Q2 2021 CACI International Inc Earnings Call
Good morning, and welcome to the CACI International second quarter of fiscal year 2021.
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I would now like to turn the conference over to Dan Loeffler Senior Vice President of Investor Relations. Please go ahead Sir.
So thanks, Rocco and good morning, everyone I'm getting like Burke Senior Vice President of Investor Relations for CACI and I. Thank you for joining us this morning.
We are providing presentation slides, so let's move to slide number two.
There will be statements in the call debt 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.
Spared in accordance with GAAP, let's turn to slide three please to.
To open our discussion this morning, Here's John Noguchi, President and Chief Executive Officer of CACI International John.
Thanks, Dan and good morning, everyone. Thank.
Thank you for joining us to discuss our second quarter fiscal 2021 results and guidance.
With me. This morning are Tom <unk>, our Chief Financial Officer, and Greg Bradford President of CACI Limited, who is joining us from the U K.
Let's turn to slide for please.
Before I start I want to acknowledge the passing of our executive Chairman Dr. Jack London.
Jack joined CACI of $19 70 true.
As the company's 35 employee.
Under his visionary leadership for nearly half a century.
CACI grew from a small professional services firm.
In two of National Security and technology leader with $6 billion in revenue 23000 employees in recognition of Fortune 1000, and the world's most admired company.
Jack will be remembered for many of us attribution and successes, but chief among them will be is architected in caci's culture of good character and ethics, which to this day guidance of our company and its people.
Like all of US I will Miss Jack greatly.
I deeply admired his wisdom intellect experience and good character.
It was the leader mentor teacher of.
Alter and friend.
And left and the valuable example, the legacy of success for all of Us.
There is no doubt the Jack would want us to continue the outstanding work. The we do on behalf of our customers and our country.
To be ever vigilant and helping to support our country's greatest needs.
<unk> always act with ethics and integrity in all we do.
With that let's get to slide five please.
Turning to our second quarter of fiscal 'twenty. One results, we again delivered significant growth profitability and cash flow. We grew revenue by over 5% and net income and earnings per share by more than 34% compared to a year ago.
In addition, we continued to see strong double digit growth on the technology side of our business driving margin expansion.
Our profitability benefited from this improved mix as well as continued program cost efficiencies in the Covid environment. The latter we view as temporary or onetime in nature.
Lastly, we generated strong cash strong operating cash flow of $190 million and free cash flow of $174 million.
Slide six please.
We won $2 $1 billion of contract awards, a healthy level of awards in what is typically a seasonally light quarter.
This represents a book to Bill of one four times for the quarter and one five times on a trailing 12 month basis.
These awards include a number of important recompete wins with growth above previous run rates a few examples are.
$447 million mission technology, Recompete with the MSA supporting signals intelligence and cyber security missions. This contract not only includes our existing work, but it adds work previously performed by six previous competitors.
We also expanded scope on a web based supply chain program to include cloud migration SAP Hana work and numerous business modernization initiatives.
And our apps that knocked to.
Support contract, which provides enterprise technology to deploy the elements of the Air Force community.
With great performance and customer relationships, we were able to expand scope to live to deliver additional network and cyber renovations, which also supports higher margins on the contract.
Yeah.
We also won work supporting the Navy's foreign military sales, representing new business. The CACI the leverages the expertise from our Navy systems Engineering acquisition.
This expands our long history of providing engineering and mission expertise to the Navy and as of yet. Another example of our strategic M&A program driving future growth.
Slide seven please.
As we've discussed before at CCI, we are investing ahead of customer need to ensure we can address our customers' and our nation's most critical priorities.
Our customers receive high value technology to execute their missions and CACI is able to generate intellectual property enhance our competitive differentiation and drive future growth and shareholder value.
And the space domain CACI is on the forefront of developing of deploying next generation laser of communication technology.
Laser communications can transmit data over long distances and the hundreds of millions of miles.
The rates up to 100 times faster than traditional radio frequency systems.
Laser communications also lowers the probability of detection or defeat by an average theory, which is critical and the increasingly contested space domain.
CACI is currently developing laser communication systems for half of dozen space programs.
CACI is laser of communication technology has dramatically lower size weight and power characteristics, which aligns well with customer demand and positions our technology for a wide range of large space opportunities on <unk>.
<unk> Communications technology can also be used for terrestrial applications positioning us well for secure communications initiatives.
These are demonstrated near term successes on critical space missions, and we continue to believe space based technologies will be long term growth areas and that's important to me.
Slide eight please.
As we look at our large and growing addressable market over 230 billion. We remain very optimistic there continues to be bipartisan support for defense of National security spending, especially on the context of of heightened global threat environment and the New administration is that code that sentiment.
