CACI - NYSE

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Third Quarter Fiscal Year 2023 Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the conference call over to Dan Leckburg, Senior Vice President of Investor Relations for CACI International. Please go ahead, sir.

Well, thank you, and good morning, everyone. I'm Dan Leckburg, 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 number 2. 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 3, please. To open our discussion this morning, here is John Mengucci, President and Chief Executive Officer of CACI International. John?

Thanks, Dan, and good morning, everyone. Thank you for joining us to discuss our third quarter fiscal year '23 results. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Slide 4, please. Last night, we released our third quarter results and I'm very pleased with our performance. We grew revenue by 10%, all of which is organic, with growth in both expertise and technology. Profitability was strong with an adjusted EBITDA margin of 11% and cash flow was solid. Our trailing 12 months book-to-bill of 1.4x remains very healthy. As a result of our strong year-to-date performance, we are raising our fiscal 2023 revenue and earnings guidance, and Jeff will provide additional financial details shortly. Let's go to Slide 5, please. Turning to the external environment, market and demand trends remain very favorable to CACI. Government fiscal year '23 budgets showed healthy growth, and we continue to see positive funding trends. In addition, the President's GFY '24 budget request calls for further growth in defense, which is just a starting point as Congress begins to budget process. While budget indications are positive, we will continue to monitor the process and debt ceiling negotiations. We see continued growth in key areas of focus for CACI, driven by the heightened global threat environment, bipartisan support for national security and the need for modernization. From a capability perspective, we see continued government demand in several important areas for CACI, including broad modernization of both applications and networks and accelerating demand for cloud migration. The Space domain with photonics and situational awareness, and Electromagnetic spectrum, including software-defined Signals Intelligence and Electronic Warfare and their convergence with cyber. CACI's industry leadership and commitment to invest ahead of need positioned us extremely well to deliver innovation to our customers and value to our shareholders. Slide 6, please. We continue to successfully execute our strategy of building differentiated capabilities rooted in software and deep domain expertise. Just as important, we remain focused on exceptional execution. The combination of these 2 factors enable CACI to not only win new work in the marketplace, but also retain, expand and extend that work over time. Let me give you some examples. First, our Enterprise IT as-a-Service or EITaaS award with the United States Air Force is the largest contract award in our company's history. This award demonstrates CACI's leading position in broad IT modernization, while the award has been under protest, I'm happy to say that our win was recently upheld by the GAO. We are ready to get to work and look forward to beginning this important program for the Air Force in the near future. Second, I want to highlight the Army’'s Integrated Personnel and Pay System or IPPS-A. IPPS-A is the largest PeopleSoft implementation in the federal government and arguably the most complex PeopleSoft implementation at scale in the world, serving more than 1 million soldiers. We are excited to have rolled out the latest version of the system earlier this year. For the first time, the Army has a single system for managing more than 1 million soldiers across the Army, Army Reserve and Army National Guard. That is software development at Scale. And we look forward to working with our customer to provide additional functionality and enhancements to further support our soldiers. This performance is yet another example of CACI's industry software development for both enterprise and mission customers. In the Space domain, we continue to see strong demand for our photonics technology for both government and prime customers. We also continue to invest in and advance this critical technology and as a result, continue to achieve important performance and interoperability milestones. CACI's photonics technology enables secure space-based communications networks using more powerful, efficient technology that transmits more data faster. We are currently under contract to deliver optical communications terminals for the SDA under Tranche 0 and Tranche 1, for multi-transport and tracking layers. And we continue to provide our photonics technology to a wide range of additional classified programs at multiple orbital altitudes. Finally, we continue to demonstrate leadership in the Electromagnetic spectrum, an increasingly important area of focus for national security, particularly in the Pacific and European theaters. CACI is one of the largest providers of sensing systems across all domains: land, air, sea, space and cyber. As we've discussed before, one of our key differentiators is a strategy focused on software-defined technology. This allows us to update capabilities in a faster, more agile manner, enabling our national security customers to stay ahead of rapidly advancing adversaries and threats. And the latest example of this capability, we recently executed the first over-the-air software upgrade of an operational system on a Navy ship at sea. Rather than waiting for the ship to return to port we deployed an over-the-horizon update to enhance capabilities while keeping the asset on mission. This software-enabled speed and agility is critical to the context of near-peer competition. In summary, we delivered strong results, and I remain confident in our long-term prospects. We are successfully executing our strategy. We're making the right investments, hiring and retaining top talent, winning new work, delivering with excellence and leveraging our financial strength to drive free cash flow per share and additional shareholder value. On top of all that, while we are effectively managing our capital structure to allow for flexible and opportunistic capital deployment and taking advantage of all available value-creating initiatives like the tax method change we recently affected. As a result of our performance to date and our strong position, we are raising our fiscal year 2023 revenue and earnings guidance. With that, I'll turn the call over to Jeff.

