CACI International Inc

ladies and gentlemen thank you for standing by welcome to the caci international fourth quarter and fiscal year 2024 earnings 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 of Investor Relations. Please go ahead, sir.

Thanks, Rachelle, and good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI. 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 our company's SEC filings. Our safe harbor statement is included in 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 CECI International. John?

Thanks, George, and good morning, everyone. Thank you for joining us to discuss our fourth quarter and fiscal year 24 results, as well as our fiscal 25 guidance. With me this morning is Jeff McLaughlin, our Chief Financial Officer. Slide four, please. CCI delivered strong results in the fourth quarter, closing out an exceptional year by delivering 20% revenue growth during the quarter. For the full year, we delivered revenue growth of 14%, coming in ahead of our guidance, which we increased several times during the year. We delivered EBITDA of nearly $800 million, with an underlying EBITDA margin of 10.7%, consistent with our guidance. We also generated free cash flow of over $380 million and free cash flow per share of $17, the latter an increase of 41% from last year. And we won over $14 billion of contract awards, the highest in company history, which represents a 1.9 times book to bill for the year. Nearly 60% of that award value this renewed business to CACI. We continue to perform very well on our reconceives. Slide five, please. The outstanding results we delivered in fiscal 24 are a testament to our successful execution of a consistent, well-defined, and market-aligned strategy. The key enabler of our performance is business development. And as you can see, our BD team's performance has been exceptional. Our fourth quarter rewards alone were $5.4 billion representing a book to bill of 2.7 times. These awards add to an already impressive list of wins we have discussed in recent quarters. In fact, we have won seven awards of $1 billion or more in the past two years, which supports our ability to drive long-term growth as these programs ramp over multiple years. Our strategy of investing ahead of need, bidding less and winning more, focusing on larger and longer-term duration opportunities and proactively shaping those opportunities enabled CCI to win significant new work in fiscal 24. In addition, our focus on superior execution, which is foundational to the culture and always a top priority, further supports our growth through sole source extensions and expanded re-competes. We are in the right markets delivering high-value differentiated capabilities and executing at a superior level all of which support our ability to grow free cash flow per share in order to value our customers and shareholders. Slide six, please. Let me highlight a few of our fourth quarter awards that bring the successful execution of our strategy into focus. First, we won the eight-year, $2 billion NASA Consolidated Applications and Platform Services Award, known as MCAPS. DCI will deploy an agile at scale delivery model to standardize and centralize software development for more than 200 systems across NASA, enhancing quality, efficiency, and speed of delivery. These are critical outcomes for our customers, and we invested ahead of need years ago to develop industry-leading agile software capabilities, identify and shape the right opportunities, and show our customers the art of the possible. With the NCAPS win, CECI is now executing the three largest Agile programs in U.S. government, and we see a healthy pipeline of additional opportunities where these capabilities will continue to be a differentiator. Second, TACI was awarded a $100 million contract by the U.S. Army to provide signals intelligence and electronic warfare systems for the terrestrial layer system MANPAC program of record. Our MANPAC systems enable dismounted soldiers to conduct signals detection, direction finding, and electronic attack while on the move. supporting the Army's multi-domain operations and helping to dominate the electromagnetic spectrum. As we have discussed before, this is an increasingly critical domain and one where the U.S. is still in the early stages of modernization and investment. This award also highlights the progression of a customer moving from purchase order awards to acquisition of our technology via a program of record that will contain larger volumes than a single award. This provides for a more consistent award basis and enhances the visibility of our business. Lastly, I'd like to highlight two new expertise awards that illustrate our deep domain and technical knowledge, our industry-leading talent, and the opportunity to inform our technology. We won a six-year, $239 million task order to provide intelligence analysis and operational support to the U.S. Army commands in Europe and Africa. Every day. We see the headlines of how the US and its allies face increasing national security challenges across these regions, which is driving enduring requirements and resilient funding. DCI is uniquely positioned to assist the Army in anticipating and responding to these fast-evolving and complex threats. We also want a 10-year contract worth up to $450 million to provide operations and technical support to the Joint Navigation Warfare Center. part of the U.S. Space Force that focuses on positioning, navigation, and timing, or PNT, for the U.S. and our allies. PNT capabilities are a critical national security priority and an area where we have invested ahead of need in both technology and talent. This new work with the Space Force provides opportunities for future expansion, as well as the potential to inform our technology investments over time. Slide seven, please. Turning to the macro environment, we continue to see healthy demand and a strong pipeline of opportunities. Customer demand continues to be driven by the elevated global threat environment, the evolving capabilities of our adversaries, and the rapid pace of technology change with this significant need for modernization across government. The ACI's expertise in technology are intentionally aligned with enduring and well-funded national security priorities, including the electromagnetic spectrum and counter-UXS, application and network modernization, cloud migration, cyber, and intelligence analysis. And this is true not just for the United States, for our allies as well. From a budget perspective, government fiscal year 24 was supportive of CECI programs. We believe government fiscal year 25 will be no different. We are monitoring the GFY25 budget process, and overall, the budget is shaping up in line with our expectations. Like most years, we expect the coming year will begin with a continuing resolution. And as I've said, this typically does not have a material impact on our business, and we are very comfortable with the funding levels we see at this time. Slide eight, please. Looking back on fiscal 24, I'm very pleased with the execution of our strategy, our exceptional contract awards, and our strong operational and financial performance. Combined with the constructive macro environment, provides a great foundation for CACI as we enter the new year. With that in mind, in fiscal 25, we expect free cash flow per share growth of 11%, revenue growth of 6% to 8.5% on an underlying basis, which excludes the non-recurring $200 million in materials last year, and EBITDA margin in the high 10% range. Jeff will provide additional details on this guidance shortly. Our FY25 outlook is consistent with our value creation model, which is focused on driving long-term growth and free cash flow per share. In fact, I want to share that we are making changes to both our long-term incentive plan and our short-term annual bonus plan. Going forward, half of CACI's granted long-term incentive shares will be performance stock units tied to a three-year free cash flow target. Additionally, we have added a cash collection component to our short-term bonus plan. The result is that we're focused and incentivized on delivering value to our shareholders. That is our commitment. I look forward to updating you all as we progress through the year. With that, I'll turn the call over to John. Thank you, John, and good morning, everyone.