Government fiscal year 2021 is now fully funded providing broad visibility for our customers to invest in their key priorities.
Looking further into the budget, we see a number of specific areas of our business that will benefit including counter UAS.
Labor Defense Health and our Navy Engineering work, let me give you a few details.
First the budget includes the Dod wide procurement funding increase that includes counter UAS capabilities for special operations forces.
We also see an increase an army of <unk> funding for counter UAS to defeat swarms. These increases create opportunities for our counter UAS mission technology, including our Korean and our ABTS ex amount of systems.
The Army <unk> funding increase I just mentioned also increases funding for cyber work on ground systems, creating opportunities for our emission technology business.
It also increase the funding for the Army Cyber command, an important customer for CACI.
The government fiscal year 'twenty. One budget includes increased funding for the defense Health program, which will benefit our work fielding Halo for our health assessment light operations in theater of medical record systems Hale.
Halo was deployed during the early days of the COVID-19 pandemic to field hospitals to field hospitals setup in some of the worst hit areas of our country.
This is of critical capability of our government will continue to investing to increase preparedness for the next potential crisis.
Finally, the budget includes the multibillion dollars plus up in naval Shipbuilding funding, which will benefit our Navy systems engineering programs.
We also believe the broader it modernization initiatives, including defensive cyber continues to be high priorities. As the result of dispersed operating models due to COVID-19, as well as other recent cyber events.
Now we've been through many budget cycles over our company's long history and of purposely positioned this business to be more resilient aligning to priorities that must be funded and nearly as the any budget environment.
This in addition to flexibility speed the market and highly differentiated technology gives us continued confidence in our ability to grow and expand margins over the next several years with that I'll turn the call over to Tom to provide details on our financial performance Tom Yes. Thank you John and good morning, everyone.
Turn to slide number eight.
Our second quarter was another excellent quarter of growth and profitability as we continue to julin for on our full year commitments.
Regenerative range of the revenue.
The $1 $5 billion, representing overall growth of five 2% and organic growth of four 3% with a fivefold increase in markets.
Covid at a slightly higher impact from the department than we expected, but we remain within our 50 to 100 million dollar for half of estimates we saw additional travel restrictions related to overseas deployment higher than expected section 36, 10 cares act filling in some supply chain disruption delaying product.
Deliveries the ladder.
To realize from the second half.
For the quarter of the Covid impact was about $30 million, resulting in around 2% much revenue growth.
As you know we are disclosing revenue by extra price index in technology.
Compared with the second quarter of last year expertise revenue was essentially flat while technology revenue grew almost 13% driven by some of <unk> Enterprise Technology Awards.
As we've discussed before technology represent faster growing and more profitable irrigation farmer on addressable market.
Both the expertise and technology activities are important to our enterprise and mission customers and we see growth opportunities across all four quarters.
That said the higher growth in technology is helping us drive of our margin expansion.
John mentioned, we continue to see numerous opportunities and technology across our business.
Adjusted EBITDA margin of the quarter was 11, 9% an increase of 180 basis points from the year ago.
Similar to last quarter, a significant contributor was materially lower cost of delivery on a fixed price contracts and the corporate the environment.
This drove a rebound of $11 million of additional pre tax profit for the quarter from about 75 basis points of margin, which we view as temporary or onetime in nature.
Indirect expenses were in line with last year, which helped our margin performance. We saw some concrete related benefits of home of medical and travel expense.
And we are driving efficiency and controlling costs, while investing for growth.
Net income of $106 $5 million increased more than 34% from the second quarter of last year as did our earnings per diluted earnings per share.
Slide nine please second quarter operating cash flow, excluding our AR facility was $190 million reflective of our revenue growth margin expansion in effect of cash collection and working capital management the.
A deferral of the employer payroll tax payments into the cures Act contributed around $21 million in the quadrant of operating cash flow.
DSO was at 53 days, excluding our AR facility down seven days from last year, representing our lowest DSO and close to a decade.
We closed the second quarter with net debt to trailing 12 month adjusted EBITDA at 2.0 times.
Slide 10 please.
We are reaffirming our fiscal year 'twenty one guidance.
Our growth in the first half was lower than what it would have been in the absence of COVID-19.
The expected celebrated revenue growth in the second half consistent with our full year guidance with full year organic growth.
At about 6% at the midpoint.
First half EBITDA margins were higher than normal due to the.
Nonrecurring goodness in the first and second quarter associated with the fixed price contracts I already mentioned as for low slower medical of travel expense and other expenses.
Continue to expect our full year EBITDA margin to be 10, 8% at the midpoint.