Thank you, John. Good morning, everyone. Please turn to Slide 7. To echo John's sentiment, I'm very pleased with our third quarter results. We generated revenue of $1.7 billion in the quarter, representing year-over-year growth of 10%, all of which is organic. Expertise revenue grew 13% and technology revenue grew 7%, both reflecting the ramp-up of new awards as well as the parenting of existing work. Adjusted EBITDA margin was 11% in the quarter and is 10.6% on a year-to-date basis, which is consistent with our full year guidance. As we previously discussed, we expected margin in the second half of the year to be stronger than the first half, and our third quarter results are very much in line with that expectation. Third quarter adjusted diluted earnings per share were $4.92, up 6% from a year ago, with strong operating performance more than offsetting higher interest expense and a higher tax rate. Slide 8, please. Third quarter operating cash flow, excluding our accounts receivable purchase facility was $56 million. This primarily reflects higher working capital as a result of our strong revenue growth in the quarter. Free cash flow was $41 million. As it relates to cash flow, we've had several extraordinary tax items that have influenced cash flow in fiscal years 2020 through 2023. We thought it might be helpful to lay them all out at 1 place to make it easier for you to normalize our reported free cash flow and some years have enjoyed a tailwind while others experienced a headwind. Each of these items has been previously disclosed. We have them here only to aid your analysis. For example, as we have previously discussed in fiscal '23, between the CARES Act, the tax method change and Section 174 we expect to have a $222 million cash headwind. This year will be the largest cumulative headwind they experienced for these 3 items. Slide 9, please. You will recall last quarter, we announced our Board had authorized a $750 million share repurchase program. We deployed an initial $250 million of that authorization as an accelerated share repurchase on January 30. We expect that ASR to be complete by August. As part of that authorization, we also initiated an open market repurchase program. As of the end of the third quarter, we have repurchased an additional 45,000 shares in the open market at an average price of about $283. When we discussed the ASR, we noted that this remaining $500 million authorization provided us with the ability to be even more flexible and opportunistic, our stated strategy for some time. This additional flexibility is key to our commitment to drive shareholder value by deploying capital based on business and market dynamics over time, and that is exactly what we are doing. We ended the quarter with net debt to trailing 12 months adjusted EBITDA at 2.5x. This leverage reflects the impact of the $250 million ASR as well as the open market share repurchases. The healthy long-term cash flow characteristics of our business, our modest leverage and our access to capital continue to provide significant optionality to deploy capital in support of future share growth at shareholder value. Slide 10, please. As a result of this strong execution, we are raising our fiscal year '23 revenue, adjusted net income and adjusted EPS guidance. We now expect fiscal '23 revenue growth to be in the range of approximately 7.5% to 9%. I'll remind you that the 2 points of our expected growth in fiscal '23 is from acquired revenue with the balance being organic growth. We continue to expect our full year adjusted EBITDA margin to be in the mid- to high 10% range. We are adjusting our -- we are raising our adjusted net income and adjusted EPS guidance to reflect our higher revenue outlook as well as our diluted share count guidance of 23.5 million shares. We continue to expect our interest expense to be in the range of $80 million to $85 million. Let me remind you, interest expense this year is up about $20 million compared to our initial expectations, primarily due to the rate increases we've seen over the last few quarters. I'm very pleased that the underlying strength of our business puts us in a position to offset that additional interest expense and raise the low end of our adjusted net income guidance. I'll also mention that during the third quarter, we entered into $500 million of additional floating to fixed interest rate swap agreements to hedge an additional portion of our floating rate debt. With these interest rate swaps in place, interest rates on approximately 2/3 of our debt are effectively fixed, helping to further insulate us for rate volatility. We are updating our fiscal year '23 free cash flow guidance to reflect the delay of a $40 million refund related to the tax method change we previously discussed. The refund was expected to be received this fiscal year but has been delayed due to IRS timing. We now expect to receive the refund in fiscal '24. Slide 11, please. Turning to our forward indicators, CACI's prospects continue to be strong. Our trailing 12 months book-to-bill of 1.4x reflects strong performance in the marketplace and third quarter backlog of $25.3 billion grew 8% from a year ago. For fiscal '23, we now expect virtually all of our revenue to come from existing programs with minimal recompete and new business remaining. Our pipeline metrics are also very healthy. We have $7.2 billion of submitted bids under evaluation, approximately 65% of which are for new business to CACI. And we expect to submit another $18.7 billion over the next 2 quarters with over 80% of that for new business. So in summary, we're seeing the successful execution of our strategy manifest in our strong results. Our performance enables us to raise fiscal '23 revenue, adjusted net income and adjusted EPS guidance, and we remain confident in our ability to continue to drive long-term growth, increase free cash flow per share and generate shareholder value. And with that, I'll turn the call back over to John.