Please turn to slide 9. As John mentioned, we're very pleased with both our fourth quarter and fiscal year 24 performance. Not only is it continued strong performance, but it's very much in line with what we've communicated to you throughout fiscal year 24. In the fourth quarter, we generated revenue of $2 billion, representing nearly 20% year-over-year growth, with 19% of that being organic. The balance was generated by the four acquisitions we've made over the past 12 months. EBITDA margin was 11.5% in the quarter, consistent with our expectations, and a 60 basis point increase year over year. Fourth quarter adjusted diluted earnings per share of $6.61 were 25% higher than a year ago. Greater operating income and a lower share count more than offset a higher income tax provision. Operating cash flow for the fourth quarter reflects strong profitability and record day sales outstanding for DSO of 46 days as we continue to manage improvements in working capital. Free cash flow of $135 million for the quarter represents good sequential and year-over-year increases. Slide 10, please. Turning to full-year results, we delivered significant top-line growth, strong margins, and good cash flow. In fiscal year 24, we generated $7.7 billion of revenue, representing over 14% total growth and just under 14% organic growth. This performance was well ahead of our initial expectations. You may recall that when we provided our initial FY24 guidance last year, we discussed a number of factors that could drive results toward the upper end of that guidance. We outperformed on most of these factors. In particular, stronger win rates on new work, faster ramp up of our awards, and successfully defending our re-competes. Underlying EBITDA margin of 10.7% for the year was in line with our guidance, which as a reminder, excludes the impact of non-recurring $200 million of no margin material revenue recognized in the first half of FY24. Fiscal year 24 adjusted diluted earnings per share were $21.05, up 12% from the prior year, despite both a $21 million increase in interest expense and a tax rate that was 250 basis points higher. Delivering 12% year-over-year growth despite these headwinds underscores our robust operating execution. Operating cash flow for fiscal 24 also reflects strong profitability and cash collections, that drove free cash flow of $384 million, which represents a 36% year-over-year increase. We did not receive the $40 million tax refund related to prior year tax method changes that we discussed with you last quarter and was in our fiscal 24 guidance. The IRS has accepted our treatment of the method change, and we now expect to receive the refund in fiscal year 25. Slide 11, please. The healthy long-term cash flow characteristics of our business, our modest leverage of 1.8 times net debt, betraying 12 months EBITDA, and our access to capital provide us with significant optionality. We remain well positioned to deploy capital in a flexible and opportunistic manner, drive long-term growth in free cash flow per share and shareholder value. Slide 12, please. Now I'll provide some additional details on our fiscal year 2025 guidance. As is our practice, we undertake a bottoms-up program-by-program forecast, plus our expectations for new business by specific opportunity. For fiscal year 2025, we expect revenue between $7.9 billion and $8.1 billion, which, as John mentioned, represents growth between 6% and 8.5% on an underlying basis. EBITDA margin is expected to be in the high 10% range. We expect adjusted net income to be between $505 million and $525 million, which translates into adjusted diluted earnings per share of between $2244 and $2333, and does not contemplate any sharing purchases or acquisitions that might occur during the year. And finally, we expect free cash flow of at least $425 million which equates to free cash flow per share of about $18.89 and growth of approximately 11% from last year based on our full year diluted share count assumption of 22.5 million shares. This free cash flow guidance reflects the influence of three factors, slightly higher DSO compared to our current record level, inventory growth associated with ramping technology programs, and cash usage associated with Q4 accounts payable volume following that quarter's strong revenue growth. Additional details of our guidance have been included in our presentation to assist you with your modeling. I would note that we again expect higher profitability in the second half of the year versus the first half. In particular, we expect Q1 fiscal 25 EBITDA margin to be consistent with the first quarter of last year on an underlying basis, which was 10%. Similarly, we expect a steeper ramp of pre-cash flow during the year, and I will remind you that a myriad of factors can skew quarterly trends, such as the timing of material purchases and higher margin technology deliveries. Slide 13, please. Turning to our forward indicators, our prospects continue to be strong. As John mentioned, fiscal year 24 awards were over $14 billion with a healthy mix of new work and recompense. Our trailing 12-month book-to-bill ratio of 1.9 times reflects excellent performance in the marketplace. Our backlog of $32 billion increased 22% from a year ago and represents four years of annual revenue. The weighted average duration of awards that went into backlog in FY24 was nearly six years. The longer weighted average duration equates to less revenue contributed But together, these metrics provide good visibility into the long-term strength and cash generation potential of our business. As we enter fiscal year 25, we expect approximately 84% of our revenue to come from existing programs, with approximately 10% from re-competes and 6% from new business. This is consistent with how we started FY24 as well. We continue to have a healthy pipeline of new opportunities. We have $9 billion of bids under evaluation, over 90% of which are for new business CACI. We expect to submit another $14 billion in bids over the next two quarters, with about 80% of that for new business. In summary, we delivered outstanding fourth quarter and fiscal year 24 results. As we look to fiscal 25, We expect another year of good performance with healthy growth and free cash flow driven by good top line growth and strong margins. We are winning and executing high value enduring work that supports increased free cash flow per share, long-term growth, and additional shareholder value. And with that, I'll turn the call back over to John.

