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spk04: Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fiscal 2024 Third Quarter Conference Call. Today's call is being recorded. At this time, all lines are in a listen-only mode. Later, we will announce the opportunity for questions and instructions will be given at that time. If you should need any assistance during this call, please press star zero and someone will help you. At this time, I would like to turn the conference call over to George Price, Senior Vice President, Investor Relations. Please go ahead.
spk08: Thanks, Dennis, and good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI International. Thank you for joining us this morning. We are providing presentation slides, so let's move to slide two. There will be statements in this call that do not address historical fact and as such constitute forward-looking statements under current law. These statements reflect our views as of today and are subject to important factors that could cause our actual results to differ materially from anticipated. Those factors are listed at the bottom of last night's press release and are described in the company's SEC filings. Our safe harbor statement is included on this exhibit and should be incorporated as part of any transcript of this call. I would also like to point out that our presentation will include discussion of non-GAAP financial measures. These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Let's turn to slide three, please. To open our discussion this morning, here's John Mangucci, President and Chief Executive Officer of CACI International. John.
spk09: Thanks, George, and good morning, everyone. Thank you for joining us to discuss our third quarter fiscal year 24 results. With me this morning is Jeff McLaughlin, our Chief Financial Officer. Move to slide four, please. JCI delivered outstanding third quarter results across the board. We grew revenue by 11% with contributions from both expertise and technology programs. EBITDA margin 11.3% showed significant expansion from last year, consistent with our expectations of stronger margins in the second half. And we delivered healthy free cash flow of $102 million. In addition, our third quarter awards of $3.5 billion represents a 1.8 times book-to-bill for the quarter and drove trailing 12 months book-to-bill to 1.5 times. About half of our awards were for new works at CACI, and we continue to demonstrate excellent performance on our re-competes as well. Our third quarter results are well aligned with our value creation model. which focuses on long-term growth and free cash flow per share. As a result of our strong performance, we are again raising our full-year guidance. Slide five, please. Let me provide a few thoughts on the macro environment. Recent passage of the government fiscal year 24 budget and supplemental is a positive development and removes an element of uncertainty for our customers. Budget levels and growth are very consistent with what was laid out last year by the debt ceiling agreement, and the supplemental could provide funding that would support additional growth of our counter UAS technology. The proposed GFY 25 budget is also in line with expectations, and like most years, we expect we'll begin with a continuing resolution, which typically does not have a material impact on our business. One thing remains clear, national security and IT modernization remain key focus areas for our government. As we've said many times before, the world is a dangerous place, and we continue to see clear demand signals driven by world events. GCI continues to be strategically positioned in enduring and well-funded areas that align with our nation's most important priorities. Slide six, please. A number of years ago, we undertook a strategy to become a more focused, differentiated, and resilient company it was even better positioned to drive long-term growth in shareholder value. This strategy has five key elements. Focus on key enduring priorities for national security and IT modernization. Leverage software to rapidly address critical needs. Bid less, win more, and prioritize larger, longer-duration opportunities. Invest ahead of need to develop differentiated capabilities and deploy capital in a flexible and opportunistic manner. All of these elements are focused on driving long-term growth, particularly in free cash flow per share, which we believe is the ultimate metric for long-term shareholder value creation. Slide seven, please. Today, you can see the successful execution of our strategy manifest in several ways. First, we are well positioned in key national security and IT modernization priorities of the federal government with agile software development methodologies and software-based technologies. On the national security front, our capabilities in the electromagnetic spectrum are differentiated and in high demand. Every day, world events are demonstrating the increasing importance of signals collection, intelligence, geolocation, and electronic attack. Software enables us not only to provide these capabilities to our customers, but also to adapt and update these capabilities with speed and agility as adversaries change their tactics. On our U.S. Navy Spectral program, we are working with our customer to modify and enhance what will be delivered when, made possible by our open architecture and software approach, which allows for contemplated changes and requirements. We're beginning discussions with the Navy in an effort to consider reusing elements of Spectral as a baseline for other systems, because that's one way to provide fleet-wide capability upgrades when and wherever required. to keep pace with rapidly changing adversaries and technologies. In addition, we are building out our ability to deliver our technology to Five Eyes countries, to NATO countries, and other allies. We have already made deliveries to several of these countries. In fact, during the quarter, we received our first order from the Canadian government for our software-defined man-portable counter-OAS technology called BEAN. We are also providing our software-defined SIGINT technology to be mounted on OEM UAVs to assist in signal collection missions. On the IT modernization front, last quarter, we discussed how our capabilities are addressing increasing demand for network modernization. In addition, we are also winning in delivering on other IT modernization requirements. For example, this quarter, we won our re-compete of IT work supporting both UCOM and AFRICOM, enabling our customers' missions as they respond to an ever-increasing list of critical world events. IT modernization using our Agile software development and DevSecOps capabilities also recently helped the U.S. Marine Corps to achieve the first-ever clean financial audit for a branch of the military. This highly visible achievement adds to our strong record of past performance and enhances our ability to pursue additional modernization opportunities across the U.S. government. Slide 8, please. Second, we're continuing to enhance the long-term visibility of CACI's business through disciplined bidding on larger, longer-duration opportunities. As I mentioned, we had yet another fantastic