Thank you, Jeff. So let's go to Slide 12, please. In closing, CACI delivered another quarter of strong financial results. 10% revenue growth, 11% adjusted EBITDA margin and solid cash flow. We're well positioned for continued performance with a strong track record of awards and a healthy pipeline of additional opportunities. Our performance is not by accident. We have a strategy focused on differentiation, innovation, operational excellence and flexible capital deployment. Our objectives in executing that strategy are to drive long-term growth, margin expansion, strong cash flow and free cash flow per share and ultimately, customer and shareholder value. And Jeff said it very well. We're pleased to see the successful execution of our strategy, manifest in our results. It's also important to remember that CACI's success is driven by our employees' talent, innovation and commitment to our customers' missions and to each other. I'm immensely proud to lead such a capable and diverse group of people. It's your dedication, your good character and your innovative spirit that's truly foundational to our success. Thank you all. And to our customers and to our shareholders, thank you for your continued support and confidence in us. With that, Emily, let's open the call for questions.

[Operator Instructions] Our first question comes from the line of Bert Subin with Stifel. Please go ahead, Bart.

Just my first question, organic growth inflected to 10% in fiscal 3Q and looks to be on track to grow around 6% in the fourth quarter, I guess, depending on where you fall within that range you gave. Can you just highlight what's driven that inflection? Has they primarily been on contract growth, just as outlays of rebounded in hiring of these? Or has it been more a function of the new contracts you highlighted when you guys were going through your prepared remarks?

It's a little of both. We put our FY '23 plan together last August. It is playing out as we expected. During our second quarter call, Jeff mentioned that I think on the margin side at 10.2% and 10.4% in the first couple of quarters, he begged everybody, nobody panicked, because this is the way the year is going to play out. That's what drove our confidence in ensuring we would finish the year at the mid- to high end of the 10s on our margin numbers. As for the revenue mix, it's really a combination of both. Over the last few years, we've really been focused on on-contract growth. When you win some of these large programs, pretty much the first year of revenue is 100% in sight. They really have to go -- grow capabilities across the company and sort of take current capabilities to more and more customers out there. And our line leaders have done just a fantastic job there. As for some of the new programs, it's really spread across both expertise and across tech. One of the things about good news for us is both are growing. I often get asked, technology is growing at 10% and expertise is growing at 7%, you must be happy with the tech and I often answer, I'm actually glad when they're both growing. So the fact in enterprise, may have grown larger than our technology business, is actually positive news for us. So I've always said, as we look at growth just don't fixate on 1 quarter, things are going to move around quarter-to-quarter. And it's not we focus on the outlook for the year and the longer term. We're really glad that we've gotten to this point to close our third quarter and are very, very happy that we're able to raise both top and bottom line guidance.

Yes. Maybe the follow up to that point. You guys have had some notable wins recently across expertise in the enterprise tech side with a few multibillion-dollar wins. So it seems like that part of the business is sort of evolving at least as good or better than you expected. Can you walk us through how to think about the mission tech sales side of the business? Because I feel like that's the part that ebbs and flows more quarter-to-quarter. You noted in your prepared remarks that the optic part of the business is seeing some success with both prime and government customers. Can you just walk us through sort of how we should think about the next few quarters as it pertains to some of your businesses across EW, SIGINT, Optic, a variety of the mission tech to hardware business?

