Addeo

Yes, this is Lou Addeo. And the acquisition environment is tentative. The supply in the market is low. There is some uncertainty in the market as to choices. The banking activity is increasing, and nothing yet is tangible. But we're not just waiting. In addition to examining work opportunities in banking, we're also doing outreach and spending time with public and private companies in readiness to support what we may ultimately be looking at. We have an unparalleled balance sheet, and we're prepared.

Operator

Our next question comes from the line of Bill Loomis of Stifel, Nicolaus.

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

Is the -- Kevin, is the S3 win that you had that was being protested, which will be, I guess, roughly $45 million a quarter. Is that in the guidance or no?

Kevin M. Phillips

No, we have projected a small amount, maybe $20 million in that number out of $40 million a quarter. But that's within the range of other capabilities and needs that can be offset with awards and ramp up on AMBIANCE.

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

Okay. And for S3 for the year, you mentioned the MRAP work. Where do you see the S3 work being for the year?

Kevin M. Phillips

S3 is holding fairly steady. It's been quarter-to-quarter, we haven't seen much demand change. And as we mentioned, some of this other activity, if we get through protest, will actually increase C4ISR type work. Dan, do you want to add anything to that?

Daniel J. Keefe

No. And the piece of the work that is OCO, we have seen a leveling of procurements by the government. But as Kevin said, we project a steady for the rest of the year.

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

Okay. And then just finally, on cyber, any way -- I know they're mixed up, a lot of your cyber clients are intel agencies, but what would be -- just if the total is 30% intel and cyber, what would be kind of just cyber standalone, if you will?

Kevin M. Phillips

It's really hard, given the integration, but I would say that the cyber standalone is at least half of that number, throughout the quarter, given where we are today.

Operator

Our next question comes from the line of George Price of BB&T Capital Markets.

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

First, just to go back to cyber and intel, can you just remind us -- so the cyber and intel business in 2012, how large was that? And where do we stand right now in the AMBIANCE ramp in terms of run rate revenue in the quarter?

Kevin M. Phillips

We don't speak to the specifics on AMBIANCE. In the quarter, I would say that it's ramped up fairly nicely. Last year, the cyber intelligence business represented somewhere less than 15% of our current run rate, probably closer to 20% less than the current run rate. So we have had good growth in that. But it's basically 15% to 20% less than the 30% number that we've provided for cyber and intel.

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

Okay. And so cyber and intel grew 35% year-over-year last quarter. And forgive me, Kevin, if you gave the number, I don't think I have it handy. Did you give a number for the year-over-year growth for the business this quarter? I think you said double-digit, but I don't know if you gave a specific number.

Kevin M. Phillips

Yes, I think on a year-to-date basis, it's somewhere kind of like 20%, so it will be somewhere around 7% to 8% this quarter based on that -- the delta between the 2, I think. Is that right?

M. Stuart Davis

It's a little bit higher than that this quarter. The 15% to 20% number that Kevin was giving -- given was a full year number. And we're a little bit stronger than that first half of the year.

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

Okay. So -- but again, I guess, how much of that -- I don't know how much you can quantify, but how much of that is being driven by the ramp and the comparison of AMBIANCE? And when did that kind of anniversary as we move through the back end of this year? And maybe what -- would you expect a more -- hate to use the word "normalized" in this environment, but more normalized kind of growth given the uncertainty, maybe given some of the other wins that you've had kind of exiting this year as you look into 2014?

Kevin M. Phillips

Well, we expect growth in 2014. I can't give you a normalized number. I would say that in cyber, the highest level -- and in intel, the highest amount of proposal activity we have is in that area. A majority of the work that we're bidding on, say, 80% of the bids that we have, expect to be awarded over the next 4 quarters is new work. So I think that, that growth pattern will be dependent on how those awards come out and how much work share we get in that arena.

George J. Pedersen

And Bill would be the best to speak about this, but we, by no means, have plateaued in AMBIANCE yet.

L. William Varner

No, that's absolutely correct. Thank you. We see plenty of opportunities in terms of new things being added to the AMBIANCE contract, very, very frequently. So I think that's going to offer a strong growth well into the future.

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

Okay, that's helpful. I guess, just a couple of clarifications, if I could. First to Bill's question just a moment ago, the recent S3 win that you talked about, so Kevin, did you say, basically, you got about a $20 million, $25 million upside opportunity in go-forward quarterly revenue from that?

Kevin M. Phillips

Roughly, yes. I mean, in terms of what we're building in, it has a $20 million to $25 million upside on top of what we provided. But we also have some other new business that has to come through to get to the 2.4 that we provided.

