Q2 2022 CACI International Inc Earnings Call
Yes.
Organic growth was about 1% reflected some near term dynamics, we saw develop during the quarter, which I'll speak to shortly.
Technology growth of 9% continues to be strong and profitability was healthy with adjusted EBITDA margins of 10, 6%.
We generated robust cash flow and we won $2 billion of contract awards, representing a book to Bill of one three times for the quarter and one six times on a trailing 12 month basis.
Slide five please.
That said, we did see some headwinds developed that's a second quarter progressed and I categorize these dynamics in a few ways.
First in the last few months, we began to see an unprecedented increase in Covid cases, many customers responded by stopping in person meetings and reducing the number of people allowed inside their facilities. This is limited customer engagement and in some cases slowed the ramp up of new work.
Second customer access and bandwidth, which was already a challenge has.
Has been exacerbated by the increase in Covid cases to be clear. This is not materially impacted rfps and contract awards demonstrated by another strong quarter of awards rather it is a slower pace of the underlying contracting and tasking activity required to ramp deliver recognize our associated revenue and.
Particular, we're seeing this in some of our technology sales that rely on close customer interaction.
Again, it's not a demand issue. This is all about customer capacity and access with.
The supply chain also remains a challenge while we wanted to ahead of need where we could availability of key components are still tough again. This is not a demand issue.
Factoring these dynamics into our outlook for the second half we are modestly reducing our expectations for organic growth and EBITDA margin for fiscal year, 2022, and Tom will provide more detail shortly.
It is important to note that we view. These recent dynamics as short term did not change our customers' critical needs or the challenges arising from the heightened global threat environment.
The simple reality is we have a healthy and robust addressable market with plenty of opportunity to continue winning business growing organically expanding margins deploying capital for additional value and growing free cash flow per share to drive long term shareholder value.
All of which we are delivering on today.
Slide six please.
In addition to strong overall contract awards Q2 was another quarter with healthy classified awards and nearly $600 million.
This demonstrates continued leadership in our sweet spots of Ciber.
So my next spectrum and software defined technologies.
As an example, we won new work from an intelligence customer leveraging the capabilities and customer relationships of Lgs and next century, providing another great example of how our strategic M&A positioned CACI to win new high valued work and take market share.
Other classified awards. This quarter include a multi hundred billion dollar sole source renewal several new business wins and expansions of existing work.
We also continued to see good demand signals for broad network and digital applications modernization.
The pandemic has accelerated this need.
Including requirements for secure remote work capabilities and cloud migration.
And with expanded access.
Excuse me additional cyber security requirements are a necessity.
We are demonstrating to customers the monetization is not only achievable, but also yield significant benefits.
In addition, we are seeing a new generation of government leaders and expect and understand the benefits of modern technology risk.
Recent examples include our $514 million of war to modernize network infrastructure for the army and new and expanded work for DHS, including system.
Turning to slide seven please.
With our strong cash flow and overall financial strength, we continue to have flexibility and optionality to deploy capital to drive long term value for our shareholders.
As we have discussed our focus is on driving growth of free cash flow per share.
In addition to organic growth and margin expansion, we generate this through share repurchases like our $500 million ASR last year and over the longer term through our organic investments and strategic M&A.
On the M&A front, we acquired two additional technology companies during the second quarter.
Both of which enhanced caci's long term growth prospects and address technology demands in the near and long term.
First we acquired I think photonics, a leader in the development and deployment of multi domain photonics technologies for free space optical communications or laser comps as.
As we have previously discussed photonics is already in the area of internal investment that is producing compelling results, including awards from NASA multiple prime contractors and classified customers.
We see significant long term growth potential for advanced Photonics technology, driven by the increasing adoption of lower orbit or Leo satellite constellations.
As well as the demand for faster and more secure communications capabilities.
S. A photonics complements our existing photonics business in several ways.
They expand our legal capabilities, adding laser communications for airborne maritime platforms.
The additional manufacturing capacity and they expand our customer and contract footprint.
A combination of that.
Photonics and Caci's existing business.
Creates the leading U S based provider of Photonics technology.
And second we announced last night, the recent acquisition of <unk> technologies for IDT.
IDT started as a value added reseller and several years ago recognized the growing need for secure remote access baidu deem intelligence community customers.
To fulfill this requirement they invested internally and develop the software enabled offering that allows us out of the box commercial devices to securely access classified networks.
IDT software enabled end user devices, coupled with Caci's network modernization capabilities and contracts provide long term growth and margin expansion opportunities.
Yeah.
