Cautionary Note Regarding Forward-Looking Statements



All statements and assumptions contained in this Quarterly Report on Form 10-Q
that do not relate to historical facts constitute "forward-looking statements."
These statements can be identified by the fact that they do not relate strictly
to historical or current facts. Forward-looking statements often include the use
of words such as "may," "will," "expect," "intend," "anticipate," "believe,"
"estimate," "plan" and words and terms of similar substance in connection with
discussions of future events, situations or financial performance. While these
statements represent our current expectations, no assurance can be given that
the results or events described in such statements will be achieved.

                                       17
--------------------------------------------------------------------------------

Forward-looking statements may include, among other things, statements with
respect to our financial condition, results of operations, prospects, business
strategies, competitive position, growth opportunities, and plans and objectives
of management. Such statements are subject to numerous assumptions, risks,
uncertainties and other factors, many of which are outside of our control, and
include, without limitations, the risks and uncertainties discussed in Item 1A
"Risk Factors" in Part I of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2021 and in Item 1A "Risk Factors" in Part II of this Form
10-Q.

Factors or risks that could cause our actual results to differ materially from the results we anticipate include, but are not limited to, the following:



•failure to maintain our relationship with the U.S. government, or the failure
to win new contract awards or to retain existing U.S. government contracts;
•inability to recruit and retain a sufficient number of employees with
specialized skill sets or necessary security clearances who are in great demand
and limited supply;
•adverse changes in U.S. government spending for programs we support, whether
due to changing mission priorities, socio-economic policies or federal budget
constraints generally;
•disruptions to our business resulting from the COVID-19 pandemic or other
similar global health epidemics, pandemics and/or other disease outbreaks;
•failure to compete effectively for awards procured through the competitive
bidding process, and the adverse impact of delays resulting from our
competitors' protests of new contracts that are awarded to us;
•disruptions to our business or damage to our reputation resulting from cyber
attacks and other security threats;
•failure to obtain option awards, task orders or funding under our contracts;
•the government renegotiating, modifying or terminating our contracts;
•failure to comply with, or adverse changes in, complex U.S. government laws and
procurement regulations;
•adverse results of U.S. government audits or other investigations of our
government contracts;
•failure to successfully integrate acquired companies or businesses into our
operations or to realize any accretive or synergistic effects from such
acquisitions;
•failure to mitigate risks associated with conducting business internationally;
•adverse changes in business conditions that may cause our investments in
recorded goodwill to become impaired;
•the conditions to the closing of the proposed Merger may not be satisfied or
waived, and the proposed Merger may not be consummated within the expected time
period or at all;
•our business may suffer as a result of uncertainty surrounding the Merger, and
the proposed Merger may disrupt our current plans and operations or divert
management's attention from ongoing business operations;
•difficulties with our ability to retain and hire key personnel and maintain our
business relationships as a result of the proposed Merger may occur;
•we have incurred and expect to continue to incur significant costs in
connection with the Merger, some of which are payable by us regardless of
whether the Merger is completed;
•the occurrence of certain events, changes or other circumstances could, under
the terms of the Merger Agreement, give rise to termination of the Merger
Agreement;
•stockholder litigation in connection with the Merger could affect the timing or
occurrence of the Merger and could result in significant costs; and
•if the Merger is completed, stockholders will forego realization of any
long-term value potential based on current strategy as an independent public
company.

We urge you not to place undue reliance on these forward-looking statements,
which speak only as of the date of this Quarterly Report. We undertake no
obligation to update any forward-looking statement made herein following the
date of this Quarterly Report, whether as a result of new information,
subsequent events or circumstances, changes in expectations or otherwise.

Overview



We provide mission-focused technology solutions and services for U.S. defense,
intelligence community and federal civilian agencies. We excel in full-spectrum
cyber, secure mission & enterprise IT, advanced data analytics, software and
systems development, intelligent systems engineering, intelligence mission
support and mission operations.

