Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fiscal 2022 Third Quarter Results. 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, thanks, Seth, and good morning, everyone. I’m Dan Leckburg, Senior Vice President of Investor Relations for CACI, and we thank you for joining us this morning. We are providing presentation slides, so let’s move to Slide #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 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 also point out our presentation this morning will include a 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. With that out of the way, let’s turn to Slide #3, please. To open our discussion this morning, I’ll turn the call over to John Mengucci, President and Chief Executive Officer of CACI. John, over to you..

Thanks, Dan, and good morning, everyone. Thank you for joining us to discuss our third quarter 2022 results. With me this morning is Tom Mutryn, our Chief Financial Officer. Slide 4, please. Let’s start off with our third quarter financial highlights. We grew revenue by 2%.

Profitability was healthy with adjusted EBITDA margin of 10.2%, and we generated robust free cash flow of nearly $300 million. We also continue to win new and recompete work with $1.2 billion of contract awards, $568 million of those classified, representing a book-to-bill of 1.5x on a trailing 12-month basis.

Our results reflect the short-term headwinds we discussed last quarter, albeit a bit more than expected with funding delays being the key driver. Slide 5, please.

While market trends remain positive in the medium and long term, the short-term headwinds I discussed last quarter still exist, including slower issuance of task orders, supply chain challenges, delayed funding and restricted customer and facility access due to COVID.

What changed during our third quarter is the process of getting funding on contracts has been much slower than in past years. In fact, our third quarter funding orders are down over $300 million or 20% compared to the same quarter last year. As a result, we are reducing our outlook for fiscal year 2022, which Tom will discuss in more detail shortly.

Slide 6, please. Looking past these short-term funding issues, we have a large and growing addressable market, and the budget environment is even more constructive today than in the recent past.

For example, we see increased spending across Defense, where we have a robust footprint, the intelligence community, where approximately 30% of our revenue is generated and important non-DoD customers like DHS, where we provide cyber and applications development.

From a capability perspective, we see increased spending in IT modernization across the federal government, the space domain, including photonics and space situation awareness and continued strong spending across the electromagnetic spectrum to include SIGINT, EW and cyber. Slide 7, please.

With those spending priorities as a backdrop, I’ll cover recent investments we have made in IT modernization and space. First, on the IT modernization side, we continue to invest in Commercial Solutions for Classified, or CSFC.

You’ve heard us talk about -- you’ve heard us talk before about our subscription-based Software as a Service SteelBox application for secure communications. We continue to invest in new capabilities and are seeing successes with recent deployments within the intelligence community.

And our recent acquisition of ID Technologies expands our portfolio of software-based CSFC for classified networks. Combining these CSFC offerings with our existing network modernization capabilities provides a compelling end-to-end solution to capture increased spending and IT modernization.

Second, we continue to invest in the increasingly important space domain. SA Photonics in partnership with DARPA and SDA, recently demonstrated the connection of an optical link and data transfer between satellites in orbit.

This success is an important step in establishing space-based communications to transmit greater amounts of data in a more secure modality. We also recently completed an important milestone for 2 mission payloads that will launch into lower earth orbit early next year.

These upgradable software-defined payloads will demonstrate APNT and alternative to GPS and as well as tactical ISR from space. These space payrolls are great examples of taking exquisite terrestrial capabilities and investing internally to deploy them in space. Slide 8, please.

The bottom line is, our business is performing well on the things under our control.

We are delivering with quality, winning new business, driving profitability, generating robust cash flow, investing ahead of need in relevant and differentiated technology, hiring great talent and being recognized in several surveys by our employees as a Great Place to Work.

Before I turn things over to Tom, I want to make it clear that our business is performing well and long-term prospects are positive. While we are still going through our FY ‘23 planning process, our preliminary assessment indicates healthy organic growth, profitability and cash flow.

We have the capabilities, the contracts, a robust backlog and a track record of winning business to continually delivering shareholder value next year and beyond. With that, I’ll turn the call over to Tom..

