In the past, one of the fastest paths to success was being a government contractor. Yet even in an era where budget cuts have made the public sector a fickle customer, ManTech International (NASDAQ:MANT) has managed to sustain its prominent place as a provider of innovative technology toward national defense and security agencies in the U.S. government. With services that include data analysis systems for classified intelligence and cyberwarfare defense and security systems, ManTech still plays a key role. Still, coming into Wednesday afternoon's fourth-quarter financial report, ManTech investors wanted to see the company sustain its sales to the maximum extent possible, and unfortunately, ManTech's top-line results fell short of the mark. Let's look more closely at ManTech's results and why it thinks 2015 could be a better year.
ManTech's sales fall on reduced Afghanistan presence
ManTech International's problems mostly showed up in its revenue. Sales came in at just $411.4 million, down 16% from year-ago levels and well short of the $437 million that most investors expected ManTech to post for the quarter. Earnings came in at $0.39, matching the consensus figure among those following the stock, but that was still down year-over-year after adjusting for last year's big goodwill impairment charge.
ManTech blamed much of the sales declines on reduced needs from the Army's efforts in Afghanistan. The company saw its Overseas Contingency Operations support revenue plunge 70% from year-ago figures during the quarter, largely matching the two-thirds decline in full-year sales connected to the program. That also played a big role in ManTech's 2014 revenue drop of 23%.
Nevertheless, ManTech did the best it could with what revenue it could find. Operating margins improved to 5.8%, beating lower levels from earlier in the year. The company also touted better cash management and its healthy balance sheet.
ManTech executives tried to look at the results as a turning point for the company. As CEO George Pedersen noted, "[W]e invested heavily in 2014 -- in business development and research and development to drive new awards, in acquisitions to expand our presence in growing markets such as federal health care and homeland security, and in internal systems to generate efficiencies." By doing so, ManTech hopes to put itself in a better position to reap more success in the future.
Will ManTech prosper in 2015?
ManTech is also upbeat about its opportunities in the coming year. "2015 should bring improved financial success and growth," said Pedersen, citing $4.6 billion in proposals waiting for a final decision. With $361 million in contract awards during the quarter, ManTech sees even greater proposal activity in the coming year, and it expects to get more than its fair share of the increased awards as a result.
Still, ManTech investors won't necessarily think that the company set the bar high enough. Revenue guidance of $1.725 billion for 2015 is below the $1.8 billion that investors want to see, and while earnings per share guidance for $1.54 would be slightly ahead of the current consensus, it nevertheless reflects business that ManTech might not end up getting.
What ManTech does have going for it is a solid backlog of business. With a current figure of $3.3 billion, ManTech has almost two years' worth of projects to keep it going, including $800 million in funded backlog. That shouldn't stop the company from trying to fill out its project list going forward, but it does provide some cushion against any unexpected future problems.
ManTech investors didn't have a major immediate reaction to the news, with shares unchanged in the first hour of after-market trading following the announcement. In the long run, though, ManTech will have to convince its shareholders that it can make it through a tough government-spending environment and demonstrate its status as a provider of vital, mission-critical solutions that our nation needs for its own security.