Slide 11, please turning to forward indicators of our prospects remain strong for fiscal year 'twenty. One we now expect 95% of of our revenue to come from existing programs, 2% from Recompete and 3% from new business we.
We have $7 $1 billion of submitted bids under evaluation with over 70% of debt for new distance of CCI.
And we expect it to be north of $13 billion over the next two partners over 70% of that for new business. The CCI.
In closing, we delivered another strong quarter of growth margin expansion and exceptional cash flow.
Our team continues to execute well and we remain confident in our ability to generate long term shareholder vote with the.
I'll turn the call back over to the top.
Thank you Tom Let's go to slide 13. Please.
We delivered a very nice first half of our fiscal year growing revenue expanding margins and generating robust cash flow.
The organization is performing well and delivering on its commitments, while effectively dealing with the impacts of COVID-19.
We are continuing to win new work and develop innovative technology the differentiate CCI in the marketplace.
Our employees talent innovation and commitment to our customers' missions is at the heart of CACI strong performance and our success in executing this long term strategy.
Caci's culture of character on innovation is the driving force of our success non.
The result of it.
I am proud of how our people continued to perform in these unprecedented times.
Honored each and every day to work alongside each of you.
With that Rocco, let's open the call for questions.
Thank you Sir for us.
The question for Us.
Oh.
If you use of the speaker phone.
This figure for your handset.
Yes.
If at any time on your question has been the dress you'd like to withdraw your question. Please press Star then two.
Once again, we ask for the interest of time, you limit yourself to one question and the single follow up.
Today's first question comes from Jon Raviv with Citi. Please go ahead.
Okay. Thank you and good morning, good morning, Duncan bonuses on Jack as well.
Thanks, John question and of course John.
The question on and on.
On the M&A strategy. So if I look historically you guys have done a really good job with a lot of smaller and mid size deals.
Whats your perspective, I know you've talked about the is reasonably good total more on tackling of what's your perspective on any changes in the market that might drive you towards bigger deals.
You guys of historically rejected the scale concepts for you kind of look around and there's some folks getting quite big especially parents on recently and then there's the risk that you guys kind of got lost somewhere in the middle there.
So sort of just sort of any sort of expansion on the M&A strategy and what might be and how it is shifting.
Yes, John Thanks.
So the guy.
I'll reiterate that.
M&A remains our number one priority for capital do your employment.
Got a lot of experience as as you mentioned Jon.
As a public company supports our belief that M&A is the best use of our capital and then we use that to drive long term shareholder value.
What differentiates us and <unk>.
Why we can call M&A, a strategic differentiator across this company and across the sector is that we're always looking at gaps and capabilities and customer relationships that we need that will drive longer term from growth, it's a very different model than buying scale. Okay.
Rarely has this company ever bought something that looks just like something we already have so we can do more of what we already have I'm actually looking for our <unk>.
Exquisite technologists and our strong business development team to use the technology of the capabilities of the we have to go out there and continually win more business in areas, we already have capabilities in and areas we're already growing in so.
When I hear that term scale.
To me, that's a revenue measure and it's a day.
And each capability on already already have we are always going to bulk capability and customer relationships first and thats for our absolute priority is so our strategy will not change you. All have heard me say many many times strategy is in place for you when you come from.
When we find gaps whether we fill that with a company that has.
On a single capability or whether we fill that with a company that has multiple capabilities. That's how we look at look at size. So we've never shied away from doing smaller deals we've never shied away from doing larger and larger deals but to us debt that is those words large and small are really around capability and customers.
<unk> ships that that company and brings with him it's not the size of revenue that they bring to us so hopefully that will have that.
The little more color.
Yeah no. Thanks, John So would you say theres, a little maybe confusion or just we should all recall remember that just because of an acquisition as large.
It does not mean that the scale play per se.
Yes, I think thanks, John for that.
Look, yes, I honestly.
Would love that.
People when they hear us talk about of larger assets, but that's something that feels multiple multiple gaps it doesn't meet our strategic criteria. One is it going to create long term value second.
We're not just jumping to get into short fast streams of government funding by doing an acquisition that provides US scale. Then we can claim will help us win more work. We are of great win rate, we have a great business development machine here.
We've been on the long term.
The strategy of bidding less than winning and winning more of.
And then of course once we determined if that if that asset is something that fills that whether it's $5 billion or $5 million, whether it's 5000 employees of five employees. Our integration process handles that simply swiftly. So that we can move forward on day, one with any of any size.
So John Thanks, so much for those of those questions.
Thank you.
And the next question today comes from Seth seafood.
Please go ahead.
Okay.
Hey, good morning, everyone. This is the Morningstar Seth.
