Q1 2021 CACI International Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the C. <unk> C International first quarter like 21 conference call today's call is being recorded.
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.
You should need any assistance during this call. Please press Star then zero and an operator will assist you at.
At this time I would like to turn the conference over to Dan Leckburg Senior Vice President of Investor Relations for C.A.C.I. International. Please go ahead Sir.
Well, thank you Chad and good morning, everyone I'm, Dan Leckburg Senior Vice President of Investor Relations for CST I International. Thank you for joining us this morning.
We are providing presentation slides, so let's move to slide number two please.
There will be statements in this call that do not address historical facts 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 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.
Open our discussion this morning, Here's John Miglucci, President and Chief Executive Officer of C.I. International John.
Turning to our first quarter of fiscal 21 results, we deliberate significant growth profitability and cash flow.
We grew revenue by 7% and net income and earnings per share by almost 40% compared to a year ago.
Profitability was higher than expected, primarily as a result of favorable contract performance as well as enhanced cost controls and the covid environment.
We continue to mitigate the cold the impacts of COVID-19, working closely with our customers to safely returned employees to work.
This includes creative alternatives such as temporary sketch.
Redesigning worth plan. So more work is done outside of classified facilities and utilizing teller working to the extent possible.
We are fortunate that our business has been less impacted by covid compared to other parts of the economy, both by the nature of our work and the specific actions we have been taking.
We have less that we have had less than 1% of our 23000 employee populations contract Covid. This is a testament to the hard work being done throughout our company to ensure work continues in a safe manner for everyone involved.
These efforts have been quite successful mitigating the overall covid headwind below our initial estimates as a.
Salt of this progress and strong operational performance, we're raising our fiscal 21 guidance to reflect higher revenue and net income growth.
Increased margin expansion and.
And even more robust cash flow Tom will discuss all of this in more detail shortly.
Five five please.
About a year ago, we held them Investor day during which we introduced our four quadrant framework to describe our business the framework depicts what and to whom we deliver.
We deliver expertise and technology to enterprise admission customers.
What's most important in that split is what we deliver expertise and technology. When we provide expertise we provide talent with specific technical functional and domain knowledge. When we provide technology, we provide software and hardware capabilities enabled by innovative R&D.
Expertise delivers respectable margins with low capital requirements and the opportunity to build past performance and deep customer relationships.
Technology is more differentiated with a higher growth addressable market and higher average margins.
In order to enhance transparency into our business. We are now disclosing revenue by expertise and technology.
You'll notice that in the first quarter of fiscal 2021, we reported growth and both revenue streams and drove faster growth and the higher margin technology stream.
This is consistent with our strategy and supports our financial objectives to outgrow, our industrial markets and expand margins.
Like six please.
We had solid contract awards in the first quarter, representing a book to Bill of one three times with wins across all four quadrants and more than half of the awards representing technology work.
We also continue to execute against our large and growing backlog of $22 billion, which is up 13% from a year ago.
With an expertise we won new work with the department of Veterans Affairs to provide talent that will assist the VA and it's financial management system modernization efforts.
We also want to work with the department of Homeland security to apply our data analytics experts to help them detect criminal activities.
Within technology, we significantly expanded our work with DHS to provide enterprise it you.
Utilizing an innovative service model to enhance productivity and efficiencies for both CACI and our customer and we won new cyber security work within the United States Army DARPA and the intelligence community.
In addition, we are continuing to ramp recent large technology awards, like Beagle and Tcs, leveraging our differentiated capabilities and strong past performance to expand these programs.
For example, agile software development is increasingly being recognized for its benefits and being utilized on larger programs, sometimes consolidations of multiple contracts.
Our industry, leading agile solutions factory and past performance are competitive differentiators that allow us to bring new work on two large marquee program such as these which will continue to drive growth beyond fiscal 2021.
Slide seven please.
To ensure CACI remains ready to address our customers. Most critical priorities. We continue to invest ahead of customer demand.
In addition to the higher value our customers receive.
This investment allows us to generate intellectual property enhanced competitive differentiation and drive future growth all of which drives shareholder value.
And cyber we are investing in both offensive and defensive technologies as well as modeling simulation environments to enhanced training and effectiveness around.
Around five G. We are investing the capabilities and technologies to collect and process, new five J signals and frequencies, adding five G capabilities to are expanding number of sensors and developing tools to ensure the resiliency of <unk> networks more.
More broadly we are addressing the convergence of signals intelligence electronic warfare, cyber and communications to enable the us to dominate the electromagnetic spectrum.
And around artificial intelligence, we have over 100 projects developing AI capabilities across many areas of our business.
All of these investments are targeted at well funded areas of the federal budget supporting solutions necessary to combat both counterterrorism.
And near pure threats.
Well on the topic of investment I'm very pleased with the performance of our recent acquisition of asset ascent vision technologies or AVP.
The bottom line is they are delivering in line with expectation.
Enhancing their product offerings, and providing value creating synergies solutions.
We've had several joint meetings representatives from the Deogee joined counter Uaf's office or <unk> discussing their desired enhancements to both the AVG mobile and CACI fixed site offerings internally, we're already working on ways to leverage Abt's technology into Caci's large fixed site.
[noise] installed base and vice versa.
By age please.
The ACI has been in business for nearly six decades.
During that time, we have prospered through many election cycles. One thing we've seen is that investment and defenses bipartisan, especially in times of an elevated threat environment like we see now.
Our addressable market remains healthy with all indications, we will continue to see sustained technology investment to support national security and it modernization priorities.
When we look at Caci's capabilities against these priorities, we see tremendous opportunity within our 230 billion and growing addressable market.
Our awards and backlog are a testament to caci's ability to enable our customers to modernize infrastructure and business applications secured networks and communications and.
An enhanced offensive and defensive capabilities to enable the warfighter to dominate across all demands.
Our alignment should is critical areas makes our business resilient allows us to take market share. It gives us confidence in going on an ongoing growth prospects.
Now over to Tom to provide even more insights into our financial performance and increased guidance Tom great. Thank you and good morning, everyone, Let's turn to slide number nine.
