Q4 2021 CACI International Inc Earnings Call
With me. This morning is time uterine our chief financial Officer.
Slide four please.
Last night, we released our fourth quarter and full year results for fiscal 2021, as well as our guidance for fiscal 'twenty, two and I am very pleased with our performance our fourth quarter results were in line with our expectations and capped another strong year for CACI for.
For fiscal year 'twenty, one we delivered revenue growth of 6% adjusted EBITDA margin of 11, 1% and robust cash flow.
Our organic revenue growth of 5% was ahead of our underlying addressable market and we delivered healthy margin expansion.
We also won a total of $9.2 billion of contract awards with over 40% of that new business to CACI.
That represents a one five times book to Bill for the year with a healthy mix of Recompete wins to preserve our base and new awards to drive future growth.
And we.
Those results, while navigating the persistent challenges of Covid 19.
I could not be prouder of all of our employees, who continue to support our customers, while ensuring the health and safety of themselves and those around them.
Slide five please.
Turning to the external environment, we are almost seven months into the new administration and budget indications remain very constructive.
The administration proposed an increase in overall defense spending of about 2% and as the NDAA makes its way through Congress. There are indications defense spending could have further upside.
Importantly, we continued to see bipartisan support to fund National security and it modernization priorities, including offensive and defensive cyber book.
Order security C for ISR electronic warfare and space.
As we think about cyber outside of Dod and the intelligence community DHS Cyber security and infrastructure Security agency or <unk> will be a focal point for federal civilian cyber investment.
CCI is well positioned that SASSA and DHS more broadly with existing programs customer relationships and contract vehicles to address additional cyber requirements.
In addition, the administration is focused on enabling technologies and methodologies like artificial intelligence.
Our agile software development.
Areas, where CACI is extremely well positioned.
It's all about in R&D led agenda to develop capabilities and technology geared toward near peer threats, great power competition and ongoing counterterrorism.
All of this aligns very well with our strategy and capabilities.
Slide six please.
Looking forward it remains clear that the future is software based many of our customers. Most pressing challenges have common underlying needs new capabilities at the speed of technology increased agility flexibility security and efficiency all of which can be solved with software.
CACI continues to address these needs and demonstrate industry leadership in software development with multiple pillars of success agile software development at scale Dev ops using tool based automation and a focus on open software architectures.
Different programs and I emphasize more one or more of these elements excuse me, but they are all present and key to our future growth.
Our agile at scale capabilities enable the industrialization of software development, which customers are increasingly asking for faster more responsive to changing needs more efficient with materially higher quality.
<unk> is a leader of.
Of agile at scale delivering on the largest agile programs in the federal government. This includes our vivo program with over 100 applications.
<unk> and other CCI agile programs provide important past performance and credentials to address the government's growing demand for agile in fact, we recently won new business at a classified agency to apply it agile software development to large scale data analytics. This win also leverage the capabilities and customer relationships of our next century acquisition.
In addition, you've heard us discuss our 100 plus projects focused on AI.
AI is ubiquitous across our business, providing customers speed efficiency and predictive analytics.
I was at the center of our recent $376 million NGA Nguyen.
Where CACI is building out the computer vision infrastructure tools suites, and analytic environments for NGA analysts, providing an open best of breed environment to users.
Lastly, a key element of our strategy is to look further downfield and invested differentiated software defined technology ahead of customer need.
Photonics or laser based communications in remote sensing is a great example, which came to us via our acquisition of Lgs. It is a technology, we continued to invest in today.
Notably aerospace and defense primes recently purchased our photonics technologies to include on their platforms.
But we have a nice pipeline of additional sales opportunities across the A&D.
<unk>. This is confirmation of well placed investments in differentiated technology.
Slide seven please.
Turning to our FY 'twenty two guidance, we expect another year of revenue growth above our addressable market, which we expect to grow at about 3% over the next five years.
And we remain committed to ongoing margin expansion consistent with our stated performance goals.
At the mid point of our FY 'twenty two guidance, we expect revenue growth of 4% and adjusted EBITDA margin of 10, 9%, which represents continued expansion of our normalized FY 'twenty one base of 10 seven.
In addition, we expect to continue to generate robust cash flow and Tom will provide additional details shortly.
We're seeing positive growth in technology and expect it to continue to outpace expertise growth collectively offsetting the impact of the Afghanistan drawdown.
I want to emphasize that all areas of our business are important.
And can contribute to growth and margin expansion.
And there is a great synergy between expertise and technology expertise informs the technological requirements of the daily mission and our technology capabilities are fantastic enablers, and differentiators of our expertise, allowing us to deliver efficient and effective results to our customers.
Slide eight please.
CACI success driving growth and margin expansion continues to generate robust cash flow our.
Our cash flow and overall financial strength enable us to deploy capital to drive additional shareholder value through investments in growth share repurchases M&A and other capital deployment options.
We will continue to invest ahead of customer need to drive future growth and differentiation. Our commitment is to utilize aci's strong cash flow to deliver the greatest long term shareholder value.
With that I'll turn the call over to Tom.
Thank you John and good morning, everyone. Please turn to slide number nine.
Our fourth quarter results were a solid finish to another successful year of growth and margin expansion.
We generated revenue of $1.6 billion in the quarter, representing 5% overall growth and four 3% organic growth.