Thank you, Jeff. Let's go to slide 14, please. In summary, we had a fantastic fiscal 24. In a volatile and rapidly changing world, CCI delivered expertise and technology that made a difference to our customers, and we also delivered on our commitments to our shareholders. We won a significant amount of high-value new work, delivered with excellence on our programs, and successfully defended our re-competes. We continue to invest ahead of need in both our capabilities and our talent. Our performance builds an increasingly strong foundation for growth in District 25 and beyond. We are further demonstrating alignment with our shareholders by focusing incentive compensation on free cash flow generation. The business we have built over the last 10 years is well positioned to deliver long-term growth and free cash flow per share and increasing value for our shareholders. We've built a leading business development team and they are winning in the marketplace, capturing larger, longer duration awards. We've driven significant improvements in margin and DSO with a continued focus on execution, working capital management. Our leverage of 1.8 times will allow us to deploy significant capital that will have meaningful benefit for our business and our shareholders over the long term. And trust me, we're not done yet. Finally, as is always the case, our company's success is driven by our employees' talent, innovation, and commitment, enabled by our culture of integrity and ethics. To each and every CACI employee, thank you. could not be prouder of what you've done to contribute to our company and to our nation. To our shareholders, I thank you for your continued support of CACI. With that, Rochelle, let's open the call for questions.

Thank you. We will now begin the question and answer session. If you 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 are 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. And please limit to one question and one follow-up. Your first question comes from the line of Bert Steuben of Stifel. Your line is open.

Hey, good morning, Jonathan. Good morning, Bert. Morning. great quarter. I mean, pretty impressive to see almost 20% organic growth, so pretty unusual for this industry. As we think about FY25, I mean, you've won a ton of work in FY24, and some of that has come in as recently as this week, too, into FY25. Can you just give us a little bit of color on how you're thinking about the ramp-up for new work in 25, and then maybe how you're and how you're going about ensuring execution is not going to be an issue. Obviously a lot of labor to be added just to go after the Wardsy ones. I'm just curious how you're thinking about those two things.

Yeah, Bert, thanks. So let's talk about ramp, but let's start that discussion around how we came out of 24. I think it's instructive as to how we ramp when we get to 25. If we look at our three major program wins, that played into our revenue growth in 24. FocusFox, approximately 90% ramped that drove a material portion of our 24 growth. ITAS and Spectral provided additional ramp, but better than we originally planned, which drove additional growth. And then on-contract growth from all our other programs were a little more net positive over programs that were ending, and that provided the remainder of our 24 growth. So that's how 23 awards are unpacked in 24. If we look at how we look at FY25 going forward, focus flocks mostly in the base, a small incremental growth. ITAS and spectral, more material growth from 24. With spectral, we'll be starting their LRIP phase Most likely during the third quarter, it's going to require higher than normal working capital. And then, look, we've talked a lot about the difference in wrap times, converting awards to revenue, as you've all asked, between expertise and technology programs. This should be the use case on what we mean every time we have the discussions around ramp, so we can all model growth better in the future. In fiscal 25, We have multiple technology programs ramping in total to just above the ramp value of FocusFox when we went through 2044. And that fact should be very instructive because technology programs do ramp over five, six, seven, eight years. So the fact that we have multiple technology wins that are $8 billion of awards in total ramping the same value that FocusFox did does show the difference between expertise and technology ramp. Now, clearly, technology jobs drive so many other positive areas, so they don't immediately go into the base, and that's what drives residual growth. You're seeing that with ITAS and Spectral going forward. Let me also finish the ramp piece there. Some of the $8 billion of rewards are software-driven technologies. I talked about the TLS ManPack job. That's going to have a higher percentage of working capital. uh that's going to be required i mean frankly we're going to support the maturation of our products which is going to help drive even longer-term free cash flow share so what we should all hear in that is timing timing of when that free cash flow for share growth comes um and uh look we did our best estimate of how this is going to unpack look if timing accelerates or starts to unpack sooner in the year then we get to the right goal post which is what we did in 24. If someone packed later or later in the year, there's a left goal post. Five of our major seven programs that we won, we won during the fourth quarter. So that's going to play into how that ramp changes. You also asked about execution, and it's a terrific question. Look, we've got a line organization that recognizes that we're getting larger and broader and that we need to continually ensure commonality of process. so that we can reliably deliver. We have a stellar, knock on wood, track record of operational excellence throughout this company. It truly, as my opening remarks stated, it is in the culture of this company. Everything we bid comes with an eye on how we're going to execute this job. And that gets into how we price and how we bid our large expertise jobs. It also gets into the terms and conditions we're willing to accept on our large technology jobs. Um, as for staffing, um, you know, we just started our fiscal year 25 with a, with a top leaders, uh, senior leader, leadership off site where our HR organization talked a lot about staffing, a lot about the fact that, you know, zoomers are the new boomers and, you know, how are we going to source talent? Not only by degrees, but by the skills that they have. So part of it is making certain we're making changes in this business ahead of when we have to. to make sure that we can enhance skills of our current employees and also look at skills-based hiring. So, we're very confident on the execution piece. The one question mark always is how these things are mapped.