Our first quarter with an excellent start to the year, we generated revenue of $1.5 billion, representing overall growth of 7% in organic growth is 6% with a simultaneous increase in markets.
As John mentioned, we have begun to disclose revenue by expertise and technology.
Compared with the first quarter of last year expertise revenue grew 2.5% in technology revenue grew over 12% Tech.
<unk> technology programs on average are delivering Martin's about 300 to 500 basis points higher than expertise.
Both expertise and technology activities are important to our enterprises admission customers and we see growth opportunities across all four quadrants.
That said the heightened growth and technology is helping a strike or margin expansion.
But just did EBITA margin of the quarter was 11.3% increase of 190 basis points from year ago.
The majority of this improvement with our ability to drive favorable contract performance on several programs, including our creative efforts to materially reduced cost on stirring fixed price contracts, while operating under Covid.
In addition, we were successfully navigating in the new environment and minimized the direct and indirect impact of the pandemic.
We <unk>, we continue to drive strong program execution, Andrew control costs.
We were able to keep our <unk> direct cost in.
In line with last year indicative of our ability to real life efficiencies in control cost wildly investing for growth.
Net income of $94 million increased 38% from the first quarter of last year as diluted earnings per share.
Like 10, please first quarter operating cash flow excluding.
Facility was $193 million increase at $78 million from a year ago reflective of our revenue growth margin expansion in effective cash collection and working capital management.
We successfully invoicing collected revenue associated with section 36 tightened work, even with the complex requires.
The deferral of the employee payroll tax payments under the care fact contributed route $30 million to the quarters cash flow.
DSO was at 54 days, excluding our facility down from 59 days from last year, we close the first quarter with the next step to trolling 12 months adjusted EBITDA at 2.4 times nearly unchanged versus last quarter, even with the acquisition of AVP.
Slight 11 place we are increasing our physical 21 revenue guidance framed by $50 million, which implies higher organic growth of about six 3% at the midpoint.
As we continually to successfully safely returned people to work.
We expect the covid impact through calendar year and to re route 50.
$50 million less than initially anticipated a credit to our team.
We also are racing our fiscal 21, net income and cash flow guidance.
The $25 million net income range increase consists of around $10 million from the lower covid impact while the remaining is due to the first quarter, one time favorable contract performance.
We now expect physical 21 operating cash flow to be at least $600 million driven by higher revenue margin expansion and continued strong working capital management.
With expect to FY 2001, capex of about $70 million free cash flow is expected to be approximately $530 million.
Free cash flow margin that is free cash flow divided by revenue adjusting for the $55 million annual payroll tax deferral is a very healthy at around 8%.
A full year free cash flow conversion after adjusting for the payroll tax deferral is expected to be in the 125% range as a percentage of net income at the midpoint.
The midpoint of our FY 21, adjusted guidance also implies adjusted it.
At the top margins of about 10.8% up from 10% from last year.
Excluding the items I already mentioned the underlying marching of the business is unchanged for our initial guidance.
We continue to demonstrated our ability to go revenue organically, while increasing market.
Given the strong performance, we now expect diluted earnings per share growth of around 18% at the midpoint.
Lastly are full your effective tax rate is expected to be about 22.5% with a lower tax rate in the second quarter due to the impact investing the stock awards, which were granted in prior years.
Slight 12 place turning to forward indicators, our prospects remain strong for fiscal year 21, we now expect 90% of our revenue to come from existing programs, 6% from Recompete in 4% from new business. We have nine $5 billion that submitted did suddenly evaluation with over 70.
Percent of that for new businesses CCI in 60% of the submitted did representing technology work.
We expect to submit another $16.4 billion over the next two quarters with over 70% in that for new business. The CCI intervolve, 50% of expected to middle representing technology endeavors.
With that I'll turn the call back over to Josh.
Thank you Tom Let's go to slide 13. Please.
We delivered a very nice first quarter growing revenue expanding margins and generating robust levels of cash we are positioned well performing well and producing strong results. We are effectively dealing with the impacts of covid and delivering organic revenue growth with margin expansion.
Before I turn the call over to questions I'd like to address the concern that I believe is waiting on our sector broadly.
And that is a potential for budget pressure over the next few years.
Whether that turns out to be true or not what I can confidently say is the CACI.
That entered the era of sequestration in budget downturns is very different than the CCI of today.
We were primarily a company delivering enterprise expertise mission expertise under <unk> funding and also had a significant element of our revenue coming from pasture material buys for efforts in Iraq and Afghanistan. So.
So we had a book of business susceptible to budget pressures.
And directly impacted by the drawdown in southwest Asia.
Today, our business is remarkably different we executed a purposeful strategy over the last eight years to add significant elements of technology to our portfolio an area that is more resilient and differentiated in any budget environment. We've.
We provide mission expertise in areas like intelligence analysis, cyber and engineering services, we have moved from enterprise expertise engagements to enterprise technology engagements delivering capabilities and cloud migration agile software development artificial intelligence and machine learning and.
Addition, since that shift we have built a 22 billion backlog almost four years of revenue of larger and longer duration contracts that gives us a higher level of growth visibility that never before the bottom line is we remain confident in our ability to create value for our customers and our shareholders.
Our employees talent innovation and commitment to our customers missions is at the heart of CACI strong performance and our success and executing this strategy.
The Aci's culture of character and innovation is the driving force of our success not the result of it I am proud of how are people continue to perform and these unprecedented times and I am honored each day to work alongside each of you.
Would that Chad, let's open the call for questions.
Thank you Sir we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too we.
We please ask that you limit yourself to one question and one follow up if you have additional questions. You may re enter the question queue.
At this time, we will pause momentarily to assemble a room.
And the first question will come from Robert Spingarn with Credit Suisse. Please go ahead.
Hi, good morning, and thanks for taking my question.
John you actually just hit on what I wanted to ask about which is disconnect I think.
In the stock and the backdrop.
And it seems to us that the stocks discounting almost 30% decline in free cash flow over the.