We are continuing to monitor impacts of the global outbreak of the COVID-19
pandemic including new variants of the virus, specific impacts and mitigation
protocols enacted in regions in which we operate, and the vaccination status of
our employees. In preparation of the President's Executive Order requiring all
federal employees and contractors supporting the federal government be
vaccinated (or to have an approved accommodation) as well as to promote the
well-being of our workforce, we have and continue to encourage our employees to
get vaccinated. There is currently an injunction suspending the President's
executive order requiring vaccination of our workforce. We cannot predict the
potential impact of the
                                       18
--------------------------------------------------------------------------------

vaccination mandate, if enforced, or the overall evolution of the pandemic and its further impacts on the economy or our business.



The U.S. is currently experiencing the highest inflation in 40 years. In
response to the increasing inflation rates, the Federal Reserve has begun, and
is signaling the intent to continue through 2022, increasing interest rates.
Increasing interest rates will increase the amounts of interest we pay on our
outstanding debt.

We recommend that you read this discussion and analysis in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, previously filed with the Securities and Exchange Commission.

Proposed Merger



On May 13, 2022 the Company entered into the Merger Agreement with Parent and
Merger Sub. Pursuant to the Merger Agreement, and in accordance with the terms
and subject to the conditions thereof, Merger Sub will merge with and into the
Company, with the Company surviving the Merger as a wholly owned subsidiary of
Parent. As a result of the Merger, the Company will be acquired by the Parent,
which will be controlled by investment funds managed by The Carlyle Group Inc.
The consummation of the Merger is subject to the satisfaction or waiver of
customary closing conditions specified in the Merger Agreement. Refer to Note 3,
Proposed Merger, in the notes to the financial statements in this Form 10-Q.

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021



The following table sets forth certain items from our condensed consolidated
statements of income and the relative percentage that certain items of expenses
and earnings bear to revenue, as well as the period-to-period change from
June 30, 2021 to June 30, 2022.

                                                                Three months ended
                                                                     June 30,                                                  Period-to-Period Change
                                         2022               2021               2022                 2021                             2021 to 2022
                                                 Dollars                               Percentage                          Dollars                 Percentage
                                                                                        (dollars in thousands)
REVENUE                              $ 669,352          $ 648,578               100.0  %              100.0  %       $         20,774                      3.2  %
Cost of services                       573,373            552,868                85.7  %               85.2  %                 20,505                      3.7  %
General and administrative expenses     61,054             47,048                 9.1  %                7.3  %                 14,006                     29.8  %
OPERATING INCOME                        34,925             48,662                 5.2  %                7.5  %                (13,737)                   (28.2) %
Interest expense                        (2,033)              (366)                0.3  %                0.1  %                  1,667                    455.5  %
Interest income                             46                 39                   -  %                  -  %                      7                     17.9  %
Other (expense), net                       (11)               (12)                  -  %                  -  %                     (1)                    (8.3) %
INCOME FROM OPERATIONS BEFORE INCOME
TAXES AND EQUITY METHOD INVESTMENTS     32,927             48,323                 4.9  %                7.4  %                (15,396)                   (31.9) %
Provision for income taxes             (10,090)           (11,714)                1.5  %                1.8  %                 (1,624)                   (13.9) %
NET INCOME                           $  22,837          $  36,609                 3.4  %                5.6  %       $        (13,772)                   (37.6) %



Revenue

The primary drivers of our increase in revenue relates to revenue from recent
acquisitions, new contract awards and growth on certain existing contracts. This
increase was offset by contracts and tasks that ended and reduced scope of work
on some contracts, including contracts with variable material purchase
requirements.