To the employees of <unk> Photonics, and 90 technology and welcome you again to CACI and look forward to the successes we will achieve together.
Before I turn it over to Tom our long term market trends remain positive.
We continued to see bipartisan support for National security spending and investment.
And cci's capabilities are very well aligned with our government's focus on broad modernization national security challenges, which depend on technology speed and flexibility to deal with both great power competition and counterterrorism.
We'll continue to execute our strategy that focuses on well funded priorities with plenty of opportunities for CACI to drive consistent long term growth margin expansion free cash flow per share and shareholder value.
That I will turn it over to Tom.
Thank you John and good morning, everyone. Please turn to slide number eight.
We generated revenue of $1 $5 billion in the second quarter, representing one 2% growth with around 1% organic growth.
This included strong growth in technology revenue, which grew around 9% from a year ago. This was partially offset by lower expertise revenue, primarily reflecting the impact of the death care to stand withdrawal.
Second quarter adjusted EBITDA margin was 10, 6% and adjusted dilutive earnings per share was $4 39.
Both down from last year, given last year's benefit from higher profitability due to favorable fixed price contract performance.
Lower indirect costs under Covid.
Slide nine please.
Second quarter free cash flow was $117 million, excluding our accounts receivable purchase facility.
Adjusting for the cash impacts of the Cures Act free cash flow was up $11 million or 7% from last year.
This reflects healthy profitability and continued efficient cash collections.
We closed the second quarter with net debt to trailing 12 month adjusted EBITDA at three one times after our two latest acquisitions.
As we demonstrated in the past our strong cash flow allows us to quickly delever, creating flexibility and optionality as we consider all capital deployment opportunities.
In addition, during the second quarter, we extended the term of our credit facility to 2026.
Secured more favorable pricing.
Other terms.
We increased the size of the facility by $900 million and currently have over $1 $1 billion of available capacity.
Slide 10 please.
John mentioned, we acquired two companies during the second quarter.
We invested a total of $500 million for these two businesses.
For fiscal year 'twenty, two we expect S. A photonics to contribute around $25 million of revenue in IDT to contribute 95 million for a total of $120 million.
These acquisitions are expected to be accretive to adjusted earnings per share over the next 12 months.
Businesses are in the early stages of their respective growth curves.
Our investing to position themselves to capture significant opportunities. This.
This is consistent with our strategy to invest ahead of customer need and well positioned CACI to capture additional share in high value high priority areas of our addressable market.
Slide 11 please.
We are raising our fiscal year 2022 guidance to reflect the two acquisitions as well as the near term impacts John discussed which are expected to persist in the second half.
We now expect revenue to be between six three and $6 4 billion with total revenue growth of 5% and organic growth of around two 5% at the midpoint of guidance.
We expect our full year EBITDA margin to be around 10, 7% at the midpoint, reflecting delays in the sales of some higher margin technology in the investments being made by our two most recent acquisitions.
As noted SA photonics and IDT are currently making investments to support future growth in these investments reduce our expected fiscal year 'twenty, two EBIDTA margins by around 10 basis points.
Accounting for these investments our expected margins would've been 10, 8% above last year, even with the headwinds we already mentioned.
For modeling purposes, we now expect fiscal year, 'twenty, two depreciation and amortization to be about $142 million.
We expect our fully diluted share count to be $23 $7 million or other assumptions remain materially unchanged, including free cash flow of at least $720 million. It's worth, noting we have already realized $190 million or do you expect to $230 million of cash burn.
From the 2021 method change virtually all of which was subsequent to the second quarter.
Lastly, we are on track to deliver strong free cash flow per share are historical and expected free cash flow per share performance.
Reflects gross margin expansion in the recent ASR, which reduce share count by close to 2 million shares.
Slide 12 please.
Turning to our forward indicators, we expect to 92% of our fiscal 'twenty two revenue to come from existing programs.
4% from re competes and about 3% from new business.
We have $7 billion of submitted bids under evaluation with about 80% of that for new business to CACI.
And we expect to submit another $16 $7 billion over the next two quarters with over 80% of that for Newcastle CCI.
I'll turn the call back over to John .
Thank you Tom let's go to slide 13.
CACI continues to deliver strong organic growth strong profitability and robust cash flow. The recent resurgence of Covid has created some near term challenges, but these dynamics do not change our significant longer term growth opportunities, we purposely aligned our business with critical national security and broad modernization priorities.
And are executing our strategy of investing ahead of customer need both organically and inorganically and differentiated technologies.
These capabilities continued to enable CCI and win new work in the marketplace and bring value to our customers.
