Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fiscal 2024 First Quarter Conference Call. Today’s call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to George Price..

Thanks, Briana and good morning everyone. I am 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 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, George and good morning, everyone. Thank you for joining us to discuss our first quarter fiscal year ‘24 results as well as our fiscal ‘24 guidance. With me this morning is Jeff MacLauchlan, our Chief Financial Officer.

Before we get started, and as I previously informed many of you, George Price now leads Investor Relations for CACI, replacing Dan Leckburg, who has taken an executive role elsewhere in the company.

My thanks to Dan for the fine job he did, and my congratulations to George, who brings us 4 years as a deputy to Dan and his significant experience as both the sell-side analyst and Investor Relations executive to the position. So with that, let’s move to our first quarter results. Slide 4, please.

Last night, we released our first quarter results for fiscal year ‘24. And I am pleased to say that our actions and results in the first quarter were directly aligned with our value creation model.

As we have discussed, that value creation model is one that is built to drive growth in free cash flow per share by utilizing a combination of long-term, predictable organic revenue growth, efficient management of working capital and CapEx, profitability, supportive of continued investment and prudent opportunistic value-creating capital deployment.

Against those elements, we delivered 15% organic revenue growth, $174 million of EBITDA, free cash flow that exceeded our expectations. We executed a $150 million share repurchase program. In addition, we won $3.1 billion of contract awards, which represents a 1.7x book-to-bill for the quarter and 1.4x on a trailing 12 months basis.

More than half of our awards were for new work to CACI. We had strong performance on our recompetes as well. Our first quarter performance provides us the opportunity to raise elements of our fiscal year ‘24 guidance and Jeff will provide the financials shortly. Slide 5, please.

We have talked about network modernization being the critical need for our government and a significant long-term opportunity for CACI. Secure, modernized networks are the required foundation for many priorities, including AI, cyber in JADC2.

We have invested to develop innovative network modernization capabilities, both organically and via the acquisitions of LGS and ID Technologies.

As a result, we were awarded an 8-year contract valued at up to $1.3 billion to modernize the network of a major DoD intelligence community customer to support critical intelligence missions around the world. We had the highest rated technical proposal. We displaced a long entrenched incumbent.

We established a new beachhead for network modernization with this customer and we increased our visibility and access across the broader intelligence community. In addition, we were just notified of a $200 million DoD network modernization win. This one is specifically leveraging our Commercial Solutions for Classified or CSfC technology.

We continue to see healthy demand for network modernization and a strong pipeline of additional opportunities. Now, you have heard us discuss the importance of software as an enabler for customer emissions and the software is our superpower.

CACI has continued to demonstrate that we have the most mature, advanced software development capabilities, building open systems and software-defined offerings in the market today.

These capabilities led to the award of a 5-year contract with a maximum ceiling value of $917 million to continue providing software and systems engineering to support battles based awareness through the United States Air Force.

In addition, our unique software-defined capabilities, coupled with our deep understanding of Signal’s and the electromagnetic spectrum, continues to differentiate CACI in the marketplace. We are seeing increased market adoption of our software-defined technology, particularly in the areas of Signal’s Intelligence and electronic warfare.

This is evidenced by being selected to supply our technology offerings to an army program of record as well as the evaluation of the same offerings for another army program that enables dismounted soldiers to quickly detect, identify, geolocate and defeat signals of interest.

These successes are great examples of our ability to deliver software-defined innovation in a fast, agile manner to support critical and enduring national security priorities. Slide 6, please. In addition to winning during new work, we are executing and performing with excellence on the three large awards we announced in our last fiscal year.

Let me provide you with an update. First, our Air Force Enterprise IT as a Service or EITaaS contract is ramping up as planned. We are on track to stand up our enterprise service desk before year end and assume day-to-day operations of existing systems with additional program milestones on track for the second half of the fiscal year.

Both of these actions accelerate support to our customer and support our financial goals for FY ‘24. Next, the transition of our large NSA, Intel and cyber award is also progressing well. We continue to show the value of our technically superior proposal and we are receiving positive feedback from our customer executives.

Finally, our Navy Spectral program is off to a great start. Even with an extremely complex environment and technical requirements, we have hit the ground running because we invested ahead of customer need. We have a great partnership with the Navy and our customer is pleased with our performance.

With the ever-evolving threats in the INDOPACOM theater, Spectral is the type of program built with an open software architecture that breaks vendor lock and provides capabilities at the speed of the fight that the Navy requires. Slide 7, please.

