ManTech International Corporation (MANT) Q3 2018 Earnings Conference Call Transcript

ManTech International Corporation (MANT)
Q3 2018 Earnings Conference Call
Nov. 1, 2018, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and Gentlemen: good afternoon and welcome to the ManTech third quarter fiscal year 2018 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press * then 0 on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Steven Rather, Executive Director, Corporate Development.

Steven Vather -- Executive Director, Corporate Development

Welcome, everyone. Thanks for participating in ManTech's third quarter call. On today's call, we have Kevin Phillips, President and CEO, Judy Bjornaas, Executive Vice President, CFO. As well as Matt Tait and Rick Wagner, our two Group Presidents. During this call, we'll make statements that do not address historical facts and those are forward-looking statements, a 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 titled "Risk Factors" in our latest form 10K and our other SEC filings. We undertake no obligation to update any of the forward-looking statements made on this call. With that, I would like to turn the call over to Kevin.

Kevin Phillips -- President and Chief Executive Officer

Good afternoon, everyone. I'm pleased with the solid financial performance in the quarter. We reaffirmed our position as the industry's leading growth company by delivering another quarter of consistent, organic revenue growth. Additionally, we improved operating margins, grew net income and earnings per share, as well as generated healthy cash flows. Our employees are fundamental to ManTech's continued success, so I want to take a moment to thank them for their dedication and support of our customers and their critical missions.

Let me offer some thoughts about the broader market. I have said this before but I want to reemphasize that we are operating in a strong market environment. For the first time in ten years, a defense appropriations bill was enacted on time. Additionally, the FY19 appropriations call for 674 billion in defense, which represents continued budget growth at a 3% increase over FY18. While most of the federal government is operating under full-year appropriations, there are a number of federal civilian agencies, including the departments of homeland security and state that are under continuing resolution throughout at least early December.

Overall, our customers have solid visibility into the 2019 funding levels and we'll have sufficient time to spend against our mission requirements. As we look to 2020, the administration is beginning its cycle of reviewing its prior DOD budget estimates. We as a company remain solidly positioned to provide our capabilities in innovative solutions to meet the critical needs of our customers. Cyber has received renewed focus within the administration. In September, the president unveiled a revised national cyber strategy and the Department of Defense issued its updated cyber strategy as well. These strategies underscore the importance of the cyber domain and articulate the nation's posture and operational policy.

Furthermore, the FY19 National Defense Authorization Act affirms the authorities provided to the executive branch, particularly the Department of Defense, to conduct military operations in cyberspace. ManTech will continue to be a key player in providing differentiated full spectrum cyber solutions supporting this important domain. We are committed to delivering best in class solutions for our customers. Our employees are integral to bringing them the thought leadership in innovative solutions they need. In the quarter, we expanded our partnership with Purdue University Global, unveiling a new Bachelors of Science degree program in cloud computing for ManTech employees.

This degree is yet another example of how we are committed to the continuing development and education of our employees as well as ensuring our employees are well equipped to address the evolving technology needs of our customers. On the business development front, in the quarter we saw $1.1 billion of contract awards resulting in a book to bill ratio of 2.2 times. In Q3, 73% of the awards represented new work for ManTech. Our largest contract award in the quarter was the continuous diagnostics and mitigation contract. While new, it will only provide for incremental growth given our incumbency on the predecessor phase of this overall program. Strong bookings drove total backlog up 7% to 8.3 billion and our funded backlog spent at 1.3 billion.

Given the number of contract awards this year, we are dedicating time and resources to ensure solid program execution across our business. We recognize the importance of exceptional customer satisfaction and mission success. As we discussed on our last call, some of the large contract awards we have received this year will see a gradual ramp up over the next year. At quarter end, we had $3 billion in proposals outstanding, which is down from prior quarter. In Q3, we experienced significant contract award volume but a lighter volume of proposals of missions. To help quantifying in the quarter, the government adjudicated nearly double the volume compared to Q1 and Q2. However, the amount of proposals that were submitted in Q3 was about a quarter of the first half of 2018.