The next presidential administration.
And you did talk about how your position it would seem to us that even if there is budget pressure there'll be a lot of focus on cyber.
And on manned and near Pier adversaries could you talk a little bit more.
Again about your portfolio and how you address those and whether that 30% type number is.
Is it even remotely possible.
Yes, Rob banks I.
I guess first off you <unk>.
Mentioned cash, which is an absolute focus of everybody throughout this company I'm I'm very very proud of what the entire team has done.
Driving DSO down with an absolute focus so we are in a much better position today than we were even one year at one ear back and I'll, let Tom talk a little bit about that.
Yeah, Rob we're we're all watching.
What happens with our stock and we're looking at are we positioned to the best of our ability as we move forward. Within this is some people are saying within this next era.
Absolutely. So we are invested in things like artificial intelligence intelligence and machine learning and everything and the electromagnetic spectrum things around.
Investments placed very wisely and over a long period of time.
Because we are a strategy driven company strategy is a place where we come from we have always watch the electromagnetic spectrum, we firmly believe that weather a counter terror.
A task or a near pier threat, we're going to be best served by quick to field technology. So we have invested heavily in EW, we've invested heavily in AI and machine learning and and five G. Both offensive and defensive measures as well as within.
Cyber so as for where the government will continue to spend money, whether we're talking about reduced budgets are not those are five to seven areas that both parties. Both candidates have been very specific up on both want a strong national security and we're CACI is focus and where we deliver more times than not technology versus.
His talent, we are absolutely focused on those areas and we believe that is the key for our continued growth if I if I look at.
The intellectual property that we've picked up in the patents from our acquisition of Gis from the capabilities of actually building devices and products from both AVP and mastodon. Those are all very well thought out strategic and then as to ensure we had the right capability right customer gaps for us too.
Persevere in any budget environment trying to talk a little bit about cash yes.
Cash units John mentioned as a focus of us we too strong cash flow.
Is it all of our best interests. These kind of dry value to our shareholders are getting very proud of the efforts to kind of reduce DSO.
And I will note that under the Covid.
Tears Act.
Have regime, we've been successful in navigating some complex.
Si invoicing requirements and.
Collecting you're very effectively and efficiently with very very low invoice rejected work rates, so happy with that.
<unk> flown.
Conversions by any metric.
Free cash flow are free cash flow X percentage of revenue were net income.
Et cetera, we stack up quite voluntary part of that.
So as a follow up.
What you bolt said given that you're growing EBITDA, 29%. This quarter. The stock is traded to 10% free cash yields at least the way we do the math and.
And based on the comments you. Both just made is there a point where.
Where you say that your business is a better value than one you might acquire and you start to buy back stock.
Yeah, Rob banks.
Clearly.
R capital of the appointment is something that Tom and I will look at and we will be with the board on a quarterly quarterly basis.
We've always been focused that M&A is our number one priority for.
<unk> employment I would also say that.
It wasn't more than seven or eight years back when we looked at that.
Capital deployment strategy and we'd looked at the ability for us to find.
Any other properties out there that would quickly grow our capabilities and our customer relationships and we bought back if I believe 25% of our stock so given where stock prices are today.
As the CEO of this company I I always believe that it's under valued.
But we will continue to do those are those looks I'll continue to run or.
Models and always evaluate other invest investment options.
Thank you. Our next question will come from Toby Fulmer with Truest. Please go ahead.
Hey, Good morning. This is jasper mid filling in for Toby phone the corner ramping on Vigo and Tcs as curious what you're experiencing has been there with hiring and working around from the kind of covid related challenges with with starting new projects.
Yeah, Josh Thanks, So talk about big Ole and Tcs both both.
Two of our larger more recent awards I think we want Beagle second.
Second quarter last year, and then we picked up gcs fourth quarter of last last year.
And the Beagle side Ah, we've completed all of our initial transition mile milestones, So that's pretty much.
The work that we do when it's to HOA work from someone else. So all of those transition milestones.
That have taken taken place are are complete and I'll also state the majority of those were durning covid.
We continue to ramp up staff were continuing to bring new work on this.
Program and <unk>, a great example of what I shared or my during my prepared remarks.
Are agile solutions factory is proving ever more and more each and every day how resilient it is.
And what a valuable asset as in cake capability that we can bring to many customers.
We're not into into full swing there, but from what we've seen we've been able to generate the applications to do the software development that our customer jeez desires.
And a very small amount amount of time on Tcs.
If you remember about 50% of that was knew about 20 about.
About 20% of that was a competitive take away all of those transitions are over.
We expect to see more growth on that over the longer term.
Tcs as a catalog type program, where we deliver hundreds of different catalog services to our NGA customer set.
And that ramp up will pick up over time, so one very agile based.
One more of a cat a cabinet catalog based contractor than going well.
Happening in general.
Our portfolios products parties and part part tax so some of our elements are less dependent on hiring levels. If I looked at our hiring and our onboarding, it's pretty much on pays for what we expect a clearly with covid or attrition is down.
I think that would be a metric that it'd be hard pressed to say that we were unique there.
So.
But it's not so much of.
<unk> acquisition.
Josh in our in our Intel work as we mentioned, we still need to get people people cleared and get them to the right facility or into the right country and we're still struggling there, but we made great strides.
Thanks, and then kind of you mentioned speed to market is a priority earlier, so just with respect the opportunities in the mission Tech vertical.
The deal completed last corner and I was hoping you could speak to how you think about buying technologies to fill those gaps in your portfolio versus developing a solution in house.
Yeah. So when we when we look at our investment strategy, we look at it in three different areas right we either.
Provide internal investment, we acquire or we partner.
Things that are more commodity base, you will see his partner AWS micro Microsoft and others. Those are well established very well run commodity type offerings that we're able to partner with those companies for us to deliver both our enterprise and our mission mission Tech when you talk about speed to market.
What were we were really looking for their over the last three years. If you could go back that far on some of the select them M&A, though.
Done.
We continually hear our customers, whether it's army, whether it's navy, whether it's air force around speak to the field so speed to fleet.