Cost of services



The increase in cost of services was primarily due to increases in revenue. As a
percentage of revenue, direct labor costs were 50% and 49% for the three months
ended June 30, 2022 and 2021, respectively. As a percentage of revenue, other
direct costs, which include subcontractors and third party equipment and
materials used in the performance of our contracts, was 35% and 36% for the
three months ended June 30, 2022 and 2021, respectively. Profitability is
relatively flat due to lower program profits and higher benefit costs.
                                       19
--------------------------------------------------------------------------------

General and administrative expenses



The increase in general and administrative expenses was primarily due to
additional legal and transaction fees incurred in relation to our Merger
Agreement of $6.9 million as well as higher amortization expense associated with
intangibles from our recent acquisitions. As a percentage of revenue, general
and administrative expenses increased for the three months ended June 30, 2022
as compared to the same period in 2021.

Interest expense

The increase in interest expense was due to interest on borrowing associated with the acquisitions of Gryphon and TMAC.

Provision for income taxes



Our effective tax rate is affected by recurring items, such as the relative
amount of income we earn in various taxing jurisdictions and their tax rates. It
is also affected by discrete items that may occur in any given year, but are not
consistent from year-to-year. Our effective income tax rate was 31% and 24% for
the three months ended June 30, 2022 and 2021, respectively. The increase in the
effective tax rate is primarily due to market fluctuations in the executive
deferred compensation plan, lower stock option exercises when compared to the
previous period and limits on the deductibility of transaction fees incurred
with our Merger Agreement.

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021



The following table sets forth certain items from our condensed consolidated
statements of income and the relative percentage that certain items of expenses
and earnings bear to revenue, as well as the period-to-period change from
June 30, 2021 to June 30, 2022.

                                                                   Six months ended
                                                                       June 30,                                                    Period-to-Period Change
                                          2022                 2021                2022                 2021                             2021 to 2022
                                                   Dollars                                 Percentage                          Dollars                 Percentage
                                                                                          (dollars in thousands)
REVENUE                              $ 1,344,897          $ 1,281,802               100.0  %              100.0  %       $         63,095                      4.9  %
Cost of services                       1,149,344            1,095,585                85.5  %               85.5  %                 53,759                      4.9  %
General and administrative expenses      116,790               95,134                 8.7  %                7.4  %                 21,656                     22.8  %
OPERATING INCOME                          78,763               91,083                 5.8  %                7.1  %                (12,320)                   (13.5) %
Interest expense                          (4,275)                (720)                0.3  %                0.1  %                  3,555                    493.8  %
Interest income                               99                   79                   -  %                  -  %                     20                     25.3  %
Other income (expense), net                  101                 (133)                  -  %                  -  %                    234                    175.9  %
INCOME FROM OPERATIONS BEFORE INCOME
TAXES AND EQUITY METHOD INVESTMENTS       74,688               90,309                 5.5  %                7.0  %                (15,621)                   (17.3) %
Provision for income taxes               (20,510)             (21,371)                1.5  %                1.6  %                   (861)                    (4.0) %
Equity in losses of unconsolidated
subsidiaries                                   -                   (1)                  -  %                  -  %                     (1)                  (100.0) %
NET INCOME                           $    54,178          $    68,937                 4.0  %                5.4  %       $        (14,759)                   (21.4) %



Revenue

The primary drivers of our increase in revenues relates revenue from recent
acquisitions, new contract awards and growth on certain existing contracts. This
increase was offset by contracts and tasks that ended and reduced scope of work
on some contracts, including contracts with variable material purchase
requirements. We expect revenue to increase in the remainder of 2022 due to our
recent acquisitions as well as new contracts and growth on existing programs.

                                       20
--------------------------------------------------------------------------------

Cost of services



The increase in cost of services was primarily due to increases in revenue. As a
percentage of revenue, direct labor costs were 51% for the six months ended
June 30, 2022 and 2021. As a percentage of revenue, other direct costs, which
include subcontractors and third party equipment and materials used in the
performance of our contracts, was 35% for the six months ended June 30, 2022 and
2021. We expect cost of services as a percentage of revenue to decrease slightly
for the remainder of 2022.