Additionally, of the award decisions made in Q3, we were less successful in larger new contract takeaways than in prior quarters. We remain confident in our competitive positioning and our ability to win our fair share, which has been demonstrated by the volume of contract awards won year to date and over the last few years. Additionally, we have a strong pipeline, which remains steady at over $20 billion leading into 2019. In the fourth quarter, we anticipate an inversion of what we experienced in Q3 as we expect to see a higher level of proposal activity but adjudications will likely be moderate.

We expect to submit about $10 billion in proposals for the full year, which represents an increase of nearly 45% from 2017. Based on the visibility that we are afforded today, we are predicting a similar proposal activity for next year. In total, we have built strong foundations that position the company for continued growth in 2019. We remain steadfast on enhancing ManTech's strong competitive position to capitalize on the robust market opportunity over both the short and long-term.

On a separate note, I am pleased to announce that we promoted Yvonne Vervaet to Senior Vice President of Growth and Capabilities. As we continue to position the business, we are enhancing our leadership in response to the strong market and increased demand for technology in all aspects of national and homeland security. Yvonne will be responsible for setting the company's growth strategy by aligning business methods, capabilities, and enabling technologies to our business opportunity pipeline. Now, I will turn it over to Judy to discuss the details and specifics of our financial performance and outlook.

Judy Bjornaas -- Executive Vice President and Chief Financial Officer

Thanks, Kevin. The financial results in the quarter surpassed our expectations. Revenue for the third quarter was $497 million up 18% compared to the third quarter of 2017. Over half of our revenue growth in the quarter was organic. Direct labor continued to show strong growth up 14% year-over-year and we also experienced increased material procurements driven by customer requirements. For the quarter, prime contracts represented 89% of the revenues. Contract mix was approximately 68% cost plus 22% fixed price and 10% time and materials. Operating income for the quarter of $29.4 million was up 27% from the third quarter of 2017. The quarterly operating margin was 5.9% and came in slightly above our expectations.

We achieved our highest quarterly earnings in five years. Net income was $21.9 million and diluted earnings per share was $0.55 for the quarter, up 44% and 41% year-over-year respectively. These increases were driven by our revenue growth, improved margins, and a lower effective tax rate. Now onto the balance sheet and cash flow statement. our balance sheet at the quarter end showed $15 million in cash and no debt. During the quarter, we generated $59 million of cash from operations or 2.7 times net income. DSO was 67 days for the quarter, a one-day improvement both sequentially and year-over-year. The board has authorized us to maintain our current quarterly dividend level of $0.25 per share to be paid on December 21st, 2018.

Now onto our revised 2018 outlook. Based on our performance to date, we are raising and narrowing the range of revenue compared to what we previously communicated. We are now calling for revenues of $1.94-1.96 billion, which represents 13-14% growth compared to 2017. We have very high visibility and minimal recompete risk for the balance of 2018. However, achieving the higher end of the revenue range will be contingent on the timing and pace of material procurement as well as the ramp-up of our recent and any new contract awards. We are maintaining our previously communicated operating margin guidance for the year, up 5.7-5.8%.

At the bottom-line, we expect net income between $81.7 million to $83.3 million, a diluted earnings per share of $2.05 to $2.09. We still expect capital expenditures to be around 2% of revenue and related depreciation and amortization to be around 3% for 2018. Our cash flow from operations estimate remains between 1.2-1.5 times net income for the full year. Built into our guidance are full year effective tax rate of 25.2% and a fully diluted share count of 39.9 million shares.

Before I turn it over to Matt, I wanted to provide a quick preview of our potential 2019 financial performance. Consistent with our normal practice, we will provide full 2019 guidance on our Q4 2018 earnings call in February. The visibility we have today suggests that we should be able to sustain mid to upper single-digit organic revenue growth into 2019. We will continue to balance incremental margin improvement with a target of 10-15 basis points while focusing on long-term growth of the business. Now Matt will speak to our defense and federal civilian business.

Matt Tait -- President of Solutions and Services Group

Thanks, Judy. I want to begin by taking a moment to highlight the innovation and technical thought leadership happening in one of our key programs today for an important federal civilian customer. On this contract, ManTech is working to consolidate multiple disparate mission-critical on-premise legacy systems into a single, unified platform. Our team is using agile development, DevOps methodologies, and open source tools to rebuild the components of these systems into the cloud securely, ultimately creating a suite of modernized and integrated applications.