Adjusted EBITDA margin was nine 3% and net income was $137 million.
We are also reporting adjusted net income, which we defined it.
Adjusted for the intangible amortization expense associated with acquisitions.
Adjusted net income in the quarter with $149 million.
Let me remind you that the consecutive method tax change, we discussed last quarter reduced fourth quarter revenue and adjusted EBITDA by $7 million increased net income by $51 million.
Slide 10 please.
For the full year, we generated just over $6 billion of revenue, representing 6% of total growth and 5% organic growth. Despite covid 19 impacts.
We continue to expand margins with adjusted EBITDA margin of 11, 1% up from fiscal year 'twenty, 10.0% in March.
The underlying margin in FY 'twenty, one normalized for Covid related head and tailwind.
The tax method change in the strong performance on a fixed price program, which we noted on prior calls with 10, 7% in line with our initial fiscal year expectations.
This provides the base for an apples to apples comparison to our fiscal year 'twenty two guidance.
GAAP net income of $457 million, representing growth of 42% benefiting from the tax method change and the strong fixed price program performance as well as revenue growth margin expansion and lower interest expense adjusted net income of $507 million represent.
<unk> growth of 39% from last year.
Slide 11, please fourth quarter operating cash flow was $100 million, excluding our accounts receivable purchase facility.
Reflecting continued healthy profitability and cash collection.
DSO was at 54 days and we generated operating cash flow of $610 million for the full year both value, excluding our AR purchase facility.
The 19% and operating cash flow was driven by overall growth margin expansion and a three day reduction in DSO.
These items more than offset the $90 million of additional cash tax payments in the fourth quarter associated with the tax method change, allowing us to exceed our operating cash flow commitment.
Recall, we also benefited from a $50 million deferral of payroll taxes during the fiscal year.
We ended the year with net debt to trailing 12 month adjusted EBITDA at two five time in this leverage reflects the $500 million outflow associated with the March accelerated share repurchase.
Our strong cash flow and low leverage.
Low interest rate environment, and our equity valuation informed our decision to repurchase shares to drive additional shareholder value.
Slide 12, please now, let's turn to our fiscal year 2022 guidance.
As in prior years, our guidance is based on a program by program bottoms up planning activity.
This process provides us significant visibility and confidence in our outlook.
We expect revenue to be between $6 to $6.4 billion.
Implying organic revenue growth of 4% at the midpoint.
This is despite a 2% headwind going into the year driven by the withdrawal from Afghanistan, which we discussed last quarter.
We expected adjusted net income to be between 430 and $450 million with $50 million of after tax intangible amortization expense.
We expected adjusted EBITA margin of 10, 9% at the midpoint up 20 basis points from last year on a normalized basis.
Our organic growth and margin expansion expectations are driven by new business wins in high value areas of our addressable market as well as on contract growth excellent program execution and overall business efficiencies.
We expect we expect free cash flow at least $720 million $720 million in FY 'twenty two.
Capital expenditures are expected to be approximately $90 million higher than last year, driven by several discrete growth and investment projects with this operating cash flow is expected to be at least $810 million.
We will pay $45 million of the deferrals related to employee portion of the payroll tax in December.
We expect second half tax refund of approximately $230 million associated.
David with the tax method change.
We are expecting incremental tax payments related to the method change of $40 million in both FY 'twenty three in FY 'twenty four.
As discussed in last quarter's call. The tax method changes is expected to provide $60 million of cash tax savings over the four year period with the GAAP P&L benefited recognizing in FY 'twenty one.
Slide 13 please.
To assist with modeling here are some additional planning assumptions depreciation and amortization expense are expected to be approximately $135 million.
Net interest expense should be around $42 million.
We are expecting a full year effective GAAP tax rate of 23, 5% with a lower tax rate in the second quarter due to the impact of vesting of stock awards granted in prior years.
FY 'twenty two tax rate is a bit higher than last year's rate prior to the tax method change due to larger R&D tax credits in fiscal year 'twenty one.
And I will note we are using our full effective combined federal and state tax rate of 26, 3% to tax effect intangible amortization to calculate adjusted net income.
We expect a typical quarterly sequential increase in revenue and profitability, but note that certain factors can skew quarterly trends such as the timing of other direct costs and delivery of high margin technology.
We also expect a sequential decline in revenue from fourth quarter FY 'twenty, one through the first quarter of FY 'twenty, two greater than the normal 1% to 3% due to timing of material buys drawdowns in Afghanistan and timing of some technology sales.
And we are assuming there will be no material impacts related to Covid 19.
Slide 14, turning to our forward indicators prospects remained strong for.
For fiscal year 'twenty, two we expect 80% of our revenue to come from existing programs, 12% from re competes and about 8% from new business.
These metrics are in line with historical ranges and also reflect an increasing amount of technology deliveries in our new business content.
And as you know these quicker turn sales come with high margin contribution.
We have $7 billion of submitted bids under evaluation with 85% is after new business to CACI.
And we expect to submit another $12.4 billion through calendar year end with over 70% of that for new business.
In summary, we are expecting another year of strong financial performance with healthy organic growth continued margin expansion and robust cash flows with that I'll turn the call back over to John.
Thank you Tom Let's go to slide 15. Please.
CCI performed exceptionally well in fiscal year 2021, despite a challenging environment. We did what we said we would do.