Thank you, John, and good morning, everyone. I’m still on Slide #8. Let me start off by providing some additional color around FY ‘23. As our customers begin to execute on what is a fully appropriated budget and get funds on contract to meet critical needs, we expect funding to revert to more normal levels in early FY ‘23.

As is our practice, our fiscal year plan and guidance is based on a program-by-program bottoms-up process. This activity is well underway and has provided enough insight for us to be confident that we will be able to generate healthier organic growth, profitability and cash flow in FY ‘23.

We will provide formal FY ‘23 guidance with full details in mid-August. With that, I’ll turn to our third quarter results and FY ‘22 outlook. Please turn to Slide #9. We generated revenue of $1.6 billion in the quarter, representing 2.1% growth with organic revenue down approximately 2%.

Third quarter adjusted EBITDA margin was 10.2%, below our expectations due primarily to fewer high-margin mission technology sales as a result of the funding issues we spoke of. Our 17.9% tax rate benefited from increased R&D tax credits of approximately $9 million related to FY ‘20 through FY ‘22, which we recognized this quarter. Slide 10.

CACI continues to generate strong cash flow and free cash flow per share. Third quarter cash flow from operations, excluding our accounts receivable purchase facility, was $314 million and free cash flow was $297 million. This includes $160 million of tax refunds related to the FY ‘21 tax selection we have previously discussed.

Excluding the tax benefits, free cash flow for the quarter increased by 26% from a year ago. Our continued focus on working capital management drove DSO to 51 days, demonstrating the consistent and efficient performance of our business. We closed the third quarter with net debt to trailing 12-month adjusted EBITDA at 2.8x.

Together with our recently expanded credit facility and continued access to capital, we have flexibility and optionality as we consider all capital deployment opportunities. Slide 11, please. We are updating our fiscal year ‘22 guidance to reflect the short-term funding headwinds, which impact both our third and fourth quarters.

When we reported results last quarter, we anticipated that 3% of our revenue would come from new business. A good portion of that was related to material and technology revenue, which did not materialize due to funding issues.

While we now have a full year appropriated budget, it is unlikely that funds will be received soon enough to enable us to deliver and recognize any associated revenue by the end of our fiscal year.

For fiscal year ‘22, we expect revenue to be between $6.2 billion and $6.25 billion with total revenue growth of 3% on an organic revenue growth of around 1% at the midpoint. Adjusted EBITDA margin to be around 10.5% at the midpoint, reflecting the delays in funding associated with higher-margin technology.

CapEx of about $80 million in an effective tax rate for approximately 42%. We are maintaining our free cash flow guidance of at least $720 million, and our other assumptions remain materially unchanged. Year-to-date, we have realized $190 million is expected $230 million cash tax benefit from the 2021 method change.

We anticipate the remaining $40 million to occur in the fourth quarter, but the timing of the tax refund is dependent upon the IRS. Slide 12, please. Turning to our forward indicators. We now expect virtually all of our FY ‘22 [indiscernible] program.

We have $10 billion of submitted business under valuation with around 90% of that for new business to CACI. And we plan to submit another $20 billion over the next 2 quarters with about 90% adapter new business. And with that, I’ll turn the call back over to John..

Thank you, Tom. Let’s go to Slide 13. Before we transition to Q&A, I want to leave you with a few important takeaways. The short-term funding headwinds are just that. They’re short term, they do not change our large addressable market nor positive demand signals.

We continue to see bipartisan support for national security and modernization, and CACI is well aligned to these key spending priorities. Near-peer adversaries continue to develop capabilities that we will need to counter, regional tensions remain and counter terrorism requirements have not gone away.

Domains like cyber, space and electromagnetic spectrum are increasingly important and broad-based modernization across the federal government is essential. To our 22,000 talented employees, thank you for everything you do in service to our customers and our nation each and every day.

Your dedication, your talent, your good character and your spirit of innovation is truly foundational to our success. With that, Seth, let’s open the call for questions..

[Operator Instructions] The first question today comes from Gavin Parsons from Goldman Sachs..