We are helping drive the transformation of the customers' IT environment and business processes through leveraging best in class technologies all the while ensuring their ability to seamlessly execute their mission. We are excited to leverage this success among many others across ManTech's customer base. Let me quickly touch on some business development successes in the quarter. ManTech added another important IDIQ vehicle to our portfolio. We were awarded a prime position on the Department of Defense Information Analysis Center Multiple Award Contract also known as IACMAC.

This nine-year vehicle with a $28 billion ceiling is used across the Department of Defense to procure a range of research and development and engineering services. Additionally, ManTech won another new contract supporting the Navy aviation modernization effort. This recent contract award is a four-year $45 million contract with a naval air systems command to support the modernization of systems and sensors on the Hawk-Eye and Greyhound platforms. Rick, over to you.

Rick Wagner -- President of Mission, Cyber & Intelligence Solutions

Thanks, Matt. I am pleased to report that MCIF had another great quarter. We continue to reap the rewards of our strategic investments and had success in winning both new work and recompetes. In the quarter, we successfully cleared the protest of our $669 million six-year continuous diagnostics and mitigation award for the next phase of the program called Defend. ManTech has supported the CDM program since its inception through work covering 65 agencies on phases one and two of the program. This new award represents a natural progression of the program and under this contract, we will support DHS and nine federal civilian agencies by strengthening their cybersecurity posture and improving their ability to rapidly respond to cyber threats.

CDM Defend expands capabilities that the overall CDM program to include cybersecurity coverage for cloud and mobile devices, automated incident response, enhanced data protection, and the improved user management. In addition to the CDM win, we were rewarded a 10-year, $158 million contract with the Air Force to continue providing full spectrum security solutions. I am pleased with the opportunity to continue supporting this important Air Force customer. Given our strong position on current contracts, our recent wins, and our growing pipeline, we remain well positioned to meet the increasing customer demand, particularly in the areas of cyber, full spectrum security, and IT modernization.

Lastly, I am pleased to announce that we brought a new executive into the company this quarter, Adam Rudo. Adam came to us from General Dynamics and will lead our security solutions business unit. Adam's long-standing experience with the intelligence community customers and programs will be a great asset in driving growth. In summary, we remain optimistic about the market environment and believe we are well positioned for continued growth. Given our steadfast investments in continuing employee development and education, our recent leadership promotions and our focus on recruiting strong talent, we believe ManTech is an employer of choice for professionals seeking to support national and homeland security missions. With that, we are ready to take your questions.

Questions and Answers:

Operator

Thank you. And ladies and gentlemen, if you have a question at this time, just press * and the number 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, press the # key. Our first question comes from Edward Caso with Wells Fargo.

Edward Caso -- Wells Fargo -- Analyst

Good evening, congratulations. Could you talk a little bit more about what's happening in homeland security and state? How important are those clients to the overall ManTech profile and are you seeing them change any behavior? Obviously, the CR number they're working with this year is a lot higher than it was last year so are you seeing any hesitation at this point?

Matt Tait -- President of Solutions and Services Group

First of all, thanks for the question, good evening, and good to hear your voice again. On the DHS and department state, we are still seeing strong demand for the types of services that we are looking to provide for both of those clients. Being in at CR is not really affecting us in those markets.

Edward Caso -- Wells Fargo -- Analyst

Great. And the organic growth rate in the quarter was what?

Judy Bjornaas -- Executive Vice President and Chief Financial Officer

It was a little bit more than half of our total 18% growth.

Operator

Thank you. Our next question comes from Gautam Khanna with Cowen and Company.

Gautam Khanna -- Cowen and Company -- Analyst

Thanks. I was wondering if you could give us a little more color on the margin expansion potential next year and where do you expect it to come from? Is there going to be any significant change in contract mix given the recent bookings, I'm talking cost plus T&M fixed price? Or is this just more volume leverage on the fixed cost base?

Judy Bjornaas -- Executive Vice President and Chief Financial Officer

Hey, Gautam. I think it's -- we're still targeting kind of that 10-15% basis improvement. We are not seeing a significant shift in our contract mix. In fact, this year it's actually crept up a little bit each quarter and we've still been able to deliver expanded margins on top of that. I think it's gonna be leveraging on the fixed price in T&M. We're seeing a little bit more of a shift in the proposals but nothing significant and it's gonna be a long time to see a major shift in the mix to drive margins beyond that kind of 10 basis point.