Yes. Bert, thanks. Terrific question. So on our mission tech side, I'll actually relate it back to the third quarter that we just finished, right? So expertise outpaced technology on the revenue side, but still at the margins that we expected. It doesn't take a lot of mission tech. Although you won't see that in the revenue side, it really has a pronounced effect on our margins, and we continue to make progress. What's very different in a historical government services business, it's not just selling the expertise piece. The technology rate of orders is very, very different. It rarely has backlog. We'll get awards for x number of units. And then before that quarter is done, we have usually shipped. Like, which you're also seeing on the product side is eventually everything does come back. We talked about some funding issues, with our investors during second and third quarter last year, that funding has all backed up. It has allowed us to make more product deliveries thus support our margin. You asked about SA Photonics and where we're going in the optics world. And I could not be more pleased with our performance overall. We're very confident and continue to gain confidence every quarter that we're going to realize the strategic value that we expected. And just remember, the way to look at this is we're in the very early innings of optical comps. We are seeing strong demand. We've got great relationships and contracts with our government and our industry satellite primes. We are doing a great job of the transition and the connection, if you remember, to our heritage LGS Photonics business, so that's going well. We're expanding our production facilities down in Orlando. And we're still in the investment phase. So I would tell you, you should look for growth at the end of '24 and into '25 based on the current schedules and on funding. From a technology side, we've done an outstanding job. We're looking at bandwidth from 1 gig to 100 gig, 100 gig. We've got decades of development experience. We're continually get pulled into many [CRAD] efforts where we can expand what we're doing, doing there. And during the quarter, we've also secured contracts for both LiDAR and Comms applications in the air domain. So we're sort of already looking at capability that the airborne layer is going to require as it comes to optical comms. So you should continue to look for revenue and margin growth in this space as well as what we do in our ID Tech Archon acquisition as we get more towards the end of '24 and as we continue on throughout '25.

Our next question comes from Robert Spingarn with Melius Research.

John, I want to follow-up on that growth question, the revenue growth question. And you talked about that's both, I guess, a function of demand and supply, supply being outlays moving faster and so on. How do you see that trending from here? And separately, what have -- you mentioned the debt ceiling fight, has customer behavior adjusted for that? It's a tough question to ask in a quarter where you had such good revenue growth, but I wanted to see if you could talk about that a little bit.

Yes, sure. So it's always going to be a function of budget outlays and what were the sub-committee budget looks like. And we're sort of -- I hate to use this term again, but we're in the early to mid innings putting together our FY 2024 plan. We've got -- I think the government has a lot of work to do to get us to a clear 2024 budget. There's a lot of talk of, is that's going to be a full year CR, what is the debt ceiling impact. And I don't have the best crystal ball. What I would tell you is I like the hand we play. I like the capabilities that we have created and had a customer need. And yes, there are times where funding doesn't totally line up at that, but all is not lost, because we're in the right areas of very healthy spending trends. And if -- let's talk about the budget on 1 side, there's legitimate concerns about the government's deficit and our debt situation. But on the other side, I mean, there remain significant bipartisan support for national security. We've got a war going on in Europe. We got near-peer trusts like China, who, in some ways, has surpassed us. Cyber is a great equalizer. A decade ago, we were at war in Afghanistan, where we sort of owned the skies and we owned the electromagnetic spectrum. That's not going to be the case in the next fight. And we're going to have to rely heavily on space and that domain is now contested. So at a macro level, I like the capabilities we have. We've been working this for a number of years. So then when we break that down into the mission, mission tech side, from the Mastodon, LGS acquisitions and when we had internal to our CACI, we're seeing demand for those products to pick up, some of our counter UAS systems. We've got some testing going on in Europe, looking at enhancing what we do in the counter UAS domain and really work through our federal government build a plan and whose team as to how we may be able to help in the Ukraine fight. So that's a positive trend here. Again, we're the long-term company. We're not going to look quarter-to-quarter, long-term over a number of quarters and a number of years, I like where the funding is showing up. We've really expanded our relevance to those areas. We've got terrific relationships, working with large OEM primes who are building those exclusive platforms, be it space or be it airborne or be it land, that we find our products on. So if I look at the long-term growth plan, I really like how we're positioned. And when we get to the August time frame, when we're talking about the '24, but we've also got some really nice large programs that we've won as well.

Okay. And then just on the supply side, on your ability to staff up these recent intelligence leaks, the documents that were leaked, is that going to slow down the approval process for security clearances? And can that -- and if so, how significant could this be?

Yes. I mean, look, we've talked for a long as I've been in this market, which is a long time around the ability to get not only our folks cleared, but our government folks cleared. And I think that's going to continue to be an issue. There is no perfect answer there. At the end of the day, we're all assessing whether somebody has the right attitude and the right -- what's the right -- the good stuff that helps people make the right deal or decisions there. So more to come on that. I know that folks in the House and in the Senate have been talking about how do we all better plan for that. But under the categories of things that we can control, I like what we're doing on. We've been doing on hiring and retaining our talent. But the demand remains high. And to your point, Rob, we've got to get through that current budget as well. But we've got our attrition that's the lowest of -- in a number of recent years, definitely lower than what it was as we entered COVID. We are still filling a lot of our open reqs through our referral program, about 40% of our hires come to us through referrals. One in 4 of our openings is filled internally. So for those folks who are looking to come to a company not for a job, but to build a career that there's a lot of places that they can move around. So from a from funding, from a budget, from the company's process, CRs, we're a 61-year-old company, now we've been operating in that environment for a while. And I'm really, really excited by both the expertise and the technology and that we have as well as some of these large recent awards and really looking for continued long-term growth and add even more shareholder order value. So thanks, Rob.