John, you mentioned the constructive budget environment FY ‘22 was plus ‘23 as growth across the board. We actually have a fit up.

How does that translate back to the level of confidence spending at your customers? What does it take for them to get comfortable in actually spending at these higher levels?.

Yes. Gavin, thanks. As we mentioned in our prepared remarks, it really comes down to issuance of funding. The way we -- our third quarter played out, it’s not that the government didn’t have that funding, it was getting those funding orders out. So bottom line front, we are very confident about things going forward.

From a big picture and from a budget standpoint, I think FY ‘22 budget and the planned FY ‘23 budget has further proved that the world is a really dangerous place, and I believe that Ukraine was a wake-up call. But China and other near peers and counterterrorism threats are all still there.

We’re hearing potentially largest DoD budget in history as we get into government fiscal year ‘23, potentially greater than $800 billion. We’re working through a $14 billion multiyear supplemental spending for Ukraine, which includes operational and intel support for the U.S. European Command, which is a combined command that we support broadly.

As I shared in my prepared remarks, we’re going to see increased spending in the intelligence community, where we provide a wide range of advanced cyber and intel analytical technology and expertise.

We’re going to see increased spending by DHS that really supplements what we do with DHS CISO organization as well as our large customers in order customer there through our BEAGLE program. We’re going to continue to see increased spending on IT modernization.

So when we look at our addressable market greater than $240 billion, we look at -- we continue to invest in differentiated capabilities and the like, and we’re in the right areas of spend. We’re in space. We’re in cyber. We’re in AI. We’re in mission tech solutions. So we are even more confident as we go into FY 2023, Gavin.

And again, I want to close this question off with, our FY ‘22 struggles in the second half of this year are abate and an absolute issue with funding..

Okay. I appreciate all that color. So maybe just following up on that.

If you expect the funding to revert to normal levels in early ‘23, have you started to see that yet? Or is that still a wait and see from the customer?.

Yes. Gavin, thanks. Yes, it’s a fact that our contract funding orders in the third quarter were down about 20% versus last year. These are temporary, and we do believe funding is going to begin to flow.

What I can share is through the 25th of this month, which is the first month of our fourth quarter, funding orders are up about 8% from the same period last year, but clearly not in time to support our FY ‘22 efforts with only 60 days remaining in our current fiscal year. So we’re going to continue to assess our FY ‘23 plan.

But in light of what we saw in April, we would expect May and June to show that same level of reversion back to the normal, which will support FY 2023 reverting back to strong organic growth, great margins and increased cash flow. Thanks, Gavin..

Our next question is from Mariana Perez Mora from Bank of America..

Could you give us some details on when we should start seeing some upside from these improved trends in Defense spending?.

Yes. We’re looking for positive impact to the FY ‘23 budget spending during our FY 2023 year as well as increased funding coming up during our fourth quarter. I mean we are continuing to focus on high-quality revenue, and as I mentioned to Gavin, we’re in the right places.

Our technology continues to be more profitable and grow faster than our -- than the expertise portion of our business. We are continuing to focus on high-quality revenue, and we want to be able to grow and expand margins within that tech sector. We’ve got very healthy awards. We’ve got a great healthy backlog.

We are committed to driving growth above our addressable market, which today is $240 billion, Mariana. When we get a chance to assess the full FY ‘23 plan going forward, we’ll have a new addressable market, but the goal of the acquisitions that we have done over the last couple of years has really been focused on growing that addressable market.

We’re a $6 billion company today. We’re in a $240 billion addressable market. There’s no reason why, with the appropriate funding, we cannot continue to grow as we have year-over-year..

Perfect. And then as a follow-up.

How large is your space exposure today? And how large it could be like 5 years from now?.

Yes. So what we do in space today is really, really focused in our Mission [Tac] area. We were very focused on the SA Photonics acquisition because we believe that our role in space will not be in building satellites, but actually by both doing mission payloads that ride on all LEO GEO MEO satellites as well as optical communications.

We were very successful this past month. As I mentioned during my prepared remarks, to be able to close an optical link in space, which is a great step forward for CACI for our satellite, partners as well as DARPA and SDA.

