CACI - NYSE

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fiscal 2024 Second Quarter Conference Call. Today's call is being recorded. At this time, all lines are in a listen-only mode, later we will announce the opportunity for questions and instructions will be given at that time. [Operator Instructions] At this time, I would like to turn the conference call over to George Price, Senior Vice President, Investor Relations. Please go ahead.

Thanks, Sarah, and good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI International. Thank you for joining us this morning. We are providing presentation slides, so let's move to slide two. There will be statements in this call that do not address historical fact and as such constitute forward-looking statements under current law. These statements reflect our views as of today and are subject to important factors that could cause actual results to differ materially from anticipated. Those factors are listed at the bottom of last night's press release and are described in the company's SEC filings. Our Safe Harbor statement is included on this exhibit and should be incorporated as part of any transcript of this call. I would also like to point out that our presentation will include discussion of non-GAAP financial measures. These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Let's turn to slide three, please. To open our discussion this morning, here's John Mengucci, President and Chief Executive Officer of CACI International. John?

Thanks, George, and good morning, everyone. Thank you for joining us to discuss our second quarter fiscal year '24 results. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Let's turn to slide four, please. In the second quarter, we delivered 11% organic revenue growth, EBITDA consistent with Q1, and solid free cash flow. In addition, we won $2.2 billion of contract awards, which represents a 1.2 times book-to-bill for both the quarter and on a trailing 12-month basis. More than half of our awards were for new work to CACI, and we continue to have strong Recompete performance as well. Looking forward, we see the second half of fiscal year '24 playing out stronger than we originally expected. And as a result, we are raising our full-year guidance. Jeff will provide the financial details shortly. Overall, our performance continues to be well aligned with our value creation model focuses on long-term growth and free cash flow per share. Slide five, please. I'm pleased to say that we are seeing growth ahead of plan across many of our new business wins, including our EITaaS award with the Air Force, Spectral with the Navy, and our Intel and Cyber award with the NSA. This performance is reflected in our increased fiscal '24 guidance. So, we expect these programs to support continued growth, healthy profitability, and increasing free cash flow per share in the future. We continue to win in the market by providing differentiated capabilities, investing ahead of need and leveraging our strong past performance, and our business development organization is executing and had an impressive level in winning new work in Recompetes, as well as sustaining a strong pipeline of new opportunities. Execution of our strategy is currently delivering results. Just a few years ago, our focus was to win one new strategic billion-dollar-plus award each year. Last year, we won three, including our largest-ever by far. This year we've already won one. And we have a strong pipeline of additional opportunities, including several greater than $1 billion in total value. I'm also pleased with our strong track record of Recompete wins this year, which is critical to maintaining the foundation of which we will grow. We win our Recompetes through strong execution, industry-leading talent, and delivering innovation well beyond the initial award. Slide six, please. One area of our continued success is IT modernization. This is an area of enduring demand, driven by the need to modernize our secured network -- and secured networks, develop software and scale, and migrate workloads to the cloud. During the second quarter, we won two additional network modernization contracts, solidifying our presence across the DoD, following our DIA win last quarter. The Archon Technology we acquired as part of ID Technologies was critical in securing this work. Archon's software-enabled end-user technology allows out-of-the-box commercial devices to securely access supply networks from any location. A combination of Archon's technology and our existing capabilities in the past performance is differentiating CACI in the market. In addition, CACI continues to demonstrate industry leadership in digital application modernization and cloud migration. We are seeing customers accelerate their adoption of cloud both in classified and unclassified environments. Our recently-announced strategic