quarter for awards, and I'm very pleased with our business development organization's performance. Our $3.5 billion of awards in the quarter had a healthy mix of re-competes, And in several cases, we were able to expand those contracts. On the IT work I mentioned earlier, this supports both UCOM and AFRICOM. We not only won our week for our re-compete, we nearly doubled the size of that contract to well over a billion dollars. Successes like this drove our third quarter backlog to record $28.6 billion, representing nearly four years of annualized revenue. The weighted average duration of awards that we've booked into backlog remains well above five years on a year-to-date basis. We continue to have a robust pipeline of new opportunities that allows us to be discriminating in the work we pursue. These wins and the delivery duration metrics provide visibility not only to support current year growth, but future year growth as well. By nine, please. Finally, we continue to invest ahead of need and deploy capital in a flexible and opportunistic manner. I previously mentioned our agile software development and software-defined capabilities in the electromagnetic spectrum, two examples that illustrate investing ahead of need, as well as our organic investments in our photonics business, to name just a few. You also may have seen we've made a few smaller acquisitions this year, both in the UK and here in the US. as our M&A pipeline continues to expand. During the third quarter, we closed the acquisition of Quadrant, a provider of digital application modernization, primarily for the intelligence community. Quadrant brings specific customer relationships and past performance in EIC that are additive to our business, consistent with our M&A strategy, and the acquisition is accretive in year one. Slide 10, please. Overall, I am very pleased with our strong performance. we are seeing accelerating growth as the larger awards we've won over the past few years continue to ramp. And we see on-contract growth in our existing portfolio. As a result, we are raising our full-year guidance, and Jeff will share the details with you shortly. In summary, we continue to successfully execute our strategy. Our investments ahead of need, differentiated capabilities, strong execution, and exceptional business development position CECI to drive top-line growth strong margins, and increasing free cash flow per share. With that, I'll turn the call over to John.
spk05: Thank you, John, and good morning, everyone. Please turn to slide 11. In the third quarter, we generated record revenue of over $1.9 billion, representing 11.1% growth, of which 10.2% was organic. The balance was generated by the three acquisitions we've made over the past 12 months. Third quarter EBITDA margin of 11.3% represents a sequential increase of 200 basis points, which is in line with our expectations and what we have communicated to you throughout the year. Adjusted diluted earnings per share of $5.74 were 17% higher than a year ago. Greater operating income along with a lower share count more than offset a higher income tax provision and higher interest expense. Third quarter operating cash flow, excluding our accounts receivable purchase facility, was $114 million, reflecting strong profitability and cash collections. We reported day sales outstanding, DSO, of 50 days as we continued to efficiently manage working capital. Free cash flow of $102 million for the quarter represents good sequential and year-over-year increases. Slide 12, please. The healthy long-term cash flow characteristics of our business, our modest leverage of two times net debt to trailing 12 months EBITDA, and our access to capital provide us with significant optionality. As John mentioned, we made an acquisition in the third quarter, and we remain well-positioned to deploy capital in a flexible and opportunistic manner to drive long-term growth and free cash flow per share and shareholder value. Slide 13, please. We're pleased to again raise our fiscal 24 guidance as a result of our strong business performance. We're raising our revenue guidance to between $7.5 billion and $7.6 billion. This represents growth of 11.9% to 13.4% for the year, with the organic component being 11.3% to 12.8%. We are also affirming our underlying EBITDA margin expectations in the high 10% range where we now expect to be about 10.7% for FY24. Recall that this margin guidance excludes the previously discussed $200 million of material sales in the first half of the year, which equates to approximately 30 basis points of impact to the full year margin. As a result of our stronger revenue outlook, we're narrowing and increasing our FY24 adjusted net income guidance accordingly, to be between $455 million and $465 million, with an intended increase in adjusted earnings per share to between $20.13 and $20.58 per share. And finally, we're maintaining our free cash flow guidance of at least $420 million. You will recall this assumes receipt of a $40 million tax refund related to prior year tax method changes. The IRS has accepted our treatment of the method change. The timing of the payment is entirely up to the IRS. In addition, our free cash outflow, cash flow outlook now assumes about $80 million in capital expenditures, down slightly from our prior expectation, as we're able to realize efficiencies in our capital spending. This is largely offset by slightly higher working capital usage from the higher revenue we expect at the end of the fiscal year. Please note that additional details of our updated guidance have been included in our presentation to assist you with your modeling. Slide 14, please. Turning to our forward indicators, our prospects continue to be strong. Our trailing 12-months book-to-bill ratio one and a half times reflects strong performance in the marketplace. Our record backlog of $29 billion increased over 13% from a year ago and represents just under four years of annual revenue. These metrics provide good long-term visibility into the strength of our business. For fiscal year 24, we now expect approximately 98% of our revenue to come from existing programs, with approximately 1% each from re-competes and new business. Progress on these metrics reflects our successful business development and operational performance and yields increased confidence in our expectations for the year. In terms of our pipeline, We have $11 billion of bids under evaluation, over 70% of which are for new business CACI. We expect to submit another $15 billion in bids over the next two quarters, with 90% of that for new business. Our ability to increase both of these metrics from last quarter, even while delivering a 1.8 times book-to-bill ratio, reflects the healthy demand, successful strategic positioning, differentiating capabilities, and disciplined bidding we have discussed. In summary, we delivered outstanding third quarter results. We continue to see good momentum in our business, and as a result, are raising our full-year guidance for the third time this year. We are winning and executing high-value, enduring work that supports long-term growth, increased free cash flow per share, and additional shareholder value. And with that, I'll turn the call back over to John.