I would also tell you that these 2 experimental payloads that we have being launched, I believe it’s January 23, is very important -- and worth spending a couple of minutes on because it’s very germane to what our space strategy has been. We’re looking at an alternative PNT solution that will work in a contested space domain.

And it won’t completely replace GPS, but it will greatly support systems out there when GPS signals are jammed or when they’re attacked.

Our plan for our solutions to be more resilient and less vulnerable to jamming and there are billions of dollars that are going to be spent over the next 5 years within the space to continue to ensure non-contested GPS to the war fighter.

The second area on the tactical ISR area is very basically taken our Mastodon-type terrestrial solutions today for tactical ISR since they’re so -- they’re very low size, weight and power, they’re very low cost and making certain that we can space qualify those boxes and those assets so that we can continue to prosecute all of our growth strategies within the space domain..

Our next question comes from Tobey Sommer from Truist Securities..

This is Jasper Bibb on for Tobey. I was just hoping you could comment on your experience with recruiting and retention of existing staff. Some of the private companies have described issues with staffing up new contracts.

Has that been an issue for you at all in these past few quarters?.

one’s #MakingMoves, and one is our highly successful referral program. #MakingMoves is really about; ensuring that as people want to do different work within the company that they have the ability to, in fact, do that and that reduces attrition. We’ve invested a lot internally.

We are very focused on exciting and important work not only on the expertise side of our business, but in the technology side and that very much differentiates just within our sector. We make certain our employees know how much we value diversity and inclusion. And just to share a few points.

Attrition for us continues to be lower even post COVID, which is an outstanding signal that we are doing something right and sort of flashes back to everything that we can control, we’re doing an outstanding job in. 1 in 4 of our JRs is filled internally, which is significantly better than it was just a few years back.

Our positive referral trends, 1 out of 3 hires is a referral, and that’s great for retention. It’s also great for filling some new roles out there. So I’m not going to leave this without saying that it’s really, really tough. I mean our talent and acquisition group and our HR organization does a phenomenal job.

At the end of the day, we’re not immune to it, but I like the position we’re in so that we don’t find ourselves in a dire talent shortage because of the great renegotiation wave as well as wage inflation..

And then I just wanted to ask about customer exposure from the initial O&M request. It seems like Navy and Air Force might be relative winners at the expense of Army.

Can you just talk about how your positioning stacks up with each of those customer accounts?.

Yes. Let me take Air Force first because I hear about Air Force, I think, about the intelligence community. I quickly tie myself back to space. So we are very well positioned within -- where the Air Force is going to be spending money throughout 2023 and beyond. We like to focus on space there.

Within the Army, whether it’s a battlefield comms, whether it’s SIGINT, those types of collection technologies, those continue to be very well funded within the Army’s budget. We not as major of a Navy player but 1 very important area where we are, we are responsible for the majority of the system engineering that’s done on all surface ships.

So as the Navy ship building program continues to be greatly funded, we are in a sweet, sweet, sweet spot there. At the end of the day we’ve been very focused to ensure that we are in those swim lanes where the customers are going to spend money, AI, cyber, IT monitorization and the like.

One example in IT monitorization is using the acquisition that we did with LGS, their network design team won the Army OSP job, about $ 0.5 billion job which is going to be transforming all of the Army’s networks here and abroad making certain that they can handle faster data rates in a much more secure manner.

And that is extremely well funded and just another great example of CACI ,one, investing ahead of need, and two, investing in those areas that are going to have long term funding streams as we move forward..

Our next question is from Matt Sharpe at Morgan Stanley..

John, new business as a percentage of contract awards, I think dropped off pretty materially this past quarter, I think, 45%. Whereas the long-term average is north of 60%. I believe last quarter, it was 70%.

So my question is, how did your win rates fare in the quarter? And more broadly, what’s the competitive environment look like right now? Are your peers getting more aggressive as the end market has tightened? Or is it sort of par for the course?.