General and administrative expenses



The increase in general and administrative expenses was primarily due additional
legal and transaction fees incurred in relation to our Merger Agreement of
$7.3 million as well as higher amortization expense associated with intangibles
from our recent acquisitions. As a percentage of revenue, general and
administrative expenses increase for the six months ended June 30, 2022 as
compared to the same period in 2021. Whether successful or not, we expect to
incur additional expense in relation to the proposed Merger. We expect the
merger to be completed in the second half of 2022.

Interest expense



The increase in interest expense was due to interest on borrowing associated
with the acquisitions of Gryphon and TMAC. We expect interest expense may
increase in the short term as interest rates rise, but to decrease later in 2022
as we expect to reduce our outstanding loan balances.

Provision for income taxes



Our effective tax rate is affected by recurring items, such as the relative
amount of income we earn in various taxing jurisdictions and their tax rates. It
is also affected by discrete items that may occur in any given year, but are not
consistent from year-to-year. Our effective income tax rate was 27% and 24% for
the six months ended June 30, 2022 and 2021, respectively. The increase in the
effective tax rate is market fluctuations in the executive deferred compensation
plan, lower stock option exercises when compared to the previous period and
limits on the deductibility of transaction fees incurred with our Merger
Agreement.

Backlog



At June 30, 2022 and December 31, 2021, our backlog was $10.4 billion and $10.6
billion, respectively. Our funded backlog was $1.7 billion and $1.6 billion as
of June 30, 2022 and December 31, 2021, respectively. Backlog represents
estimates that we calculate on a consistent basis. For additional information on
how we compute backlog, see the disclosure under the caption "Backlog,"
contained in "Item 1. Business" of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2021.

Liquidity and Capital Resources



Our primary sources of liquidity are cash provided by operations and our credit
facilities. On June 30, 2022, our cash and cash equivalents balance was $46.8
million. There was $300.0 million outstanding under our credit facilities at
June 30, 2022. As of June 30, 2022, we were contingently liable under letters of
credit totaling $3.0 million, which reduces our availability to borrow under our
credit facilities. The maximum available borrowings under our credit facilities
at June 30, 2022 were $797.0 million. These sources of liquidity have met the
short-term and long-term liquidity needs for financing of acquisitions, working
capital, payment under our cash dividend program and capital expenditures.

Cash provided by operating activities has been adequate to fund our operations,
including payments under our regular cash dividend program. When there are
short-term fluctuations in our cash flows and level of operations, we may from
time-to-time increase borrowings under our credit facilities to meet cash
demands.

Cash Flows From (Used In) Operating Activities



Our operating cash flow is primarily affected by our ability to invoice and
collect from our customers in a timely manner, our ability to manage our vendor
payments and the overall profitability of our contracts. We bill most of our
customers monthly after services are rendered. Our accounts receivable days
sales outstanding were 69 and 64 for the six months ended June 30, 2022 and
2021, respectively. Our net cash flow from operating activities was $43.9
million and $66.5 million for the six months ended June 30, 2022 and June 30,
2021, respectively. The decrease in net cash flow from operating activities over
the
                                       21
--------------------------------------------------------------------------------

comparative period was primarily related to the timing of payments to vendors,
an increase in estimated tax payments related to the capitalization of Section
174 expenses, and a decrease in net income, offset by the timing of customer
collections. Beginning in 2022, the Tax Cuts and Jobs Act of 2017 requires
expenses that meet the definition under Section 174 of the Internal Revenue Code
to be deferred over 5 years. Absent a repeal of this provision in the tax code,
we expect amounts paid for income taxes to be increased by approximately
$20 million in 2022.

Cash Flows From (Used In) Investing Activities



Our cash used in investing activities consists primarily of business
combinations, purchases of property and equipment and investments in capital
software. For the six months ended June 30, 2022 our net cash used in investing
activities was $18.4 million, which was due to the purchase of equipment to
support managed IT service contracts and infrastructure investment, partially
offset by proceeds from our corporate owned life insurance. For the six months
ended June 30, 2021 our net cash used in investing activities was $30.9 million,
which was due to the purchase of equipment to support managed IT service
contracts.