Kevin Phillips -- President and Chief Executive Officer

Your customers are looking for outcome spaced options but the requirements are a little bit difficult to work through so I think the desire is there but it's a difficult process to transition to that type of procurement.

Gautam Khanna -- Cowen and Company -- Analyst

Maybe you could just comment a little bit about any lessons learned or if there was any common theme to some of the larger procurements you're pursuing that were adjudicated to someone else's table? Is there anything common?

Kevin Phillips -- President and Chief Executive Officer

There's no common theme around that. We've been going after some very large bids the whole roll for '18 and '19 is to get in the position, as we've talked about, to have the capabilities to pass performance and the offerings to go after large procurements. And we've been very aggressive at that.

For last year and for the other part of this year have been very successful, for this one quarter we were less successful but I wouldn't say there's anyone indicator other than the timing of some of the big takeaways having a success. The answer is no, we're still on path for doing well. It's just a timing issue of when we win business and were less successful in these larger type plays.

Gautam Khanna -- Cowen and Company -- Analyst

Okay, the last one from me. If you could just comment on -- the balance sheet's obviously very strong. How is your M&A pipeline looking these days? Do you anticipate anything of consequence? Anything that maybe moves a needle over the next six to nine months in the M&A part doing getting done?

Kevin Phillips -- President and Chief Executive Officer

So the number of businesses that we've looked at this year year-to-date is less than the number that we've looked at last year and the year before. I do think that there are fewer businesses that have been in the market but some of the largest ones have been, which is taking the headlines. That said, the ones we find because we're fairly focused on what we're looking for in terms of opportunities we've been aggressive on. When we find the right opportunity but have not been successful I think it's just because of the overall pricing in the market.

So again, we're fairly disciplined in what we're going after. Disciplined on the pricing and I think there are a lot of good businesses out there, we're focused very heavily on when they come out and how to go after them but I really can't time when they come out. Or frankly, given the pricing that's been in the market, whether we would get to the right price to get the deal done. So we're gonna keep taking a stab at it. Still heavily focused on it. But we have to see how those two factors play out.

Operator

Thank you. Our next question is from Robert Spingarn with Credit Suisse.

Robert Spingarn -- Credit Suisse -- Analyst

Hi, good afternoon. Thanks very much. A couple of things. First, I wanted to ask you if we could parse out the DOD book in business a little bit. Perhaps by category O&M versus the other accounts like R&D, maybe per share? And is there any way to think about your percentage exposure to the various DOD accounts?

Kevin Phillips -- President and Chief Executive Officer

Most of our work is on the O&M side. We don't do much on -- I would say that some of the work in the procurement arena is driving up some requirements on the O&M work that we do. I can't give the specifics of that but I do see that there's an alignment based on submission needs that are very closely aligned. In the DOD arena, I'd say that a lot of the work that we see is potential. A lot of systems engineering work. A little bit of RODCA T&A work but potential for expansion in the balances in the O&M arena.

Robert Spingarn -- Credit Suisse -- Analyst

Okay. And then just from a service Air Force, Army, Navy perspective; is there a majority m

Matt Tait -- President of Solutions and Services Group

I don't think there's any one service that is kind of having a larger pull than any of the other ones. I think we see all the markets have very good potential for us as we're coming into FY19.

Robert Spingarn -- Credit Suisse -- Analyst

I know I ask about this with regularity but just Kevin, I wanted to understand better tied together with your backlog to your sales growth. I see you just commented next year we'll have some nice growth. And I do see that in the total backlog. The funded backlog's down year-on-year. What's the best way to think about -- what's the best metric to follow in order to more accurately model your forward growth? Because I'm thinking if I went with the funded backlog I'd get the opposite conclusion and that sounds like, again, we talked about this last time. There's a duration disconnect there so it's probably the wrong way to go.

Kevin Phillips -- President and Chief Executive Officer

It is very hard right now to do that and I fully understand that. The overall backlog increase represents our ability to win contracts, larger contracts. And generally within that though, the number of years that that contract term is for is longer. So what we're seeing is a little bit longer term for the contract toward we have all those contract awards are increasing.