collaboration agreement with Amazon Web Services was the first in the federal space and places us at the forefront of the next wave of migrate applications to the cloud. Our partnership with a technology leader like AWS enables us to deliver high value to our customers. And finally, Agile software development is increasingly a must-have capability in the market. CACI continues to lead the industry and Agile software development at scale, executing the two largest Agile programs in the Federal Government. One of the largest Agile programs is BEAGLE with US Customs and Border Protection which has seen an increased demand given heightened activity at the southern border, and we see a number of additional Agile opportunities in our pipeline. Slide seven, please. In Electromagnetic Spectrum, we continue to execute our software-defined strategy, invest ahead of need and demonstrate differentiated capabilities to enable our customers to dominate this critical domain. With the expanding global threat environment, we are seeing firsthand every day how the rapid pace of change in technology and our adversaries' capabilities necessitate a faster and more flexible response. For the Navy, this critical need is precisely what Spectral has addressed. While a traditional hardware model cannot readily adapt to these changes, our software-defined technology with open architectures allows us to deliver with the necessary agility, speed, and flexibility. It allows us to build for today's threats and easily adapt as threats change. In fact, we continue to see demand across all domains in areas of signals intelligence, and electronic warfare. As we mentioned last quarter, the Army was evaluating some of our SIGINT and EW Technology for a program to enable dismounted soldiers that could be detect, identify, geo-locate, and defeat signals of interest. We're pleased to say that this evaluation went extremely well. And we currently expect to receive an order in the second half of fiscal year '24. In addition, we are also seeing increasing interest in our software-defined counter UAS capabilities from the US, as well as from our allies. I'd also like to highlight our successful Recompete wins supporting the Trojan family of systems for the Army, a work CACI has supported for over 20 years. Similar to Spectral and Trojan we were utilized software-defined technology with open architectures to deliver the speed and adaptability necessary to address the evolving global threats and enable the Army's multi-domain operations. Slide eight, please. In Photonics, we continue to see healthy demand to capture market share and deliver innovation with our optical communications technologies. In our bespoke Photonics business, we are demonstrating unprecedented achievements. Currently, our Deep Space Optical Communications Technology is connecting and transplanting data to Earth from a distance equivalent to the orbit of Mars. The farthest-ever demonstration of optical communications. In addition, the ILLUMA laser communication system was recently launched on international -- to the International Space Station where CACI Razor Communication hardware onboard and the system has successfully communicated from the ISS to an Earth-based ground station. This technology and innovation is also being driven into the lower-cost, higher-volume, low-swap terminals we are building and delivering below earth orbit. With higher order of volumes coming sooner than we expected, we have accelerated R&D investments through our P&L for both our technology and our capability to produce in volume. These investments will help underpin future growth, profitability, and increasing cash flow. Slide nine, please. Turning to the Macro Environment, we continue to monitor the government fiscal year '24 budget process closing. Despite the ongoing deliberations in Congress, it remains clear that investment spending for national security and modernization needs to continue. Customer demand remains high, funding remains healthy, we continue to see good levels of RPs, awards, and customer activity. I continue to be very pleased with our strategic positioning in enduring a well-funded areas of need, as evidenced by our strong awards and robust pipeline. Slide 10, please. In summary, our first half performance was in line with our expectations and we are raising our fiscal year '24 guidance to reflect stronger momentum in the second half. We are successfully executing our strategy of investing ahead of need. Developing differentiated capabilities, bidding on fewer larger opportunities, and delivering superior performance to our customers. As a result, we continue to win in the marketplace. And our strong performance positions us to deploy capital in a flexible and opportunistic manner to drive long-term free cash flow per share and shareholder value. With that, I'll turn the call over to Jeff.

