ManTech International Corp. said yesterday that it had laid off 100 workers and will report an unexpected loss for the second quarter because "changing government policies" have stymied revenue for a division that conducts security clearance investigations for federal agencies. Its stock lost nearly a quarter of its value.
The Fairfax government contractor said it could no longer confirm earnings guidance for the quarter or the year.
The company offered few details, but spokesman Mark Root confirmed that the revenue shortfall and layoffs were related to the work its personal security investigations division performs for the Defense Department's Defense Security Service (DSS).
One of the largest customers for ManTech's security clearance investigations unit, the DSS was supposed to be absorbed by the Office of Personnel Management late last year, but the transfer has been delayed indefinitely because of problems with the Pentagon's backlogged clearance processes.
"Sadly and regrettably, we did have to lay some people off," Root said. "It was about 100 people out of more than 5,000 employees. It was an unfortunate action that we had to take due to the disruption in this part of our business."
Shares of ManTech fell $3.61, or 22 percent, yesterday to close at $12.63.
In April the company had told investors it anticipated reporting a profit between 32 cents and 34 cents a share for the quarter ended June 30. In May, ManTech lowered its second-quarter earnings projection to between 13 cents and 15 cents a share, saying it would get less revenue from an investigations contract than previously expected.
ManTech got into the clearance investigation business in February 2003, when it was jointly awarded a DSS contract worth up to $50 million with a Greenbelt company called MSM Security Services Inc. The following month, ManTech acquired MSM for $4.9 million.
The purchase initially appeared to be a rewarding one for ManTech. The unit won a Homeland Security Department contract worth $20 million in February of this year, and the company's executives said growth in the division contributed to increased earnings in 2003. But some analysts said the delay in transferring DSS's investigations to the Office of Personnel Management has made the acquisition less lucrative than predicted.
"One would guess that there has be some absorbed overhead related to the winding down of one [contract] and the delay of another," said Mark C. Jordan, analyst with A.G. Edwards and Sons Inc. who tracks the company. In recent months, he said shareholders may regret ManTech's entry into security clearance.
Requests for federal security clearances rose significantly after 9/11, and DSS has been unable to keep up with demand. The agency has a backlog of 360,000 clearance requests, according to February report by the General Accounting Office. The Office of Personnel Management has put off the transfer until the Pentagon can meet certain goals in preparing for the handover.
"There were a lot of things that didn't move as quickly as anticipated," said Pamela Salas, a technical adviser with the DSS.
In its May announcement, ManTech said its revenue for the quarter was expected to be between $197 million and $201 million, down from the $204 million to $208 million it projected in April. Yesterday the company said it was not able to confirm the revised figures or its guidance for fiscal 2004. ManTech said it would provide more details when its second-quarter earnings are released on Aug. 9.
"It hasn't gone right so far," Jordan of A.G. Edwards said of ManTech's acquisition of MSM. "The question is, Is there attractive follow-on business for the company, or do you call a close to a sad chapter?"