Cash Flows From (Used in) Financing Activities



For the six months ended June 30, 2022, our net cash used in financing
activities was $32.1 million, which was primarily due to dividends paid. For the
six months ended June 30, 2021, our net cash used in financing activities was
$11.9 million, which was primarily the result of our dividend payments, offset
by net borrowings under our credit facility.

Credit Facilities



On July 20, 2021, we amended and restated our credit agreement with a syndicate
of lenders led by Bank of America, N.A., as sole administrative agent. The Third
Amended and Restated Credit Agreement includes an aggregate principal amount of
up to $1.1 billion made available through (i) a $500 million revolving credit
facility with a $100 million letter of credit sublimit and a $50 million swing
line loan sublimit and (ii) a $600 million delayed-draw term loan facility.
Under the delayed-draw term loan facility, borrowings are available to be drawn
prior to the first anniversary of the Third Amended and Restated Credit
Agreement in up to three separate drawings in a minimal amount of $50 million.
The Third Amended and Restated Credit Agreement also includes an accordion
feature that permits us to arrange with the lenders for the provision of
additional commitments. The maturity date of the Third Amended and Restated
Credit Agreement is July 20, 2026.

Borrowings under the Third Amended and Restated Credit Agreement are
collateralized by substantially all of our assets and those of our Material
Subsidiaries and bear interest at one of the following variable rates as
selected by us at the time of borrowing: a London Interbank Offer Rate base rate
plus market-rate spreads (1.25% to 2.00% based on our consolidated total
leverage ratio) or Bank of America's base rate plus market spreads (0.25% to
1.00% based on our consolidated total leverage ratio).

There was $300.0 million outstanding on our credit facilities at June 30, 2022.
As of and during the six months ended June 30, 2022, we were in compliance with
the covenants under the Third Amended and Restated Credit Agreement.

Capital Resources



We believe the capital resources available to us from cash on hand, our capacity
under our credit facilities, and cash from our operations are adequate to fund
our anticipated cash requirements for at least the next year. We anticipate
financing our internal and external growth through cash from operating
activities, borrowings under our credit facilities and issuance of equity.

Cash Management



To the extent possible, we invest our available cash in short-term, investment
grade securities in accordance with our investment policy. Under our investment
policy, we manage our investments in accordance with the priorities of
maintaining the safety of our principal, maintaining the liquidity of our
investments, maximizing the yield on our investments and investing our cash to
the fullest extent possible. Our investment policy provides that no investment
security can have a final maturity that exceeds six months and that the weighted
average maturity of the portfolio cannot exceed 60 days. Cash and cash
equivalents include cash on hand, amounts due from banks and short-term
investments with maturity dates of three months or less at the date of purchase.

                                       22
--------------------------------------------------------------------------------

Dividend

During the six months ended June 30, 2022 and 2021, we declared and paid a quarterly dividend in the amount of $0.41 per share and $0.38 per share, respectively, on both classes of our common stock. We will not be declaring a dividend in the third quarter.

Critical Accounting Estimates



The discussion and analysis of our financial condition and results of operations
are based on our condensed consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles
(GAAP). The preparation of these condensed consolidated financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expenses. Actual results may differ
from these estimates under different assumptions or conditions. Our critical
accounting estimates are set forth under the caption "Critical Accounting
Estimates" in Item 7 of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021, previously filed with the SEC. There have been no material
changes to our critical accounting estimates from those discussed in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2021.

Recently Adopted Accounting Standards Updates

Accounting Standards Updates that became effective during the six months ended June 30, 2022 did not have a material impact on our condensed consolidated financial statements.

Recently Issued But Not Yet Adopted ASUs

ASUs effective after June 30, 2022 are not expected to have a material effect on our condensed consolidated financial statements.

© Edgar Online, source Glimpses