Our next question comes from Matt Akers with Wells Fargo.

I wonder if you could talk about kind of the longer-term. I wonder if you could talk about kind of the longer-term view of margins. I mean, if you go back a few years ago when you guys started first talking about kind of the technology versus expertise, you were kind of a high 9% to 10% business, and now you're kind of high 10%. Is there a lot more room to go? Can you get to kind of like 11%, 12% margin or does it sort of get harder to improve from here?

Yes, Matt, thanks. It really comes down to mix, frankly. I love the fact that we're talking with analysts and our shareholders about what else can we do to continue to grow margins. You're absolutely right about 6 years back to where we are today, we're up about a little north of 200 bps. And while at the same time, we restructure how we go after the market. We've added an entire part to our business in the mission tech area. So it's really the mix of business we have, and it's the volumes that we can achieve in our mission tech business. And frankly, change is hard. Change is hard for our customers. We're that option that is very much focused on -- you got to remember, 6, 7 years back, we had pretty bright budgets. And we were a nation at war. We were looking for that day when budgets would be tighter, frankly. And with tightness and with spending constraints comes what are new ways we can look at the technology that we need out there. So how do we do software-defined devices? How do we collapse 5 devices into one? How do we do over-the-air upgrades, which I talked about during my prepared remarks? If we end up in a conflict in the INDOPACOM regions, it's a long haul to assure to do a hardware card up, right, to change the capabilities on ships. The fact that we can do that via software and software is this company's super, super power, that will drive margins. Some of the work we've done with our ID Tech acquisition, and our Archon product line. Some of that, we expect relatively strong growth. But again, that's an area where a customer has to change how they buy "n" item devices. So long term, we're very well positioned. And along the way, our mix of programs continues to drive margins. And it won't be every quarter. It may or may not be every year, but if I look at the trend line from 6 years back to where we sit, in FY '23, north of 200 bps, while we've been building new parts and new capabilities, I think there is continued shots. As for our number, Matt, I really shy away if can it be 12%, can it be 13%, because it really is that mix. But we're doing everything that we should be doing as a responsible public company management team to make sure we make the right investments at the right time to make that probability of success even higher. We see that getting better each quarter.

And then I guess maybe 1 for Jeff. Can you talk about -- thanks for laying out on Slide 8, the cash flow impact. Can you talk about kind of the moving pieces as to go into 2024, what that looks like? What does that $222 million number look like next year?

Sure. For 2024, obviously, we'll have the $40 million related to the Cares Act refund that we expected this year and moved out. The Cares Act activities at this point are finished. The R&D tax credit starts getting much smaller steps way down. I think we're in probably low double digits or so next year. It starts getting quite small. The big impact was this year.

Our next question comes from Tobey Sommer with Truist Securities.

I was wondering if you could tell us what the hiring and retention looks like. It's sort of a different angle on the revenue growth that you're able to achieve in terms of filling open positions, not just in the cleared categories?

Yes, Tobey. Tobey, thanks. Look, hiring and retaining talent, we're doing a terrific, terrific job. You all have heard me say in the past, it doesn't do any good to win large programs in expertise side. If we're either bidding them at a rate, where I can't find the people or if I'm having heavy trouble finding them. No investor love sharing a great awards number and then not being able to convert that. Very proud and happy to say we're not that type of company. We actually spend an awful lot of time making certain, that we are still staying true to that theory of bid less and win and win more and less -- win larger items. A perfect example of that hiring connected to winning large programs is our EITaaS award. Extremely pleased that award was recently reaffirmed by GAO for the second time. All the staff works have been lifted. Government has been very, very clear that there's nothing that's going to stop progress on this job. But that job is just about fully staffed and we just had our kickoff meetings earlier this week with DeEtte Gray and her outstanding leadership team. We're moving forward. We're looking at how we start the program off of working OpsCon, and then clearly, areas where we could quicken the pace of [re-architecting] where the Air Force is going to go and all their baseline networks. So there is a great connection between the jobs that we have won, these larger jobs and making sure that we can staff them. From a cost of labor, you don't have to look too deep to look at some of the "high-tech" companies, those in the technology sector with a large number of layoffs. It's been years since we've had layoffs here. So that provides yet another source of ready-to-go labor. We are tracking the market. We're looking at some of those recent commercial layoffs and maybe move a little froth what we've seen recently with -- people with certain kind of key technology skills. But folks love doing the mission that we do, and they love how we go about doing it. We're going to bid responsibly. We're going to win large programs, especially in the equities area that we can fully staff. Because the alternative to that is our customer loses and you don't get the ability to be a 61-year-old company, if you consistently let customers down. So where that company is going to win these large jobs, make certain to us and our partners and come out of like a fully staffed. And again, back to some of the earlier questions, I love what that does to our long-term growth prospects.