They also underpin our commitment to deliver growth ahead of our addressable market margin expansion robust cash flow and ultimately free cash flow per share growth with the goal to drive long term shareholder value.
Finally to our diverse and talented people I'm immensely proud of you and your commitment to our customers shareholders and each other every single bank. Your dedication talent good character and spirit of innovation is truly foundational to our success.
With that Andrea let's open the call for questions.
Yeah.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
[laughter].
Yeah.
And our first question will come from Tobey Sommer of Truest. Please go ahead.
Thank you very much.
Your bid activity on new work to CACI.
His impressive E. How did bids look if you dig into it in that category and looked at it from a perspective of takeaways of programs that are out there, but it would be new to the company versus sort of a new new work.
Thanks.
Yes.
This is Tom so the.
The majority of that is a takeaway from existing customers.
As you know the average cycle, it's either three or five years.
And so we are kind of going after other people's Incumbencies are going after our incumbency, we do a good job of winning our Recompete you know typically over 90% on a kind of an annualized basis.
And then as we get into new area is electronic warfare or your cyber through or some new work in them.
John .
Yeah totally also.
If you look at the acquisitions.
That we discussed today that is a great example of new new work right with this burgeoning space a market with the billions of additional dollars that are going to be spent to provide more.
Protected and secure comms at much higher bandwidth those are all new new programs right. As you look at where SDA is going with their trial zero in there and Theyre tranche. One as you look at the intelligence community building out CFC solutions, which is the the.
Let me focus area that we have with I D. T are both of those areas are all going to be new new work. So it will be.
In the thick of that and frankly, I like the capabilities and those two acquisitions that will be coming to market with.
Thank you and my follow up question has to do with the continuing resolution.
Could you discuss how how the marketing customers are responding to this ECR versus recent experiences and I know, we have a lot of them in the last decade or so.
As well as comment on what you're.
Sort of a house view is on when and if we get a budget as well as whether your assumption in guidance is for a CR to extend it for the rest of your fiscal year.
Yeah, Tobey terrific question look.
Yes, we have probably been under a CR for for one to 365 days I don't know maybe it's the last 30 to 35 Years' Lesser Cup.
So its true and as we mentioned during our guidance call.
We've got a lot of experience operating under a CR.
But what's different about this one is it's a CR with a resurgence of COVID-19 .
The priorities are in the middle of changing with customers, who have 25% of their buildings full.
With con contracting officers, who are not in a in their office because of those warnings and because of Covid.
Sure It makes it a little different one.
What we've seen as you know joined our traditional C or at the very basic building building blocks customers get 112th of the funding each month just to make it simple and that's based on last year's budget.
We are seeing people.
Struggling with getting funding orders out and as Tom mentioned during his earlier remarks, that's predominantly what's creating this short term headwind for us is not getting.
Funding out there for the multiple of task orders that we need to continue to drive revenue in this business. It doesn't mean that that revenues loss. It just means that it's somewhat.
Disrupted by that so back on the on the a fuller view of the CR.
You know, we've put our guidance out there.
That is less about where the CR goes but more about when things return to a more normal situation.
At the low end, we would be looking at you know Toby continues to wreak havoc building stay at 25% filled.
And funding orders continue at a slow pace or get worse on the higher end, you'll see ours cleared funding shows back up people start returning in full style and we're able to get task orders sooner to after we win something versus longer longer term. So thank you for those questions Tony.
Okay.
The next question comes from Matt Akers of Wells Fargo. Please go ahead.
Alright, Thanks for the question good morning.
Can you talk about just sort of hiring head count trends it looks like your head count.
Based on the number in the release was down a little bit even though.
You can close on some deals or was there increased turnover that you saw at all or any.
Any comments you could give us about around headcount yes.
Yeah sure Matt Thanks look I'm hiring and you know we've been talking about this for quite some time its.
The demand for talent is going to going to continue to remain high.
It's remains competitive and challenging but again as I've mentioned.
That's really been no different than it had been over the past several years and when we look at stem and we look at engineering.
Software graduates and the like.
You know, we put a number of programs in place as I talked about last quarter. We continued to expand our internship program and we continue to invest ahead of need even internally where we've.
Invested in locations across the country with a technology infrastructure, so we could better support.
Even broader dispersed workforce and of course, the true test of that was when we entered into Covid. We have many of our own employees working from a very remote locations.
You know we continue to recruit.
From within we continue to provide professional development skills flexibility, we've enhanced our abandoned better benefits numerous numerous times.