Yes, Matt, thanks. I’ll start and Tom will probably have something to add. Look, I guess, my simple answer to every awards question, right, is awards are lumpy. It’s why we don’t get really high on a great book-to-bill quarter and why we don’t get low on something which is lower.

The numbers that you mentioned relatively sound in range, but that the new business we have versus recompete, so those numbers bounce around.

If I talk a little bit about competitive pressures, I really take it back to our framework, which is we put in place a plan that really looks at the dynamics of the expertise pursuits we have out there and the technology pursuits we have.

And it’s exactly that aggressive bidding stance and trying to drive very low rates and trying to be the most cost competitive provider out there, which is a strategy that CACI moved away from a number of years back. Better Buying Power 1 and 2, 2.0 and LPTA really opened the market up for people providing expertise to the federal government.

You can call them consultants or the like, which is why we have been very, very judicious at what we want to bid in within that space.

If you look at some of our recompete work, the majority of the recompete work that we haven’t been successful on in the last 36 months has predominantly been in the enterprise expertise quadrant because frankly, at the end of the day, we want to be a growing company, both top and bottom line.

We want to be generating profit dollars to invest in the technology side of our business where we see much greater funding streams. So as it become more aggressive in an hourly pricing rate area, absolutely so.

And you can see that because we are one of those few companies that although it’s tough to find talent, as somebody asked earlier, 50% of our business is pure technology, where we direct the efforts on our people each and every day, where our people can take the training classes they need to make us a much more productive company.

And that is the one differentiator that we continue to point out is that we aren’t that company out there talking about we can’t find talent because we haven’t been an overly aggressive bidder. And again, back to what we can control, we’re going to continue to bid work that we can responsibly deliver on.

Tom, anything?.

Yes. I would just add that if I take a step back and look at our business development activities, feel positive about those. Our total backlog $23 billion is a significant amount of backlog for us. Kind of winning some large contracts, durations have increased materially over time. This quarter, like $1.2 billion awards.

There are some lumpiness in awards. So we look at it on a trailing 12-month basis, kind of 1.5x kind of book-to-bill. Kind of looking at capture rates for both new business and recompete business, they’re quite respectable. You’re happy with those. So all in all, we feel positive about our ability to do work.

And consistent with my prepared remarks, we have a significant amount of activity under evaluation or be to be submitted, so an opportunity-rich environment..

Got it. Okay. That’s very helpful. Maybe just as a follow-up, Tom, looking at the implied 4Q rev guide, it looks like, I think, 6.5% or so growth at the midpoint and 2-ish% on an organic basis. Fairly large step-ups relative to 3Q and even if I look at it on a sequential basis, a [mile] jump.

How much of 4Q is already in backlog? And should I think about the quarter as having any sort of catch-up from 3Q disruptions? Or anything else going on in the background to consider, maybe Afghanistan headwinds fading a little bit?.

Yes. So if I look at the fourth quarter, here we are in April, so we’re 1/3 done, we feel pretty good about that. The funding issues which impacted us in the third quarter are turning to corner, but it’s going to take some time for that.

Even if you get the funding to translate it kind of into revenue, but a lot of visibility as to where we stand between now and the end of the year. So we feel positive about that. It will have a lot of line of sight on where we stand. There are some product deliveries which we’re tracking very closely.

There are some material sales which we’re tracking very closely, but we feel pretty comfortable about those. So all in all, again, confident in the guidance that we’ve provided..

Our next question comes from Scott Forbes at Jefferies..

Margin guidance came down 20 bps on these kind of short-term funding items.

Is there any way to sort of frame the margin bridge into FY ‘23? I mean what are the major moving pieces as we move into next year? And what’s the right way to think about the underlying margin base for fiscal ‘22?.

Yes. So a very good question. We’re spending some time kind of looking at that as well. The kind of margin did decline from our prior guidance 10.7% to 10.5%. And that was primarily due to the slippage or the reduction in high-margin technology sales.

Some of the technology we sell that we disclosed previously with the Mastodon and ABT acquisitions in the 30%, 40% kind of EBITDA margin range. So it has a material impact. One of the questions is, will those rebound? Will there be a bow-wave et cetera? So a lot of kind of discussions internally as we build the plan to try to assess that.