We grew faster than our addressable market and also expanded margins, we generated robust cash flow and deploy that cash opportunistically to generate value for our shareholders that capital deployment included a $500 million accelerated share repurchase the acquisition of ADT and its exquisite ISR technology and continued internal investment.
Ahead of customer need and we continue to have ample capacity for additional value, creating deployments of capital.
We've positioned CACI for growth in fiscal 'twenty, two and beyond with strong awards record backlog and the capacity for ongoing margin expansion with our continued investments we are well aligned to budget priorities.
We achieved this tremendous success because of our employees talent innovation and commitment to customer missions, our company and each other.
Say it often because it's true I am proud of the CACI team each and every one of you for what you do.
Critical National security and monetization challenges remain and CACI employees will be there to help our country meet these challenges.
I also wanted to thank our shareholders for their continued support of our team and our company.
With that Andrea let's open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Right.
We ask would you please pickup your handset before pressing the key.
To withdraw your question. Please press Star then two.
Please limit yourself to one question and one follow up further.
Further questions you may reenter the question queue.
At this time, we will pause momentarily to assemble our roster.
And our first question will come from Robert Spingarn of Credit Suisse. Please go ahead.
Well good morning.
Good morning, Rob.
Thanks for all the color.
Sure Tom.
Tom when we think about 'twenty two and.
And we know there is no explicit covid impact in the revenue and EBITDA guide, but if covid word impact should we expect revenue to come in at the lower end of the guidance range, maybe margins at the higher end and what have you seen so far in this fiscal first quarter July August given the Delta variant.
Yes, so Rob I'll start out with that it's such a hypothetical question, it's hard to speculate if covid impact what happens a lot depends on the level of covid impact how would affect customers' buying behaviors award activity our ability of employees to perform so.
No.
Got it so speculative.
Im going to differ trying to answer that yes, Rob this is.
John Let me add something else.
Three items I guess first of all is if we look at Covid today versus where we were 12 to 18 months back.
It's our belief that.
Both our customer set and CCI are much more prepared than we were a year ago to deal with this virus. So.
It's a known risk with a battle hardened solution.
We took the action years ago to build a technology infrastructure as I've talked about in the past to support a just sports.
Dispersed work force, we actually did that focused on being able to get cleared employees across the nation and it actually did a great job of supporting us through.
Core core Covid period, and then lastly provider.
Providing choices to our employees.
On remote versus building work location. So it's those three factors Rob that going into the year, we really believe we're far better prepared to the extent that we can can be which is why we're issuing guidance without any without any additional covid covid impact.
Okay, Okay fair enough John while I've got you we're hearing a lot about zero trust cyber security and there's these mandates out there that federal agencies should switch over to the that security architecture. So I wanted to ask if that's an opportunity for the company and do you have any commercial partners in zero Trust.
Yeah, Rob Thanks.
We have a lot of many commercial partners.
I mean, if you look at zero Zero Trust, we have a lot of.
Tool partners that we use on our own network as well as customer networks to monitor large number of varying cyber.
Tax what we specialize in is as that information comes in how do we better defend we are moving all of our networks are much much closer to zero Zero Trust and for those out on the line you have to assume people are going to get in so how do you protect all of your information.
And how.
How do you.
Put different defense mechanisms in place.
We are as I mentioned, we are hardening our own networks here as well as.
Networks across a number of federal civilian agents agencies, such as DHS.
And others as well as a number of.
Independent defense networks. So we.
We are very much right in on it we are following all of the.
A new executive orders that are coming out from this admin and Munis administration and we're also very happy with the work. That's his administration and the focus that they have on doing much better job now that we've had covid and the attack surface has expanded greatly because we have so many employees working in our buildings.
And our government buildings and also from home that it's the right. The right answer and we believe that we have the right amount of funding and Theres more funding.
<unk>.
To be had with <unk>.
Both the infra infrastructure, bill and with others to come. So thanks very much for that question, Rob is there any way to frame the size or the potential.
Rob sizing the potential as more directly in line with what we will track in the enterprise.
Modernization is sort of an overlay to it so we'll be we'll see.
We will we'll be able to provide more information when we start to see separate task orders come in on it Rob but.
Every time, we're out there selling enterprise I T. It most likely will be Clinton or an additional subsequent to all of the work that we currently provide.
Okay got it. Thank you yeah. Thanks, Rob.
The next question comes from Gavin Parsons of Goldman Sachs. Please go ahead.
Hey, good morning, good morning, Greg.
Two parter on the or.
Organic growth and maybe the 2% five year target.
The first part you are targeting 4% at the midpoint, including a 2% headwind from Afghanistan does that mean, you're growing 6%. So 3% ahead of the underlying or does that also have some covid catch up and then the second part is what's your framework for thinking about how much you can outgrow that 3% over the next few years.
And it looks as though you need to do that.
Sure.
Okay Devin ready.
Alright, FY <unk> FY 'twenty to 'twenty, two revenue growth of 4%.
Which is ahead of our addressable market of three so we can we can check that box, saying look we are that company, which is out there looking to grow better than our addressable market and where the company frankly thats focused on high quality revenue. So we're going to grow nicely, but at the same time, we've got to be expanding margins.
As I look at this Gavin I'll share a few factors that are in play when we when we set this guidance out Tom mentioned, a very major one it's a bottoms up approach, which is why it gives us confidence at 4%, but there are a few factors.