And such so much of the current counter kind of tourism battle and the up and rising near Pier battles are going to be around the isomagnetic spectrum, we really wanted to find a way that we could build software definable anything products that could be delivered to either special operations forces or across the larger agree.
Army or across every.
Navy Air plane and Navy ship to make sure that they had the best signals protection that they could ever ask for and the way we deliver that is through filling some of the capability gaps with lgs and mastodon lgs understanding the the commercial electromagnetic spectrum better than anybody out there.
On the planet, so anything operating over to <unk> and now <unk> networks are well understood and well characterized by the by the folks in that business and the more often we can take signal changes and threats that.
That are in the electromagnetic spectrum and we can get those out to the field quickly via software change versus a whole new device. That's what speed. The fleet means and that's why we need to have absolute speed to market. So like where we are on Avut, where we are unmasks mastodon, we've done some great things with an allergy asthma <unk>.
Landed even deeper into <unk> and I would see many of those products and those services and offerings find their way into a broader butter and set customers over the next three to five years.
The next question will come from Ben Orange time with J P. Morgan. Please go ahead.
Good morning, everyone. Good.
Good morning, Ben.
So I wanted to kind of follow up on Rob's question, maybe to kind of ask you. This a different way.
How do you kind of think about your top line growth profile.
Against the backlog in against some of the total addressable market growth traits that you outlined in the slides and I mean.
Is this kind of reasonable or unreasonable to think about you being able to maintain mid single digit growth.
This year.
Yeah. Thanks.
<unk>.
I'm going to come on my answer differently.
Then we watch <unk>.
Topline organic revenue growth just like everybody else us.
I think we do it a little bit different different differently than most we're also combining that with bottom line growth as well.
So can we maintain a mid single digit revenue growth rate based on our backlog absolutely. So can we achieve a higher single digit could we get into the double double digits, perhaps but what I would ask is that every time, we look at the growth that's most important to shareholders.
And to our customer sets because increased margin increased profit allows us to invest ahead of need to drive customer capabilities that they wanted to see faster better and cheaper. So when I look at our growth model and our strategy that we put in place about eight years back it was let's get a deeper teknowledge.
<unk> focus that will not only grow topline, but will grow bottom bottom line. So that combination of top and bottom line. I think is very unique in our sector I think it's even more unique during the times that we see ourselves in it's why we're so focused on this year's performance because we can generate top and bottom.
Align growth during the environment that we sit in today with a generational pandemic and one would have to say.
A quite unique election coming up.
Then we're very confident that we can sustain our top and bottom line growth with a $22 billion award chest worth a backlog and very key investment areas across the federal federal government space.
Got it thank you.
And then just quickly how much of the COVID-19 impact you have kind of baked in for for Q2.
Yeah. So.
This is Tom.
Spoke about eight Covid impact initially are between 101 hundred $50 million off for the first half of the year.
Based on recent performance, we reduce that too bye $50 million and so we're expecting $50 million to $100 million revenue impact for the first half of the year I would say that's heavily weighted in the first quarter and less so in the second quarter and this is really a testament as I mentioned in the prepared remarks, you due to the teams.
<unk> of trying to navigate.
Arguing the corporate situation kind of getting people back to work period, working very closely with customers program managers contract organization trying.
Trying to find creative ways to minimize that covid impact.
At the peak at some time in the April May time period around 10% of our hours were associated with cares Act hours in a second 36 tendency cares Act last time, we spoke who was down for about 5% now just approximately 1%. So we're relatively had reduced impact to some of those.
Direct covid impacts it I.
Also will say that there is some indirect covid impact as well harder to quantify but there's a sense that subtitles catch quarter modifications are delayed or.
The ability to get clearances are delayed or approve overseas travel is delayed and that is having an impact as well but to answer. Your question are out of the clock, but the first half.
Impact most of it is in the first quarter versus the second quarter.
Thank you and the next question is from Gavin Parson with Goldman Sachs. Please go ahead.
Hi, good morning.
Good morning, Kevin.
It goes on on the organic growth bridge or guidance for the year is 263% full your guidance implies pretty much the same rate of growth throughout the rest of the year is you know in the first quarter, even though Tom per comments, the Covid headwind goes away and then in the back half of the year you lap some of the Covid headwinds. So you had and then the second half of of fiscal two.
<unk>. So I think last quarter, you indicated gross would improve throughout the year. So did anything anything changed there or could you still see some sequential improvement of the pieces fall into place.
So Gavin this is Tom as you know V guide for the full year bring you oftentimes drew some shifts between quarters and so.
With that full your guidance the first.
<unk> turned out better than we thought getting really nice performance in a number of years I highlighted kind of put them one or two.
But.
For modeling purposes, I would assume.
That's off organic growth is somewhat flat issue plus or minus 100 basis points quarters, two three and four and it seems like a reasonable.
Kind of way to kind of look at the models that being said, we're providing a revenue guidance range getting plus or minus $200 million and so within that guidance range and you could be at the upper end of things kind of go over our way we are able to.
Accelerate some activities and the like so there's.
Upside to that point in crowded by definition.
Yeah that's helpful.
Obviously still early and nothing is probably still evolving but in any initial thoughts on whether or not covid is having a structural or more permanent impact on how how work is done or how contracts are awarded or focus areas of investment or anything along those lines will be great.
Yes, Kevin Kevin Thanks.
Uh-huh.
Yes, and no. This is this is.
Continually tell my own my own team this is generational in nature.
So a lot of us don't have that play playbook I honestly think we're sort of an inning six or seven of nine of nine innings.
But what I can tell you is this is that I believe that ourselves and our customers.
Have worked very well together to make certain that one people stay safe.
<unk> and I'll say, a close to is that we have a mission to protect this nation.
And just like folks who enter award timed battles.
You would like to keep them safe, but they are going into battle.
It's why are entire workforce was deemed essential as soon as a nation went into this covid.
Realm.
So.
As long as we're in it we believe we've taken the right measures I like the way we have entered this space.