Right now, we’re seeing an ever-increasing margins, and we still have yet to think about what the appropriate takeoff point is. 10.5% is kind of lower than we anticipated. So let us spend some more time after we prepare our FY ‘23 plan with some degree of fidelity to kind of be more specific with regard to that..

Scott, let me also add. On the revenue side, there will be questions around whether the revenue didn’t show up in the fourth quarter. Is that going to be delayed? Or is it lost? And I think it’s very helpful to share a couple of comments on the revenue side as well because we’re looking at that as we start to assess our FY 2023.

On the expertise in the enterprise tech side, our new business wins and any contract mods think of additional work that the customer has given to us, those -- which are experiencing funding shortages, those are going to cause delayed starts and ramp-ups. So that work will be recouped over time when time is to find order life of that contract.

So it could be 1 year. It could be 3 years. It can be as long as 5. The mission technology store cycle deliveries that Tom mentioned. In most cases, we’re going to look at those as being delayed because of the funding issues. We’ll have more on that as we complete our FY ‘23 assessment.

And I really want to get a good handle on the next 2 months’ worth of funding orders, whether that trend line continues to move to move forward. On the material sales, those are really a mix.

And just as an illustrative example, if a customer typically buys 100 units of something each year and they didn’t buy it in FY ‘22 because of funding delays, they’re going to buy 200 units next year? Are they going to buy 100 or some other number? So again, that’s an ongoing assessment.

As much as we’re looking at margins, we’re looking at revenue that can drive those margins as well. So sort of a mixed bag, more delayed than lost. But again, it’s going to be the element of time..

Yes. And the last comment I’ll make on that is, as we look to ‘23, both John and I in our prepared remarks expressed confidence in FY ‘23. We certainly have the backlog. We have demand signals by the customer. We have the technology. We have the capabilities, and we have the people in place. So when we put all that together, that bodes well for FY ‘23..

Our next question comes from Colin Canfield from Barclays..

Just crystallizing the growth conversation a little bit. Organic guidance walked down 3% through the year. In multi-sense, R&D, cyber, IT all growing 10%. And you just sell funding orders at growing at kind of 8% through the month, which probably should accelerate through the year.

So then if we think about looking out to FY ‘23, what are the kind of pain points that stop you from achieving high single-digit organic? And is it more a program exposure perspective or a supply side perspective?.

Yes, Colin. I’m not going to break my 11-year track record. I’m not talking about ‘23 until August. But having respectful of your question, look, we do expect our customers to begin to execute on their fully appropriated budget that finally went through [indiscernible] in the middle of this month. We do expect funding to revert to normal in early 2023.

Again, we’re going to watch it the next couple of months. A $300 million, 20% dip in the third quarter, as you would imagine, causes us some level of pause. We really want to watch where these funding orders go. Supply chain is still going to be an issue, but consensus is that, that should get better in the back half of our fiscal year.

We’re not trying to give guidance, per se. What we are trying to do, though, to the point of your question is sort of convey the confidence that the headwinds we’re seeing are short term. We have plenty of backlog. We have plenty of ongoing growth on our current program. There’s nothing more frustrating than having everything we absolutely need.

Having a well-run business, a very cost-effective business and not getting a funding order, which allows us to clearly generate revenue. So we’re going to provide formal guidance with all those details and report in mid-August because I do think it’s still prudent for us to review the funding picture through the fourth quarter.

But having said all of that, this is more funny than it is customer demand signals..

Got it. And then in terms of the demand signal environment, what sort of demand signals are you seeing that you’re investing in lower earth orbit constellation.

And kind of how does your capability sit within the framework of high-end classified stuff versus some of your commercial peers like Spire, [indiscernible] and the like?.

Yes. I would tell you that our absolute focus is on our DoD and Air Force customers and how they utilize space.