Yes, I was hoping you could give us a little bit more color on the Op Inc.
Space that you had been talking about earlier I guess, how meaningful is the space.
<unk> for your business right now.
And how do you kind of think about the revenue opportunity in the years ahead based on the investments that you're making.
Yes, Ben Thanks so.
When we talk about space for talking about the space domain and really what that's code for its advanced technology. Some of my my my prepared remarks focused on.
Laser common alike.
We've been developing ways of communication systems.
Currently for about a half of dozen space programs.
And our pipeline of opportunities that we estimate right now at about a half of $1 billion. So that just shows the power of investing ahead of ahead of need looking at areas, where we need capabilities to go after some of those markets that were previously.
On tap of Bull by Us.
Clearly this is the best technology comes to us from the acquisition of Lgs.
A couple of items here.
You would have seen our recent delivery on the laser communications transmitter for the psyche of spacecraft.
Our laser communications technology is going to beam high definition of the images from the Orion spacecraft when Americans return of the Moon on about <unk> member Watson a display on the move for the first time it was a little bit of a flicker and.
From a really grainy grayscale photos.
This technology is very differentiated which is another key component of when we decide to get involved in the part of this market, which is very technologically driven we've got to have a highly differentiated product.
So this is all the advanced technology comes to us from Lgs of Ben we're doing about maybe $40 million to $50 million of business today on an annual basis as I mentioned a nice.
Pipeline of opportunities and I guess of just reflect back too.
We ship, which we should compare this discussion to.
For the discussion we had about five years ago and it should be really simple to assess that we're a very different company than we were during previous bunch of downturns and when we all faced sequestration, where we're far beyond either of low end of our high end of professional services company and we actually are able to play in fight well above our weight.
And a well balanced flow of expertise and technology and to me, that's what's critical and crucial if the long term nature of the strategy that we've been executing there.
And it not only drives top line above budget growth, but if that ever increasing margins and ever increasing free cash flow that we think brings of the most of shareholder value to our shareholders out there. So thanks. Thanks for the question Ben.
Thanks.
The next question today comes from Gavin Parsons with Goldman Sachs.
Uh huh.
Hey, good morning good.
Morning, Kevin.
So the whole conversation of the right now right around the budget deficit in the the new administration.
Do we have to some of the defense budget and word of budgets go.
Obviously, you pointed to the <unk>.
Ministration support for for it spend we've seen the large proposed increase in Tms and cyber funding.
Even with some of the headwinds.
Totally different approach from what of that question normally goes.
A lot of prime seem to have kind of exited businesses and you're moving into some of the.
Faster areas of kind of hardware growth, where you might traditionally.
Hardware, that's the place I mean are you competing more with the primes in the go forward environment or more teaming opportunities and if you think there's the potential for budget pressure on on hardware, but support for IP do you see any risk of them reentering the market.
Yeah Gavin thanks.
Let me, let me try to parse of that question.
So first off we go.
On a fully funded government fiscal year 'twenty 'twenty one budget.
I would expect the 'twenty two will look similar to 'twenty, one, but it's it's safe too.
Say, probably at the overall budget level, probably nothing better than flattish as we look we look forward, but I think what's really crucial you're one of the 750 billion dollar defense budget.
There's a lot of choices they have to be made.
You know I spent a lot of years debt one of the large platform of aerospace and defense companies.
Look those companies provide phenomenal products.
And just just from some some spectacular eye watering technology.
But that's at the platform level.
We had been focused on is all of those mission packages and all of that technology that right on the platforms, whether it's ship based whether it's airborne whether its space base now what are those unique.
Hardware software solutions that those assets need to be.
Buyable and usable by the Warfighter of whether it's the air force capabilities Army or Navy.
So we're sort of in between we're not at the platform level, but rest of mission package level and Thats, what gets us talking about products right. That's what gets us talking about counter UAS.
What gets us talking about.
And anything in the RF spectrum Theres many of platforms out there that are mined net monitoring the spectrum.
We're trying to.
The cyber defense protect and go on offense of cyber missions all of that requires exquisite software solutions that allow.
The devices to be anywhere at any time supporting on emissions. So our angle is more on the mission package of.
Smaller form factor kind of products on the other part of our business is a lot about it modernization and I don't think you do one without the other.
When we're trying to cyber protect networks. We're also cyber protecting data links and larger in the outdoor expected that could be linked in between two.
Defensive systems.
A lot of this work over over overlap I think it's safe to say that as we go forward.
D wide procurement increases around counter counter UAS everything in the are of a spectrum of in the electronic warfare area.
Talk a little bit about our defense of defense Health program.