That's very helpful, John. Maybe just for my follow-up for Jeff, balance sheet is in extremely good shape. I mean, on a trailing 12 basis, you're at one-eighth. On a four basis, even lower. Can you think about or can you sort of help us understand how you're thinking about uses of the balance sheet? I believe, can you confirm that that's not included in your guide? So, you know, how are you thinking about that at FY25, Mr.?

Yeah, thanks for that. Thanks for that, Bert. Yeah, our guide presumes no sharing purchases and no acquisitions. You know, and we fully expect to do, you know, at least some of that, obviously. We've talked about this before. I mean, our key approach here is about being flexible and opportunistic. We keep a pretty close eye on the acquisition target pipeline. We are, you know, constantly evaluating those things. John may want to evaluate or may want to comment a little more on targets and evaluation. But it really, this is a result of, you know this, I think we've said it before, disciplined rigorous analytical process that part is science the art is sort of marrying that with our view of what's in the pipeline and the rate at which things you know may happen or not happen so I left I'll let John talk a little bit more about acquisition targets but that's sort of the framework which is no different from what we have done in the past

Yeah, so look, we consistently get questions on how the M&A market works. I mean, we are a serial acquirer. We like to fill long-term gaps with other companies out there. You know, frankly, the M&A market's looking better. Some of the potential targets would provide the opportunity for us to fill long-term gaps based on our market strategies. Some are going to be in the electromagnetic spectrum area. Some are going to be in cloud and AI. Others are going to be in sort of the C4ISR and cyber area, although I will admit that electronic warfare continues to sort of connect SIGINT with cyber, with EW, with AI, machine learning and all. Jeff already mentioned it, but I want to foot stomp it. We're a disciplined acquirer. We're not buying revenue. We're buying capabilities, customer relationships that allow us to sit on these calls for a number of years talking about how that acquisition, you know, one, two, three, seven, ten years back set us up very, very well. We're going to balance that with a healthy leverage, and as Jeff said, watch for volume measurements of stock valuation and determine the best way for us to deploy capital both in the short term and in the long term.

So Bert, thank you for your questions.

Your next question comes from the line of Kai Von Rumor with TD Cowan. Your line is open.

Yes. Thank you very much, and a spectacular book to build. So John, what is the 40% of your bookings, I guess, We're re-competes. What percent of your sales up this year are re-competes? And secondly, you mentioned the relative growth of tech and expertise. What should we look for for tech and expertise if you kind of hit your sales goal? How fast are each of them going to grow? Thank you.

Yeah, Kai, thanks. Yeah, so 40% of our last year awards were re-competes. 10%. of our um of our 25 revenue is based on winning 25 or 80 beats i'll tell you in 24 we were north of 90 90 90 we did an outstanding job of you know protecting what is ours that we believe can still stay ours um so that uh that worked out worked out fine uh when you talk about uh what you should expect in the future um around um i lost the question

The question was what were the relative growth of relative rate of growth this year between technology and expertise?

Yeah, so if we look at from a revenue side, Kai, if you look at how 25 plays out, the larger percentage of our new business wins were in tech. But as I shared earlier, those are going to ramp up more slowly. then our expertise wins. Very much similar tie to the way 24 ramped, right? We had a large ramp, a large quick ramp of the large Intel program in 24. So the expertise wins in 25 will ramp up in the same manner. We're doing a great job of staffing. On the technology side, We've got a number of new wins that are going to ramp up, you know, slowly, similar to what we saw in 2025 and in 2024. What I think I would guide you towards is sort of how we do our guidance, right? We've got to assess a lot of variable, both on how the customer acts and how the market acts. You know, if we look at guidance and how these new programs ramp and how last year's ramp, We always look at when rates are they lower or higher than what we assume a program is going to ramp more slowly or more rapidly. 24 is a perfect example where we put the guide right in the middle and the majority of the things broke to the right goalpost versus the left goalpost. Funding, I believe, will still stay funded. How quickly customers issue RFPs. The other factor, Kai, is that 6% of our revenue in 25 will be based on new wins that we pick up in 25, right? So that's going to force customers to get RPs out and also make decisions in a timely manner. If they make timely decisions faster, then it will break more towards the right goalposts. So, look, we would expect that 25 is going to play the same as 24. You know, we have an election year. We can talk a lot about budgets and all, but I like the hand that we have.

Great. And maybe give us an update on where we are with photonics. I guess a big focus last year was on completing your investment, and this was going to be the harvest period. Where are we in that?

Yeah, Kai, so I believe in previous calls, we, I was quoted as saying we're sort of, we were in the seventh inning of investments and in the bottom of the first on delivery. Look, the majority of investments are complete. And that got us to a reliable design on our photonic optical terminals. Look, we're always going to have investments in producibility maturation that's going to continue to require both capex and, you know, working capital as we move forward. But I'm very pleased with the position that we're in. We delivered in the mid-teens terminals during FY24, Kai. We're looking to deliver six to eight times that volume. during FY 2025, and that's going to take us somewhat up that curve of deliveries while we're still entertaining additional bids and other applications of where we can take photonics. And I think that photonics is another example, as TLS MANPAC is, and the fact that we're going to move towards spectral production most likely in the third quarter, those production-like programs really connects to Jeff's prepared remarks around additional use of working capital. You know, it should be clear now that the percentage growth in our business is not the predictor of working capital, but more importantly, as you always ask how these programs ramp, the type of programs that we're delivering. Very little capital, very little capex around the expertise programs, but, you know, materially more as we look at technology, as it should be, because that's going to be the larger growth edge. Thanks, Todd.