Within that though, there's still mainly; one, your money that we're supporting and so those government customers are working to work within that one-year money to allocate it incrementally so that they can manage to and through that. That's pretty much how they have operated within the O&M side. So what you're seeing is more wins, longer term, increasing the overall backlog, longer certainty of a revenue stream, but still under annual funding restrictions.

Judy Bjornaas -- Executive Vice President and Chief Financial Officer

And I'll just add to that. We do have a number of customers who really -- they've got their budgets in place, they still like to fund on a two to three-month basis. So that is skewing the overall funded backlog and that behavior has not changed despite having better budget certainty.

Robert Spingarn -- Credit Suisse -- Analyst

So some of that's just intra-quarter because it's so short.

Judy Bjornaas -- Executive Vice President and Chief Financial Officer

Yes.

Robert Spingarn -- Credit Suisse -- Analyst

That's probably a big piece of it. And just while we're on the topic, anything major that sunsets next year?

Judy Bjornaas -- Executive Vice President and Chief Financial Officer

No.

Kevin Phillips -- President and Chief Executive Officer

Recompetes are below average next year.

Robert Spingarn -- Credit Suisse -- Analyst

Very helpful, thank you both.

Operator

Thank you. And our next question comes from Joseph DeNardi with Stifel.

Joseph DeNardi -- Stifel -- Analyst

Thank you very much. Kevin, you mentioned the adjudication volume in the quarter versus B&P and how that looks in the fourth quarter. Maybe I should be reading between the lines, and I can, but is there a message there that you are trying to send to us?

Kevin Phillips -- President and Chief Executive Officer

I know I can be confusing sometimes, even inside this business they tell me that. So anytime I say something incorrect or confusing let me know. Basically, the message is in Q3, the quarter we just ended, decision-making on what to award was high, the request for what they want, proposals this and that was low compared to the first half of the year.

That's reversing to where we have a heavy amount of proposals we're submitting in the fourth quarter but they have less they expect to award in the fourth quarter. So adjudications or the award volume may be lighter than average and the proposal volume might be at or above average for the first half of the year, not Q3. I hope that's better.

Joseph DeNardi -- Stifel -- Analyst

Got it. That makes sense. And then Kevin, I would imagine when you look at M&A you have to have a view on what the budget's gonna look like over the next few years. I 'm wondering if you could just share with us what your perspective is just given some of the recent commentary around spending in FY20?

Kevin Phillips -- President and Chief Executive Officer

A couple of things we know is the DFY18 appropriations for DOD -- and I'll focus there because the concentration we currently have went up 8%. FY19 appropriations -- again, the first time in ten years got approved on time, went up 3%. There's a lot of discussions about for FY20 a drop but the drop that is being discussed is against the requested amount. So if you look year-over-year, that overall amount would be a less than a 1% drop compared to the appropriations for FY19. So I would just caution about up or downward ranges against that backdrop.

Within that, our concentration in areas like cyber as an example. In FY19, the cyber budget went up 8%. We just see within the national defense strategy a focus in areas where we have the strength and where we have been committing to place ourselves strategically for several years. I think that the overall budget environment will be decent. It's been great. And we'll see what happens after that.

Joseph DeNardi -- Stifel -- Analyst

Thank you. It's helpful.

Operator

Thank you. Our next question comes from Brian Kinstlinger with Alliance Global.

Brian Kinstlinger -- Alliance Global -- Analyst

Hi, guys, thanks for taking my question. I'm curious of the -- as it relates to the GSA award -- 668 million. What percentage of that represents growth or expanded work?

Matt Tait -- President of Solutions and Services Group

That's an effort that we've been working for several years. Given that award, we expect a minor growth on that but it won't be significant growth over the work that we've been doing.

Brian Kinstlinger -- Alliance Global -- Analyst

Got it. And the 3 billion in proposals outstanding, can you roughly characterize what percentage of that is for new business versus recompetes?

Kevin Phillips -- President and Chief Executive Officer

It's heavily new. I mean again, the recompete mix for the next 12 months is below average.

Brian Kinstlinger -- Alliance Global -- Analyst

It looks like -- if I adjusted for the GSA award -- the awards from new or expanded business are down significantly in the first nine months of this year versus last year. So I'm wondering if when I take into context mid to high single digits for next year organic growth, to get to the midpoint of the high end of that, does that assume a couple of really large awards in the next six months or faster than expected ramps on your larger programs? How should we think about that?