But you know at the end of the day, we're not.
What we're doing is not by accident.
It's been a long term focus of ours, but the absolute value of our employees as we moved more into the technology realm.
And it became much more.
<unk> on us to make certain that we had the right fungible workforce that we can move from project to project.
The other thing that we've done and it's worked out extremely well as coming into fiscal year 'twenty two knowing some of the headwinds, but clearly not all of them are we expanded our bonus program to include an additional 500 folks and our overall bonus program and added 250 people to our long term stock incentive plan and that is.
Ben.
A great addition to what we're doing across this company.
Net net.
It is very very tough to find.
But the portfolio that we have.
Also change with some of our hiring numbers, let me just spend a minute on that as well the more we move towards technology solutions.
And the more we offer less expertise.
You know that expertise world is hiring person for person to be the government asked for X number of people, we have to hire X number of people on the technology side, we can get to make the choices to how they want to deploy people and as we go more towards higher margin cost plus and firm fixed price development work.
The higher level of talent, we bring into more cost effective we're able to be in actually the less people, we need to hire because you're not feeling billets, we're actually hiring talent around the kind of technology work that we're going after.
Great that's really helpful.
I guess as a follow up could you talk about how you're thinking about the mix of <unk>.
On a versus repurchasing at this point I mean your stock is.
Really keep you know what are you seeing for evaluations.
M&A market and how do you think about that balance.
Yeah, I'll look up.
It's probably the most.
Most asked question.
And and something frankly that Tom and I and others in the board and spin off a lot of time on and that's you know capital G U D women.
And you know some of those some of those trade offs.
Very proud to continue to say that.
Our capital deployment strategy is going to be opportunistic and flexible in and remains the key word.
We've done a lot of internal investments between Iran, and customary recoverable or in our R&D had been in proposal or we're investing ahead of need around $100 million a year today and that continues to grow.
In the past year, you've seen us execute a $500 million of MSR and to make four acquisitions in the first two quarters of this of this year.
M&A remains an important use of our capital, but it's not the only one and our $500 million ASR last year was a great example, and what were the terms that we've looked at stock valuation was very attractive relative to our performance M&A pipeline was not robust near term. So we did the ASR.
We are actually living what we talked about which is <unk>.
An opportunistic and flexible.
Model that does look at share repurchases and M&A and a number of other investments.
Yes.
Let me add cutting that on so with the four acquisitions, John mentioned plus the ASR, we deployed around one $1 billion of capital approximately 50% share repurchase for 2%.
Acknowledging acquisitions filling gaps with that kind of leverage at three one times still a very comfortable kind of in more mines modest levels of leverage.
I mentioned that we received some sizable tax refunds.
Since January 1st.
With those additional tax refunds, which were expecting came a little bit earlier than we anticipated, we're probably lovers at two eight times today.
So a lot of your flexibility to.
Yes.
<unk> capital appropriately using the criteria John articulated.
The next question comes from Gavin Parsons with Goldman Sachs. Please go ahead.
Hey, good morning, good morning, Kevin.
A follow up.
A little bit until these timing question are the revenue headwinds you've talked about improving guide still implies revenue accelerates through the rest of the year and then into next year, you don't have the Afghanistan headwind and hopefully these headwinds don't exist either so are we.
We passed the worst of it or is it still kind of hard stuff.
Yeah, Kevin Thanks.
Look as Tom Tom mentioned, FY 'twenty, two on the organic organic revenue growth to be around 25%.
Excluding the Afghan Afghanistan that would be around the four and a half a percent organic at around 7% overall.
We're not giving quarterly guidance, but two to answer yours, we see sequential improvement.
We go into Q3 and into Q4.
The headwinds in Q3 also offset a bit by more new work with <unk> ramping up.
On the EBITDA margin side, I know you didn't ask that Gavin.
We're looking at 10, seven and that's going to track along with our revenue growth.
Also like to share with you on these on these headwinds.
Look we've we.
We've updated our expectations, they're our best estimate for the remainder of this fiscal year. We as you all know we do a bottoms up program by program Bill we're very confident in our view going going going forward, we have considered COVID-19 trends contracting officers shortages shortages of supply chain challenges.
<unk> has a hesitancy under this current C R.
As I mentioned earlier, but what I want to make certain is important for all of our listeners and our investors is to really separate the signal from the noise.
The noise of the short term dynamics created largely by Covid.
Just temporary.
Signet remains a long term opportunity for for CACI and those trends are on our side you. All know we have a large and growing addressable market. We had strong awards in the bromine growing backlog and we're investing in an alliance of spending.