spk09: Thank you, Jeff. Let's go to slide 15, please. In closing, I'm very pleased with our strong third quarter performance and our ability to again raise full year revenue and earnings guidance. At the start of this fiscal year and over the past several quarters, we have outlined our expectations of how and why our financial results would progress through the year. We discussed the fact that many of our larger technology awards would take time to ramp, and the timing of investments and deliveries would drive higher margins in the second half versus the first half. the stronger growth and increased profitability we've reported are entirely consistent with those expectations. We continue to successfully execute our strategy. It is a thoughtful and intentional strategy of focusing on current key enduring priorities, investing ahead of need, developing differentiating capabilities, and then deploying capital in a flexible and opportunistic manner. And it is a strategy that is driving higher visibility, long-term growth, increasing free cash flow per share and shareholder value. As is always the case, CACI success is driven by our employees' talent, innovative spirit, and commitment to customers' missions and to each other. I'm immensely proud to lead such a capable and dedicated group of people. To everyone on the CACI team, thank you for what you do each and every day for our company and our nation. And to our shareholders, I want to thank you for your continued support of CACI. With that done, let's open the call for questions.
spk04: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you were called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit yourselves to one question and one follow-up to allow sufficient time for all participants to submit their questions to our presenter panel. Your first question is from the line of Robert Springan with Melius Research. Please go ahead.
spk11: Hey, good morning. A very nice quarter, John and Jeff. And Jeff, I've got a question for you and then the follow-up for John. But Jeff, these margins in the quarter were quite strong and the implied margin for the fourth quarter as well. And while I know you aren't yet ready to talk about fiscal 25, for our modeling perspective, should we think of this underlying 10.7% margin as a good jumping-off point? Or should we be thinking about something in the low 11% range like you did in the third fiscal quarter?
spk05: Well, you're right. We're not ready to talk about 25. I think it's really probably more prudent to think about the year as a whole. We talk about the fact that we manage and guide to the year. The profile this year was such that we thought it was meaningful enough to give you some kind of first half, second half insight. But we really manage the business on an annual basis, and I would encourage you to think about it that way.
spk11: Let me try with this then, Jeff. At the very least, in the fixed price portion of your business, which I think is around 30%, I don't know if the backlog is at 30% as well, but does the roll-off of any stale pricing, in that fixed price business, at least give you some natural lift? And then, John, I have one for you.
spk05: Well, I think the premise of your question might be a little off. I don't think you can necessarily equate fixed price with high margins and cost type with low margins. We've talked before about the fact that we have some very good margins on some very high value added kind of cost type work. So I think you ought to, I'm going to go back to what I said a few minutes ago. I would encourage you to think about the business kind of in total.
spk11: This is John. What I was going to say, I'm sorry, John, go ahead. Jeff, what I was getting at was inflation. And so not so much whether margins and cost plus are higher or lower than fixed price, but just that the fixed price is, for a lot of companies in the backlog was priced pre-inflation. And as that rolls off, you can reprice at better rates. And does that provide some natural lift?
spk05: Yeah, I see. Inflation is not really a major factor for us. A lot, particularly in the fixed price work, a great deal of it is kind of quicker turn task orders. And we really maintain fairly current view of our cost structure. as we're pricing those. So that's not really a big driver for us as it may be for others.
spk09: Yeah, Rob, on our software-based technology deliveries, a lot of those come in and go out in the same quarter, right? So we're constantly, you know, some of that software-based tech. So we're always keeping up with things like supply chain issues, right? And we were spending a lot of time talking about that. as well as any type of inflationary cost, but we're always able to reprice those items in that part of our portfolio. Our larger technology programs that are fixed price, you know, even over a three to five year range, labor, you know, we're very We're probably industry leading at making sure we can get talent with the right skills at the right price and being able to manage that. And also bringing efficiency. So on those longer-term technology builds, we're constantly bringing in efficiencies. And since most are software-based, right, we're able to look for better and faster and cheaper ways to develop software, which then allow us to deliver the plan margin.
spk11: Okay. And then, John, just real quickly, the one I had for you, you did the two acquisitions. One was in the UK. You've had a presence in the UK all along, but are you looking to increase your international exposure, or was that just strictly a technology-driven acquisition?