I like the way that we've been executing shooting during this phase you'll building temporary skiffs.
Literally when we say that terms it sounds so so easy but taken a floor of 200 people boxing all their information up clearing their cube Zhao redoing, an entire floor, bringing secure comms and and having the government approve that in the span of about three weeks. That's that's incredible measures. So.
What I start to think about is covid has an impact covid as an opportunity as well and that's not meant to just respect anybody who has suffered during this but promote from a pure company customer stand standpoint.
I don't expect Covid it'd be gone by December 30, 31.
I think our mitigate vacation efforts have been quite successful.
But we're looking at picking up additional additional work.
We're doing a remote work capability setup for the Army National Guard, we brought in about a 20 million dollar award to quickly put tile.
<unk> support in place for NIH and CD CDC.
From a business standpoint post post Covid I think enterprise technology.
Building more resilient and at net works.
Delivering even more mission tacked faster.
Is going to be the wave of the future often these things like covid. They don't set a trend they actually accelerated and we were already many places working on how do we do more software development work that's classified in nature in unclassified manners.
In a way that we can build code outside of escape, but bring it together in a skip so how do we do what we like to call <unk>.
Unclassified classified work I think that is getting a very positive in a very honorable look by the intelligence community out there I think we will see forward forward changes there. So all in all against those changes and how they come out of Covid very happy with how we are physician and it's nice to say that we've already been working many of those.
<unk>.
Items with our customers that yes, and this is Tom I am going to add.
In terms of our indirect workforce.
What we have learned his what.
Corporate America has learned is that we can accomplish.
Activities.
To facilitate supporting the organization, while working remotely.
Certainly it ourselves and again in most every other company I was looking at ways to.
Going forward.
In terms of facility footprint technology, you've had an video conferencing workforce possibility in Hawaii.
And it opens up a whole slew of possibilities instead of looking for employees within the.
Had a greater Washington D C area or pockets, where we have folks. We can can look broadly for talent just support unit CCI and that should be powerful both supporting our customers as well as kind of indirect activities.
Alright. Thank you. The next question will be some kind of gone rumor with Colin. Please go ahead.
Yes. Thank you very much so I'm, joining a little bit but.
Bookings work good but the book to Bill 1.3, some little below your normal average and I think Tom you alluded to some task order delays, maybe give us a little bit more color on could in terms of what did you see.
Delays in this.
This quarter and Navy looking to the second quarter do you expect and catch up or maybe some new color in terms of what we should look for openings in the second quarter. Thank you.
Yeah sure Kai. Thanks look first off I am very pleased with our Q1 backlog of 22 billion about 13% growth year over year. As you mentioned, one three times book to Bill and what I like to watch is one six times trailing 12 months.
Look you all from you say many many times awards are lumpy.
It's why I didn't shout from the mountain tops on a 4 billion tougher quarter, that's why I don't get.
Overly overly worried based on where we are today.
Today, there's a lot of trends that are out there changing right traditionally, but I'd say.
We're in a mode of anything but being traditional.
The our first quarter is sort of our largest quarter.
I think that's going to be how this this this year plays out.
We saw a few opportunities fight to the right.
Pretty much covid related.
But also keep in mind, we always see slippage, we just have a finer.
Point out that was the point that Tom made earlier on some of our larger task order work and some of our classify customer areas since they're so.
Directly impacted by Kobe, because they are in.
Skiffs and the like some of those classify test scores and not come out at the pace that we would have expected what we see those in the second and the third third quarter absolutely. So we also had a couple of this it just didn't break hour.
Way and that happens every quarter.
As for what we could could see in second and third and fourth quarter.
[laughter].
Some of the slips that came out of first quarter will most likely show up second.
We've got I think we only have three jobs tie that are out on protest and we just had to open solved.
This past quarter that while we're both both both resolved in our favor.
So I don't I don't have a crystal ball quarter to quarter, what I can tell you that I would expect CACI to have another very strong awards year.
And clearly the awards that we have in the first quarter, joining with our $22 billion backlog has been more than sufficient for us to raise guidance in the first quarter and we believe that that kind of mixed will support both top and bottom line growth as we get towards the end of the year, we start looking forward to FY 22.
Terrific. Thanks, very much. So you mentioned some of the covid opportunities in terms of the new business.
Picture.
When we think in terms of the cost side.
Are there any other any pluses near term pluses from Covid to your P&L, what I'm thinking specifically of you know.
Less travel and your budget because of Covid and as a result, there's less costly if it's a fixed price.
Contract you could pick that up is that is does that sound and that plus to any extent.
Kindness is time yesterday I mentioned are indirect cost control indirect costs are flat versus kind of last year of the fact that employees are not traveling and I am not going to too many investor confidence as in person and staying at kind of New York and Chicago hotels.
All those add up.
And helps cut it can it drive profitability.
Less confidence expense.
So those are some short term positive cost impacts we also saw.
Digit for reduced kind of medical spending we saw that in.
Pronounced in the fourth quarter of last year were you to people were reluctant to go to doctors or hospitals because of unit.
Fears of going into yours, which potentially higher kind of infection rates and.
Continue to see some of that trend. So we're seeing some kind of reduced kind of medical expenses now through could be some pent up demand for those services.
It could be bound in the next few parts, but that had some positive impact.
On the first floor.
And the next question will be from Joseph minority with Stifel. Please go ahead.
Good morning, Countertop. Good morning can you provide a little bit of.
Metairie around him the the margin profile of the two new revenue buckets between expertise and technology.
And if you could include some numbers and your answer that'd be helpful. Thank you.
Yeah. So.
The prepared remarks, I did mentioned that.
Technology is coming at higher margin, Don averaged and expertise.
Approximately 300 to 500 basis points.
It should be wide range I'm, giving they are.
For a couple of reasons every quarter in May fluctuate.
So I want to have a a range, which is kind of long term sustainable and I don't know how to adjust those numbers, but if you look at the midpoint of that that 400 basis points.
Improved kind of margin it between the two.
The question is why and I think John in his remarks explained why.
Expertise.