In terms of the Photonics business, if you got a bunch of massive orders in an hour and we're ramping up to production -- are there any short-term negative financial implications that we should be aware of, so we can understand what the arc of this may be over the next few years?

Yes. I mean when we executed that acquisition, we were very transparent to talk about we're buying that business very early on in their cycle, right? And the thesis to that acquisition was, let's take what we purchased with LGS on the large, extremely reliable bespoke kind of solutions market. And then here's SA Photonics who could use some assistance on the algorithm piece, but also they had phenomenal early-stage successes at building satellite-based optics at scale. So I'll reiterate, we are in the investment phase still. And when we look at our capital deployment strategy and how we fill gas, and talk about investment, acquisitions, partnerships and then share buybacks, this is one that's going to continue to take a larger share of our CapEx spend to make certain that we've got our algorithms right, that we've gone through the producibility model correctly. I mentioned we're looking to move a lot of that production to Orlando, which is not only a cost move, but it's a consolidation move to make sure that we are building all of our optics in the same place. So yes, there is a curve still through FY '24, although I'm not trying to guide you all here yet. But there will be more on the investment case than there will be on the profitability case throughout '24. And then as we get into '25, we'll see revenue meet up with profitability sort of that chocolate and peanut butter game, that really gives us a 5- to 10-year strength in what we're going to do in the satellite-based optical comps. So hopefully, that gives you some additional color.

Our next question comes from the line of Mariana Perez Mora with Bank of America.

Good morning, everyone. So first, I'm going to ask a follow-up question to Rob. A question about the debt cleaning. And it's probably the quarter too early, but as you think about the risk of, let's say, a year on GAO resolution, but on the other side, you have over this multibillion dollar week. How are you thinking about your growth for the next summer?

Yes. So yes, there's a lot of bunch of parts moving around. And we're -- we've got one large new win here, and we're looking at finally securing the second large win. Look, as for specific guidance, we're going to provide them. We get more towards August. But to your point, Mariana, obviously, we have some nice awards. We had EITaaS reaffirmed. We're waiting on a large Intel award. It's still under protest, look into that for that too, hopefully by the middle of this quarter. We got a trailing 12-month book-to-bill of 1.4x, some of that is going to take some time to ramp. We've got some nice budget growth. What we have to go by now is the FY '24 President's budget. If I look at the budgets for SBA for other satellite-based work for IT modernization, for cloud, for a lot of the great things that the intelligence community does, making certain we have the right analysis of some of the Intel. I like our opportunities to continue driving growth into '24 and then when SA Photonics and our Archon Solutions picked up then more into '25 and beyond. We're going to continue to monitor the budget process. We're going to continue to monitor the debt ceiling negotiations. At the end of the day, based on the size company we are and where we play, we've got a great portfolio of expertise in technology, we're expertise informs technology, and technology makes expertise more effective and more outcomes based. At the end of the day, we're looking at how well are the things that CACI has world-class capabilities in and how well are those funded. So it immediately becomes less of what the overall defense budget is, but in these 4, 5 or 6 specific areas, how well are those being funded? And I can tell you, with an exclamation point, everything that we're doing today and those things that were going to drive growth in the future year-to-year are very well funded as we look at some early FY '24 budget numbers.

And my follow-up is, could you please provide some color on the guideline of submitted bids? You mentioned how much of those are new businesses precisely, but could you just describe if you have like any multimillion-dollar opportunities there? Or how much of those new businesses are takeaway opportunities versus new opportunities?

Yes, sure. Jeff shared some of our pipeline specific earlier. We have a great set of proposals that are being generated now. There was some talk, we had a 0.6x book-to-bill in the third quarter. I'll remind you all again, awards are lumpy. We've always said that. We never took pride in a 2x book-to-bill each in the first and the second quarter. The number I'm watching is 1.4x. Historically, maybe the last 7 to 10 years, always above 1x, 1.3x, which is clearly enough to be driving growth. We're looking to have some really nice bid piece submitted. What's really important is that long-term strategy a bid less and win, and win more, drive the duration of contracts in backlog greater and greater each and every year, gives you all, I guess, our investors a really much more clear, transparent picture of what you could look for growth as we go forward.