spk09: Strictly technology-driven. I will tell you that, as I alluded to in my opening comments, on our Software-based technology side, we are looking at building ourselves out more broadly in the international front. We're probably in the second or third inning there. Really looking at most NATO countries, our Five-Eye countries we already delivered to today. Canada was the last one that we added to that list. So we're going to continue to expand our reach of our software-based technology into the international market. One, it allows us to drive our addressable market for that technology. And then second, it is where the largest threat is. And I'm sure we'll talk more about that during the rest of the call. So, Rob, thanks for your question.
spk11: Great. Thanks for the color.
spk04: Your next question is from the line of Bert Subin with Stiefel. Please go ahead.
spk03: Hey, good morning. So maybe just, you know, sticking with the margin theme, you saw a nice step up, you know, going from, you know, just from the first half to the third quarter. And I think part of that was investment related. Can you just walk us through what specific photonics related investments moderated in the quarter to help push margins higher? And what's your general view on the lumpiness of margins on a go-forward basis? Do you think the cadence throughout the year will start looking flatter, or would you expect variability to remain on the back of tech sales timing?
spk05: Yeah, we've talked about this photonics investments in the past. We have several programs where we're sort of transitioning into more robust volumes and some of the investments associated with that have come to an end, as we've talked about the last couple of quarters. I think we will always have some variability in quarters based on our commitments to invest ahead of need. Those are always going to be prioritized, and they'll lead to some lumpiness, I expect, in margin. John, do you want to add to that?
spk09: Yeah, sure. Bert, look, on our on our software technology sales, right, of which Photonics is a part of, all of our counter UAS systems, all of our second collection systems, everything that we do in the EW spectrum area. You know, as I started off with one of Rob's questions, you know, those are, those have a highly variable sales cycle, right? Most are not really being driven by long-term backlog. They are sort of book-in-turn work. So, you know, I believe we will for a long time look at, you know, ups and downs on quarterly margins, which is why we're really focused on the four-year margins. So why is that? It is that way because we are the company in the sector that actually does deliver technology. And when you deliver technology, it's not the same as, you know, delivering pure expertise. where your rollout and your margins are quite predictable quarter to quarter. And as the volume of technology is at a 55-45, you know, match to expertise, it does bring some variability to, you know, quarter to quarter endpoints. So we will talk a lot about that bird as we present our 25 guidance, because I think it's a very important thing to recognize. So, you know, it will not be uncommon for us to talk about you know, beat, beat, miss beat on margin because that's just how that more volatile but very positive higher margin work comes in. The second thing that I want to say on that is, look, margins are a really important part of our value creation model, so it actually has our intention. It's what we've been focused on, but long-term is going to be our focus. You know, Jeff talked about the photonics investments that have now ramped down. We're not going to short-arm investments that drive future growth, but we're not going to do unnatural acts to achieve, you know, a quarter-point margin. We love free cash flow per share because it brings in margin. It also brings in prudent value-creating, capital deployment. um investing ahead of head of need it also brings in you know longer term view and a long-term approach to organic organic growth so all of those things go into this you know soup uh and what we would like to see come out over the long term which is what we have experienced is more visibility on the organic both side and then ever increasing margins but it's not going to be year over year so hopefully that that provides some additional color
spk03: That does. I guess this is a follow-up. If we think about some of those tech items, I mean, you've had a lot of recent success on the contract front, you know, really across these. And I'm just curious, if you had to, you know, rank photonics, you know, counter UAS, EW SIGINT, and network security, all areas where you've had recent contract success, just as growth drivers over the next couple of years, you know, how would you do that? You don't have to Specifically, right? But, like, what's at the top of that list?
spk09: Yeah, sure. Look, on the software-based technology work, that has been something we've been investing in over the years. It is a highly volatile market, which you should read as a positive, right? Folks who look to do us harm change their tactics on an hourly basis. And the only way you can keep up with those threats is to make certain that your signals and your EW, electromagnetic spectrum technology stays up with that. We have proven that. If you look at all of the issues that are out in today's press about drone strikes, all of that technology that we have fits exactly on top of those threats where drones are launched in 24, 48 hours, you know, tactics, Technology and procedures are changed, and the government, our customers, and NATO allies as well need technology that can quickly adapt. Photonics for, you know, we're going to hit volume there as we get through 25 and into 2026. You know, we'll always have investments there as we work on being able to work on produceability. But overall, you know, I hate to rank one over the other, except to say photonics will hit a more compact volume sooner. But the high volume over a number of products that we have within this company are going to continue to drive tech technology, top line and bottom line growth.
spk03: Thanks, John.
spk09: Thanks, Bert.
spk04: Your next question is from the line of Jan Engelbrecht with Baird. Please go ahead.
spk00: Good morning, John, Jeff, and George. I just wanted to talk about capital deployment. I know you've done some recent deals, and you've got plenty of headroom available on the current share repurchase program. So just ask if you think about that. And obviously, the M&A pipeline is more attractive right now, but you also have a higher priority in terms of growing free cash flow per share over time.
spk05: Yeah, thanks for the question. The observation you make about the M&A pipeline and the reference to our comments is correct. We see some expanding opportunity lists. Even though we did not buy back shares in the quarter, I would remind you that since the second quarter of last year, we've repurchased 1.3 million shares. So we have bought in about 6% of our outstanding shares in the last four or five quarters. So even though we didn't buy any shares in the quarter and we are continuing to evaluate both opportunities, we're very attentive to share repurchases.