Turning to the macro environment, we continue to monitor the government fiscal year ‘24 budget process closely. We are prepared for a number of scenarios, most of which we believe – most of which we believe are addressed within our guidance range.

As we have said many times, the world is a dangerous place and recent events have only confirmed that view. Customer demand remains high, driven by the elevated global threat environment, the pacing capabilities of our adversaries and the significant opportunity for modernization in government to enhance both efficiency and security.

CACI remains very well positioned in key enduring areas of demand including broad IT modernization, the electromagnetic spectrum, cyber, space and intelligence. Slide 8, please. As a trusted national security company, our government customers rely on CACI to meet their most urgent and critical needs.

Given the recent budget uncertainty, just such an opportunity arose when we received requests to purchase nearly $200 million of network equipment, cybersecurity licenses and other material before the government fiscal year ended.

We are proud that our team was able to rapidly and efficiently respond to these requests with $100 million of the material delivered in our first quarter and another $100 million slated to be delivered next quarter. Excluding these material purchases, our underlying organic growth was 9%.

In summary, our first quarter results were strong, and fiscal year ‘24 is off to a great start. Demand signals are healthy and we are well positioned to address key customer priorities.

We are successfully executing our strategy to invest ahead of need to build differentiated capabilities and as a result, we are winning in the marketplace and we are leveraging our financial strength to deploy capital in a flexible and opportunistic manner to drive free cash flow per share growth and shareholder value.

With that, I will turn the call over to Jeff..

Thank you, John and good morning everyone. Please turn to Slide 9. Our first quarter of fiscal year ‘24 is a strong start to the fiscal year. We generated revenue of $1.85 billion in the quarter, of which about $100 million was related to the unplanned government material purchases, which John just described.

This activity drove 6% of year-over-year growth with essentially no profit. The remaining 9% growth was driven by strong execution across the business as we capitalize on our healthy awards over the past several quarters.

This performance demonstrates the effectiveness of our strategy to pursue fewer and larger opportunities and invest ahead of customer need. A further indication of the success of our approach is that the weighted average duration of our awards extended to over 6 years this quarter, an all-time high. Slide 10, please.

First quarter reported EBITDA margin reflects 60 basis points of drag from the higher material volume I just mentioned. In that context, our underlying profitability is strong. Adjusted diluted earnings per share of $4.36 were unchanged from the prior year.

Higher interest expense was offset by higher operating income, a lower tax provision and a lower share count as a result of our share repurchases. First quarter operating cash flow, excluding our accounts receivable purchase facility, was $93 million reflecting solid profitability and strong cash collections.

We reported days sales outstanding of 49 days, just 1 day above last year’s record low as we continue to efficiently manage working capital. Free cash flow was $79 million for the quarter. Slide 11, please. Recall that last year, our Board authorized a $750 million share repurchase program.

As John mentioned, our value creation model is focused on driving growth in free cash flow per share, including through flexible and opportunistic capital deployment. This standing authorization has positioned us to be even more responsive to evolving market conditions.

Accordingly, we initiated an open market repurchase program at the end of August and through quarter end, executed the repurchase of another 470,000 shares at an average price of $319 per share. After completion of this latest share repurchase, we have approximately $337 million remaining in our share repurchase authorization.

Since the $750 million Board authorization in January, we have repurchased over 5% of our shares outstanding. We ended the quarter with 2.3x leverage of net debt to trailing 12 months EBITDA, reflecting the funds used in the quarter for the share repurchases.

The healthy long-term cash flow characteristics of our business, our modest leverage and our access to capital continued to provide us with significant optionality. We remain well positioned to deploy capital in a flexible and opportunistic manner to drive future growth and shareholder value. Slide 12, please.

With our first quarter results and additional share repurchases, we are raising our fiscal year ‘24 revenue, adjusted EPS and free cash flow guidance. We now expect fiscal ‘24 revenue to be in the range of approximately $7.2 billion to $7.4 billion, essentially all of which is organic.

This $200 million increase in revenue reflects the higher material purchases we discussed earlier. This increased volume is split evenly between the first and second quarters. I want to be clear that our EBITDA dollar expectations for the full year are unchanged.

Beyond the material purchases, the underlying operating results of the business are consistent with our expectations. To assist with your modeling, we expect second quarter revenue and EBITDA dollars to be relatively flattish with the first quarter.

As was the case last year and as we shared in our guidance call last quarter, we see higher profitability in the second half of the year.

This second half improvement is driven by declining levels of mission technology investment from the first half as well as second half increases in new fixed unit price war and higher volume of some mission tech programs.