Yes. Mariana, I would -- I'd go back to my prepared remarks too. I would point out that we have about 7 -- over $7 billion of bids under submittal or under review right now, about 2/3 of which are new, and we have nearly $19 billion that we will submit in the next 2 quarters. And to John's comments about bidding less and winning more, bidding fewer and winning more, I would add that one of the things that we do keep track of that closely is the length of the awards that we're winning, which over the last couple of years has increased from about 4.5 years on average to 6.5 years. So we're bidding fewer things. We're winning bigger things, and we're winning longer things.

The next question comes from Prescott Forbes with Jefferies.

Just a follow-up on Matt's question. I appreciate the mix is the real driver of kind of margin improvement, but we talk a lot about the differential between technology and expertise margins. But -- can you provide some color into how you've seen margins trend within just the expertise portfolio? And how much room there is to drive it in there, excluding the kind of mix shift towards technology?

Yes, sure. Thanks. We've historically said that on average, I'm going to stress the word average, right? On average, technology margins are about 300 bps greater than expertise. And -- the tough thing when we're looking at long-term growth is, in any one quarter, a lot of other things happened. Cost-plus revenue, that people sometimes associate to lower margin versus firm fixed price, we've got some fantastic expertise work that are cost plus, that are more at a firm fixed price margins, because of the extreme expertise somebody needs in a mission expertise quadrant of our business that you're not going to find those people just anywhere. It really gets back to Rob's earlier comment around talent. So we try to give you a few different looks at this. One is what's the mix of our revenue. So that's step 1, right? But if my margins in technology are 300 bps higher, then over time, revenue numbers from technology aren't going to be as high to drive a much higher margin. On the expertise side, we're not bidding jobs at a loss. We're not bidding expertise jobs, so we can't in a relatively quick time generate revenue from. And if we look at jobs like EITaaS, that's an enterprise technology job. That is really making sure we're re-architecting networks. So it's not the old style services bachelor kind of job. This is one where we're drawing on from across the company, software skilled talent that is only working on the EITaaS job. So long and the short of it, Scott, is this quadrant and this expertise versus tech reserve sort of guide, but in any one quarter, we could do $40 million more of expertise work and add a higher margin to it. It also brings some of our technology deliveries up. So you're going to see revenue growth as you saw in the third quarter, but you're also going to see us holding margin. So I wish I had the perfect modeling formula for you, but just remember that on the expertise side, margins can go from something like 4% to something like 15%. So just lend those things cash in.

Our next question comes from Seth Seifman with JPMorgan.

This is Rocco on for Seth. What drove the approximately $135 million increase in accounts receivables this quarter? And when are you expecting to see that unwind?

It's driven largely singly by the volume increase. There is some amount of variability, I know you know, in general, around accounts receivable. But largely, it's driven by the accelerating volume that we're seeing in the business. It ought to stabilize to a more normal level over the next quarter too, even though it will continue to grow from its historical levels.

Great. Then on capital deployment, how does the M&A pipeline look? And how are you thinking about M&A versus returning capital to shareholders via buybacks?

Yes. When we were talking about the flexible and opportunistic, this is really at the core of that and being able to rapidly shift as we see things that are interesting to us to acquisition or other investments from share repurchases is really bad. We see the market has been, you will know a little -- there's been a little bit -- has not afforded us a great number of things that were of interest over the last year or so. We see that starting to change a little bit. We're seeing some things on the horizon, that may be of more interest. And I think over the next quarter or two, we may find some targets that we find of interest. But we'll continue to be ready to toggle back and forth relative to capital deployment, toggle back and forth as some of those are more interesting.

Yes, Rocco, I'd also add flexible and opportunistic, truly is flexible and opportunistic. Whether we're doing M&A or direct share repurchases, shareholder value, the only delta to there's timing. right? Time-wise as we're doing M&As to find capability of customer relationships to provide longer-term growth, and that will long term provide shareholder value. But as Jeff mentioned, as we find times in the -- in our M&A cycle that one, there aren't properties there else too. We've got the capabilities we believe we need and that will potentially cause an even harder shift more towards different capital deployment options. We're going to be focused on some internal investment. Frankly, as we go into '24, is some of the questions and some of my answers alluded to earlier around Archon and around SA Photonics to make sure we've got the right buildouts there. But at the end of the day, we evaluate all options based on the current dynamics. All options are always on the table. We pay down debt. We've gotten leverage down to a relatively low level. I really like the way we've managed cash inside the business, managed our a balance sheet because things always turn around. And the M&A market changes, and we think we need more capabilities or customer relationships than it is a core company -- it's a core competency for us that we understand how to do M&A, how we exploit and extend value and make certain that we're making the right investment choices.