Your next question comes from the line of Peter Arment of Baird. Your line is open.

Good morning, Peter. Thanks. Good morning, John. Good morning, John, Jeff, George. Hey, John, just, you know, to echo everyone's results, terrific results, $14 billion contract awards, and then we think about, you know, pipeline of new bids, and you've got, I think, in your charts, you had next two quarters, you've got $14 billion of bids that potentially, I guess, be submitted for 80% of its new business. How do we think about your mix from a contract structure, either it's cost plus or fixed price or however you want to explain it via technology? When you look at this pipeline, do you see this kind of mix changing or is a lot of it still in the same wheelhouse of where you've been in previous awards?

Yeah, Peter, every time I hear $14 billion, it's a record, right? I mean, it's quite awesome. Now, what I'm going to make sure I say at least once on this call is that awards are lumpy. You all know that I'm not fond of touting a record, but I have to admit it's an awesome delivery. But I think it's important to sort of take a slight step back and just make sure we all understand, you know, the hand we're playing is not by accident. Our job is to ensure we continue growth in everything that we do. Those awards are a result of working really hard to stay focused on our long-term strategy, which is really hitting your rear markers. that to me are the sign of a business that's intentional and not opportunistic. We can talk about where the drone threat is. We bought a company nine years ago to worry about electromagnetic spectrum and where drones are going to end up. And yes, we bought maybe a little bit ahead of customer need, and we put some worthy investments. And that's the beauty of our M&A plan, right, is that we're looking for those long, narrow, deep streams of funding. Where we sit today where we can talk about great growth and great free potential for share is having a strategy that's intentional. We really try to find things that are at the nexus of the needs of the customer that need software-based solutions that can keep pace with the threats that they're facing. The repeatable BD process is creating quality captures. And when we look at how that mix comes out, we expect it to be always more technology than expertise, but it's lumpy. Why do I say that? It doesn't mean that expertise work is not an interest to us. We've won some phenomenal jobs. It just means we can be much more selective. And most of those expertise jobs, Peter, are going to be Time and material jobs are cost-plus jobs because in many instances, the customers sort of know the kind of support that they need, but that always changes. On the technology programs, you know, a lot of the work is going to be a mix of cost-plus and fixed price, right? And what we enjoy since our solutions are software-based is that let's get the design done under a cost-plus framework, and then let's move to a fixed-price production side. You know, when your production, quote-unquote production, is, I don't know, 60%, 80% software-based, it's not as risky as bending metal, right? You can make changes more swiftly. Spectral, perfect example. RFP, four years back, customer rewards it. The threat completely changes. You know, customers every day more excited that they selected us over everybody else. because we're able to use software to make changes to that program to actually stay with our original LRIP production schedule. So I think you're going to see the contract mix move around. I think it will always be predominantly cost plus, Peter, but a nice product delivery model where we're delivering to purchase orders, and we well should deserve higher margins, because that's our investment dollars, making sure that we're there to support our customers.

The next question comes from the line of Mariana Perez Mora with Bank of America. Your line is open.

Hey, good morning. This is Samantha Styro on for Mariana. I guess just double tapping on those submitted bid pipeline and what you're expecting to submit in the next two quarters. How should we be thinking about the win rate on those new opportunities and then also kind of a breakdown, are those new opportunities or like new, new opportunities or takeaway contracts?

Gotcha. You know, one, I would expect that the pipeline plays out consistent with last year. You know, I'd love to be very predictive on wind rates and all, and if I was, I'd probably be in a different business. But look, I think we're doing the right things. We're not bidding on things that are out of our sweet, sweet spot. It's all within the markets that we serve. There's so many factors, frankly, that goes into win rate. I'll also tell you that a lot of this is timing. You know, we had $5.7 billion of rewards in the fourth quarter. You know, be it by two weeks, we might have had $2 billion less then and had $2 billion, you know, in the first quarter now. So, but I think what's important and foundational is is when we share those numbers, it's not so much the numbers as the quality of things that we're out there chasing. We're not getting really nice, strong win rates by accident. It actually is a function of a great line and business development team working together with our client-focused folks, making certain that what we're bidding on is a quality bid. So look, I like the odds of us winning more than not. What we feel confident about is we did some prudent work on what our potential win rates are, and that went into our current guide. And again, if win rates improve, as they did in 24, from where we see their potential now will be at the upper end of the guide. If they're not there or they get delayed, then we can be slightly towards the left end. But nice quality, similar type mix. more technology than expertise-based and all focused on at or above the current margins that we produced today.

The second part of that question about the new content, the $9 billion under evaluation, about 90% of that is new to us. The $14 billion we expect to bid in the first half of FY25, 80% of that is new to us.

And then for those new contracts, what kind of gives you the confidence that CACI can win market share for any of those that are maybe a takeaway contract where there's a different incumbent now? Kind of what gives you that confidence?