Thank you, John. Good morning, everyone. Please turn to slide 11. Our second quarter results are in line with the expectations we discussed with you last quarter. We generated revenue of $1.83 billion, representing 11% organic growth in addition to a modest contribution from two recent acquisitions in the UK. As John mentioned, we continue to successfully execute our strategy and to win high-value enduring work. Second quarter EBITDA margin was 9.3%, in line with our previously discussed expectations of delivering relatively flattish EBITDA compared with the first quarter. Recall that the secondquarter EBITDA margin includes approximately 60 basis points of drag from zero-margin material volume we discussed last quarter. Adjusted diluted earnings per share of $4.36 were 2% higher than a year ago. Higher interest expense was more than offset by greater revenue and operating income, a lower tax provision, and a lower share count. Second quarter operating cash flow excluding our accounts receivable purchase facility was $83 million, reflecting solid profitability and strong cash collections. We reported days sales outstanding or DSO of 47 days, a new record, as we continue to efficiently manage working capital. Free cash flow was $68 million for the quarter. Slide 12, please. We ended the second quarter with 2.3 times leverage of net debt to trailing 12 months EBITDA, flat with the prior quarter. The healthy long-term cash-flow characteristics of our business, our modest leverage, and our access to capital provide us with significant optionality. We continue to have approximately $337 million remaining of our original $750 million share repurchase authorization. In addition, we are actively engaged in an M&A market that is beginning to look more attractive from a buyer's perspective. As we've discussed, our value-creation model is focused on driving long-term growth in free cash flow per share. We remain well-positioned to deploy capital in a flexible and opportunistic manner to drive long-term shareholder value. Slide 13, please. We're pleased to be raising our fiscal '24 guidance. Let me take a minute to provide some context on the evolution of our guidance for the year. When we provided initial guidance last August, we told you that we expected revenue to be $7 billion to $7.2 billion, with EBITDA margins in the high 10% range. Additionally, without giving specific quarterly guidance, we indicated that the second half of the year would be greater than the first in terms of revenue and margin. In the first quarter, we raised our revenue guidance for $200 million of zero-margin material sales and reiterated that the underlying profitability excluding those material sales was unchanged. Today, with first-half performance in line with our expectations, and accelerating business momentum in the second half, as well as our strong Recompete win rate and strength of new awards, we are raising our revenue guidance by an additional $100 million to between $7.3 billion and $7.5 billion. We are also reiterating our underlying EBITDA margin expectations in the high 10% range, which again excludes the previously discussed $200 million of material sales in the first half. As a result, we are also increasing our adjusted net income guidance to between $450 million and $465 million with an attended increase in adjusted EPS to between $19.91 and $20.58 per share, reflecting the higher adjusted net income, as well as our first half share repurchases. And finally, we are raising our free cash flow guidance to at least $420 million based on the increased earnings and continued strong working capital performance. Our increased free cash flow, combined with the benefit of the lower share count, results in a 7% increase in free cash flow per share versus our initial fiscal '24 expectations. To assist with your modeling, we now expect the full-year diluted share count to be approximately 22.6 million shares and our full-year interest expense to be towards the lower end of our previously communicated $100 million to $105 million range. Slide 14, please. Turning to our forward indicators, CACI's prospects continue to be strong. Our trailing 12-months book-to-bill of 1.2 times reflects strong performance in the marketplace and our first half awards have a weighted average duration of nearly six years. A backlog of $27 billion increased 2% from a year ago and represents almost four years of annual revenue. These metrics provide good long-term visibility into our business. Exiting the second quarter, we expected approximately 94% of our revenue to come from existing programs with less than 5% from Recompetes and less than 2% from new business. Today, less than 3% of remaining -- of the remaining increase is from Recompetes giving us increased confidence in our guidance for the year. Progress on these metrics reflects our strong business development and operational performance and yields increased confidence in our expectations for the year. In terms of our pipeline, we have $11 billion of bids under evaluation. Over 65% of which are for new business, CACI, and we expect to submit another $14 billion in bids over the next two quarters, with 80% of that for new business. Our ability to maintain a strong pipeline even as we deliver strong awards reflects healthy demand, successful strategic positioning, differentiated capabilities, and disciplined bidding. In summary, we delivered second-quarter and first-half results in line with our previously discussed expectations. We're seeing good momentum in our business and as a result, are raising our full-year guidance. And we are winning and executing high-value enduring work to support long-term growth, increasing free cash flow per share, and additional shareholder value. With that, I'll turn the call back over to John.