spk09: Yeah, Jan, and at a macro level, look, we're flexible and opportunistic, right? And that's going to be based on the dynamics that we see. We're going to evaluate a range of factors. We're going to look at some of the things that you mentioned. We're looking at our M&A pipeline. We're looking at stock price. We're looking at valuation, leverage, interest rate, you know, many, many things. All options are always on the table. You heard we did a few smaller acquisitions that we have completed. The other thing I mentioned is that, you know, timing of the future M&A candidates is a consideration in our capital deployment assessment as well. So it's not always when we're in a leverage of X, we have Y number of different companies who'd like to make a future growth part of CECI. So there are a lot of moving pieces. Bottom line, we believe that either of those capital deployment actions are going to benefit shareholders in the near and in the long term, which is why we're focused on free cash flow for sure and really appreciate the question.
spk00: Perfect. Thank you. That's really helpful. And just a quick follow-up, just at a high level, if we look at some of your more recent sort of multi-billion dollar programs, can you just walk us quickly from a top line perspective, sort of the cadence on, maybe not each one, but if you could, sort of ETAS and NSA and the Navy program, just sort of how the revenue when that peaks over the next couple of years?
spk09: Yeah, sure. So look, on our large programs, Expert expertise award, which is the large sizable cyber Intel award. You all know the name. I'm not allowed to say it. Um, look, we've ramped ahead of plan. Um, we've, uh, we will continue to ramp that, uh, at a reasonable rate as we go through 25. so we'll get to full ramp. When we get to start off our fiscal year 26. So there is a number of items that are in our current scope that just started later after award. So I like how we ramped that one up. And really good positive feedback from our customer. On our ITAS, that also ramped ahead of plan. That's going to continue to ramp and grow in 25 and beyond. If you all remember, that was a BEPA total value of $5. $7 billion over a 10-year period. We recognize about $2 billion of that in the first quarter of 23. So, you know, that starts our upfront planning. We're doing some design work there, you know, picture lower volume. The customer did ask us to take over from the small level incumbents, take their work over sooner because they want to see that work improved. So, we're able to do that as well. So, you know, customer very, very pleased. On the last one is Spectral, right? That's a real gem technology program. We did ramp ahead of plan. Connected to my prepared remarks, you know, we're looking at what that first delivery looks like to the fleet. I spent some time during the last week with some of the Navy seniors talking about this program extensively, that the threats are continually changing. and you know what uh what are refreshing discussions what refreshing discussions we had because we could talk about the threats changing how do we make changes to this large technology program you know without the acat one kind of follow-on that's a four-year delay uh you know we're sitting there working alongside shoulder to shoulder hip to hip with this customer who frankly has the as a responsibility of protecting their uh surface fleet uh from the things that you read about in the news today so You know, great work there. We would see future expansion definitely into 25 and 26. So hopefully that provides some of the color you were looking for, Jan.
spk00: Perfect. Thank you. I'll jump back to you. Really appreciate it. Thank you.
spk04: Your next question is from the line of Mariana Perez Mora with Bank of America. Please go ahead.
spk06: Good morning, everyone. Good morning. So my question is a follow-up on the international opportunities, and how should we think about M&A and partnerships there? I really think that AUKUS gives, particularly in the Pillar 2 of AUKUS, you see opportunities for electronic warfare and C2 capabilities. How do you think about positioning there, kind of like going solo, partnering with someone in the region, or even doing some acquisitions in strategic areas?
spk09: Thanks, Arianna. Asking for all of our secrets. All right, so here's, let me try to unpack that. Look, on the international front, it's no secret that on the electromagnetic spectrum, given everything that we're seeing today, it's a very dangerous world and everyone needs electronic warfare equipment. You know, many allies around the globe are talking about expanding their budgets. We, as I mentioned earlier, currently deliver technology to a number of Five Eyes countries. As we, quote unquote, expand, you know, deeper into the Five Eyes and into NATO, Eastern Europe is going to be one of our absolute focus spots. We have made a number of trips with our software-based technology sales team, Poland, Latvia, Lithuania, Romania and the like, and we had two of our folks spend about 10 days in the Ukraine, you know, buckled down in Kiev, frankly, talking to on-the-ground commanders about what they're seeing and what they need as we go forward. And it really related to the supplemental comment I made during my prepared remarks that, you know, we can have all the meetings we'd like, but the supplemental helps. In addition, a lot of those Eastern European companies are spending their own defense dollars. including in the Ukraine, to look for faster-paced solutions to what they're seeing. You asked about M&A. I don't today see us doing international-based M&A. That's a tough one for us. There's a lot of different skill sets that we today in our company don't have. But we're able to reach all of those customer needs with international sales reps and our own sales team. I would mention when we did the ABT acquisition, you mentioned AUKUS. We have a small branch of what was ABT in Australia. It does allow us to qualify in a different manner to go after Australian programs because we have indigenous capabilities within the country. So a lot of avenues there, a lot of decisions we're still in the middle of making, Mariana. But there and in other areas, we're going to continue to drive growth. We're going to drive all four of our sales channels for all those products to current programs or records, direct sales, and then in our international. Excited by that, as we talk about 25, and as we go forward, we'll continue to be very transparent and share what we're looking to do there.