Judy Bjornaas -- Executive Vice President and Chief Financial Officer

I think it's gonna be a combination of the timing of new awards and the ramping of them. The big billion dollar award that we had in Q2, it doesn't fully ramp until the next of next year so that's gonna add increased growth over the year. As Kevin mentioned, a lighter amount of recompete next year gives us a little more stability into the growth. And you know, we've had some other smaller task porters award in the Navy in the last quarter that will provide growth into next year.

Brian Kinstlinger -- Alliance Global -- Analyst

Understood. I guess lastly, with organic growth accelerated this year and still remaining elevated, it sounds like next year. Can you talk about the ease and/or challenges of staffing and recruiting given the low unemployment rate obviously for talented staff that has clearances in the industry?

Kevin Phillips -- President and Chief Executive Officer

It's multi-faceted but the clearance backlog is starting to improve on that side. There's recognition around that. I think that we've talked about that before. If you notice internally we have two degree programs we've created, one around cyber defense, one around cloud to train internal staff to retool them toward the technologies. And we have other similar programs we're working to develop.

And within the market, it is all about the type of work you do and the excitement around that. And we're very much focused on being able to track the talent. I would say that we've done a very good job this year of hiring people and positioning into the markets that we want to be in. That said, it is definitely a tight market and it is a day-to-day effort to try to fill the spots and we've been fairly successful so far.

Operator

Thank you. And our next question comes from Tobey Sommer with SunTrust.

Tobey Sommer -- SunTrust -- Analyst

Thanks. I'm curious, are there any changes to incentive compensation metrics or ratings that you're envisioning as you look out into 2019 to either take advantage of further revenue growth or margin expansion opportunities in the environment next year?

Kevin Phillips -- President and Chief Executive Officer

We've also bantered about what the mix of incentives is. At the executive level, we find that if we have a fairly even distribution between contract awards growth and returns in the bottom-line, make sure that on a continual basis they're all factored in very important in how we make decisions. So I don't see broadly major changes around that. Within that, within each organization, we are looking to figure out how to advance at the programmatic level incentives that are more targeted on say, bottom-line in some areas or broken areas. It very much depends on the market they're in and what objectives we want out of that component of the business.

Tobey Sommer -- SunTrust -- Analyst

But at this point, nothing discernable that would represent a change in aggregate for the firm?

Kevin Phillips -- President and Chief Executive Officer

No.

Tobey Sommer -- SunTrust -- Analyst

Okay. Where are we in the recompete process for the company's kind of book that had exposure to LPTA priced work? I know some of it has been rebid under best value but there's still probably a little bit more of that to go. Where are we and when do you think that will have run its course?

Kevin Phillips -- President and Chief Executive Officer

If you take an average contract life of what we had three or four years ago was somewhere between three and a half and five years. We're in year two in my view of moving away from an LPTA trend that we're basically halfway through the overall renewal and desire for each client to have higher end work and have more outcome spaced and best value awards.

Tobey Sommer -- SunTrust -- Analyst

Could you refresh me on the exposure to LPTA peak and maybe what proportion of that is best suited for an LPTA format versus being recompeted under best value in the current climate?

Kevin Phillips -- President and Chief Executive Officer

I can't say specifically what was LPTA. When the government has reduced cost because of the overall national debt, they did what they had to do and now they're looking for talent. And it's just a general approach to their procurement for almost everything they're looking for and we're focused generally on the higher end work and the more advanced systems usually the more national security needs are high. So I tend to think that they're gonna look for best value broadly no matter how they do the overall business when they select awards.

Tobey Sommer -- SunTrust -- Analyst

Okay. And then I'm curious, has anything revealed itself following tax reform such that you may have preliminary thoughts on tax rate being higher or lower as we look at it next year?

Judy Bjornaas -- Executive Vice President and Chief Financial Officer

No. I mean, we're still kind of assessing that. There's so much volatility now with some of the changes around stock options and things like that that it's hard to pinpoint on any particular quarter. We are seeing a little bit of an impact on some of the state tax rates that are driving up our potential effective tax rate a little bit. So we'll clearly give a little more color on that in our guidance for next year. But I don't see anything that right now is telling me we're gonna have a significant change.