We are raising our adjusted EPS guidance to reflect the lower share count as a result of our additional open market share repurchases. Our full year diluted share count guidance is now $22.7 million.

In addition, our full year interest expense is now expected to be in the range of $100 million to $105 million, reflecting the additional share repurchases, with minimal net income impact of this change is accommodated within the existing adjusted net income guidance range.

We are raising our fiscal year ‘24 free cash flow guidance by $10 million to at least $410 million. We expect that this increased free cash flow combined with the benefit of the reduced share count results in an increase of 4% versus our initial free cash flow per share expectations. Slide 13, please.

Turning to our forward indicators, CACI’s prospects continue to be strong. Our first quarter book-to-bill of 1.7x reflects strong performance in the marketplace and our first quarter awards have a weighted average duration of over 6 years. First quarter backlog of $26.7 billion grew 7% from a year ago and represents almost 4 years of annual revenue.

These metrics provide good long-term visibility into our business. For fiscal year ‘24, we now expect 89% of our revenue to come from existing programs, 7% from recompetes and 4% from new business. Progress on these metrics reflects increased confidence in our expectations for the year.

In terms of our pipeline, we have $11 billion of bids under evaluation, about 65% of which are for new business to CACI. And we expect to submit another $10 billion in bids over the next two quarters, with over 80% of that for new business. These metrics reflect healthy demand and disciplined bidding.

To wrap things up, first quarter was a great start to the year and we are pleased to be able to raise our full year revenue, adjusted EPS and free cash flow guidance.

The business is performing well and we remain confident in our ability to continue to drive long-term growth, increase free cash flow per share and generate additional shareholder value. And with that, I will turn the call back over to John..

Thank you, Jeff. Let’s go to Slide 14, please. Our fiscal year ‘24 is off to a great start. We continue to show that we are strategically positioned in the right markets with differentiated capabilities. We are winning high-value enduring work that supports long-term growth. We are deploying capital in a flexible and opportunistic manner.

The combination of these successes is driving free cash flow per share growth and shareholder value. Key to our business success is a tremendous talent CACI has been able to attract, develop and retain.

As a leading national security company, CACI offers boundless opportunities for our employees to serve their country, grow their skills, and expand their horizons. Ours is a longstanding culture where character leads innovation every day.

The investments we have made and the value proposition we offer our people continue to drive a number of positive outcomes, including lower attrition, increased referrals of new hires by existing employees, innumerous awards, recognizing CACI is one of the best places to work in the country.

In fact, for 12 years, CACI has been recognized by Fortune Magazine as one of the world’s most admired companies. CACI also continues to be recognized as a top workplace for women, new graduates and diversity.

I am especially proud that CACI received a number of recognitions for our support of our veterans, including being named the Best Employer for Veterans by Forbes. As is always the case, we achieve our success because of our employees’ talent, innovation and commitment.

I want to thank the entire CACI team for what they do for our company and our nation each and everyday. With that, Briana, let’s open the call for questions..

Thank you. [Operator Instructions] Our first question comes from Mariana Perez Mora with Bank of America. Your line is open..

Good morning, gentlemen..

Good morning..

So my question is going to be about the macroeconomic environment and political environment without the budget. How much of the growth into this year depends on actually having a funded budget.

And more specifically, when you see those like $10 billion like bids that you are going to submit in the next 6 months, how much of that depends on new contract awards that you have in your budget and how much of that is just takeaways?.

Mariana thanks. I’ll start with this one. Look, as I mentioned in my prepared remarks, but we’re monitoring the budget process closely. We’re prepared for a number of different scenarios. But here’s what we know. We know the Senate has passed all 12 appropriations bills or audit committee. They are going to start bringing those bills to the floor to vote.

The house now as a speaker, appears to be committed to avoiding any debt during the impacts and we’re very aware of the 1% cut in spending during ‘23 Congress can’t pass those, but we are actually planning that those do get pass by the April 30 deadline.

It’s hard to say how like a full year CR or shutdown is, but we’re pretty confident that the majority of our work will continue with the funding. And in case of a shutdown, we’re quite confident that the work that we do are going to be continuing and ongoing through the shutdown because of the current world events. Getting closer to home.

In our guidance, we considered many variables Mariana and one of those being duration of the FY ‘24 budget process and the CR. If you all remember, the low end of our guidance, we assumed a full year CR during this entire fiscal year. The high end, we assumed a short CR and the budget pass sooner.