Which are behind the reason why we are saying for today versus six or even even.
Slightly higher.
Sam reduction level of churn in FY 2022, and average award duration.
As you mentioned very accurately we have about a 2% headwind.
Going into FY 'twenty, two because of the Afghan Afghanistan, we've shared that over the last two quarters of FY 'twenty one.
Though it's no surprise when we take a look at that for Vietnam for the admitted administration policy change there would be.
Soundly at six.
Typical churn that happens every year each year.
We would show that step up step down chart.
And when we define churn it's really work that comes to a natural conclusion or revenue from from Recompete losses that arent going to show up in the following year.
Churn is usually about 10% of our revenue plus or plus or minus but the churn. This year is larger than the last couple of years, because we did suffer wandering agent recompete loss.
As we said in the past and the expertise portion of our portfolio and it seems like every year, we're reminded of this.
We're very careful to ensure we bid the work we do at a fair price with an assurance that we can deliver successfully with an eye towards driving driving bottom line growth in one of those bids. We just were not successful so we will say.
Goodbye to some.
Enterprise expertise work and.
We'll move move forward on that the last part of it.
Gavin if you look at our back backlog, our average award duration has grown by about a year over the last three to four years, what that does for us on a positive gives us a really desirable backlog.
Longer term duration work gives all of us much better visit visibility of revenue levels and we're a much longer period of time the down the downside is that Scott is going to drive lesser revenue growth per year, but considering all those factors I feel really good but our FY 'twenty two revenue growth.
Net net net without those couple of things would be a 6% to 7%.
You also mentioned is there any covid catch up now that the Covid impact we had if you remember was from the folks we're trying to additionally, deploy to overseas locations predominantly in the Afghanistan area now with the administration change that is.
Cleared that slate slate clean so we were never going to makeup covid work going and going and going forward, but we were looking for that work obviously to have continued and it didnt. So Kevin awful lot of words, there that I that I.
Catch the majority of your questions or anything else and we can answer.
That's perfect I appreciate all that detail.
Maybe just following up on the technology and expertise mix I think.
50% for the year, maybe a little higher coming out of <unk>, where do you see that going over time, and then what portion of the backlog is technology versus expertise.
Yeah, Kevin we've stated that all.
All four quadrants of our.
Our framework are important to us we have kind of resources there is opportunities too.
How to drive value.
One quadrant informs other offerings. So there is a synergistic aspect to that offer this past year technology grew at 12% expertise was essentially flat as we move into next year, we expect to see.
Part two that hemispheres, if you will and to grow with technology growing faster than your expertise on.
That is supported by both our backlog.
Bids to be submitted in the bids pending.
Going after some.
Expertise work associated with that so again.
Growth in both hemispheres, yes, Gavin and I would also add.
On the technology front, we are going to continue to invest ahead of customer need either in the enterprise Tech area or in the mission mission Tech area. We know we have what the customers are out there looking looking for spend a little bit of time on my prepared remarks talking about agile agile as a great Buzz word it's really hard to do it's really hard to do ripped.
<unk>, it's really hard to do at scale.
And we have future bids that are submitted in other bids coming up that are going to play exactly on top of that same past performance credentials that are our enterprise team has spent an awful lot of time on so.
Look for us to continue to drive higher than expertise don't haven't said that if they all grew at 10% each year it would be even even happier. So thanks, so much Kevin.
Thank you both for all the detail.
The next question comes from Mariana Perez Mora of Bank of America. Please go ahead.
Good morning, everyone.
Good morning.
Sure.
Sure Tom.
Give us some color on how you're thinking about capital deployment, how does the M&A pipeline.
Thank god for more sharply participants sir.
Hey, Thanks Marianna.
Capital deployment.
I'm going to call on Tom to add some.
Comments to this as well look you all have heard us both talk a little differently about capital deployment, when we were announced or when we announced our ASR back in March.
Look that was purposeful and a commitment to a continuous evaluation of all deployment options. We've always talked about those deployments what youre seeing is as potentially a different level of execution that we may have had in the past so additional repurchases M&A internal investments debt reduction.
Other potential uses and that order just to be clear is in no way intended to prioritize options.
I'd like to say that they're all on the on the table and considered when we leverage our robust cash cash flow M&A remains an important use of capital for us, but it's not the only one and as a larger company going forward with.
Greater profitability greater cash flow, we can do multiple things and you've heard me say in the past I wanted our capital deployment.
Our strategy to be opportunistic and flexible and I use that word and is a very key word M&A and repurchase and internal investments and debt reductions and.
Whatever else and wherever ideas, we have going forward. So from the vision and the strategy of where we're going that's that's where my head's at Tom could you add some more color. Yes. So a couple of factors. The current ASR accelerated share repurchase was executed at the beginning of March is still ongoing so.
The counterparty is still in the market.
Completing the share repurchase associated with that.
Once that is completed we expect to have delivery of another three to 400000 shares.
Which reduces our share count going into FY 'twenty two.
Being said through some equity based compensation, which would offset that hence the flattish share count off for FY 'twenty two.
So once the ASR is done we will evaluate the situation as John said on the good news is we have low leverage financial strength access to the capital markets are still a lot of flexibility on right.