Yeah, it gets back to the recipe we put in place a number of years ago and we continue to build on. You know, we're going to be involved in programs where we've spent a number of years shaping what we believe the art of the possible is for a customer. So a typical capture for us starts two to three years prior when the RFP comes out. A great example is our NCAPS job, right? So we're very, very well steeped in agile software development and how we deliver and how we can rapidly update what our customer needs. on the on-cash job. The second piece was spending three years with the customer. How do you like the value that's being delivered to you today by whoever your current deliverer is? If they say they're not extremely happy and that they'd like to take this somewhere else, then we sit with them and show them the art of the possible. then based on that we'll invest ahead of customer need and we'll put investments in place to make certain that that customer gets a comfort with working with us that's over a thousand days before the rfp comes out and if we're to that point then we pretty have a pretty good idea of how the customer operates the type of contract fee vehicle that works for them and us the level of budget that they have to plan to plan for then if you wrap that you know the sort of frosting is putting the right key personnel in place that is the rest of recipe for a spectral win and a large intel customer enterprise win right for expertise win and it was the recipe that bought two billion dollar you know multi-year end capsule war dots so we have some history here it doesn't always always work but it uh gives us the confidence that we're spending precious bid and proposal dollars on growing the business versus spending a lot of time re-winning stuff that's already in our revenue. Thanks for the questions.

Your next question comes from the line of Robert Spingarn with Milius Research. Your line is open.

Good morning. This is Scott Mikeson for Rob Spingarn. John, I wanted to ask you a question. So Spectral was a big award for you guys that we normally would have expected to go to the large traditional defense primes, but you leveraged software to deliver a solution there. And Northrop and RTX actually joined your team on that. So I was just wondering if you could elaborate on other opportunities where you think your software capabilities can be a differentiator to win larger programs that typically would go to the primes.

Yeah, look, you know, one thing, speaking of the know, Prime's, they're phenomenal companies. They all build eye-watering platforms and we should be proud of everything that those companies do. We just believe here that there is a level of mission that we can deliver more agilely and in a manner that allows customers to address threats at the speed of the fight. And I actually believe wholeheartedly that's a better value proposition to our customers who are facing uprisings all around this globe. So when we looked at software and the teaming, you know, we partnered with Northrop and with our Atheon outstanding team, they sweetly augment our spectral delivery, okay, because they have expertise in areas that, you know, we don't. And that's what our customers want us to go do. Lead with software, lead with agility, connect with partners who can provide the other pieces that we don't provide, and then give them an experience and a set of outcomes that are absolutely eye-watering. I shared in CAPS. That's a customer that has 200 or so different systems and apps that need to be continuously updated in an agile manner across all of NASA. You can look at the counter-UXS threats. It's the same step and repeat, okay? What we do on Spectral, you know, all software processing below the deck plate, taking threats and signals and what is that, how do I find it, and how do I rid that of my world is similar to what the counter-UXS fight is. You know, and frankly, there's a lot of companies that are looking at these level one and two drones that are not what's wreaking havoc across the world. Okay, these are, you know, these are large country state actors, level three, four, and five drones that are very complex, that change their tactics and their TTPs, you know, every other hour. So there's a large amount of work in the counter UXS world. There is also, you know, where do we take things like Spectrum? Where do we take things like ITAS? Where do we take things like IpsArmy? It's a step and repeat model. And once customers feel comfortable that a software-based solution is actually better and quite more in the current decade of what this customer base needs, frankly, the opportunities is not our worry. The opportunities base is for us to select the right ones. And those are going to be with customers who are willing to change. And it's going to be changing how they buy. Having the Army move to a program of record to buy exquisite electromagnetic spectrum technologies is a major step forward. And as investors and cell site analysts, don't pass that because that is extremely important. That is called acceptance. And to wrap up, a customer like the United States Navy picking CACI, a software powerhouse, bringing other traditional vendors along is also another marker that says that that part of the market is ready to buy.

Thanks. I'll stick with one question.

All right. Thanks so much.

Your next question comes from the line of Matthew Akers with Wells Fargo. Your line is open.

Hey, guys. Good morning. Thanks for the question. I wanted to ask about pre-cash flow conversion. I think in the past, CACI has been kind of well above 100%. So, you know, you guys are a little bit below that this year. It makes sense, some of the working capital. But I guess do we get back to that 100% or is there something sort of different about some of this technology work that maybe a little bit more working capital ?

Thanks for the question, Matt. You should continue in the, you know, longer term or even medium term to think about us as 100% net income conversion. We happen to have a confluence of factors here in the ramp of new programs, as well as sort of finishing up a couple years of non-recruiting items that are kind of anomalous. And we're working through that phase of our cash profile. But steady state over time here, over the next year or two, we will fully expect to be back in that sort of a range. And that's the way you ought to model us in the longer term.

Got it. Thanks. That's helpful. And I guess one more, just the O&M outlays data. I think a lot of us look at every month. It's been pretty weak lately. Is there any kind of signs you're seeing from your customer that would explain it or any way you can help us sort of understand, you know, kind of the difference between that data and what seems to be pretty good growth for you guys?

Yeah. Look, a couple of things there. One is when we have an extended CR, as we had while we're in government fiscal year 24. What traditionally happens is that that spend is no greater than last year's spending rate. That really bottles up O&M spending early in the year, so you're going to see customers with more O&M towards the end of the year as they get to the end of September. That's something that we're watching. We're a big modernization through sustainment company as well, and it's those O&M dollars that could bring some additional growth So it's both of those things. It's nothing that's extraordinary, but what you'll see is that O&M dollars to be placed is going to be larger the longer you see a CR go forward. So similar to other CR years, but a nice trend. It also allows customers to re-appropriate funds to go after more urgent needs. And I would put out there that in my lifetime, I've never seen a time when there's so many urgent combat commander theaters where some of that end of the year alumni money may get make it placed towards uh defending some of those those threats thanks ma'am your next question comes from the line of toby sommer with tourist securities please ask your question yeah hey good morning this is jack wilson on for toby

If you could maybe just double click on sort of what you're seeing in terms of recruiting sort of top tech and expertise talent, and if you've seen any sort of change in your retention or attrition in the past couple months.