As it pertains to the jobs that we have already submitted were waiting for the government to select the award, awardee and for the submitted bids, but we’re very confident that the work that we have is in the deep streams of funding that are exactly those areas of the budget that are not being touched.

Whether we’re a CR or whether we’re not, we spent a long time within this company making certain that the work that we bid on has to be long and enduring work. That is the major reason why we moved from being a pure government services company into one that offers both expertise and tech. So we don’t see any near-term impacts to it.

I don’t want to predict our FY ‘25 year, given that I’m only [indiscernible] days into FY ‘24. But there is nothing that we’re submitting today that we’re sitting on the table saying, boy, if the budget is cut or the CR continues, does that present any growth to us or any concern to us..

Perfect. Thank you very much.

And as a follow-up to mention, transitioning to a more technology focused company how is supply chain?.

Yes. Thank you. Look, we – you talked about supply chain quite a bit. We’ve done a couple of things. One is that over the last few quarters, we have purchased in a very cost-effective, but wise manner to make certain that we could get our mission technology offerings delivered without any future delays in the supply chain. So that’s one.

Second, we’ve also instrumented all of our billable materials with, frankly, AI technology that actually alerts us to parts that are either going to go obsolete or predictive longer supply chain delivery dates.

And when that happens, we immediately go in and we make all the right business calls to make sure it doesn’t get in the way of us delivering our vision technology offering. Thanks, Mariana..

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

Hey, good morning. Maybe just a follow-up. Hey, John, Jeff, George, maybe just a guidance follow-up to Mariana’s question there.

Is the CR having any impact on the current ramp process for the three contracts you highlighted in your slides? Or are things progressing sort of as expected?.

Yes, Bert, thanks. We truly have not seen CR create any impacts in a number of areas. RFPs and RFIs are still coming out in a timely manner. You all have heard me say in the class in the past. Every organization has their own warm DNA and some perpetually here go always iterate some deliver at least. So no impact there.

As for funding for our three major programs, ITAS, our large intel program in Spectral are fully funded through fiscal year ‘24 sorry, yes, through the current fiscal year that we’re in. And we just haven’t seen any slowdown either awards, RFPs, deliveries and tenant funds..

Okay. Great. And then John, just a more, I guess, a high-level question.

Historically, you’ve talked about ever-increasing margins for CACI now that you have pretty clear line of sight into growth over the next couple of years, has that view changed at all near-term? I guess that is to say, does the dial shift more toward growth over margins over these next 2 years?.

Yes, Bert, thanks. A couple of things here, and I’ll have Jeff add his views as well. Look, we are very much focused on value creation model that drives free cash flow earned share, right? So the way we built this company, and again, we’re purpose built for exactly the vision we’re in today.

We realized 7 or 8 years back that we were winning work that wasn’t generating the right level of full value return. So first step, focus on margins and focus on the things that were out there bidding on. Let’s build a great capability bench so we can go after more longer-term during work, moving a little bit from expertise to technology.

That drove margin focus from the high 7s to the high 10s. Now that we’re there, what we talked about coming into this financial year is an absolute focus on free cash flow per share. Top line growth, reliable organic top line growth, bottom line growth, capital to employment, making certain that we’re running a cost-effective business.

So what – it’s no longer the focus on one, is focus on all four. And for us, every one of those levers that we have are now available to us, and we’re very happy that we’ve driven an additional 4% of free cash flow per share since our original guidance.

Jeff, anything?.

Yes. I mean, that’s exactly right. I think it’s additive. It doesn’t replace the profitability focus because, obviously, generating earnings is an important part of generating free cash flow, but it’s sort of – we kind of think of it as taking it to the next level.

So now we’ve made significant progress on profitability, and we’re not taking our eye off that ball, but we’re now adding to that a focus on increased focus. We’ve always been focused on it, but increased focus on capital efficiency and the free cash flow per share, as John shared it.

Bert also follow-up to as it pertains to this current year that we’re in? we have some initial moving parts with this $200 million worth of material. I want to make it very, very clear. that as we look at the underlying business without that $200 million, we are focused on a high 10% margin period full stock.

The fact that we had $200 million of zero margin revenue come in. It was our decision to make them very transparent. And I understand that the math works out to 10-5 or 10-6 outstanding, but we are the underlying business is executing at a high 10s rate and we will continue to do so throughout this year..

Yes. It can’t be said too many times that the underlying operations of the business are entirely consistent with where we expect to be. Thanks, Bert..

Our next question comes from Seth Seifman with JPMorgan. Your line is open..

Good morning. This is Rocco on for Seth. .