Right now we estimate that we have kind of well in excess of one $5 billion of capital to deploy for whatever.
In keeping leverage at reasonable levels this would be all cash.
And as most people on the call recognize access to capital today.
Is kind of jewelry broad and interest rates are at historically low levels are right now for spending LIBOR, plus 125 basis points on our incremental revolver borrowing with LIBOR being 10 basis points and spending 135% in incremental interest expense.
So until we determine what the best strategy as we will repay debt. The intent just to trying to maintain zero cash balances and reduced debt for obvious reasons to reduce kind of interest expense.
We go forward, we will continue to.
You could look at that question both in terms of our borrowing capacity plus our very very strong.
And the free cash flow this year.
Okay. Thank you very much.
Thanks, Ron.
The next question.
Placement of Jpmorgan. Please go ahead.
Okay. Thanks very much.
Good morning, everyone.
As noted in the.
Head count number.
And.
Was 22000.
At year end and that was down a bit from the last year and obviously the company is growing the backlog is growing.
The profile of the business and the increased growth in technology does that mean.
Does that kind of change the link a little bit between head count and revenue that we should think about.
A company with maybe a higher sales per employee going forward.
Seth. Thanks. This is John that's a better answer than I was actually planning on giving but let me let me share. Some couple of couple of things here look at it's been a long time, frankly that we've looked at our business in terms of head of head count people.
Tactically to answer the they move from 'twenty two to 'twenty 2000 that small change in total head count frankly was due to the exit an Afghan in Afghanistan as well as some rounding so tactically that that's what happened, but youre absolutely right SaaS with technology growing faster our growth is not as.
Correlated to head count as it was maybe five to seven years back it's been a conscious road and conscious decisions that we have been making to make certain that our growth was not predominantly based on our head our head count that does show its hand in our expert type of work.
You all have heard us talk over the last 567 years about how we wanted to rightsize that type of.
Work for a number of reasons shareholder value profitability.
<unk>.
Some of that some of the lower margins that we are going to be coming out of that work and the like and we're just at a point, where we are large enough and capable enough for us to go win work, which we can differentiate on the technology and our past performance, how we deliver not on whether we were able to hire Susie Juilliard Johnny So yes. So this 23.
2000, 22000, it's no leading into and to cater.
And I'll also add that you know.
Org.
Organization, we're driving efficiencies.
<unk>.
And even in the expertise area to the extent that we can develop better tools to help pupils perform their jobs.
Get the work done with fewer people you've had agile software development is another Great example, where.
Prior to that it would take X number of people to develop software now we can do it at materially lower head count and as a result of that we're less concerned with kind of wage inflation.
Let's hire the right people to do the job drive efficiencies and we can deliver.
Attractive cost to the government customer.
In getting the work done very effectively.
Great. Thanks, Thanks, very much and just ask a quick one.
As technology becomes a bigger part of the mix.
How should we think about that trajectory.
I'm sorry, the guidance for <unk>.
Is that kind of a steady state number.
Yes. Thank you so last year capital spending was approximately $73 million issue regarding to $90 million there was one tie.
Sizable.
And ensure that we're planning on this year, which is a facility.
To do some manufacturing type of work.
Is secured which makes the facility extensive this supports a program, which has a eight to 10 year life to it in the way. The program is priced into the government ultimately will pay for that capital spending will be recovered in our.
Pricing, so that has driven a step up function in capital spending hard to predict what's going to happen next year, but I would say that we're going to move more towards that 70.75 level.
One.
2% of revenue somewhere around that particular range.
Yeah.
Great. Thanks very much.
Okay.
<unk>.
Yeah.
Next question comes from Matt Akers of Wells Fargo. Please go ahead.
Hi, Thanks, guys good morning.
I guess.
The fixed price contract that was sort of driving margins higher last year.
That kind of reverted to normal and I guess as we think of like a modeling the quarterly margins through this year is there anything else sort of unusual that we should kind of keep in mind.
Yes, so the program that we spoke about.
<unk> had some material benefit for the first second third and fourth quarter of FY 'twenty one.
From what we see we expect similar benefits going into the first quarter of this year and that is built into the.
How do you kind of December so that will help in the first quarter.
Kind of margin performance.
Consistent with my prepared remarks, we do expect revenue in the first quarter ought to be down sequentially from the fourth quarter revenue.
Greater than historic trends.
And.
Margin should.
Yeah.
Increasing margins throughout the year. Despite the fact that that fixed price program is contributing to the first part of margin. So offer a modeling purposes I would have an increasing EBITDA margin quarters 1234 and five.
Full stop recognize that there are fluctuations.
In both revenue and margin due to higher margin technology deliveries.
In the light guide for the full year, we're committed to the full year numbers in there aren't going to be fluctuations among quarters.
Got it okay. Thank you that's helpful and I guess one more.
You have to stop.
Go back to Nathan.
Heard from them from Vod and buy them, maybe mandating that for our government employees or contractors there.
And I guess do you see any potential.
Just risk that employees, maybe may not be able to access facilities or do you work if they haven't been vaccinated.
Yes, Matt.
What I can share is what we what we know as of as of now right.
The administration recently announced right that everyone working in a federal facility will need to attest to their vaccine their vaccination status.
We're doing the same thing.
Inside of our company.
Actually.
Requiring folks too.
A test the same the same information so.