Thank you, Jeff. Let's go to slide 15, please. In closing, I'm pleased with how our business is performing, both near-term and how we are positioning for future growth. We continue to successfully execute our strategy and our performance enables us to raise our Fiscal '24 guidance for revenue, adjusted net income, adjusted EPS, and free cash flow. We are investing, we are winning, we are executing, and we are delivering on our commitments to our customers and to our shareholders. We remain confident in our ability to continue to drive long-term growth, increased free cash flow per share, and generate additional shareholder value. As is always the case, our success is driven by our employees' talent, innovation, and commitment. To everyone on the CACI team, I am proud of what you do each and every day for our company and for our nation. And to our shareholders, I thank you for your continued support at CACI. With that, Sarah, let's open the call for questions.

Thank you. (Operator Instructions) One moment please for your first question.Your first question comes from the line of Robert Spingarn with Melius Research. Your line is open.

Hi, good morning.

Hey, Rob. Good morning.

So, nice set of numbers here. I want to ask a high-level budget question though, just given the uncertainty in DC, the potential for supplementals and I underline the word potential, how are you thinking about the guide, if we were to end up in a full-year CR? And then on the other hand, it seems like you're off to a solid start to this fiscal year. So what would happen -- what would need to happen to get to the high end of the guide?

Yeah, Rob. Thanks. As you appropriately stated, there's an awful lot of moving parts. Look, we're monitoring the government fiscal year '24 budget process. As you all know, back in August, we planned for very different scenarios. We've gotten the low-end, we said the funding would be slower. We have a full-year CR, and real questionable government fiscal year '24 budget process. On the upper end, we said a CR would be shorter and a budget would be passed. So somewhere in between there is how we're seeing this layout. Now that we're in January, a full-year CR appears less likely at this point should Congress come to an agreement by the March deadline. But even so, based on how it impacts us, our large Intel award is on-going work. It's critical national security priority and remains completely funded. Our EITaaS Air Force award, it's a large Air Force priority. It's well funded at the government fiscal year '23 levels and that funding and support continues. Spectral is a very critical program for the Navy, particularly supporting the INDOPACOM fight. And other recent wins are sort of getting through their process both as windows. Those are starting to ramp up with ample funding. So as always, Rob, when we talk about budget, we focus on things that we can control. We're running the business, driving long-term growth, shareholder value. On the other end of this, look, the world's a dangerous place. The pacing threat is China. You've got the Ukraine-Russia, was a wakeup call. Israel-Hamas situation shows that as I've always said, the counterterrorism is still there. It's going to be there for a long, long time. But remember that our strategy is strongly aligned around key national security and modernization priorities and invest ahead of need and differentiate expertise and technology positions us extremely well. Our resiliency to the budget is not accidental. It absolutely happens to be due to the strategy we have consistently shared and that was to make sure that our pipeline and jobs that we go after and the jobs that we win are in well-funded, extremely important mission, expertise and technology areas of the Federal Government. So long story short, that the budget process does support us through this fiscal year. And as you all know, when we get to next August, we'll be talking about our next fiscal year. So thanks, Rob.

Well, that's great color, John. And just quickly for Jeff. On section 174, if that were repealed or deferred on a retroactive basis back to '22, if that were to happen, would you expect to receive a cash tax refund? And then how might you deploy that? Could that go into a repo?

Well, yeah. Rob, thanks. As you know, the devil here is in the details. And while there appears to be pretty strong bipartisan support, a lot of the implementation steps are still unclear. You ought to think about the size as basically being a reversal of what we communicated previously as the negative impact when it expires. So that would basically be undoing those earlier hits, almost dollar for dollar, really. And with that extra cash, it would get factored into our normal capital deployment rhythm of evaluating all of our opportunities. And we have a very -- as we've talked before, very disciplined, return based paradigm or framework for evaluating those options. And as we have more capital, we'll deploy it effectively and efficiently.

Thanks, Rob.

Your next question comes from the line of Bert Subin with Stifel. Your line is open.

Hey, good morning.

Hi, Bert.

Jeff, I think my first question is for you. If we look at the current guide, it implies about 57% of your earnings will come in the back half with a solid step up in margins at least looking to the midpoint. Can you just walk us through how good your visibility into that improvement today is? Because it would imply that there's a pretty substantial step up in technology sales, and historically, those have been a little less predictable.

Yeah, I would not -- I don't think you can draw that conclusion. But let me give you a little bit of color and John will likely want to add some to this. If you look, first of all, at what we shared with you as far as the statistics for the rest of the year's revenue base, that's an important part of that. And we have really very, very strong visibility into what the rest of the year look like -- looks like. I would also call your attention to a couple of things we talked about in the prepared remarks, which may have been a little bit subtle to answer your question, but we talked a little bit about increased investment in some of our Photonics activities in the first half, which we're nearing the end of. And then we also have, as you allude, as you point out, sort of the classic timing and mix that we could see in the second half. But this activity is in backlog. We can see it. You've noticed, if you're looking at second order kind of consequences, you'll notice a little bit of inventory growth in the quarter, all of which is sort of setting up the second half that we see. That gives us really strong confidence in what the next couple of quarters look like.

Yeah. Bert, let me add a couple of other things to that. But this is around confidence and how we see the back half playing out. Look, confidence for us, it really starts with the fact that we delivered our first half of the year in line with our August expectations. It's bolstered by seeing stronger second-half momentum than we expected back in August, namely our three large programs, as well as other recent wins. And all of that work is at the underlying margin rate, which is in the high 10s. We're raising guidance for revenue. We're not keeping it as is, which shows confidence we have in the second half. We pulled the bottom ranges of net income, and we've raised free cash flow, which would denote confidence. We are holding to our fiscal year '24 EBITDA margins on the underlying business. We're executing on our strategy. We're investing out of need. We've got strong awards and strong execution. As I provided to Rob on his earlier question, if we do look back at our '24 guidance call in August, we provided six reasons why we could end the year at the low end, six reasons why we could finish at the upper end of that. Since August, we've captured five of our six of our upper-end guidance range expectations. So, you all should expect that we'd be raising guidance. That is what we did. That additional $100 million is coming at our high 10% area, and we believe that we're on track. What's not covered? Tied into your question, and Rob, if the government completely shuts down for three months, probably not covered by our August guide. But look, we're going to stay focused on what we can control. We've got the book of business, we got ramping up happening much stronger than we thought, and love to be sitting here at the end of the year talking about a successful fiscal year '24 for the company.