Hi, Ros, good morning..

The 9% organic growth ex-material buys was impressive in Q1, with the new guidance increase for the unplanned material buy, should we expect sales growth to be front-half weighted ex the buys? Or will Q2 be lower what they build throughout the year as indicated on the prior call?.

Yes. Our view – thanks for the question, Rocco. Our view is that the second quarter, you ought to expect to be fairly flattish from the first. Remember, there is $100 million of the unplanned material buys in each of those two quarters.

And I think the underlying operations of the business, while we reiterated the year in our guidance, we feel like we’re off to a really strong start, but we’re going to operate here for another quarter or so and reassess..

Great. That makes sense. And then how are you thinking about future capital deployment.

Is there a potential for there to be a consistent share repurchase program? And how does the M&A pipeline look?.

Yes. Boy, that’s a – go on for days Rocco. Look, first of all, look, we’re flexible opportunistic, and those are the dynamics that we’ve actually laid out there.

We are going to continue to evaluate a range of factors, either what our M&A pipeline looks like, as you mentioned, what our stock price is, what our valuation is, leverage interest rates, demand trends, business outlooks, and frankly, those are – all those options are always on the table.

So they all create value, as you all know, given the dynamics at the time. Because they all drive free cash per share over time. Leverage feels right. And we’re going to evaluate all of the options. We have to look at share repurchase versus M&A. We look at internal investments versus M&A.

Our decision is going to be based on a relative rates of return on whatever two options that we’re looking at over time.

And with that, Jeff, anything you’d like to add?.

Yes. I mean, look, this is a very – I know you guys probably get tired of hearing flexible and opportunistic, but that really is where we are.

I mean we are continually looking at the pipeline and when we see a combination of factors where we don’t see maybe near-term opportunities that are interesting to us, we see some market weakness in our share price, those are times that we’re going to stop and buy back some shares. I mean, it’s continually under evaluation.

It’s a very disciplined, return-driven exercise, it does not make much sense for us to be any less levered than we are. We have a very favorable capital structure in that regard. Those of you that all us in study us know that, I won’t bore you with the details, but it’s not particularly appealing to us to become any less levered.

And so we’re constantly looking at that range of options. And you’ll see us continue to act as appropriate as we look at changing circumstances..

Rocco, you also asked about M&A. And look, you all know we done some really good acquisitions in the past. They have addressed a large number of gaps. Is the – frankly, the valuations and the seller’s expectations have been relatively slow to adjust to a changing market dynamics.

That’s our view in light of rising interest rates and a lot of other factors. But we do have a pipeline that is starting to build. We’re always looking at things in the SIGINT EW area, in the cyber and in the space area. But when we see the market shifting back to buyers’ market from a seller’s market, we may see more opportunities in the near-term.

But we’re really looking at that moderate sized company that drives capabilities and customer relationships so that 5 years from now, we can talk about what that company did to sort of change the way our company looks now. And again, with the temporary are going to continue to drive longer, longer-term free cash flow per share growth.

Thanks for your questions..

Our next question comes from Matt Akers with Wells Fargo. Your line is open..

Hey, guys. Good morning. Thanks for the questions..

Hi, Matt..

So you mentioned that, I guess, the $200 million of material buys that I think maybe shifted based on some of the uncertainty that’s going on, people pull that forward.

I guess if you strip that out kind of your base business was there any kind of pull forward in that business as well? I’m just curious how people are sort of your customers are acting around some of the uncertainty around the budget..

Look, let’s makes sure. First, let’s unpack a little bit the premise of your question. The unplanned material buys were not pull forwards. So that was unplanned customer activity, which we were efficiently and responsively dressed.

Beyond that, the underlying performance of the business is slightly ahead of our expectations for the first quarter, and we think we’re on a good path. We may have anything be well, we think we’re on a good path. So we will be continuing to evaluate that, but it’s early in the year.

I mean, as John said, we’re 100 days into the year and we’re happy with our position, and we will continue to manage it..

Got it, okay. Thanks. And then I guess, just any thoughts on some of the things happening in the Middle East now between kind of U.S.

involvement over there? And does this $100 billion plus supplemental that is on the table? Any potential work you think that maybe you could come out of that for CACI?.

Yes. Matt, thanks. Look, we’ve said many, many times, right? Unfortunately, the world was a dangerous place. I think that what’s going on in Ukraine was the first wake-up call. Certainly, raise the urgency level around defense and national security globally, frankly.