So we can track individuals', but so that we can look at facilities and make certain we put the right.
Protective measures in place.
The people and government facilities and as well as ours any county that has one of our facilities and it using the cdc's.
Measurement of.
Severe and high or whatever those are those terms that when it goes orange and red.
They have to wear a mask.
But in the government side, if they don't want to get the vaccine they're gonna have to compete.
Comply with Covid testing requirement, what we've learned so far.
Potentially two times, a week and also be subject to travel restrictions. So what we're going to watch mad is as it impacts us and we have employees going overseas, who are not vaccinated to perform work on behalf of the government.
There are countries that will have to be in corn corn to anywhere between five to 10 days and we'll have to figure out how we're going to work through that so.
But having the vaccine out there.
As a positive thing for all of us, but we also respect the fact that every individual has different beliefs and.
We will make different decisions than what we're just asking people to do is be smart and if youre not willing to get bags bag vaccinated. Please make sure that we're being respectful of other folks in the business and let's just make sure that we're doing the right thing.
Understood. Okay. Thank you, yes, thanks, Matt.
The next question comes from Tobey Sommer of Trust Securities. Please go ahead.
Hey, good morning, everyone wanted to terminations prevent Oh just.
Yes, no problem.
Just some of your competitors are citing some issues with passing to delays in the community.
I was just hoping you could comment on your experience there and how does that impact your thinking.
Yes.
Yes.
I guess I'd answer that in a couple a couple of ways.
$3.6 billion of fourth quarter Awards nine $2 billion during a.
Call Covid year, and trailing 12 month book to Bill of one five so the simple answer is no.
We continue to see really good demand heavy pipeline of opportunities.
And award flow consistent with normal customer behavior now keep in mind. There is some customer behaviors that are typically slow [laughter].
And and and and some customers, we see a higher level of awards slipping to the right with every customer set we have we actually measure RF RFP date proposals do day job awarded date and there are some agencies that at <unk>.
<unk> or and historic.
Barclay.
Award decisions later than what we planned in the old days, we used to put on a 90 day window into our plan. If some of you remember that would make up for delays in.
Awards, what we've seen over the last year, we've talked about with slower. So we're tasking, which we really attributed to covid and people being out and the like but.
Again this is something we've been discussing for a very long time, So I'll end with my simple answer which is no.
That makes sense and then are you seeing any impact on at least timing from the chip shortage related to some of the product deliveries and your mission technology business.
Yeah.
I think we discussed with you all during fiscal year, 'twenty, one and through our Covid that where we saw that where it's had the most is in our EV business.
We're pleased with that acquisition they bring a lot of great high value differentiate different differentiated technology.
And.
They also had been working with our next our next century folks but.
We have had supply chain issues, we have had customer delivery delays.
But we've had delays on both ends one is on as you mentioned on.
Bill of material items that have gone from a 12 week delivery to a $24.26 week delivery. We are working with our teams to make sure that we do some bulk buys of.
Some of our previous long lead items that are actually go into a long long lead items.
But at the end of the day, we also have customer delivery delays because of covid, our customers weren't there to receive those items right. We have to usually do final article testing with web and through our Covid. They were in every other week or every third week ranges had much less time, so there's a few.
Factors, there, but we will.
We are continuing to work that issue, it's a global issue.
Today, we have a modest amount of.
Predictive actions that will happen during the year, but all in all were doing quite quite quite quite well navigating our way through it.
Okay.
The color. Thanks, guys you bet. Thank you.
The next question comes from David Strauss of Barclays. Please go ahead.
Thanks, Good morning.
David.
Yeah.
Uh huh.
I want to clarify on on capital deployment have you assumed anything in in the guide for capital deployment are you, assuming you're seeing Xx.
Your free cash flow generation using it to pay down debt.
Yes, yes that is what we have assumed there is no <unk>.
With regard.
Acquisitions and or other.
You kind of share.
Richard.
Obviously, the normal capex and internal R&D investments out of the airplane that is what we assume.
Okay.
And then working capital look like.
England, a slight tailwind.
Tailwind.
In 'twenty one what are you what are you.
What are you expecting from working capital movement in 2002.
Yes. So you are not as you pointed out.
<unk>.
Started the year with DSO at 57 days ended at 54 days, a three day reduction in DSO was worth about $45 million in increased operating cash flow.
We're getting close to an asymptotic.
Luckily in terms of how the DSO improvement.
Or.
The year, we're expecting a relatively modest improvement.
Improvement in working capital of around $10 million.
Typically growing company need more working capital, we think we can offset that and maybe good another day audit DSO somewhere around those particular levels, but.
Essentially flattish is probably a good way to look at it.
Okay.
Do you have any exposure to the R&D amortization issue.
No it's not.
The type of work that we do so that is not going to be material to us.
Alright, Thank you very much thanks, David.
The next question comes from Scott Forbes of Jefferies. Please go ahead.
Hi.
Normalized margins in 'twenty, one and more 10.720 bps of expansion in 2002.
What are the major moving pieces there around cost returning maybe anything with Covid and just generally technology.
Expertise.
Yeah.
So this is a major driver of the kind of margin expansion is.
The mix of our business, we're expecting gross margins to improve which fully solved.
Gross margin is being revenue less direct cost.
What we've found in the P&L in some of that is driven by efficiencies on programs, which I mentioned earlier in the call.