Operator

Thank you. Our next question comes from Joseph Vafi with Loop Capital.

Joseph Vafi -- Loop Capital -- Analyst

Hey guys, good afternoon. Good results. Just a question on billing proposal on June as it stands now. The company continues to grow, execute well, good win rates and the like. Do you need to continue to invest more in the billing proposal engine or is it at a run rate now in terms of cost that you think that can sustain a good tempo of bids submitted to keep up with the excellent execution you've done so far on continuing to grow the business?

Rick Wagner -- President of Mission, Cyber & Intelligence Solutions

This is Rick. Given the funding environment we're in, we're investing in it and we've got a strong pipeline and strong adjudication. So we're just continuing to push forward.

Matt Tait -- President of Solutions and Services Group

I think that we've got the right sized team to go attack the market space that we're looking at. So I think we're feeling good as we move into '19 with the opportunities in front of us.

Joseph Vafi -- Loop Capital -- Analyst

Fair enough. And just kind of taking that and then taking out to a broader picture of the puts and takes of operating leverage in the business. Next year, if the current pace of growth continues and continue to have strong growth and perhaps modest tailwinds from higher end contract mix, perhaps a little less LPTA and the like. Just trying to get a feel for -- if the amount of operating leverage that we potentially see on the growth for next year, at least theoretically, it is more than perhaps we've seen this year on the strong growth that we've seen so far.

Kevin Phillips -- President and Chief Executive Officer

The cost-plus mix is gonna restrict how far that upside can go just because of the overall component of that and how it weighs through. I do think that there could be potential if more of the procurements go into an outcome spaced bid in the week and make sure we're managing it well, which is why we're focused on program execution right now.

So there is upside but we're very cautious about how that plays out given the overall environment and business mix of cost-plus contracts. In our segment of the industry, it really hasn't' shifted as much as it could if people really were gonna move to the outcome spaced in the manner that they want. So we have to follow that ship first before we have confidence in the ability to move significantly on the bottom-line.

Joseph Vafi -- Loop Capital -- Analyst

Okay. And then, I dived in a little late so hopefully, none of this was asked before. I know that the company's done pretty well on win rate on new business kind of through the earlier part of this year. and it's been pretty impressive. Did that win rate in new business get sustained here in Q3?

Kevin Phillips -- President and Chief Executive Officer

No, that win rate in new business was lower than the higher win rate that we had; it's more toward the average for new business this quarter.

Operator

Thank you. And we have a question from Joseph DeNardi from Stifel.

Joseph DeNardi -- Stifel -- Analyst

Thank you. Kevin, just one more on 2019 outlook. I wonder if you could just put that into context given the pretty strong bookings this quarter but also maybe fewer wins on some of the larger opportunities? Did the outlook for '19 get better or worse compared to three or six months ago for you guys?

Kevin Phillips -- President and Chief Executive Officer

We haven't messaged out year until just riding a little bit of year right now and I hesitate to say what would be better or less than. That every quarter we have to evaluate the overall pipeline timing of awards and how successful we are. I just think that we're in a good environment and we have a lot of proposals we're going after and depending on when they're awarded and how well we do in the market, we'll continue to update you on our overall outlook.

Steven Vather -- Executive Director, Corporate Development

It appears that we have no further questions at this time. 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 thank you for your interest in ManTech.

Operator

And ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful evening. You may now disconnect.

Duration: 41 minutes

Call participants:

Steven Vather -- Executive Director, Corporate Development

Kevin Phillips -- President and Chief Executive Officer

Judy Bjornaas -- Executive Vice President and Chief Financial Officer

Matt Tait -- President of Solutions and Services Group

Rick Wagner -- President of Mission, Cyber & Intelligence Solutions

Edward Caso -- Wells Fargo -- Analyst

Gautam Khanna -- Cowen and Company -- Analyst

Robert Spingarn -- Credit Suisse -- Analyst

Joseph DeNardi -- Stifel -- Analyst

Brian Kinstlinger -- Alliance Global -- Analyst

Tobey Sommer -- SunTrust -- Analyst

Joseph Vafi -- Loop Capital -- Analyst

More MANT analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.