Got it. Okay, that's very helpful. Just as a follow-up, I mean, Jeff just mentioned some of the Photonics investments in the first half. Obviously, some of the investments you've made in EW and Sigint and cyber and software development are paying off. Can you talk about what inning you think we are in when you focus in on your tech investments reaching the payout phase? And then relative to that, how does that make you think about M&A over the next one to two years? Are there still capabilities that you need to bolster?

Yeah, Bert, thanks. Let me unpack that. Technology investments Sigint and EW, I really like where we are. We have invested the larger tranche when we expected to, and it's already paying off. You're seeing that our margins are now into the high 10 areas. That plus a growing revenue base is going to continue to provide nice strong growth for free cash flow per share. On the Photonics stuff, look, it's modestly relative to the size of the overall company. As we've been discussing and as our prepared remarks shared, there's strong demand from both government and our satellite primes. We're proven, we're deployed, we're operational, and we're tested for various orbits. As my prepared remarks stated, some of those bespoke solutions that are out there sending signals from Mars to Earth, that's all high-tech algorithms, a lot of government, and CACI investment dollars to get the art of how to connect laser signals between two different points over millions of miles. All of that technology and all those algorithms go into the lower swap, lower cost terminal market. If we look at demand, look, we are seeing higher order volume than we expected, which is why we accelerated some of the P&L investments that tied to Jeff's comment on SDA tranche zero and one, we're currently under contract to deliver terminals. SDA tranche two, we've got roles with two primes for both beta and alpha. We expect tracking awards in quarter three. So look, we believe it's a burgeoning five to ten year market. I'd say we're probably in the seventh to eighth inning of investment. We're probably in the early second inning of growth. So I see this as a business being much more meaningful contributor, as we mentioned, exiting '20 and '24, but really playing into '25 and beyond, which was our investment thesis when we bought SA Photonics just a couple of years ago.

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

Yeah, thanks. Good morning, John, Jeff, George. Hey, John, maybe just to circle and follow on with Bert's kind of questioning, as this technology mix continues to grow and it sounds like you're in the, as you mentioned, the seventh inning, roughly on the investment side. As the volume starts to pick up on the technology, should we still view this to be a lift to margins longer term? And then just related to this is, Jeff, made a comment that the M&A environment is getting a little more potentially attractive. Is that -- that there's just more assets coming available or are prices resetting? Any color there would be helpful. Thanks.

Yeah. Peter, thanks. Let's see -- let's start with margins first, because when I hear margins, I sort of get my head back into free cash flow per share growth. And look, that has many, many levers, right? Look, first, we're taking a long term approach to driving organic revenue growth in areas that actually matter. And I think based on earlier discussion, dot, dot, dot, and are also going to be well funded, right? We can't guarantee everything we're going after is always going to be well funded. But given the size of the overall defense budget and the size of CACI and the size of things that we need to have funded, that risk meter gets low at the top level and it gets lower and lower as you really look at those narrow, deep funding streams that we're part of. Margin expansion, for us, yes, it is still -- it has our attention. Our focus is the long term. I think I mentioned I'm not going to short-arm investments that are going to be driving long-term future growth. We're not going to do unnatural acts to achieve it. I'd also say that our EBITDA is just that it's EBIT plus DNA. There's no other additives, no other subtractions, no adjustments. So on the margin growth side, yes. That plus beginning to push this company from the low single-digit revenue growth to the mid-single-digit revenue growth business has been a large achievement over the last number of years, and we will continue to look for growth on both. As you talked about M&A and I'm going to let Jeff provide some comments here as well. But we're going to continue looking those key technology areas. We're always going to be looking to Sigint and EW. It's a massively large front. We are watching, as my prepared remarks stated, we are watching in some of these events around the globe just how quickly the adversary changes their behaviors. There used to be a time where we had a lot of ACAT I programs and your adversary would change their DTPs once every three years. These are changing once every three days. Let's try this, see how that works, see how the enemy reacts, then let's make changes in the Sigint and the EMS world that needs great software, defined tech that can be built quickly, a lot agile. So anything in that Sigint and EW area, IT modernization, I love the hand that we've Great Earth team event playing that's sort of been doubled down on network modernization as well. And frankly, core CACI technology and recent technology from other recent acquisitions is what has positioned us well. So let's Jeff talk about how the M&A market is looking today.

Yeah, for the second part of your question, the short answer is both. Probably of more import to us is we're seeing a little bit of modulation and tempering of valuation expectations. So we're starting to see some of the consequences of interest rate environment and broader regulatory constraints whatnot sort of manifest themselves in a little bit more reasonable valuation premises. That also probably is accompanied by a little bit more in the pipeline in terms of volume, but it's really more about valuation expectations that could afford us with some interesting opportunities.