A Richard technology mix technology will be growing faster than expertise in technologies that have higher margins and so that is helpful.
At the same time, we should be driving some efficiencies in terms of kind of indirect costs are indirect costs excluding fringe.
Kind of medical expense and also additional fringe on increased direct labor is growing about 1.5%. So we're doing a good job of maintaining efficiencies within the infrastructure of the shared service center in Oklahoma City, which we spoke about in the past is.
Helping to drive efficiencies, we've been employing RPE technology internally to focus on kind of improvements in the other such initiatives.
Thank you.
Well.
The next question comes from Josh Sullivan of Benchmark Company. Please go ahead.
Hey, good morning.
Yes.
Hi.
Agile focus from customers change their traditional contracting cycle, you've got record backlog figures, but just by the nature of agile posture annually environment continuously changes does that make us more competitive re competes easier or harder your partner.
Curious how the agile.
Increasingly software defined world just changes the historical dynamics on the on that backlog conversion or cycles.
Yes, Josh Thanks, So when you when you think about agile in the end.
Before agile.
The government would contract to have a system built and it would be more of a cost plus are firm fixed price and it will come in as a single single award right.
$1 and we would book that upfront.
We're all still working through the challenges of contracting for agile.
Biased by its simple nature of the words right, it's agile, which means it's fluid it's going to change.
And that's tough and it's coming from the contracting world what we have done and we will use <unk> as the example.
<unk> was a one time.
Award, It's a single award <unk> IQ.
We're tasking get put on to that vehicle.
And there's parts of it that are also cost plus it is we want to make sure we have access to and number of people because we're gonna have Y number of apps, they need to be modest and pushed out to the field.
So agile does a couple of things for us.
One it allows us to ebb and flow people on that program.
That means it allows us to do much better job of managing costs. It also helps us do a much better cooperative job of managing costs, not only on our side, but for our customer site.
Tom made mentioned.
During the earlier question about 23000 people to 2000.22000 people.
With things like agile agile does is.
The numbers I'm going to give you our our illustrative.
But do provide you real perspective, we're delivering our agile software development with about 300 people with incredibly low defect rates on a program that under the last.
Provider used to employ over 500 people with far greater defect rate. So what it what it does is allows us to deliver programs and agile applications at a lower price to our customer and a lower cost.
And if we do that right the margins will be higher for us because we were taking on some of that some of that risk.
All in all I don't see agile going to multiple Lord Ivy I choose.
I see them staying as either single award or as program items, but they wanted to buy what we're building and spirals they want to build a little bit test a little bit trite and you've got to have the right methodologies in place because anytime you can be deploying to the field. So every one of those spirals you have to have a complete solution you can put out there then.
<unk> enhanced that.
Along the way so it is very.
It's very material to how we are driving margin margin growth, it's very big and very prevalent in both our enterprise and our mission mission Tech work.
And I think we'll all get better both government and us as we can try to continue to try to make software development be as agile as we absolutely can.
Thank you for all that detail.
And then just a question on your Iraq is exposure you detailed the Afghanistan exposure here, but just give us some commentary out of decided administration, how should we be thinking about your exposure to that environment.
Yes, Josh.
As of today.
We've watched.
The.
We've watched the administration makes a decision to completely exit Afghanistan by 911, and I can all I can say is they are executing on that decision I'm not willing to share which areas are still have folks and which are not for everybody's safety.
But if we were to broaden that.
We have a lot of O conus presence outside of Afghan Afghanistan's throughout the Middle East Africa.
Korea.
Those missions were standing firm Josh.
There is no reductions in any other areas you know some of those folks that were exiting Afghan Afghanistan were brought into other missions and other parts of the globe.
And that is fully fully baked in our FY 'twenty 'twenty two plan.
And specifically the Afghanistan withdrawal does not impact Iraq or other locations. So there's a lot of focus on the emissions in those locations is much broader than Cowen counterterrorism, we're talking about near peer threats and and the like and the analytical services that we provide are actually provided with a much broader focus in.
Some of those other areas. So we're going to continue to leverage customer relationships. We are very much embedded with our customers doing some incredibly hard work around <unk> around the globe and where we can broaden our footprint and win new work.
Well.
Got it. Thank you for your time, yes, thanks, Josh.
The next question comes from Louie Dipalma of William Blair. Please go ahead.
John Tom and Dan Good morning.
<unk>.
John can you provide more detail on the contract wins that you highlighted with the lgs innovations photonics portfolio and does.
<unk>.
CACI has exposure to both laser communications and laser products for directed energy slash counter drone effects.
Yes, Louie thanks, so a little bit about photonics.
Look we've got a nice portfolio differentiated tech and intellectual property and as you correctly mentioned.
L. G S didn't create that but they certainly.
Super sized how we go about doing that and where we go about putting.
Investments in place, we have Todd Probert, who has the combination of a lot of our our mission type work is doing an outstanding job, but he and his.
Team understand what we want to invest in next.
Look in space based photonics, it's all about size weight and power and what discriminates. Our solution frankly is the combination of laser modem technology that we've developed that's ours and then on top of that sophisticated software to control and point that tiny little laser at extreme distances. So that we can.
We can enable assured digital community communications.
As I said in my initial remarks, we've had sales to aerospace and defense clients, we're looking to expand that.