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

Okay. And last question is just, I guess, higher level. When do you think from a revenue perspective, based on what you know now, the MRAP drag starts to dissipate or bottom out entirely, I guess, based on maybe what the customers has told you to date?

Daniel J. Keefe

Yes, this is Dan. I think the answer will depend, in a large part, under the U.S. ends up with a status of force agreement with Afghanistan and a long-term presence there. Even if we did pull out completely, there will be MRAPs and active iron brigades that will maintain our CLSS contract. And there's potential support that will follow foreign military sales in MRAPs and also the prepositioning of MRAPs at various sites. So I think that obviously, it's dependent on what happens and the nation decides in Afghanistan, but even without that, there are opportunities for our MRAP workforce in our past performance, which is very strong on that contract.

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

But just based on what you see now absent of status of forces and any FMS, there's no reason it wouldn't, I guess, track in line with the overall withdrawal, right?

Daniel J. Keefe

Well, yes, the drawdown will fall in line with -- as troops come out of there. The Route Clearance Vehicles have to be there to support our forces. And it's not a given on what will happen long-term in terms of what the agreements the U.S. will make with Afghanistan.

Operator

Our next question comes from the line of Edward Caso of Wells Fargo Securities.

Edward S. Caso - Wells Fargo Securities, LLC, Research Division

I've been reading articles about the Afghanis making it difficult to remove our equipment over land, and we're flying the stuff out. Does this sort of delay in departure impact your opportunity? And if there was an agreement on this $80 million exit fee, whatever, would that accelerate the departures and impact your outlook? My other related question is, with the troops declining there, is there less support for your people on the ground, and is there a cost impact to ManTech?

Daniel J. Keefe

This is Dan, the second question first, there's not a cost impact as part of the contract the government provides our support, and so there's not a cost impact to us. With respect to your first question, as we retrograde from Afghanistan, our responsibility is our employees and our people. The government has a responsibility for the equipment. So how that flows out doesn't really impact our Mission Support.

Edward S. Caso - Wells Fargo Securities, LLC, Research Division

The other question is around -- well, maybe -- so while we're on Afghanistan, all the cell towers that you built, and that contract is now over. Is there an asset on your balance sheet, or was that completely expensed?

Kevin M. Phillips

The asset is completely expensed. We actually were able to divest it and had a deferred tax gain this quarter from that.

Edward S. Caso - Wells Fargo Securities, LLC, Research Division

Okay. And the last question is around health care. I think I heard a sort of a quieter tone and a reduced outlook around health care, which was a topic a few quarters ago. Did I hear that correctly? Is there a sort of less emphasis now at ManTech on the health care sector?

Kevin M. Phillips

It's Kevin. No, there's not less emphasis. It's more of a focus on the pipeline, what pipeline we can reasonably go after because it's a fairly large area that we can basically go after. And there's only limited resources. So I think it's more of a refinement on our end of where we have best positioning within an identified pipeline from before.

M. Stuart Davis

Bill, you -- the health care report [indiscernible] through you ultimately. Is there anything you want to say about the vibrancy of that business and our strength there?

L. William Varner

I think I agree with Kevin's comments, Stuart. We've seen some -- our run rate is higher, certainly higher than it was last year in the second quarter. And we have been making sure that we really understand the pipeline and do a lot of work on pipeline development, so that all the opportunities are qualified and real. But we believe strongly in the health care market. We still think that cyber and health care are 2 of the areas that will see the most growth in the future.

Operator

Our next question comes from the line of Gautam Khanna of Cowen and Company.

Gautam Khanna - Cowen and Company, LLC, Research Division

So, George, first question, what do you plan to do with the cash?

George J. Pedersen

As we have from the beginning, we've used cash as a mechanism and a tool to grow this corporation via acquisitions. We basically think that as soon as we know what the Appropriation Bill will look like, and that won't happen until the earliest 1 October, we will again aggressively pursue acquisitions where they make sense. Lou has continued to be very aggressive in identifying candidates, but we have been a little reluctant to move forward until we see the Appropriation Bill. You understand that scenario. But we see cash as the strength of the corporation and its basis for accelerated growth.

Gautam Khanna - Cowen and Company, LLC, Research Division

And should I interpret that as no desire to raise the dividend or implement a buyback?

George J. Pedersen

We review that continuously. Indeed, the Board of Directors yesterday asked that question, and it was determined that for the moment, the amount that we're paying out in dividends is fair and reasonable, but we would certainly consider that. And we do consider that at every board meeting.