Thanks so much, appreciate it.

Sure.

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

Hi. Good morning. This is actually Josh Corn on for David. I just wanted to ask, we've seen really strong growth in DoD revenues over the last couple of quarters and a little bit of a decline in the Federal Civilian. So just wanted to ask how that may look going forward and what the bid pipeline looks like there. Thanks.

Yeah. The driver of that is our background investigation work, which is a long standing established franchise. It has been administered for a number of years through the Office of Personnel Management, OPM, you'll know, as a civil agency and it transitioned a year or so ago to DCSA, Defense Contractor Services Agency. So while it is a change on the chart, it's not really a substantive change to the business. There have been a few other small changes, but the driver is that.

Josh, I'll also add to the part of your question that was looking forward. We're in five markets out there today. We're actually structured around markets. Think about that as capabilities where we run every single customer through it. So from time to time, those numbers are going to move around based on where we win network modernization work one quarter maybe with DHS, which is in [indiscernible] and that may have one ramp-up period. And then in other areas like Army, DIA, and other areas, we're out there winning network modernization work as well. We sort of look at that year to year. It's in those different quarter, quarter points. Things move around. Think of other examples. You look at the commercial work yeah, maybe over one quarter, that work sort of moves around because something got delayed or something came in early. But if it were two quarters, it's sort of flat. But thanks.

Okay, thank you. That's all for me. Thanks.

Thanks, Josh. Thanks.

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

Hey, guys, good morning. Thanks for the question. I wanted to just ask quick on just hiring trends, headcount, any color you can give there on sort of how you're doing year to date?

Yeah, Matt, thanks. Look, hiring, you guys think I'm just this broken record. The demand for talent remains high. Given all of our recent wins, our talent acquisition team has been doing an outstanding job. We set a goal each year across the entire company as to how well all of us, because we're all involved in talent acquisition, is working. It's working extremely well. We continue to strive to be the employer of choice. All three of our programs, our hashtag making move program, our referral program, great people know other great people. And our employee value for opposition around your potential is limitless. So is ours. They're all contributing to strong hiring. And the flip side of that piece, Matt, is that our retention numbers across the company are at exceptionally strong levels. Not to share what those numbers are, but it suffices to say it's a material level below what we saw prior to COVID. We've expanded our internship program. We're making sure our employees know the value, diversity, and inclusion. We're engaging regularly with all of our employees, and it's sort of working. We continue to win numerous best places to work awards. And again, these are based on employee surveys, not what the CEO believes. And we're able to find talent. Part of what drives that talent pipeline are our employee referral program and our intern program, right? Both of those are bringing large numbers of folks in. And the referral program just under 50%. So think about that. 50% of the people this company brings in come through referrals. And that has a double positive effect, folks. One is it gets us employees faster than are proven. Secondly, on the retention side, people who refer somebody statistically stay materially longer than those who don't, right? Because who leaves a company after they've referred some great talent, and that talent that was referred stays longer because they, quote-unquote, look up to and owe it to somebody who's already in the company that has referred them. So it's really working extremely well. That ties back to the culture of this company. A 62-year-old company deeply involved in mission, very closely coupled to a customer, 38% veterans. It has all the right mix in it, and I hate to say it makes the job easier, but it makes it easier for us to continue to be the employer of choice.

Got it. Thanks. And then I guess if I could do one more on margins, just, I guess a lot of sort of noise in the EBITDA margin this year first half versus second half. Is there a way to think about kind of going forward, the starting point for fiscal '25, does that look more like the '24 average? Does it look more like what the back half is implied? Just anyway, you can sort of frame that for us?

Yeah, we're not going to kind of front-run our '25 guidance at this point. I mean, you'll appreciate that that's still kind of actively at work. I don't know that there's a lot to add to the earlier question. I mean, we have a couple of areas where we're investing in the first half, and we see that sort of winding down as we achieve a number of milestones and we got good visibility into the backlog, and there's some timing in mix there as well. So I don't think there's a lot to add to what we've already said about it.

Your next question comes from the line of Seth Seifman of JPMorgan. Your line is open.

Hey, thanks very much, and good morning. I wanted to ask one more question about the M&A pipeline, and you talked about things maybe loosening up a little bit, and I wonder if it's stuff that you see more that might be kind of almost like an investment in a technology or R&D to help build out capabilities, maybe more on the product side, or if you see more opportunities for companies that might be -- that have a solid earnings stream now and might be more accretive to earnings and cash flow in the near term?