Is often more commodities like we're providing very capable individuals.
But we don't have a lot of intellectual property.
Tests behind those.
Acknowledge a both expertise technology admission technology you have.
Barriers to entry in terms of more sophisticated solutions and as a result of that in the date command.
Higher kind of markets.
That's helpful. And then can you just remind us just from an M&A standpoint, what maybe the top two or three capabilities. You are interested in acquiring would be thank you.
Yeah Joe.
We are based on strategy, we look at each of our <unk>.
Markets twice each year.
And when we look at that we're going to focus on the technology side first.
Whether it's on the enterprise side or on the mission side.
So anything within that area and I would also say that as we look at our portfolio.
Always look to bring in new customers.
In some areas, it's tough to break into customer set. So we may look at companies out there that have a different customer sent them. What we have what we could move our in our Adams from enterprise and our mission technology to them. So I would say in a short.
Very much on the technology front very very not very.
Deep looking.
Looking at.
Companies that can give us more of the same that we have in our expertise site, especially on the enterprise expert expert expertise.
Thank you and the next question comes from that acres with Barclays. Please go ahead.
Hi, Good morning, guys. Thanks for the morning, Matt.
I wanted to touch on the kind of the key investment areas you guys mentioned on slide seven.
Is it possible to kind of size, though and maybe talk about how fast they are growing milk.
Or a desk bull market, either either is kind, a standalone like products and themselves or to the extent that they kind of types. Some portion of the the 230 billion addressable market.
Yes sure Matt.
So.
Let's see I've got your chart southern up now.
Let me talk about I'm not sure I've got growth rates in.
How.
Each one gross but I'll focus on the things that I'm focused on first off if they are on the chart they're extremely important.
Second they garner the majority of my time and attention as well as the majority of our investment investment dollars.
Cyber cyber is going to be going into going to be out there I don't think any of us control news on.
One night without hearing something about cyber and really understanding what the news is talking about is there was a lot of battles going on today that are in the electromagnetic now electromagnetic spectrum.
When I think about cyber for us it's more it's just as much offensive as it is D E fences.
We we are keeping networks resilient up and running or.
Keeping inboxes clean of spam.
But we're also looking at mission data link so think about.
Command and control of satellites and munitions aboard flying flying aircraft.
We understand how to where to drop those munitions and how to prosecute.
War, because we understand GPS, we understand Nab and timing so a lot of the cyber work is out there focused on driving more resilient than the outward and I would tell you that post covid, we expect to see a material amount of growth within that area, because I honestly believe that across.
Our customer set and across industry, we're going to need more secure networks for more of our folks to be home teller working more days. So they are and one of my facilities or an one of our customer facilities on the <unk> side I mean, that's.
Technology explosion.
We're working with our federal government customers as to how do they operationalized five G, but having brought in the deep domain knowledge and.
Multiple patents around how we connect devices wireless Lee.
We see quite a lot of growth there electromagnetic spectrum as an area frankly.
A broad item.
Sure some of those.
Examples earlier artificial Intel we've been doing as I've said artificial intelligence long before we actually called they called it that I throw a machine learning in there as well Matt.
All up we are spending.
A little north of $100 million a year in both I R&D and bid and proposal funds focused on these four areas here.
So it is very important it's very important to us because it's very important to our customers and it's very important that they continue to fund those areas, which which they are and if it's important to our customers and they funded well it's important to us as a publicly traded company that it's absolutely important to our shareholders. We're doing all we absolutely can just sort of changed the game as to how companies.
Deliver to the federal government to sort of get back to that speed to field and make up to a certain that our investments are in the right area and thus far we've been right more times when we've been wrong.
Got it. Thank you that's helpful. I guess, just one more on security clearances in that process I think they were based on the delays.
Earlier in the area can you just give us an update on how that's done.
Yeah sure, Matt we're starting to see that pick up just as we're returning to work in a customer facilities or our customers employees are returning to us as well.
I don't think we're near.
Full of full of pace, but if we were at.
10% when we last last talk we're probably in the 50% to 60%.
Round realm, now, which is about what we should expect.
Through the month of November and December and I'd like to hope that by that point, many many more in the government.
Security clearing offices are fully back toward we can get back to a more sense a quote unquote normal. Thank you.
And the next question will be from Sheila Igloo.
Igloo with Jeffries. Please go ahead.
Oh, good morning, guys. Thanks Bye bye.
I'm I'm, just a disclosure around technology and expertise that that was putting me any questions on that pop back first I guess, you could talk about Apple preference.
But your singing.
Tom I know you gave a few comments a little early on the margin dementia, but maybe if you could talk about the margin deference passed by on the potential looking fellow had given her writing back on 70% of thousand last one I think this is just a cleanup items at the end of our stay in 2019, you guys provided Pam for these markets a little differently with quadrant.
Said admission with a 90 billion Tammy.
<unk> first this technology today for example of 90, Diane Panic, calling at 3%. So just that I think will continue to see a doctor.
But if you could provide some clarity on this thing items. Thanks cat.
Okay, well Sheila Sheila thanks.
Well, we just start providing expertise then tech and you are all over this which is which is which is.
Great. Thank you.
Well look let me, let me give us some some broad comments and we'll do our best between Tom and I.
If I look at growth and the growth that we expect we.
We honestly haven't split out our backlog yet by expertise in touch that would be going back four to five years, we've been trying to be very very careful about allowing people to sort of follow new backlog along with us.
And the way that we put press announcements out there.
The fact that.
Thomas sharing that three to 500 bps, it's really to show why we're confident ongoing margins year over year now that sort of gives you what it looks like what it looked like in FY 20, I wouldn't be able to go back any further than that but we would expect.
Similar margins board similar work.
Delivered.
So if I look at book to Bill in each.
When we had our Investor day, and we're looking at the amount of work that we've bid we're sort of around the 50 50 mark of.
Expertise and technology in a recent bookings and I would expect that.
To continue for the near future.
Margins, we do believe tech is always going to be higher than expert expert expert expertise I'd also say that.