Yeah, thanks. You know, I made some, a reference to our senior leadership offsite earlier in our fiscal year, second week of July, and I really talked starting to show its end. And a company like ours is very strategically based. We talk a lot about markets we serve and investing ahead of customer need. We also invest ahead of talent needs as well, right? Because you don't generate revenue with great awards if you don't have talent. Look, we're very focused on how do we as a company look at taking people into the company with a skill set that, frankly, across the majority of things that we do within five years, that skill set is going to be not fulsome enough to do the work that we need to do. So how do we internally, how do we build a program that's not just about leadership training and some additional training? It really is about core skills upgrading. um you know we get we get folks in this company as zoomers and 20 years from now everything that they came to the company with is going to be completely different right so uh you know good news is we are a strategic company strategy is a place where we come from and our our hr department you know got all of us on board saying here's how we're going to have to hire differently here's the kind of skill set programs Here's the changes in our internship program to make certain that even while folks get to us as a sophomore in college, you know, frankly, it'll be three years if they're part of our company and their skill set's going to need to be augmented. How are we doing? About 50% of our world-class force comes from referrals. About 25% of all the openings in our company are filled by someone else within the company. So I'm doing this today. I want to go do that tomorrow. Maybe I need a skill set upgrade. You know, pull in, pull into the ramp and get your skill set training and go back out on the track doing different work for us. So, look, I'm really happy and really confident. Retention is up. Attrition is down. Again, something else that doesn't happen by accident. Great first-line leaders. making certain that we're keeping folks here with us. And frankly, you win $14 billion of awards or last year double-digit awards on the things that matter in markets that matter, that are well-funded. If you're a younger employer, new to the workforce, I'm going to pick a company that's software-minded because that implies change, and that change implies opportunities, and we're willing to invest in them.

Thanks. Thanks, guys. I'll turn it over. Thanks.

Your next question comes from the line of David Strauss with Barclays. Your line is open.

Thanks. Good morning. David? Just on the, you know, the margin profile throughout the year. So, you know, last year without the material purchases, you know, you were around the 10% level in the first half and, you know, 11 plus in the second half. Sounds like you're implying a similar profile this year. What explains that? Is that just volume or is there something else that explains that, you know, first half versus second half difference in margins?

Yeah, thanks, David, for the question. We have over, as you know, we have over the last couple years developed a pattern of having higher volume and higher margins in the back half of the year over the first half, and it really relates to customer buying patterns. It's not a, you know, it's not a mysterious thing, but we have certain customers and certain, particularly technology, solutions that, you know, seem to fall into those periods in the year.

It's just, you know, it's customer buying behavior.

And on the, you know, to put a fire point on cash flow, so Jeff, it looks like, you know, maybe you're assuming about $100 million of working capital usage for the year. Is that right? And then I guess a couple of – and then Section 174, is this the last year of that impact? And I guess the last question I had was, you know, your book tax rate, you're implying a bit higher this year. You know, what's driving that change? Thanks.

Yeah. Thank you. So the working capital – I'm probably not going to get into the specific amounts – But it's sort of on that order. And it's split across the three things that I've mentioned in my prepared remarks. Let's see, what was the other one? The tax rate. The tax rate from the midpoint of our guidance range is about 160 basis points up. It's driven by several things, but the two real drivers in it are a higher blended effective state tax rate, which is just the distribution of the income that we generate by state moving around a little bit to higher rate jurisdictions. And then the second thing is last year's increase in the UK statutory rate we have now for a full year. I think we had it like seven months last year. So now we have it for a full year. And then the section 174 No, it continues, although it's declining in accordance with the guidance we've given you before, I think about $20 million a year, but there are two more years of that to go.

Thanks, David. Thank you.

Your next question comes from the line of Seth Seisman with JP Morgan. Your line is open.

Good morning, Seth. Good morning. This is Rocco on for Seth. Does CACI have any work directly or like second order related to Ukraine that could be at risk if the US cuts off funding? And if so, would you guys be able to size it?

Yeah, thanks.

We have a non-material amount of work in the terms of revenue that we're doing there. I really can't size it beyond that. Probably can't say much more than that, other than know that you all know the kind of technology that we deliver and what we do. And I'll leave you to your assumptions there. But it's not on the revenue side, Rocco. It's not there. There are other international customers that are looking at what it is we deliver. And in future quarters, we'll be talking about how we're building out what our international strategy is there.

But I think that's probably all I can talk about.

Okay, thank you. That's helpful. And then, how is CACI progressing on integrating AI into the contract award and execution processes?

Yeah, we've got about 200 programs that have some version of AI in it. So, as I've mentioned in the past, look, we are on the mission side of many of our customers. Since we're on the mission side, we're on the data side of many of our customers. We're well-versed, everything from visualization to computer vision to machine learning and all the other elemental P acrimons around AI. It's sufficient to say that the fact that we're software-based and on the highly technical side and we actually deliver things that we like to call AI today versus advise on it. We've been pretty steeped in it. A lot of it is in the intelligence community, so we don't talk about it a lot. But you can only imagine, given where the world's threats are today, the fact that we are present in every combatant command, the fact that we're responsible for protecting troops and defending this nation. This is a company that actually uses and delivers AI to the folks who are building and looking for mission technology. to sort of get an informational advantage. So, we've been in AI for a really long time. We continue to be in it for an extremely long time because everything we do at the mission level with our software-based technologies have demanded for decades that we understand how to do more with less and how to process more of our data faster. So, thanks. Thanks, Rob. Seth.