It’s true that in the commercial world, there will be many constellations put up at LEO, and that was absolutely why we did the SA Photonics acquisition, right? What we picked up with LGS and their photonics business is a phenomenally well-run business that is driving high-end geo-based bespoke solutions, think low quantity, think very, very highly accurate, carrying both unclassified and classified information over highly -- over high-bandwidth links.

What SA Photonics gives us is different look at our algorithms, but also the ability to produce those types of optical solutions at a lower rate, at a higher volume, lower price target level.

What I like about the SA Photonics acquisition is combining that what we do with our LGS, we now have high-end bespoke and high-volume LEO-based solutions that will both over time collapse at the same type of baseline, making even our high-end bespoke ones more cost effective.

So there could not be a better example, frankly, Colin, than what we’re doing in that space to own [indiscernible]. Yes, there are other folks out there working on optical cross links to other selling providers saying they’re going to go create their own.

As I mentioned, when we did the SA Photonics acquisition, we’re looking at volume and margins improving as the market picks up in the FY ‘24 time period. This was a very timely acquisition for us. So we did buy on the lower end of that growth curve.

So as we just closed about 4 to 5 quarters more of strong investments there, but again, the success we just had on this Mandrake 2 mission has been outstanding. And it really does set the tone for us seeing greater out-year growth and being a long-term growth company. We need to be focused on in that ‘23, ‘24, ‘25 timeframe..

Our next question is from Matt Akers with Wells Fargo..

I wonder if you could put maybe a finer point on some of the slowdown in Q3 and Q4. I mean it sounds like somebody was like technology product kind of shifting out. Was that the biggest part? Or any color you can give on how that broke out kind of by customer or end market..

Yes. So thank you, Matt. This is Tom. There’s 2 kind of major kind of impacts of that shorter-term funding. Some of the longer 5-year programs, we get funding on a regular basis. We have a large number of people working on either expertise or technology programs and that is somewhat immune from the short-term funding fluctuations.

The funding impacted some of the shorter-cycle activities in 2 categories, what are material buys. Sometimes the government, DoD customers, Army customers will ask us to procure not necessarily commodity like materials, but specialized capabilities.

Think a satellite dish with special kind of features and technology embedded upon it, where we would procure it and drive one of our contracts provide to the government. Then we have our own technology, think Mastodon, EBT and the like.

The former category, materials, are higher revenue, but lower margins since we’re getting a material handling fee on those. So that slowdown in funding impacted revenue. On our own products, very high margins, those were also impacted, had a disproportionate impact not on revenue, but on margin.

So those were the types of challenges we had with the funding. Think some specialized material at lower margins, higher revenue and then think our mission technology, lower revenue contribution, but materially higher margins. So that was the 2 major components of that..

Got it. That’s really helpful. And also on the free cash flow.

So you’re able to maintain the free cash flow guide despite some of the slowness? Was there an offset that to help you to still get to the $720 million?.

Yes, absolutely. So a few things. Operating cash flow, if I go excluding the kind of tax issues kind of down a little bit around $10 million, kind of largely driven by some of the reduction in our net income from where we initially had a peg, but that’s offset by some better collections kind of DSO at 51 days.

Extremely low in number for us among our peer group. So we’re proud of that. Slightly lower CapEx as well. So the lower operating cash flow was offset by lower CapEx. The collections have certainly improved, and so we’re able to maintain that free cash flow guidance..

Our next question is the follow-up from Gavin Parsons of Goldman Sachs..

I just wanted to ask if you can give us a sense of your total product revenue in a normal year and what that looks like this year?.

Yes. Gavin, we’re going to keep our disclosures around technology and expertise and that’s clearly just due to competitive reasons. We do believe that you all can measure how the mission tech sector is going. We do show what those growth rates are. Highly respect your question, we’re just not going to provide too much additional information there..

Totally fair. Totally fair.

And this might be a little nitpicky, but what was the cadence of the 3Q funding decline? Is that pretty concentrated in January as a result of Omicron? Or was that kind of more widespread as a result of the CR?.

Yes. So Gavin, good question. To be candid, we did not look at it on a month-by-month basis. So it’s why do not have that, instead of the we would just be speculating. In the triggering event or one of the triggering events was the passage of the budget on March 15.