Plus up to net of course naval Naval Naval Shipbuilding.
We have out of.
Fantastic Group doing Navy systems engineering, so not all the way of the platform side more on the mission package site as well as it modernization where in that REIT expertise and tech technology framework Gavin that allows us a lot of the expansive growth regardless of where the top line Dod budget goes.
Got it I appreciate that insight and other was a whole lot of involved in that question.
It's fine.
We're going to.
Margins I think of it.
<unk> remarks, he said moving kantar.
<unk> to expand margins, Tom called out a number of the maybe non recurring benefits in the front half of this year.
Strong on the margins have been so on.
Previously you were historically you've had the 10 to 30 basis points of expansion of the year framework. So my question is should we continue to think about it is 10 to 30 basis points of year end 2021, the right starting point for that.
Yeah Gavin Thanks, So I'll answer that one also have Tom talk.
A little a little bit around margins as well.
When I became CEO of the company what I was stressing is that we would continue to grow top line.
Above what our addressable market growth at ever increasing margins the one on.
The lessons that I learned Gavin if I said, 10% to 30 someone said so when you accept five or whenever you get to 30 35 right. So.
Ever increasing margin.
The nice target for for US has served us well in the last couple of years.
Because what I want is to share the same focus and the same discussions I have with our employee base and our business leaders that I have with you all of which is one full transparency into everything we do whether it's bidding work how we execute current current current work we should always be looking to drive margin at the end of the day margins drive invest.
And the investment drives technology and the more we can technology differentiate the more.
On more business for when Tom anything more on margin yes.
Kevin.
He said on the last call all of it kind of be repetitive in 2017 of our EBITDA margins for around the Eaton half percent you know this year, we're guiding to 10, 8%. So a significant increase in a relatively short period. So we've been successful in kind of driving margin increases in the last few years.
This year.
Have some headwind associated with Covid in terms of margin, but then we had some good news associated with those kind of one time events and so those are somewhat offsetting each other so as we get into FY 'twenty. Two we will make sure that we're clear on what the appropriate baseline to use.
For margin expansion going into FY 'twenty two.
Two broad things to keep in mind our.
Expertise and technology framework that's useful.
Technology is coming the at materially higher margin.
On an expertise both parts of the market for our space should be growing but we're growing disproportionately on technology. So that is productive to margin that we should expect that to continue going forward.
Secondly, the.
The two continue to drive efficiencies from a cost perspective will also be productive to markets and so yes, we expect going to ever increasing margins and we have a path forward to be able to deliver on us.
Thank you for today.
Next question comes from Cai von <unk> with Cowen and company. Please go ahead.
Hello to kind of your line is open perhaps you're on mute.
Yes, Hello can you guys hear me.
Yes.
Hey, guys. This is Dan on for Cai.
Great quarter.
Thank you. So I was wondering could you discuss which are.
Which technology technologies or capabilities in particular, you may look to fill out via acquisition or even.
What relation you mentioned customer relationships earlier, which specific agencies, you may look to to expand them.
Yes, Dan Thanks.
I'm not sure how specific I'll get on.
Getting to the root of your question, but.
Clearly anything.
And the electronic warfare.
More in the AI and machine to machine learning World, we have some great capabilities, there, but there's a couple of gasoline like to fill.
Sooner rather than later.
But we truly see that what we call electronic warfare, and <unk> and <unk>.
The defense minded world, we can talk about that just as easily as talking about cyber when we look at networks and <unk>.
Protected comms and the like so anything in that area is where we believe there is theres material growth.
Our acquisition of <unk> was an example of looking at another of.
The eland.
<unk> kind of world and where we're looking at.
Imaging technology, whatever we can find frankly the gives the warfighter of the full picture of what what.
What's going on on the battlefield, whether that signals collection, whether it's debt image, whether that's <unk>.
All of those.
Electronic warfare technologies that we've pulled together.
And these new age command and control systems, how do we.
Provide the.
The most of information out there on the on the customer set.
We're going to watch where budget scope.
We well understand that there could potentially be more spending on the federal civilian world.
As well as across the Dod and other customer sets.
When when people like to say, we are a large United States Army House, United States Army is quite broad.
Spectrum.
Things like that are done in many different areas and then some.
And the last question space of somewhere that we're.
Consistently building capabilities in that's going to be long term funding streams going going forward. We do a lot of work today on national ground stations and some of that area, but clearly as.
As the nation looks to better protect space Theres, a lot of our mission packages to the two to use the term from an earlier question.
That would allow us to.
Grow within that that domain, so electronic warfare anything on a spectrum of space and then looking across the entire customer experience for customers, who need those kinds of.
The technologies.