spk06: Thank you, and sorry if I'm oversimplifying this, but is it fair to think that you will target the international budgets and the growth in international budgets mostly with your technology's portfolio versus expertise?
spk09: Yes, we will address the international market with our technology portfolio. Now, at the same time, expertise informs tech. So a lot of the information we get about what other countries are doing, if you look at our expertise that focuses on soft support, on folks out in the field on the long side of the wire in a lot of these really dangerous countries, We do get a lot of expertise information that then tells us who we should go target, where and in what order. And that is the beauty and the strength of delivering expertise and tech and how those two parts of our business support each other. Thanks for the questions, Mariana.
spk06: Thanks so much.
spk04: Your next question is from the line of Matt Akers with Wells Fargo. Please go ahead.
spk02: Hey, guys. Good morning. Thanks for the question. Hi, Matt. I guess, John, how should we think about kind of the long-term growth rate for this? I think back when you guys did the Investor Day, with the quadrants, you're kind of laying out like a 4% or 5% kind of market growth. I think you're doing more like double digits this year. It sounds like there's a lot still to come. So I'm just curious if that's accelerated a little bit.
spk09: Yeah, look, we are at the point where we're a reliable, you know, mid-single-digit growth company over the long term. Okay, we're excited that we're actually talking about high 10s and, you know, 10, 7, 10, 8, 10, 9 all count as high 10s. So at a macro level, how we're driving the ship, which is long term, we're extremely excited and also encouraged from where we were, frankly, Matt, at that 2019 investor day. What we're focused on is you look at future investments in future growth. It's going to be near peer and the counterterrorism mission. You've heard me say so many times, folks, this was always going to be an and case, even though we tried to will it into an or case. It is an and. We're going to focus on network modernization. We talked about that in the very early, early days after that 2019 meeting. We talked about the importance of electromagnetic spectrum, SIG and EW, counter-counter UAS. You know, turn that page five years later, everything emits a signal, a signal. Near-peer threats. are going to drive urgency for increased speed and flexibility, a la Spectral. We're the leading counter-UAS provider out there today, and the threats are in their infancy stage. I'm not trying to sell fear, but fear is out there because it is a dangerous world, and that's what we all see. And then space, right? We talked a lot about on the photonics side, we're starting to build back. We're the first to launch, first to interface, first to connect. and the U.S. supplier that does design and production fully in the U.S. So, you know, as we look at how we go forward, there's plenty of room for us to grow a really nice addressable market for us. And so if you take a look at where we've started, mid-single-digit, top-line growth company focused on margins, ultimately focused on pre-cash flow per share.
spk02: Great, thanks. That's helpful. And I guess one for Jeff, just the CapEx guide for the year, 80 million, I think implies a pretty big lump in Q4. Just curious what's going through there.
spk05: Yeah, there are a couple of things in there, Matt. I would say that the preponderance of it is related to some more efficient facility strategies and some footprint consolidation and management of our kind of physical infrastructure. It's not at all related to program or growth-specific kind of projects.
spk02: Great. Great. Thank you both. You bet.
spk04: Your next question is from the line of Toby Summer with Truist Securities. Please go ahead.
spk13: Hey, good morning. This is Jasper Vibon for Toby. Really nice growth in the civil business this quarter. Last few quarters, I think that had been, I guess, flattened down with the transition in the background screening contract to DCSA. So just curious, I guess, what's driven the acceleration in civil now that it seems like the comps from that contract have rolled off?
spk09: Yeah, sure. Yeah. Go ahead. You're talking about DOD versus Fed, Civ, and sort of how those parts move. You know, some of it is, if you all remember, uh a number of quarters back uh the government we uh reclassified our background investigation work our dcsa program that was a um offensive program and that transitioned to dod so that was the majority of why you're seeing some some of these deltas uh you know some of our um longer uh older re-compete losses even though that doesn't happen very often uh tnpsa impact quarter 24. So things like that, there isn't any one item or, you know, a difference in our strategies, how we're bidding. So hopefully that provides some of the color you were looking for.
spk13: Yeah, no, that's helpful. And then you mentioned the new business pursuit targets. I'm curious if there's been any change in how you manage bidding and proposal activity recently, including potentially going after more international work. And then also, what does fiscal 25 look like from a risk perspective?