I think the attack on Israel is a reminder that despite the increase of near-peer threats, you’ve all heard me say this, contourism is still a major concern. Yes, there is more money going to be spent on the near period threat. But I’ve always said, in our mind, it was ever an ore, it was always going to be an E, E, E, and M.

But look, most of what we’re doing as to specifics, I can’t address those on this call. I can tell you that we’re engaged and we’re supporting. We’re hearing the same thing that you’re all hearing about the $100 billion plus up as well as other international spending.

Look, we deliver mission expertise and technologies to all the Five Eye countries today. I’m convinced that the Eastern European allies are also going to be increasingly interested in our products. We’ve made a few trips there to some key countries. We know what they are looking at, they are looking for.

It’s exactly what our software defined mission technology suite was built for the automatic spectrum and everything in the EW world into [indiscernible] signal. Nations around the country want to know where that signal is, what it is and how can they repeat it.

So I’m sure that expansions around Eastern Europe and NATO and other select countries is what will start taking a look at – it’s too early to discuss the specifics. We’re going to be very, very conservative and very, very calculating as to how we enter the international markets with the offerings that we have. Thanks, Matt..

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

Hi. Good morning. This is actually Josh Corn on for David..

Good morning, Josh..

Good morning. I wanted to ask if the materials purchases in the quarter were considered expertise or technology. It sounds like technology. So if that’s the case, ex-those purchases, it seemed like expertise growth was up 20% and tech was flat.

So I wanted to ask if that implies anything about the remainder of the year or anything specific in the quarter? Thanks..

First of all, they were technology. John, want to add to this, but I don’t think there is – I don’t think there is a particular conclusion to extend from that. I mean these statistics move around, obviously, and we’re generally kind of managing mix..

Yes. Thanks, Jeff. Look, I probably said this, sorry. The good news is they are both growing, right? So I’m extremely pleased with every dollar of expertise growth, just as much am excited by every dollar of technology growth.

I think some of what you all see in some of those tables, whether it’s expertise in tech or [indiscernible] DoD, but we see expertise is seeing the benefit of lapping the Afghanistan withdrawal and then also the ramp-up of our new NSA, Intel, and Cyber program. At the end of the day, they are both extremely important to us.

Expertise informs tech and tech enables more cost-effective expertise. And I could tell you, within our mission technology space Todd [ph] over here does an outstanding job of picking up all the mission expertise work that we are doing and all those tips in cues to understand how we invest.

And gray ones, most of our enterprise work does outstanding job of finding ways to bring new technology, whether it’s AI or agile software development scale, anything that takes the cost of expertise down which, frankly, when we do that, that helps us drive margins as well.

So, I think quarter-over-quarter, Josh, we are going to see different pieces of our business growing at different rates. But there is usually some large movements that are easily explained with the latest 12 months of work that we have done. Briana, we are ready for our next question..

Our next question comes from Connor Walters with Jefferies. Your line is open..

Hi guys. Congratulations on a strong quarter and thank you for taking my question. I just wanted to dig into some of these major programs a little bit more.

Now that FocusFox is over a quarter into the ramp, can you provide an update on the cadence and progress around hiring and how we should think about the contribution to revenue and profit in the next few years there?.

Yes. Thanks. So look, it’s a major expertise program for us. And we have always said that at a normal level, expertise ramps up faster than our technology programs. We won the work because our CACI proposal was technically superior.

And frankly, programs were ramping up just as we propose, maybe slightly ahead, but nothing but positive feedback from our customer to-date. What’s crucial to know about that program is we won that program by making certain that we would have a low to zero risk transition from the long-term incumbent to us.

And that transition is well down the path of the way it was planned in our proposal. I would – I am not going to talk about the exact quarter-by-quarter and year-by-year, but all I will tell you is its $1.5 billion worth of awards that we recognize. I would say we are somewhere in the 80% ramped up phase today.

Connor, and I would expect that great performance by Marcie Small [ph] and her team to continue..

Got it. That’s super helpful. And maybe in the same vein as it relates to the new $1.3 billion award with the intelligence community customer.

How should we be thinking about the timing of the ramp and contribution at scale from that?.

Yes. Connor, I think that’s – I think it was an 8-year award, $1.3 billion. That’s a network build-out job. So, that ramp-up curve is going to be a little bit different, right. When we do these large scale network jobs, there is a lot of front-end work, specification, making sure that we revisit what the customer wanted.

Technology is changing either in the full network realm or at that last mile or where the actual device is connecting, which is what makes our TFC offering so unique.