Okay, great. Thank you and then for my follow up just do you feel that Cathie you mean.
The stronger capabilities that an enterprise I T. Given that light of G D I T and assets at all.
The increase their presence in this area of recent acquisitions.
Yes, yes, thanks, yes, I'm very happy with our capabilities there.
If you look at.
Most of that work falls in our enterprise technology area of winning jobs like Beagle in jobs like Tcs and others.
Those are great jobs debt.
Both of our investor messages in it and very strongly hits the kind of company that debt. We have said we're going to be.
We believe we're very strong in all four quadrants some of more profitable than others some inform others.
When I look at programs like Beagle. Those are those are programs that are in the enterprise it world. They.
They are providing tremendous capabilities, they're done in an agile framework manner, where the world's going to so we're not talking about delivering enterprise <unk> in the past.
We're not talking about large capex capex expenditures, because we're having to grow margins at the same time. So it's why when we look at where we go in the in the specific market in the enterprise it.
We're very much focused on going after that work in a very constructive manner bidding lesson, winning more looking at programs, where technology differentiation versus lowest price is going to win so that we come back to you all talking about we just won some fantastic work multi year has top line growth might not be as high as you.
You like it, but it's always going to grow better than the market is growing which means I'm, taking market market share, but at ever increasing margins because that's the only way we can sustain long term shareholder value.
Yeah, I'll, let me add debt.
We had <unk> enterprise it capabilities for a number of years the acquisition of L. Three NSS.
Surely we still are in the size and scale here the headache.
Several of the kind of marquee programs, particularly in the intelligence community with somebody for.
Front of larger scale of migration.
And the various systems and so that is an example of how acquisitions filled in a particular GAAP to give us significant credibility in capabilities going forward in that particular area.
Yeah.
Thank you. Our next question today comes from.
For Us with Bank of America. Please go ahead.
<unk>.
Good morning, everyone and Mike on the line.
Thank you bye for now.
Okay.
On.
What's the sense that debt expected to flatten the mini excavator could you please discuss the ball.
ACI exposure for growing program.
How much of your next question for Mark.
That's helpful.
Yeah.
The growth elements.
Oh, Yeah, Yeah, Yeah sure sure. So on an exposure to the growth side that would I would call out to one of the things. We are in my in my prepared remarks, I was talking about space spaces.
Very challenging domain for us to operate in so as some of my earlier comments mentioned building our capabilities up there clearly lgs meeting a D and a world leader in laser laser of community Communications is very important so we're watching that stream.
We've been very very focused about three years ago on the Navy shipbuilding budgets.
Following where the major platforms are and understanding and trying to understand on the mission expertise quadrant of our framework how do we get more involved in that business. So clearly we're not going to be building ships.
But we'd like to be able to build mission packages and we have a number of our products that are writing on many of the different Navy Navy ships today and will continue to write on them in the future but that is another.
Large well funded funding stream, where we are very much involved in the front end system engineering work.
And I might add in a non OCI manner that allows us to look of emission baggages. When so ships are fully can constructed.
Cyber is another area that's going to.
<unk> continued to grow and not just what we used to call IAA on the it side of the cyber this is really.
Doing much better job of protecting networks and defense type capabilities out there. Most most of the fight is done over the airwaves and most of the commune communications does on the RV spectrum.
So we see.
Those really strong funded areas.
Every one of you while you also asked about some of the <unk>.
On coal.
Flat line areas.
As we have refocused our business development effort over the last five to seven years looking at longer term programs. The reason why we do that is so that we were closer to the things that are closer to the meat of the defense budget debt under any administration under anytime would need to be funded so even though those areas are flat.
We're a $6 billion company with over $230 billion addressable market. So even in flat budgets. There is other work that we can go after with our strong capabilities and our customer relationships that will continue to grow our top line as well as our bottom line.
Okay. Thank you very much.
Thank you.
And our next question today comes from Tobey Sommer with true Securities.
Okay.
Thanks, So I wanted to start out by asking what's your.
Space exposure is understanding it's come up on the call of couple of times now, but I kind of want to understand how important it is to the income statement of the company currently and understanding that the opportunity may make it more important over time.
Yes, Tobey thanks.
We're doing about $40 million to $50 million annually.
So I wouldn't say, it's a material part of our budget for that by strong some of the questions together I will still come back to it is a growing area of the defense budget. It is something that we saw when we did the lgs acquisition now almost two years back.
You won't see us building satellites and small sats on those kinds of things, but you will see us play a much heavier role within it within the space.
Clearly since we're coming at this from a mission packages kind of could.
Could we get ourselves to a position of building some of <unk>.