spk09: Yeah, let me take a step up on that one. Look, how we're focused in our business development organization, where we spend BNP and the like, it really starts at a different level. It starts with the fact that we have a very different strategy within our sector on how to grow this company. We are focused on investing ahead of customer need, developing differentiating capabilities that then address critical enduring national security and modernization priorities. That statement in itself says that we approach how we do business wins, how we approach new business with a very different lens, right? We're looking at first what's going to grow the fastest, and then second, if that's where neuro deep funding stream and I do that term many many times and then our strategy is technology and expertise versus just expertise the days are trying to find just expertise work in what is law over the longest term will be a commodity based delivery model was not the way we believe long term we could grow this business so that's why we built nearly from scratch a technology part what customers need and then develop it and then it really comes down to you know bid less and win more by Jasper so you know giving you that comment you know so how do you have time you've been less and win more it's called focus so there's a lot of people out there talking about you know retooling BD teams or we're going to go out there and win hey the model starts what are you about what are you going to focus on how you're going to be very transparent with your shareholders and How do you find patient shareholders that over the long term are going to be looking to us to provide that reliable long-term growth? So, you know, we align with customer needs. We invest ahead of need. We shape the heck out of things, which really means show the customer the art of the possible and really drive preference, not drive price down. And then at the end of the day, you know, who doesn't like somebody who, you know, performs better than everybody? So that's the in this company. So we're not sitting here worried about, do we spend more money in FedZiv versus DOD? We really say, does this fit the markets that we're in and a technology and expertise strategy? When it does, we will stop at nothing to win that business because the investments, both in BNP, IRAD, and in CapEx, as Justin mentioned, are crucial to driving a long-term growth. On the 25 view, this year, frankly, we went through a lot of re-competes. What you don't see is we have a lot of contract extensions. So those are customers who may have re-competed next year. They came to us during the last couple of quarters and said, hey, we want to take another three years, four years, two years. So there was a lot of work that we did to gain extensions. And then Jasper, that drives potentially a lower re-compete rate as we move into 25 and 26.
spk13: Appreciate the detail there. Thanks for taking the questions, guys. Thanks, Sheriff.
spk04: Your next question is from the line of Seth Feisman with JP Morgan. Please go ahead.
spk12: Good morning. This is Rock on for Seth. Good morning. Building on the prior question, what were the drivers of Kaki's impressive awards in the quarter? Did the bidding trend shift, and how is CAQI thinking about bidding on future awards? Also, should we be thinking about that the strong bookings will drive another strong revenue year in fiscal year 25 above the long-term growth rate mentioned earlier, or is there more lag in these awards?
spk09: I love the last question, trying to crowbar into 2025. But we will certainly be overly transparent when we get to 2025. But on the spirit of the first part of the question, yeah, we have had great wins. It's more about the culture, and it's more about the strong business development team, solution architects, but also the deep bench that really know how to win. This is not a one- or two-person driven business development machine. They are absolutely connected, both business development and sales teams, to the P&L centers, they are really looking at how do we competitively position ourselves. The large win we had this quarter, the E-Lite program, right, that was one where we spent an awful lot of time, you know, working with current customers, you know, how do we do more for you given that the world's an even more dangerous place? So that is a two-year-ago plan as to as these programs are being run, How do we merge what we do for them? That helps unity of purpose. That helps supportability across those two combatant commands. So it's a very involved, detailed process that is not in the hands of less than five people. It's in the hands of 150 people. They're actually focused each and every day on how do we shape. And we have this mantra within this company. We're going to go into 25. Our entire FY25 bidding lineup. Most of that has already been bid in 24. The rest of that will be solutioned in bid here shortly. So when we get into 25, we're talking about how do we grow 26 from a, you know, wins and an award spot. That's why we've been traditionally, you know, a long number of quarters, you know, over 1.0, why we had a 1.8 book to bill and why our, you know, trailing 12 month book to bill is, is always above 1.07. to go drive growth, but we're going to stay true to what it is we do well. We're not going to drop an anchor in some kind of work that we have no idea of doing and then chase that job based on price and promise you all we're going to get better. We just don't operate that way. It's a long-term strategy.
spk00: Great. Thank you.
spk01: You bet.
spk04: Your next question is from the line of Connor Walters with Jefferies. Please go ahead.
spk10: Hi, guys. Good morning. Congrats on a great quarter. Thanks for taking my question. Trying to get back to the growth you had exiting this year. You're on a really strong organic growth trajectory here in the second half in the low double-digit range. Curious if you could point to what some of the key drivers are here. I don't know if it's all from the accelerated program ramps you touched on earlier, perhaps some share gains. Anything you'd point to would be great.
spk05: John will likely want to expand on this. But it's really pretty broad-based. I mean, we've talked about a couple of the major sort of franchise wins we've had over the last couple of years. Those are all ramping on or ahead of our expectation. We're really, you know, the portfolio broadly is kind of hitting on all cylinders. Really can't point to one or two or three programs and say it's this or that. It's very broad-based.