But those programs start up a little bit on the light side, Connor, and I would say over a period of the next year, we will have what that design looks like and then we are working with the customer as to how we would roll that out. That’s a network that is used globally. And again, we just won that work. So, we will be putting that plan in place.

If there are no protests on it, we will see some lighter revenue come in, in the third quarter and fourth quarter, but nothing that’s going to change our guidance. Thanks Connor..

Our next question comes from Jan-Frans Engelbrecht with Baird. Your line is open..

Good morning John and Jeff. I am for Peter today..

Good morning..

Great. So, just wanted to quickly revisit the M&A comments that you made and with net leverage of 2.3 today.

Could you provide some color on sort of how high you would go if you identified an attractive target?.

Yes. That’s not a perfect answer to the hypothetical. For a long time, we said that we would occasionally perhaps consider $4.5 million. I think in the current environment, that’s going to be less. But I could imagine for the right asset, 3.5%, maybe a little more is sort of in the ZIP code we consider.

It’s difficult to answer that, obviously, outside the context of a specific target. But certainly, you should think about us thinking about up to a turner, so all what we have historically said..

Great. That’s really helpful. And then just a quick follow-up on the Spectral award.

Just given the hardened grade environment in the Indo-Pacific strengthen the Navy budget that should likely continue for the next couple of years? Are there any sort of additional bidding opportunities that you see in the next 12 months to 24 months, specifically related to Navy electronic warfare signals intelligence that we should look out for?.

Yes. Great. Look, our electronic warfare and our electromagnetic spectrum, detection and countermeasure equipment is deployed on a lot of assets today. Actually, it’s not so much about the next 12 months to 24 months what are the other bids that we can put out there.

It really talks about the reason why my prepared remarks mentioned that Spectral is the program, right. Our customer on Spectral is already looking at how do we morph the program as it was awarded is something that can do two things. One, that actually gets updated for today’s current threats. Remember, we began investing on Spectral.

I think it was fiscal year ‘16, if I remember right that job was awarded this past year, and we are having a lot of detailed discussions around what does the threat look like today, is there anything we can do to get delivery sooner and then can we address more platforms that we have set up in the contract today.

When we won that program, there is a $1.2 billion award. I believe we booked that at $600 million and we are sort of sorting through what the other $600 million looks like. So, we have done an outstanding job. We are all over this market. The Navy is the purpose-built customer for us as we are out there delivering.

And I would also say that as we start to show what Spectral has and we deliver to the Navy, there is other customers out there that are getting another look at where our capabilities have moved to and then tie back to another question, in light of what’s happening on the global stage, there is other countries that are seeing those type of capabilities.

So, one loves the funding that we have in place on Spectral. Two, we made all the right rate calls to invest ahead of customer need, so we would start up immediately.

And then three, great technology team where it’s working with the Navy to find out how can we deliver that even quicker because that near-peer threat in the entire INDOPACOM regions is going to depend on..

Our next question comes from Tobey Sommer with Truist Securities. Your line is open..

Thank you very much.

Could you talk about trends that you are seeing in terms of billable headcount growth and the outlook for that, any sort of changes, and difficulty in recruiting and the implications for kind of both revenue growth and associated expenses as we turn into calendar ‘24?.

Yes. Tobey, thanks. First off, look, I would love when our expertise and technology grow. I am looking for material growth in both of those markets as we get through the year, just have raised guidance says we are going to have organic growth between 7.5% and 9.5%.

And based on some of the jobs that we are winning, frankly, when the rest were Ts [ph] jobs or they are technology jobs, we are going to need talent. Look, we are well positioned there. We have got three great internal hiring programs, Hashtag making moves. Frank is one where we – lot people move around the company on different projects.

That’s the beauty of building a technology business here. Hopes are much more fungible and we can move them around and that helps them build their career. Over 40% of our hires today totally come from a referral, which is outstanding for us. It keeps our talent with just costs down. And we already know people have assessed people, right.

We sort of have this tag line, great people know other great people, and it’s working very, very well. And then last, how does the job market look, look, we have done a lot to draw people to our business. We have got – we have a large internal program for our company size well over 300 interns.

And then we moved to this flexible time off and financial wellness program, which is what new hires are absolutely looking for. And frankly, we find a way to differentiate ourselves in the marketplace around expertise or technology of labor. This is a company they are going to find that from first.

So, flexible time off a really good financial bonus program that comes to a charge to all of our employees. So look, we finished FY ‘23 with attrition running about a full percentage point lower. You can do 1% on 22,000 people and back into how many less people we have to go out there and hire.