<unk> qual hardware, absolutely, because thats, where the laser or laser com happens, whether it's <unk> or whether it's in the Geo belt. So.
We're looking at those areas, where we can take on.
Our technology advancements, which is right in the sweet spot of what our lgs.
For folks do.
And continuing to find ways for us to build out our.
Hum.
Work within the within the space we do.
And the Air Force base area, we are supporting the Air Force's satellite control network.
Today as Tom mentioned that was really an offshoot from the <unk> on assess acquisition at the team continues to perform exquisitely well and there is other other other work within that part of the space that were involved in so.
I like the fact that we're getting more on the technology side there.
The long term play.
But with everything that the nation spending whether it's NASA or whether it's the air force or.
The space, we're getting where we're beginning to make some really nice inroads there.
Perfect and then can I ask the question on cash flow Dsos.
At historic low could you comment on the durability of that or what we should think about as weak as we think of kind of normalized cash flows of year or two from now thank you.
Yeah Tobey thank you.
The entire team has.
<unk> been very much focused and successful add to the improving our cash collection cycle.
Our contract organization are kind of line organization of our shared service centers. So we've developed some very good rhythms in terms of making sure that we build quickly.
The accurately I'll be collect quickly we monitor the aged receivables and the like and that's the result of that we've made significant progress in the kind of reducing kind of DSO of I would think that we should be able to maintain kind of DSO in the mid 50 levels.
There's always going to be read of.
The fluctuation sorry.
Given the <unk>.
Circumstances with payment offices or kind of the margin voices, but you know a lot of progress kind of made there and that has served us well in terms of kind of driving higher cash flows.
Thank you.
Thanks for that.
And the next question. Thanks.
Pablo with William Blair. Please go ahead.
John Tom Dan <unk> and George Good morning.
Good day.
John you discussed CACI is laser.
The communications slash photonics as they pertain to the space or your of lasers.
Also of viable for inter satellite links and I asked that because DARPA as project Black Jack is using interest satellite links.
Spacex.
Now as notably, adding inter satellite links to it.
Darling satcom constellation and some of it.
Youre able to sell your of lasers into that end market. In addition to general space security.
The of much larger Tam.
Yes, Louie so so here's here's on when I answer that one yes.
No look.
When I talk to our photonics team.
That is done some some just eye watering work here of then they often take me down to the to the lab and show me things look every time I go there it's smaller.
It's less it's less.
It's a lighter and it's also more power power of powerful.
Yes, clearly what we're talking about is not only space.
The spacecraft to ground links but also.
It is not that strong of an extension to talk about inter satellite links there was a program. Many many years back called the <unk>.
<unk> It was probably of program long long before its time debt.
Was actually looking to not have to come down on the ground with the satellite links but actually.
Allow multiple satellites up there to be able to pass information.
So that is that is something that our team is very much involved in and.
And continues to work to work on so and then we also could talk about some of the the.
The terrestrial output applications, it's pretty tough to get into of laser to look at <unk> and once it's pretty easy if you're looking at standard RF.
Immunization, we have out there so I probably.
I, probably exhausted my technology understanding, but what I like about it as analysts.
Analysts and the shareholders out there. It's yet. Another example of why <unk> is a very different company.
Okay. We are of very different company going forward. It's why we wanted to be very transparent on the expertise that which got us to this point.
Today, when Jack when Jackson.
Became the modern day founder he was looking at trying to get into it systems on out of out of professional services.
Never got completely out of it because it does inform where technology go. So this is just another example of why this framework works and why we believe we will see continued growth going forward.
And moving based on your question I think you should join our business development team.
Be interested that'd be more conversation yeah.
Yeah, No I I follow of the satellite communications industry very closely now that the topic is the rate of my my Alley.
And I have another question. If I may you know you may not answer this one but I'm just wondering am I correct to conclude that the team on this call is not explicitly of ruling out making a competing bid for perspective.
Louis I very much appreciate your question and for those who have been on the call for many many years debt.
Just don't comment on things like that.
It wouldn't be appropriate and it would be really far reaching so I'll respectfully just say that we don't.
Comment on any acquisitions, whether the ongoing whether the planned or whether they're in the rearview mirror.
So I think I'll just leave it at that thanks Luke.
Thanks.
And our next question today comes from Joseph.
Please go ahead.
Hey, guys. This is John on for Joe.
No.
I'm going to stay away from space growth.
Some of the type of thing.
I was wondering if you guys could give us some insight into.
What you see.
From the customer.
So were range on that.
The half of that.
On kind of how you expect this with the related.
For one hack attacks.
The kind of filtered down to the budget and down to your specific customers both on the debt side and on the Dod side.