Gautam Khanna - Cowen and Company, LLC, Research Division

Okay. And perhaps, Kevin, you could -- could you just elaborate, or I may have missed it, the in-theater work related to CLSS and Route Clearance, what should we expect kind of the step-down to be as we move through the year? Will Q4 be kind of near 60 to 80 -- I mean, where do you think it's going to shake out, so we have some sort of run rate into next year? And then relatedly, you've done a great job of taking down indirect costs, but could you just opine on what the drawdown on that program or programs means for kind of competitiveness as you move forward in your rate structure?

Kevin M. Phillips

Sure. So as it relates to the drop, it's still a fluid situation. I would say that the labor will come down more rapidly than we originally had expected, of course. And so as we enter Q4, we'll see the full effect of that. The materials will be very much dependent on stockage requirements. We're going to try to, based on support of our customer, reduce the amount of stockage requirements we have, at the same time meet the operational TEMPO requirements. So we expect against our first half run rate, the amount of in-theater work to go down in excess of $125 million for the second half of the year, and then next year, the material components will be very much dependent on the requirements to support activities. So that's a rough order. And I think it will be fairly consistent between quarters. It might be a little bit further down in Q4. And as it relates to competitiveness, we have and will continue to be very focused on aligning our indirect structure to the business at hand and the business we're going after. I think we have the capability of doing that. The requirements will certainly go down as material procurements go down. And I think that we'll be able to adapt our infrastructure accordingly.

Gautam Khanna - Cowen and Company, LLC, Research Division

Okay. One last one, is HBGary now in the black or are we still a quarter away?

Kevin M. Phillips

It's still in the black. It will be a 2014 positive, not a 2013 positive -- I'm sorry still in the red.

Gautam Khanna - Cowen and Company, LLC, Research Division

Still in the red, okay. Kevin, how much of a drag is it this year?

Kevin M. Phillips

It's running 1.4 loss this quarter, so it'll be somewhere about $1 million a quarter, I think, in Q3 and 4. It might pick up in Q4 based on bookings.

George J. Pedersen

But that's a modest amount of money. It's an investment and an enormous upside. So we don't consider that as a loss. We consider that as an investment.

Operator

[Operator Instructions] And our next question comes from the line of George Price of BB&T Capital Markets.

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

If -- Kevin, you noted the -- you had a debooking in the quarter, driven, I think you said, by MRAP and the change of requirements there. That was pretty sizable. Can you specifically quantify that? And was that the sole driver? Was there anything else involved in that?

Kevin M. Phillips

We have some leakage we usually have on backlog, but it is pretty much the sole driver. It reflects the reductions in scope of work, this manpower reduction against overall contract value that we had obtained in last year. So it's between $500 million to $600 million related to those scope changes by the customer.

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

Okay. And what's the -- I guess, how would you kind of look at it in terms of risk of additional debooking, I mean, what's -- how comfortable are you on the assumption that you have in there now, and will more have to come out?

Kevin M. Phillips

It's possible. We'll have to evaluate what other programs might work in it, but the OPTEMPO is for 2014. And again, with our customers, we'll be evaluating that every quarter to see how that vehicle will be used going forward.

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

Okay, okay. And I guess, if I just -- I'm not sure you'll be willing to take a stab at this question, but I'll ask it anyway. Do you, overall -- just given the puts and takes in the business, I mean, do you expect x any future acquisitions? But where you stand now, top line growth in '14 because, I guess, if I kind of start with a -- if we're going into '14, and I start with maybe a modest quarter-over-quarter positive progression, more typically seasonal -- or seasonally typical, I'm sorry, and even assuming some growth in the back half, it seems like there's a decent prospect for revenue being flat to modestly down even next year. I guess, what would you say to that?

Kevin M. Phillips

We have a very strong amount of proposal activity. 80% of the bids that we're expecting to come out and win over the next 4 quarters are new. I think a lot will be dependent on the timing of reductions in-theater opposing the good awards that we're having for new work, whether it's in cyber or core business, and we will have to see how that plays out.

George J. Pedersen

We continue to look very aggressively for acquisitions, but if you remember, our policy has been, we will not buy sales. We must get new technology, new customers, and it must be accretive. And we are -- and we have specifically assigned Lou the mission of finding those acquisition candidates and technology that meet that criteria. But we are being a little prudent in waiting to see what happens when we get the Appropriation Bill. We don't want a surprise that they zeroed out technology or something like that. But we are aggressively looking for acquisitions, and we'll continue to do so. We certainly have the cash flow to do that.

M. Stuart Davis

Nova, it appears that we have no further questions at this time. As usual, members of our senior team are available for follow-up questions. Thank you, all, for your participation on today's call and your interest in ManTech.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.

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