Expertise is in bad work, so I want to make absolutely certain that when we talk about one being better than the other if they weren't good for long term shareholder value, we wouldn't be in those those markets at all.
<unk> addressable market, yes, I think it's 145 ish and the expertise here a 90 billion in the <unk>.
<unk> and we're showing a compound growth rate of about 3%.
That's looking at where the government spending spending money what they are.
Future flows are and how we expect those things to grow. This this is an outside.
Piece of information that we get each and every year, we're very happy with a 90 billion dollar industrial market when we're barely doing $3 billion worth of.
Work there.
So I would see it took a huge and continue to grow faster than Tech then and expertise I would expect us to continue to see higher margins attack, then and expertise and that's because there's a higher risk model. When we do technology worked and when we do our expertise work. It's not that the work is less valued it's just that there are more folks providing expertise is tougher as Tom mentioned earlier.
To differentiate and.
And the risk model is I'm delivering talent I'm not creating hardware in.
We're in the like Tom anything you can add to those units Sheila any prepared remarks, I did say that for the submitted bit 60% of those are for technology in the.
To be submitted over the next six months or about 50% of our technology. So think 50 50.
Ish very similar to the current breakout of expertise and technology in as John mentioned, both ears have probed opportunities in pursuing those now we're not providing ridden right.
We'll get future book to Bill of though is if you assume.
We're going after programs, which we think we have a good probability win otherwise we would go after them that through would be similar characteristics in book to build would be a fair way to look at that and John did mentioned are press releases. Every time you can put a new award out in your press release grew very careful in the.
Last.
A year or so to specify which quadrant that works in and so that should be helpful to you trying to understand relative gross of those two areas sure. Let me just follow up also it in the spirit of your question.
We continually look at what information can we push out there when one we always have to balance that between you all who actually follow us and model versus competitors, who are out there listening to what kind of margin is do we expect within these quadrant. So it's as I know you know.
It's always a.
It's a down dancing, it's a balance.
But we didn't make some guarantees that our last investor day that once we could.
Confidently track. These quadrants just like it was a gap measure to make certain that as we did comparisons we were treating it just as if it was gap.
Right now showing what we can show today it doesn't say that we're not going to look for other ways to share share more so we very much appreciate in the spirit of your question.
And thank you. The next question will come from Lily Depalma William Blair. Please go ahead.
John Tom Dan and George Good morning good.
Good morning Louie.
Definitely report suggest that unmanned systems will continue to be a focus area under a potential new presidential administration in June.
The army named your Sky tracker, and the ascent vision Madness is two events.
Prefer countered your answers does your expertise.
I'm in no track record in this area, giving you high confidence that.
You can win like larger new rewards in this space and and after renew.
Your 1.7 billion dollar F. S D E task ordinary when it comes up for renewal next year.
Yes, Louie thanks.
I'll take their last question first I'm will provide too many comments, but we.
Have provided outstanding support to both.
The counter UAS offices and the like on our.
He can't contract I think that was initially awarded.
Around 800 or $900 million in the teens done an outstanding job.
A growing and growing that one by adding additional scope. So I'll I'll say there is that we're we're well positioned and we have performed extremely extremely well.
As to where the current administration or a new administration goes yeah on the unmanned side.
We're more on the counter side, which is tracking on unmanned assets.
And as you mentioned are fixed on our mobile once we have quite an installed base today and the fixed side.
We really can't talk a lot about customers, who would've bought it and where they are all I can tell you is that we like what the.
What the installation raiders of our fix systems and as well as mobile and the more quickly we can take modality such as.
That are very prevalent in in Abt's solution and get those assets onto our fixed site solutions. You'll every time, we have a new modality, meaning.
A new way, we can look for counter or kind of Uas's you can do that in the armed spectrum, you can do that or you can do that with binoculars.
A plethora of ways, but the more we can bring all that information in it actually presents a much clearer picture now where I look at unmanned systems that to me my mind moves to payloads that are on unmanned vehicles out there.
And that brings to light what Avi does on the <unk> site, we would expect a portion of their growth to to be supporting vendors, who build those types of plant platforms. Both here in the us and across R. Five ice country partners. When we did the AVG acquisition they have a small.
In Australia.
They're done they're done.
Developing software and the like which is exportable back here to the U S.
We also have a.
Group of folks who are indigenous to Australia, which means we are allowed to go through that workers as well. So all in all every dollar they could spent either in the unmanned vehicle world or countering those is a dollar of absolute perfect addressable market dollars for CACI.
Great. So.
Staying with that tailored commentary that you think that you could play a role in that Skyboard program that now they've been trying to develop over the past month or so.
Yes, Louie as far as outreach is that we believe.
We will be a partner player.
As unmanned systems continue to get not only develop but continue to expand I've been reading on where the U S. Air Force is looking at man plus unmanned.
What I like about what we have on a VT, it's a full digital.
Device. It does all onboard processing the has AI and machine learning and when are you looking at.
He turns and analysts would much rather have the <unk> gimbel and that system pre process and learn as much about the terrain that they are balls actually flying final because that's less burden on.
Intel analysts what to take all that information stored through it and look for.
Areas of chain so.
Single out Skyboard, but I will tell you anything that is flying unmanned as.
As well as man is a great potential new customer for what AVG delivers.
Thanks, Thank you.
The next question is from Marianna Perez Maura.
[noise] of America. Please go ahead.
Good morning, everyone. Good morning Marina.
So if I may and address off to see that question and then on them anytime.
And I understand me they said like.
Sunday, if any we've seen from third party at what do you think the main driver on average almost from the next five years itself on how can I put on the market to be allowed to have people off it yet though.
Mmk.
I think the question was around.
Of five year five year growth rates Marianna.
Yes, both right because once you shared today, it's 1% growth that expertise on pay per cent, that's technology and that is about half. The friend. Please that yeah, No Investor day, you sure, 2% growth as enterprise and 60%.
Estimation Mustang.
Yeah Yep Gotcha. Thank you.