Okay. Josh Your line was really garbled, but let me just try to play the spec so.
You're a focus of your question is around things like solar total wins.
And.
How are we positioned to help in that in that area.
And is that going to be funded in the fed save and in the on.
<unk> World, if I got that wrong, I'll actually actually of the comeback.
So.
Things like solid total wins as.
One of one of one of many of.
Items John that.
We are focused on but I would also say that the fact that we've been in this marketplace for decades.
We shouldn't assume that's the only issue going on out there offensive and defensive cyber attacks are out there consistently whether its an <unk> network.
Other it's phishing scams.
Whether in the case of of the attacks that you mentioned there is many ways to deliver clearly offensive cyber payloads on some of you heard me say in the past.
For us to just focus on bombs and bullets is the real the mistake because of bits and bytes are just as lethal.
And if you look at that the.
The Digitization of all of our networks you look at all of us working more and more from home.
All of those networks need to be.
<unk> as well.
Don't believe we're going to go back to a day, where we can all work in the same building and not be connected to the internet to get our work done.
So the minute that we have an open.
The Internet link we're gonna have to watch out for that we've got literally a couple of thousand of cyber experts both on the enter enterprise area and on the mission side that are really out of protecting networks on protecting desktops, but also protecting major weapon systems and and.
Supporting combatant commanders.
When instead of ordering a direct kinetic strike.
You know you would all be shocked of just how much non kinetic work is being done out there and we are right in the forefront of that and we are in many operational centers around this around the globe, making certain that we support customers and offensive cyber manner as well, so I'm going to stop there talking about cyber and some of the missions that we're in.
But suffices to say.
During the biting cash.
On pain and now early days of his administration, he still talking about it.
<unk> talking about debt Digitization I'm talking about the use of AI and machine to machine learning, but also talking about cyber and just how impactful either a near peer or a small nation state can be very successful at delivering non kinetic pay.
Payloads, and we and our people are at the forefront.
Thank you on our next question from there is a follow on from Gavin Parsons of Goldman Sachs. Please go ahead.
Hey, Thanks for the follow up quick clarification is there no COVID-19 headwind assumed in the back half of the year and guidance.
Yes.
We are seeing continuing.
So the COVID-19.
We expect them to kind of be less in the had been in the first half of the year. So we did not specifically call them out.
We believe that you would perhaps any of those headwinds could be offset by underlying kind of kind of growth in the business and so for maintaining the <unk>.
Guidance for the risk that we spoke about it as video use cases.
The increased senior citizens.
Remember December time period kind of lockdown didn't kind of many locations and the like for that.
Still ongoing issue for us.
Got it so would you say you absorb the potentially higher headwind within the reiterated guidance.
That's the fair way to put it yes, absolutely.
Okay got it and then how does that play out obviously.
Bunch of potential avenues of.
The vaccine rollout, but how does that play out over the next year or however, long it takes to recoup those headwinds or for the delayed growth to come through.
Yeah.
Some of the Covid impact is permanent.
Spoke about.
Could you kind of deployed mission expertise.
<unk>.
Those hours for that revenue is never going to be made up so there was some.
The permitted changes to that some of it is temporal product deliveries, we mentioned where our supply chain.
The issue May result, in a delay of but those deliveries kind of will take place on.
So we will see what the world looks like for me to a more normal state whatever debt more normal state is we spoke on other calls you to longer term implications of how we do business how corporate America for this business our customer growth business.
C shy of locations covering the locations work from home. So there will be some kind of a long lasting.
Locations associated with that I think will be the ability to drive efficiencies.
And kind of recruit is different.
For the United States were off then we would probably unable to do so because of.
Kind of working conditions, and so we shall see.
We shall see how the vaccine could rolls out over the next you know kind of.
12 months, so a lot of unknowns that being said I believe that the impact of <unk>.
Two of coffee like PCI is kind of relatively.
Yes.
Self contained and.
You can of minimal two of certain extent I'm struggling for words, because I don't want to minimize the horrific Peter Hematologist taken on.
Maybe you just citizens United States of but I think we're well positioned in that environment.
Thanks kind of thing.
Thank you.
And ladies and gentlemen. This concludes the question and answer session I would like to turn the conference back over to the management team for any part of all of them.
For us.
Thanks, Rocco and thank you for your help on today's call, we would like to thank everyone, who dialed in or listened to the webcast for their participation. We know the many of you will have follow up questions, Tom <unk>, Dan Lekberg and George price are available for today's call. Please stay healthy and all of my best to you and your families. This concludes our call.
Today, Thank you and have a great day.
And thank you Sir today's conference has now concluded we thank you all for attending you may now disconnect your lines and have a wonderful day.