And so I would guess and we can get back to you that once the budget was passed through is probably some more positive trends..

Gavin, I’ll add one other item, frankly, around that second question. We’ve been trying to study what the most likely reason was for that because as we mentioned, when we got to the second quarter, we were pretty much flat with where we were last year.

Our assumption and probably best well-founded reason it is, it’s another issue we talked about during the second quarter.

When Ukraine crisis started, it just became yet another compounding factor on a government customer that was already spending below what their CR budgets were and sort of like throwing another ball in that 6 ball juggling act of how am I going to fund everything that I have.

That’s frankly where we believe that, that funding issue starts after the specifics by month-to-month. I’m sure Dan and George can get to the rest of the information. But as we talk about funding, I want to continue to reiterate, funding to us is a very short-term headwind. We -- the national security priorities are important as ever.

The FY ‘22 and FY ‘23 planned budgets are very constructive. We’ve got a large and growing addressable market. We’re investing in an aligned to all of these key strategy [plan] areas. What we can control is being run exceptionally well, and we’re looking forward to closing on FY’22 with our updated guidance and then driving future growth in FY ‘23..

We also have a follow-up from Colin Canfield of Barclays..

Just going back to the low earth orbit constellation narrative. So you mentioned producing of kind of these like subcomponent optical lengths, but at the same time, you’re cutting your CapEx guide.

So then how do we think about kind of how that LEO narrative interacts with CapEx? And when do we -- or kind of what sort of CapEx inflection should we assume from CACI kind of on a year-on-year basis or a percentage of sales?.

So let me start off with CapEx. Kind of generally speaking, it’s 3 major buckets for capital spending for CACI. Kind of one is facilities. We continue to look at our real estate portfolio and make appropriate investments. Sometimes we’re doing some consolidation and that requires some good long-term CapEx to support that activity.

The second major bucket is internal IT spending. Some of it is the simple kind of replacements of laptops and desktops and audio/visual equipment. And we do make investments in some enterprise capabilities, think of budget systems, think a contract system, think other data repository systems, which drive capital spending.

And the third bucket is capital spending associated with the program, and we have a series of laboratories. They’ve required very sophisticated test equipment kind of manufacturing capabilities and the like.

And so that’s the piece that you’re looking at -- and so with that, I’ll turn it back to John and he can talk more specifically about some of the requirements for some of the space activities..

Yes. So Colin, actually beyond space. Everything we do in that mission tech quadrant, the first 9 months, CapEx was around $40 million, which tells you that it’s sort of timing. The slower funding environment is slow.

Some of the ramp-up of some of that work, nothing slowed down what we’re doing in SA Photonics, nothing to slow down what we’re doing in the [aegis] Mastodon business. Some is just normal delays. But let me be very, very clear, we’re not backing off on investments for growth because of these very, very short-term headwinds.

Headwinds are near term, investments drive long-term results. And we will not cease any of those investments as we continue to support new and growing customers, especially when it’s backed by very strong funding streams.

Our mantra of investing ahead of customer need does not take time out because of the 1- to 2-quarter short-term funding issue, which is predominantly the majority of the issue why we had to take down guidance to close our FY 2022. Unfortunately, our fiscal year is sort of falling out that for others who have a January through December fiscal year.

As many of you have already written, you all are expecting growth starting in those companies’ third quarters. That happened to be our first quarter of FY 2023. So there’s nothing alarming. There’s nothing shocking. There’s nothing going on inside the company overall.

We’re going to continue to invest ahead of customer need in that mission tech quadrant as well as in the enterprise tech area because that’s what’s going to fuel future growth and future margin expansion..

We have no further questions on the call. So I will hand the floor back to John..

Thanks, Seth, 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. Tom Mutryn, Dan Leckburg and George Price are available after today’s call. Please stay healthy, and my best to you and your families.

This concludes our call. Thank you all, and have a great day..

Thank you. This concludes today’s conference call. You may now disconnect your lines..