spk09: Yeah, I think, you know, you can look at the future programs we'll be talking about driving revenue, right? You know, during this year, beyond ITAS and the large Intel expertise program and ITAS, we'll be talking about E-Lite and GenMod and CiproMod and, you know, some of those items. So we're, you know, we're not a one company. program company, we're not a three program one. We're looking to now get our stride. Now, if I say that, we also have technology programs that end. We actually do deliver. And when we deliver, that revenue goes away. And there's some sustainment. But at a company that size coming up on $8 billion, we are going to have programs that are going to sunset, which is a positive thing. It means we deliver everything we're supposed to deliver. And so that's why we're in the middle of building our 25 plan, right? What gives you the right range so you can assess what are, you know, most probable cases. I'll also say, you know, if you look back to where we were in August, folks, right? We were there. We gave you a growth rate. We also gave you a range. We said low end and high end. I invite you all to go back to what we presented to you all as the left end of the goal post, as we used to say in the right end. You know, five of the six things on the what would allow us to drive growth, five of the six things on the high end were actually achieved. And those were some pretty high bars, but it proves maybe not every single year, but, you know, when things align, things align. Awards are lumpy. Right? So we can never, never count an award coming in a specific order. And you all know, based on where our fiscal year is and the government's fiscal year is, there are times when we're going to win great awards that are going to come too late to have any material difference in the current year that we're in. Respect those questions. But there are times when we have to say it's going to show up next year. So it's this, you know, rubric of what's exiting, what's ending. And that really drives the reason why Jeff and I always say, we're not going to talk about 25. It's not to be flippant. Frankly, it's just that we don't have a really good eyeball yet, and we're in the middle of, you know, stirring that soup. And absolutely, when we get to August, we'll be in a really nice position to tell you how 24 buttoned up. You got some great guides earlier today and what we expect for the future.
spk10: Got it. That's super helpful. Thanks so much, guys.
spk04: Your next question is from the line of Louis DePalma with William Blair. Please go ahead.
spk07: Good morning. Good morning. Following up on the spectral comments, what is the progress in terms of installations across the Navy surface fleet?
spk09: Yeah, thanks, Louis. So we are in the design phase now. We've gone through a number of PDRs and CDRs using really great system engineering and software engineering terms. So we are looking at how the program moves forward. At a macro level, we are looking for, you know, a minimally viable product, which means what's that first spiral of capabilities are going to be delivered to this 200 plus maybe surface ship fleet. Closer to the, you know, end of this calendar year, And then based on how that goes, we'd be looking at end of next calendar year in 25 as to start to make deliveries to the fleet. That's a highly fluid schedule. So we'll have much better view when we get to August, but that's sort of the period we're in. We're in the development period now. will develop and deliver product at the end of the calendar year and some later, which is why we've been talking about that we're in design phase now and RAMP will actually start to show itself in 25 and then clearly end number of ships as we go 26 and beyond.
spk07: Great. And for the software solution, is the vision that it would last for the entire useful life of the ship and that A significant component is software, and you've discussed the dynamic nature of the threat, and so do you have the ability to upgrade the software in response to the changing nature of the threat such that, you know, even as requirements change, your software allows your solution to change with those requirements so that the solution can last for decades rather than, I think the contract is only for seven years, but do you envision that your software is going to last for decades and decades?
spk09: Yeah, Louis, thanks. Yeah, so two key points to that. what's the signature and then what is the effect you can apply to whatever that is so that you can um protect surface ships so one based on the open architecture yes we have a long history A lot of that work is based on a Gantz software baseline that the government owns. We created it for them over more than a couple of decades. We start with that and we're continually adding to that. So to your point, as the threat changes, as we've all witnessed, when those threats change, we're able to collect, decrypt, put solutions in that can counter those within a matter of hours versus, you know, the old style was take a surface ship into port, tear the hardware out, put more racks of hardware in, do six or seven each year. You can't maintain a fleet given where the threats have gone. So we are exactly where we wanted to be, a software-based company. It is our superpower. Thanks for that question.
spk07: Great. And on this same topic of drone warfare, is CACI involved in the official JAD C2 program on both the hardware and software side? In the past, you've discussed your role in several data analytics software programs with your Agile Solutions Factory, and you obviously... provide many different types of signals intelligence sensors across many programs and recently the department of defense has been on bloomberg talking about how they have their first version of jet c2 with algorithmic warfare are you involved in in that program yes there are a lot of
spk09: understand it better you know I would say an ob1 level yes we're absolutely DCGS Navy, DCGS Air Force, DCGS Soft, which is where a lot of everything we know about is put into this massively large library. We have a phenomenal team in Omaha that really works on DCGS Air Force. Spectral is an example of a lot of those JADC2 components. How do you pull in from other sensors that may have seen this threat in the past? It's flying over surface ship X. And how do we bring that signature and that exploit in quickly and provide that to the ship's commander? So, yes, we're very much connected on our technology side. It's all things JAN-CE2, and it's at the building block level today. I'm certain that as more building blocks get added, it will be a key component of what DOD eventually delivers.
spk07: Great. Thanks so much.
spk04: There are no further questions. I will now turn the conference back to John Mangucci for closing remarks.
spk09: Thanks, Dennis, and thank you for your help on today's call. Look, we'd like to thank everyone who dialed in or listened to the webcast for their participation. We know that many of you will have follow-up questions, and Jeff McLaughlin, George Price, and Jim Sullivan are available after today's call. Please stay healthy, and all my best to you and your families. That concludes our call.
spk04: This concludes today's conference call. We thank you all for participating, and you may now disconnect.
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