It really goes across the spectrum. We talk about the fact that our program is grounded in strategy and filling gaps. Sometimes that's a technology gap. Sometimes it's a mature position with a customer or an area that we see a need to add to the portfolio. It really runs the spectrum. It's really across the board. I don't know, John?

No, I think, Jeff is absolutely right. It's capability, customer relationships. We've done a number of acquisitions that actually bolster customer relationships. So, in that examples that, we've got a strong hand in Sigint and we're not deeply in customer X. And some other company has got great relationships there. They've got a long term mature delivery track record, past performance is strong, cultures match, and what way to better step and repeat with the capability we have in order to customer set and to sort of bring those kind of customer relationships in. So we sort of take customer relationship plus a core CACI capability, as well as add what the incoming company has. And that allows us to really focus our pipeline more efficiently, allows us to continue this long history of successful M&As that are driving top and bottom line growth.

Okay, very good. I'll stick to one this morning. Thanks very much.

Thank you, Seth.

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

Hi, Mariana.

Good morning, everyone. So I would like to dig deeper on pipeline of opportunities. When I see the bids expected to be submitted in the next two quarters, they raised to $14 billion from just like $10 billion last quarter. Is that -- or that significant increase is just a seasonal trend or is indicative of any changes in like strengthening our war environment, evolving CACI strategy, and or new opportunities?

Mariana, thanks. So, when we look at the pipeline, I actually look at visitor under eval and ones that are going to be submitted. So $25 billion in total and maybe a little more color here for folks on the line comes down in my mind to two or three elements. I hate to say three because then I'll forget when I'll end up with two. But the first is size, right? We always have said as we rebuilt the business development machine here is bid less and win more. And if given the choice, always bid larger, right? Because larger portends longer duration, which although it may not ramp up as fast as some of you would likely win some of these programs, we're looking at that four, five, six-year dependable growth stream that we have out there. So one is going to be size. There's several billion dollar opportunities in the pipeline across a number of our markets. And these and other long duration ones provide confidence in our long term growth. The second one I sort of would put in a bucket called location, network monetization, cloud, Sigint software, Agile software development, well-funded, right? So back in our milestone, zero process of seven different milestones, when we submit and get awarded a bid, is this the right size? Can we differentiate? Have we invested, have a customer need? Is it in the sort of zip code of work that we do very, very well? And then the last piece is what I would call, is it mission tight? Is it related to the work we do well we do today? Is it a nice stepping and repeat? Are we doing work with the Navy that we want to introduce the Army to? Spectral would be a perfect example. How do we build something to win like Spectral for the Navy? How do we take all that technology and look right to a 20 year customer in army Trojan and bring some of that capability forward? So the pipeline is built years ahead of when we actually have to execute it, because we want time to build the relationship. We want time to invest and show the customer the art of the possible. So our pipeline today is made up of a lot of those opportunities. We can't win all of them, but we like to make certain that we're sort of stacking the odds in our favor as we put things into the pipeline and we all collectively follow those through the bid, through the eval, and then through the ramp-up cycle. So hopefully that provides you some additional color.

Yeah, that's great color. And you mentioned and you have been working on this bid less win more strategy for quite time now. What is the target win rate that you are like that you want to achieve when you do these bid proposals, and how is that trending lately?

We've been around 100%, no. Look, I hate to get into sharing really valuable market data, but we like our Recompete rates year-over-year, most shares than not over 90%. And if you take our collective win rate, it'll be in the 40%-ish, 50 some years, 30 and others. But we're very well in tune with what's in the pipeline. We don't have a lot of bluebird bids. They come in two months before the bids do and somebody else has shaped that win. But we want to get our -- a bid submitted number up. They really are methodically thought out. They go through a very rigorous process. So I think we have a respectable win rate. Again, you can manage a business out of business driving for a much higher win rate because you only bid on things you think you have 100% chance of winning. So it's a tough question to give a pinpoint answer to, but look, over the last seven to nine, 10 years, I'm really impressed with the changes we made in our business development organization. Depth of understanding how to do that in our BD organization is extremely deep below the sector level into all of our BD leads, which includes our technology sales team as well. So thank you.

Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is open.

Sheila?

Oh, sorry, guys. Thank you for the time. Appreciate it. Lots of questions on margins, first half over second half. So I was wondering if we could talk about the Photonics investments because you mentioned that quite a few times. Can you talk about maybe the impact in H1? But also like how do we think about this investment, what program opportunities it could open up as well?