Yeah. So when I look at at these numbers and as I think we might have mentioned around sheila's area as well, we're looking at compound annual growth rates over a five year period.
What I, what I'm focused on his last year as a company we were about $230 billion addressable market now we're at about 235 billion dollar a total addressable addressable market.
We ended up picking up more and both of those areas because of some of the acquisitions that we've done and it actually.
Allows us to go after more and more work those compound annual growth rates. When we look out five years, we have federal government budgets for about three so some of these are estimates and when you get out two years four and five the actual shape of that curve is more like turtles.
Turtles turtles shell right sort of humps up and then it and then gradually comes down so we're actually looking at the.
Four five year growth and we disclose five year kanger, what's what's very relevant to us is over the next two to two and a half years, what does that growth rate look like because rfp's come out about two years ahead of when we're looking to bid on this work so.
All in all 235 billion decimal market 6 billion dollar company.
I won't say that it doesn't matter what that what that cat had had <unk> is because it does but we've got plenty of.
New business, we can go out there and chase.
Thank you and then the money from.
I Wonder if you could speak about in my knee.
Related to me yesterday, and West time, we'll marked about indifference time waiting Tonight then.
Technology services.
You'd be interested in pursuing such a large application.
Two nine from there.
It's been.
Yeah.
Not our policy to comment on specific M&A items and I believe the question was around.
Amazon looking to dive some other things.
At the end of the day and M&A is the number one.
I already.
Our emanated, you're very strategically driven.
We use them to fill gaps.
Which enhance existing capabilities, we use them to expand our.
Our customer base for everything which is out there for any deal that we ended up doing it's got to fill gaps Scott expand our customer base, it's got to meet our strategic criteria. It's got a.
Financially compelling if I had those capabilities and those customer sets would that drive long term shareholder value sort of so many things that we assess and we continue to assess with.
On a daily daily basis, but at the end of the day are they all have to pass some very.
Stringent measures and things that were and are interested.
Interested in the fact that is the number one use of our capital means it's an extremely important.
Feature and focus by both Tom and I and the rest of the rest of the team here. So.
And whether the larger small they have to meet all these these.
Area, and we're very confident in our ability to execute and integrate Thomas Yes, I will continue to put stuff with John said.
Cancun is simply put when we look at it and acquisition. The key question. It is just going to drive shareholder value.
You to hear is CCI and the axis of the acquisition.
With a theoretical price trajectory overtime.
With the acquisition will redrawing value either K.
To our shareholders and we use that came back to your room, where they're looking at small new opportunities for large opportunities.
Something that we take very seriously.
And it was earlier question with regards possible share repurchases issued within that context, there's always alternatives, how do we drive that value and that is what teen and the board of directors.
<unk>.
Primarily focused off.
And thank you.
Our next question will come from John Rupees with city. Please go ahead.
Thanks for sending me and so just to confirm me uhm on talking about the laws in but I think I had a custom need just give us a sense of how that's done from five or even 10 or 15.
15 years ago, I'm thinking of the Iraqi cabinet. So what does that mean curious profile and I'm really really late here.
Could that approach some of those linearity out of your preferences, a big competition or a big win in a given year margin and or cash flow back here on your business.
Hey, John I hate to have to do this but your answer your question was breaking up would you mind, giving it to US one more one more time, so we're answering the right thing.
No. It's my fault I apologize for that can you hear me all right.
Yes, yes perfectly now we've got some big storms coming through the area here.
[laughter] so.
So the question was about the investing ahead of customer need how's that different from 510, even 15 years ago thinking about Iraq as a percentage of sales capex as a percentage of sales.
And importantly could that approach take some of the linearity out of your growth for instance, a big competition or win in a given year potentially setting <unk> excuse me margin or cash flow back on your and your basis.
Okay, John Thank you sorry.
Sorry to have you repeat that.
Yeah. So we.
This this focused on investing ahead of ahead of neat.
Clearly the percent of I read spend over the last five to 10 years, you could you could draw quite a quite a highly slope curve.
As well as Capex right now, but we've tried to do that in a balanced manner right.
We didn't we didn't triple Capex and.
And double I read.
We really are doing is we're always looking out two to three years, and saying Where's Where's the threat where are the threats.
How would we play within those threats that we are prime or a sub or we have technology provider to someone larger or do we go at these things on our own.
Linearity is tough right I mean.
Don't today.
Look at a situation, where we would come in.
Fall prey to I have to invest so much money to grow that I've got to take my margins dark.
Now if we win a multibillion dollar.
Device production job and we have to do some near term investments, perhaps but in the normal course of business all things being equal we're going to continue to invest ahead of need and a very.
Responsible manner, because our focus is to grow top and bottom line and never sacrifice one for the other I think I've said, many many times I could grow topline pretty quickly, but I wouldn't have very happy shareholders.
Because to us it's a balance at the end of the day Margie.
Margins on work and quality of earnings matters and at drives.
Cash so nothing that I see in the foreseeable future that would cause us to do anything different than what we have done.
I will add that.
What we're able to do is forward.
Control indirect costs and in depth simultaneously.
And some of the cost improvement initiatives. This year service center other types of activity provide some flexibility for us to simultaneous make it kind of varies investments.
And so.
And asked me get larger in terms of an organization. It gives us more optionality to make those types of technology investments off while the delivery kind of margin.
You can't Miss which we are committed jokes. So that's one of the differences today then.
A few years ago, we didn't have that luxury readers wherewithal to make those kind of larger investments John mentioned over $100 million via piano I R&D.
Again, we're able to do that to you in the context of increasing market.
Great. Thank you so much everyone.
Thanks, John.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back up to John and then Gucci for any closing remarks.
Thanks, Chad and thank you for your help on today's call, we would like to thank everyone, who dialed in or listen to the webcast for their participation. We know that many of you will have follow up questions, Tom neutral, Dan Lekberg and towards price are available. After today's call. Please stay healthy and all my best to you and your families.
This concludes our call. Thank you and have a great day.
And thank you Sir the conference has not concluded. Thank you for attending today's presentation. You may now disconnect.
[noise].