We'll take the final question from the line of Sheila Kaoyaoglu. From Jeff Rees, your line is open.

Thank you, guys, and great quarter. John, Jeff, maybe two questions for you guys. First, on top line, if that's okay. So, John, on top line, you talked about the technology ramps as being a reason the revenue growth is maybe slower and expertise ramps faster than the book to build might suggest. Why is that? Can you just distinguish that? Is it constrained by the customer or just timing of that hiring, onboarding, or material receipts? If you could just Talk about that a little bit, please.

Yeah, sure. So let's take the expertise side first. And I'll talk at an uber high level. When we win a large program that's on the expertise side, it's traditionally work which is out there today that a customer may be adding some additional scope to. But at the end of the day, when we talk about expertise, the customer is procuring talent. I used to call that labor hours. So you sort of get a leg up with the fact that you're going to look at folks who were currently on that previously held contract. So you can immediately move people to start to build to that contract and address that customer's need. It's also their expectation, right? There's many contracts we sign that could be an eight-year expertise contract for a billion dollars with a 60-day startup window. So within 60 days, 90% of the job has to be staffed. And that's just the nature of how that work works. When we look at a program like, let's use Spectral, you know, that is a design and development program deep on technology, deep on software creation, first article testing, and then building kits beyond that. Just by its nature, you're not looking at labor hour buildup. You're actually looking at outcome and, you know, units of outcome. So those programs, even at your major primes, are going to start up slower. And, you know, when you see a major fighter jet program, there's eight to ten years of design work, you know, before you get to the larger revenue bill. So at a high level, that's how we see it. So when we announce more technology when, Sheila, than expertise jobs, that should be a huge clue that, okay, this is longer duration. It's going to ramp up. you know, more over time, which really gets to some of my introductory remarks that we have a number of programs that are technology wins that are going to ramp up at the same revenue delta that a single large expertise job did. So hopefully that's helpful.

No, that really is. And then maybe just kind of adjacent to that and a bigger picture question on profitability for the industry. Obviously, you guys are demonstrating growth. The customer's changing, you know, the example with the Army buying software. acceptance of what they buy, why isn't profitability for the industry better given the software offering? How could you change how the customer buys from you?

Yeah, well, look, I think we've done a material job of getting the customer to buy differently. Let me split a hair that may help. When we talk about software-based, there's still a hardware element to it, but it's software-based. So when customers buy technology from us, they're looking at the ability to say, okay, so I bought the phone, but I wanted to put different apps on it for a really long time. I'll use a commercial reference there. When we hear about the government trying to buy software, today they buy licensed products, think commercial shrink-wrap software. It is a licensed model. We frankly don't believe in a licensed model because that puts our customer in a really rough spot and may juice margins for a couple of quarters. But we're serving a mission that is, how do I buy something that's going to be enduring that we continue to modify? So our software delivery and the fact that we've also had a customer need and we deliver on a purchase order, those for us are the three elements that allow us to drive margins. Look, we've moved from, you know, 80% margin to the high 10s. We're still consistently focused on how do we drive both top and bottom line growth. Clearly, free cash flow per share benefits from either and or, you know, both of those. And that's what we're looking toward. So, look, I have to give our customers chops that they are working through how do they address today's threats more rapidly. And frankly, that gets yourself to a agile software model and the fact that there's very few people who do it well right differentiation drives margin right it makes the ask heavier and then some of the terms that we're willing to accept and the last lever is are we doing some of our software in a firm perfect price manner the answer is yes you know we understand how to do it well we're able to sell it in a slightly

to drive bottom line growth. Thanks, Sheila.

Thank you. One more question came in from the line of Louis de Palma with William Blair. Please ask your question.

John, Jeff, and George, good morning.

Good morning.

And this is rehashing several of the earlier questions. Awards in the book to build this quarter were superlative and 70% of the awards were for new work. Are you assuming a slow ramp? For the new work in terms of it taking several years to reach peak run rate and also for the first year of the new work is. the margin initially dilutive, and so should we expect, you know, for these sets of contracts that, you know, the revenue run rate will increase in year two, and so will the margin?

Yeah, Louis, so let's see. On the 70% new work, how does that ramp? As I mentioned earlier, the expertise work is going to ramp up quicker. There's a higher percentage of technology in our fourth quarter awards and our full year awards, as you mentioned. So that is going to ramp up slower. Based on the contract type really tells you how the bottom line ramps, how profitability and EBIT is generated. On the technology programs that have firm fixed price elements to it, we'll be in an EAC model. And yes, we will hold back some of that profit dollars based on risk. And it's a well, you know, a well-defined process that's got back up as to how much risk we still have to burn off. But on the other technology work that we have, you know, I'll let Jeff make any comments. Profits going to follow, you know, revenue because it is cost plus. Right.

uh yeah i would also uh louis start by noting that was 60 new not 70. uh and and i would just echo john's margin comments i mean the ramp uh hits as you would expect we are slow to slower to uh you know we protect protecting our early booking decisions some uh you know some development work and the cost type work Generally, you know, the margin is what it is right now at the gate. Great.

That's it for me.

Thanks, everyone. Excellent. Thank you. Thank you. That concludes our Q&A session. I will now turn the conference back over to John Mangucci for the closing remarks.

Thanks, Michelle, and thank you, everyone, for your help on today's call. uh we'd really like to thank everyone who dialed in or listened to the webcast for their participation we know that many are going to have follow-up questions so 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 operator just concludes our call thank you all and have a fantastic day ladies and gentlemen that concludes today's call thank you all for joining you may now disconnect