But what that tells me is that these are large platform providers and illustrates our differentiated offerings and also demonstrates their trust in us to deliver so this is not you know drawings, we have of some of the smallest.
Lasers and gambles. This is actually products that you can touch.
As far as the size of it and you know where we go next to no Frank it's not large yet.
But it's got those four things I'm looking for it is growing it's profitable it's differentiated and it's highly relevant to where this nation, both commercial satcom providers and our intelligence and our Air Force satellite folks.
Got about $1 billion pipeline Louie.
Confident that we're on our way to go.
So that even further.
And I think your last question was around is it non kinetic or is it kinetic.
We're very focused on laser comms.
And our laser based photonics work.
But our counter UAS and our Sky tracker in our Korean systems.
Have all been modified and are all set up to actually tipping Q different.
Kinetic laser solutions, so if we're not able to take.
Take a swarm of drones downward, let's say using RF and other and other means.
We do have partners that we're in integrating our Korean solution with that also provide.
Kinetic effects. So hopefully that provides some kind of color for you.
Excellent that was perfect. Thanks John.
You bet.
Thanks.
The next question comes from Cai von <unk> of Cowen. Please go ahead.
Yes, thanks, so much and good results so John.
Your book to Bill of 2.2 is the best you've done 20 years. So it's a huge number.
In a quarter, where other people as was noted as saw delays and then tell them.
Administration changeover issues was there any of that a pull forward because normally your big.
Booking quarter as you know is the first quarter. So should we see a good but not a great first quarter or.
Could the first quarter be in line with your with your I think you have a 17 year record something like one eight or one.
Yeah Cai thanks.
A couple a couple of things.
I always start off questions on awards by saying awards are lumpy right.
It's it's.
Team did an outstanding job housing.
These awards come in is so much more of a factor of things we've done in the last one or two years, it actually positioned us better.
Our processes under Mike Gaffney, and his great BD team, making certain we're not get involved in bids that we will do a great job with finishing second because thats like check I don't generate a dollar revenue when I. When I finished finished second so one it's about shot shot selection.
To the fourth quarter.
Full disclosure had R. R F.
<unk> D E digital work.
We compete in it we're probably I'll stop my head Kai, 80% to 85% of that was a recompete work, but there was a nice meal $3 million to $400 million worth of additional work because the mission.
Sure.
To change so there.
There was no pull forward there was no push late.
It sort of gets back to that fundamental question of.
We have not seen material, one time because of covid or people being out.
Massive delays and these awards, we have customers who have different award personalities for lack of a better term and they've kept those same personalities up what I love some customers to deliver closer to the RFP expected date, absolutely. So but we've got as you mentioned, we've got 60 years of information on how customers buy and.
And I can't point to something that says are that far off theres been years that they have been and we've disclosed that but we just have not seen that practice.
Thank you and then and then Tom.
You mentioned that the first quarter, probably would be down sequentially, a little bit more than the average of 1% to 3%.
And you mentioned four four kind of relative batteries for the quarter.
Is this quarter likely I mean is there a chance this quarter could be down year over year.
And secondly can you put that in the context of 4% growth for the year. I mean is this quarter like one or two and then.
Each quarter has better growth as we go through the year, how should we think about that yes. So it's unlikely that our first quarter will be down year over year, we're expecting modest organic growth in the first quarter. We completed the month of July we have two months left for kind of mid August.
So if we have kind of modest.
Organic growth in quarter, one in order to hit the 4% number kind of mathematically will indeed, some higher growth through the subsequent quarters.
But I would also go ahead finish up I was going to say is that lumpy because you mentioned, Afghanistan, so the $120 million or so hit from Afghanistan, all as in the first and second quarter. So we got kind of.
A hockey stick in the second half.
Yeah, Yeah good.
Good observation the Afghanistan.
Southwest Asia work is disproportionate in the first quarter of the year.
I would also provide some additional color too.
When we have these start off lower grow.
I want to make certain that we're very very clear that pattern is not due to difficulty in hiring.
We've been in we've been watching that.
Demand for talent remains high and the type of environment remains competitive and challenging.
But again, it's no different than it has been in past in past years, we've continued to try to strive to be the employer of choice, we put different programs in place, allowing people to move around the company and we've we've enhanced our.
Referral program, we've got a great class of in turns even through all Covid just over 300 folks.
Our last last class, we continually have been worked on this over the years to make certain that.
We always had the right kind of talent that we could we could source from and that's coupled with the fact that go after more technology work when we get to decide the kind of talent that we need and we don't want when we want to bring bring those on so I don't want to tie hiring issues that boy, we got a hard backend because we'd have to find all of these folks that's just not.
Got it.
We've done all the right things and.
So I just wanted to make certain that that that wasn't in anybody's calculus around can we get the 4% growth and is there going to be hiring issues.
Terrific, Thanks, and great job. Thanks.
So much guy.
This concludes our question and answer session I would like to turn the conference back over to John Mcgee for any closing remarks.
Well, thanks, Andrea and thank you for your help on today's call.
We'd like to thank everyone, who dialed in or listened to the webcast for their participation. We know that many of you will have follow on questions, Tom uterine, Dan Lekberg and George price are available. After today's call. Please stay healthy and all our best to you and your families. This concludes our call. Thank you and have a very good day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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