So, for both expertise and for tech, I like what the market is giving us our ability to hire and retain talent..

And if I could get your perspective, what do you think on the proposed changes in merger guidelines at the FTC? And how does that impact your acquisition program and thoughts around that?.

Yes. John will probably want to – maybe want to add some thoughts to this. It’s not – I don’t expect it to have a large impact on our thinking about managing and evaluating the pipeline. I mean we are in a position where our focus is on gaps and sort of filling strategic areas that are of interest to us.

There is very little in our pipeline that involves either vertical integration or acquiring competitors. It’s really about complementary capabilities, which is probably one of the less threatening areas in terms of competition, but I don’t know if you have any thoughts you would add..

I think you have answered..

Thanks John..

Our final question comes from Louie DiPalma with William Blair. Your line is open..

John, Jeff and George, good morning..

Good morning Louie..

Hi Louie..

Electronic warfare has proven particularly disruptive in Ukraine. And your CTO, Glenn Kurowski at AUSA, he gave a great presentation on your success with integrating Spectral Sieve, your payload into 89 different drone platforms.

And has CACI and Spectral Sieve distinguished itself versus the many other electronic warfare platforms out there? And are there opportunities beyond Ukraine for your solution to be integrated like across the European Union as the country appears to be investing in preparation of other future conflicts? Thanks..

Yes. Louie, thanks. Look, here is where I – here is where my mind goes, right.

We believe we have some best-in-class electromagnetic spectrum tools, whether it’s fine fixed, whether it’s geo, when we put a technology model in place, our goal was that we want to be a mission package provider to the platform companies as well as deliver our offerings directly to customers.

And what you hear Glenn talk about is the very first part, which is when we build these tools and – I am sorry, when we build these offerings, it’s all software defining. So, at the end of the day, if I can put my software defined unit in somebody’s hand, I can put it on someone else’s platform.

The form factor almost doesn’t matter to us because the gold is the software inside. That’s why we talk about software as our super power. If we look at delivering to an international front, those are going to come with ITAR regulations and like. So, it is not a difficult modification to take a variant of what we use in the U.S.

Some of our partners who want to unilaterally work with us and if they are 5i [ph] country, they are going to get potentially more capability. If you are not 5i country going to get slightly less.

But the beauty of that is the timeline and the small amount of investment we need to make those changes, whether it’s a form fit or function, it’s very easy for us because everything is software defined.

So, whether it’s Spectral Sieve, Spectral guard [ph] or Magpie or SkyTracker, all of those are mission technology offerings for us have a relatively shared baseline.

And when we spend money to make that investment case better, we are able to spend it in one time and distribute all of that logic and all of those algorithms to many different offerings out there..

Thanks John. And that relates to my second question. You just discussed this shared baseline for your software offerings and the CACI team has also developed software for Sapphire [indiscernible] and you also have the large BEAGLE program.

For these different software platforms, are you able to recycle a lot of the common components such that you have like favorable operating leverage on the next platform?.

Yes. So, let me take the first part of that. We build or we deliver a lot of AI-based systems and visualization systems that allow both our DoD and our intelligence customers ability to take terabits of data a minute and take all of that data and transform that into information so we understand what has to be targeted and what doesn’t.

Those systems have been in place for a number of years. We continue to move those from one intelligence customer to another and our team does phenomenal job of bringing other users on board.

So, one is all of those data visualization tools and all of those mapping tools, frankly, are all foundational AI work we have been doing for a long amount of time, whether it’s computer vision, or whether it’s other facets of AI.

We are actually delivering the base reference models and making certain that those models, frankly, are real and they are deployed. We are not advising customers, how to make AI happen. We are actually delivering it. And it’s used by the war fighters, both DoD and intel across the board.

As it pertains to the software, yes, those baselines are also built in a manner that we can share those preference models and all of that software cost all our products. So, in that domain, really not so much the actual form – swap type of things that we would assign to a hardware solution. It’s really more about software being this company’s super.

super power and just how well we have architected things. So, when we get the capability in place, we are able to step and repeat and we deliver it. Thank you for the questions..

This concludes our question-and-answer session. I will now turn the call back over to John Mengucci for closing remarks..

Thanks Briana and thank you for your help on today’s call. We like to thank everyone who dialed in or listened to our webcast for their participation. We know that many of you who have follow-up questions, and Jeff MacLauchlan and George Price are available after today’s call.

Please stay healthy, and my best to your families, and thank you for your continued interest in CACI International. This concludes our call. Thank you and have a great day..

You may now disconnect..