Yeah, I don't think we're going to get into any of the specifics, but it's generally related to the Photonics programs that John mentioned, related to a family of SDA programs that you'd be familiar with, and a number of our other Photonics product, as opposed to the bespoke solutions, the Photonics products business. I think we've been pretty open about our win rates there and the programs that we're on our position with a couple primes, we have some DARPA contracts, just an accelerating portion of the business where we're focused on produceability and transitioning from development to production kind of mode.

Yeah, Sheila, a little extra color there. In our Photonics business, if you remember when we did the SA Photonics acquisition, combined that with the Photonics business of LGS as well as our own capabilities. I mentioned that for that business we would be investing through fiscal year '24. As we saw volume starting to pick up sooner than we expected on the producibility side, we decided to double down on our investments more now as we look at it in hindsight, more in the first half of the year versus the second half. So one that provides us with some produceability enhancements that gives us more confidence in '25 and beyond we can deliver in a timely fashion. And then two, just that delta between what was spent in the first quarter -- first half shows up as positive to margin in the second half.

Yeah. No, thank you. I appreciate that color. And maybe one more if I could ask you, you announced that new $525 million gen mod contract this quarter. How do we think about that program as a driver of growth in fiscal '24 and any additional color you could provide on what you're doing there?

Yeah, I mean it's a fantastic program. It's another network modernization job and we've got others in our pipeline, things that we're looking for award. Look, it's going to unpack similar to other larger network modernization technology jobs. We've got a lot of unpacking of things as we've won a lot. They're all come in at different rates. So on that one, it's going to unpack more into '25 and beyond based on timing of when we won that job. But there are other programs out there that are doing an outstanding job of actually ramping up out of plan. We've got high EITaaS which is ramping up ahead of plan. We've got additional work. We mentioned it would start with upfront planning and design. Teams done an outstanding job. It ramped up faster, customers adding scope that has the hand in the guidance range. If we look at Spectral, that one is ramping up ahead of plan as well. Customer really likes the open architecture and our software-based approach. We mentioned that that would start up with planning and design. Clearly, given the nature of the world events, we've had many more meetings than we believe we would have. Navy is very, very pleased and very impressed by the pace of our work and innovation. And last, many of you have written about this. Our large Intel job ramped up ahead of plan. We're providing network and exploitation. We're delivering as you would assume we would. The government selected the technically superior solution and they're getting superior results and that's driving even better top-line growth than we had originally expected.

Your next question comes from the line of Louie DiPalma with William Blair. Your line is open.

Good morning, John, Jeff, and George.

Good morning.

Good morning.

Hey, Louie.

You referenced your three large wins over the past year, and it seems there are four if you include your defense Intelligence Agency ECS three award. The slide deck also discussed how awards or newer awards over the past year have approximately a six-year duration. But if you were to group these four like mega-billion dollar contracts together, when would you expect the revenue run rate to be fully ramped? And I think, John, you just said that Spectral is ramping faster than initial expectations, but is it a smooth three-year runway? Yeah, that's the initial question. Thanks.

John will want to add to this, but they really vary, Louie. I mean, the NSA Intel job is ramping relatively quickly, and it will kind of reach its steady state run rate over the next handful of quarters. EITaaS and Spectral in particular are a little bit slower ramp because the front end of the program really is focused on planning. So the fact that those planning phases are proceeding ahead of schedule doesn't obviate the fact that they are still in the planning phase. So those will continue to ramp into -- well into FY'25 or so. I don't know do you want to add anything about ECS three?

No, I mean, look, that's a very recent win. We're working through start-up with our customer set, Louie, very de minimis as we get out of '24. So you'll see that one ramp more in the '25 period in.

Great. And a lot has been made about increased R&D associated with SA Photonics. But as these programs are ramping, do they initially carry a lower than company average margin structure, and so should the margin profile for these four awards increase over the next two years?

Yeah, there isn't necessarily a one size fits all here, but as a general rule, you're thinking about it the right way. I mean, they're less profitable in the beginning as we're ramping up and focused on produceability and transitioning into production. And of course, rate, production becomes more profitable, both more profitable in terms of rate, but also volume.

There are no further questions at this time. I will turn the call to John Mengucci for closing remarks.

Thanks, Sarah, and thank you for your help on today's call. We would like to thank everyone who dialed in or listened to the webcast for their participation. We know that many of you will have follow-up questions. Jeff McLauchlan, George Price, and Jim Sullivan, who has joined our IR team, are available after today's call. Stay healthy and all my best to you and your families. This concludes our call. Thank you and have a great day.