Our next question comes from [John Franz Engelbert] with Baird.

So just -- you may have alluded to this a bit earlier, but I just wanted to sort of get a better feel of how you guys are thinking about sort of fixed price versus cost plus sort of moving forward as you start your planning for 2024? And sort of what was that -- sort of almost close to the 30% mix of your revenue and just sort of how DCSA and the new airports contract might sort of change that as you look towards 2024?

Yes, I'll start. If I look at our revenue mix trend towards more cost-plus over time sometimes driven by firm fixed price and the like. There's no particular trend. The last couple of quarters, you might recall, we saw stronger growth in fixed price. So I hate to use the word lumpy again, but it is lumpy. In some ways, it's almost non-deterministic. But we're ramping new work that happens to be cost plus. We've got material purchases. We have to do under different types of contracts, that actually comes in at slightly lower margin. But when we look at the mix, we are going to come out of the year with a greatly expanded revenue guide holding margins between mid- and high 10s. It also matters what kind of work that we're doing. As I mentioned earlier, margins on cost plus can run the gambit. We've got a lot of time material contracts, we can get cost out of those. Whatever we're not spending on the cost side of that, that really falls to the bottom line. Programs like DCSA, what that really do was just we were looking in '24 and '25 to drive more volume. We've gone from some 3 providers of that service to 2. So that would be an indicator of potentially some additional revenue that we could generate from that program, where we've got a lot of programs in the end. So it's just constantly moving mix and our job is to give you a guide that really covers what those different cases could look like.

Yes. Many programs are also a mix of contract types and they can often change over time. So as we're in different phases of a program where we're buying equipment, where we're ramping things up, where we're defining next phases, doing different things, different activities, different contract types will be appropriate. We obviously like to do fixed price whenever we're able to do it in a way that gives us an opportunity to financially capitalize on it and also give our customers some price certainty. In many ways, it's easier for them if we take some of that risk. So that can be a mutually beneficial thing. But many programs have multiple dimensions and they'll change around over time. It's hard to -- it's a little nuanced. It's hard to draw a macro conclusion about it.

And just a quick follow-up. Sort of you mentioned the Intel award. So just sort of going with your sort of your bid win, bid less, win more mantra. And sort of is there any areas that we should look out for, for any sort of maybe not the size of the Air Force award, but sort of large type awards in 2024 and maybe just the areas?

Yes. We really shy away from specifics in there, but some additional color in the spirit of the way you asked it. There is a sizable cyber-related ICE [indiscernible] award that we're still waiting for that to be decided upon. That is a -- that's one of those jobs that we worked on over a number of years to make certain that we believe we can bring better and more long-standing extending capabilities to that extremely important customer. So it was a competitive award we were able to displace the incumbent, bringing in more capabilities versus the lowest rates and really make certain that we could supply the outcome that they're looking for. That's a pretty strong mission expertise job for us. You should look for more of the same. We've got some great capabilities, customers who want to take more things to the cloud. Today, in the intelligence, in deltas community, we move more apps to the cloud than the next 5 companies combined. We got -- we have outstanding partnership relationships with AWS and with Microsoft Azure. So I like the hand we have in the enterprise tech area, I like the hand in the mission expertise area. And then we'll be looking for some results of some larger mission tech awards that we have put bids in on. So again, it's really to the extent possible using the full extent of those 4 quadrants and making certain that we've got that balance right because winning low-margin expertise jobs that we had trouble staffing or we've got to use our balance sheet to help staff at, those aren't good long-term moves for us. Those solve a single quarter issue, but we're not that single quarter company. We have shareholders looking for long-term, profitable, predictable growth. We're trying to do that by being as transparent as we can. Jeff mentioned earlier, just a number of years that our program sits in our backlog is a positive indicator that we're able to better predict what the out years are and you're able to predict along with us. We may not see that growth, of course, but being transparent is the first step. And so as you see us build out our book of business, as you see us continue to flow into margins. I really like the opportunities we have in all 4 of those quadrants. And again, expertise in forms tech and tech in forms are makes expertise more available for our customers. So we like them both. They both play an important role as we continue to grow this company.

Thank you, everyone, for your questions. Those are all the questions we have. So I will now turn the call back to John Mengucci for closing remarks.

Well, thanks, Emily, and thank you for your help on today's call. We'd like to thank everyone who dialed in or listen to the webcast for their participation. We know many of you will have follow-up questions and Jeff MacLauchlan, and Dan Leckburg, and George Price are available after today's call. So please stay healthy, and all my best to you and your families. This does conclude our call. Thank you, and have a great day.