And many of the technology priorities of our customers set so those those.
Those factors and where we see revenue going throughout the year that sets us up well for 'twenty three.
Yeah.
Kevin I'll add a little bit we're guiding to organic growth two 5% at the midpoint. The first half of the year was one 5%. So mathematically you know three 5% and in the back half.
Some of that was driven.
Easier comps in the back half of Afghanistan headwinds and so we're going to kind of anniversary that so that'll make it easier and we did lose a relatively large order.
End of life expertise program kind of last year when that.
Year over year comparison is easier in the back half than the first half and so we feel pretty good about hitting the AR higher.
Revenues in the back half due to those more singular events.
Okay. That's really helpful. I appreciate all that detail.
And then just on M&A I think it's.
These acquisitions are doubling down on the technology strategy.
Traditionally.
Margin accretive businesses.
Is there a change in strategy here or can you help us with some of the growth.
Rates or longer term margin opportunities of this businesses and it was just the opportunities is so good here longer term debt, it's worth making that investment.
Kevin I liked the last part of that answer, but let me first of all thank you for that for the question short look we love love topic talking about the companies that we bring into the CCI family that are always driving deeper and more broader customer relationships as well as just exquisite gateway capabilities for us.
But at a macro level ethical tonics and Ivy Ivy Tech are early stage investments.
We're investing ahead of need.
And although they are EBIDTA margin dilutive. This year they are accretive to EPS. They both have strong IRR is because those are the kind of acquisitions that we had historic historically done let me talk a little bit about SA photonics first.
Look they are the leading provider of multi domain photonics tech not all of the technology side, we put those announcements out.
A few weeks a few weeks back.
And as I mentioned during my prepared remarks, they expand our Leo capabilities that give us laser comms for airborne and mirror mirror maritime platforms those requirements not even defined yet, but beginning to be discussed because of the amount of information, it's going to need to be passed sensor to sensor and sensor to ground.
As the defense Department bills out Jan <unk> and other ways of sharing information they add manufacturing capacity for us and they expand our customer and our contract footprint.
Ethane photonics as an early mover in a burgeoning market with significant growth potential we've talked about the absolute dollar growth in space, we've talked about.
Space Force focus on more dollars going towards space and most importantly, the intelligence community is focus on space, Tom Tom mentioned, it was $275 million in considered considerations is $25 million. So their FY 'twenty two revenue so for full year that that's around 50.
And it's an asset which with scarcity value and combined with what we do we are the U S leader in that and that's important when you think about intelligence customers insensitive customers missions, who are not going to search the globe to find other cross link laser comp solutions to be pushing.
Highly classified data.
On the Ivy Tech side, they started as a bar.
They've done some great R&D investments, we're going to continue to invest.
They they feel some break gaps, but they also complement what we're doing in our and our and our network area. You know that Army program is looking at modernizing our number of army networks to make certain that they can handle better than unclassified data and the other thing you need to meet the nsa's requirement of us.
Subsea is to have commercial devices with a software wrapped around them so that they can.
It's protected information so having the networks out there lots of devices doesn't help and then devices out there without the network doesn't help so we're going to look to utilize their far knowledge to potentially reduce some reduce some of our off the shelf component costs and the rest of our business, but that's a $200 million job it's <unk>.
$95 million for six months worth of Avenue right to ask you to think Gavin the deal in two different pieces.
Reasonable multiple for their <unk> capabilities think about mid teens EBITDA.
And a very low multiple for the legacy legacy business I think mid single digits. So we are looking to build out investments in the rest of this year and throughout FY 'twenty three to make certain win both CSF see become fully funded and we are right at the sweet spot of optical comm spending in the space market in the 'twenty three 'twenty four.
Timeframe, we're going to continue to win and to invest you know I've made that statement numerous times I'm not going to not invest to.
To meet a quarterly point when the world changes.
And the world is going to invest a lot in optical comps, we are the largest and the best positioned U S supplier of of that so we're going to continue to invest in those EBITDA margins will continue to get to 11% and beyond 11, 11% for a number of years to come which drive long term growth in this company.
The next question comes from Colin Canfield of Barclays. Please go ahead.
Hey, Good morning, guys just following up on that margin Tom in theory can you just talk us through the mechanics of how the government customers as pricing and wage inflation for fixed price contracts.
And kind of how those those pricing resets or not.
Reimbursement are all everyone to think about the pricing of those contracts and flows through over a multi year period.
Yes, Colin Thanks, well look.
<unk>.
Taking a closer to home or right right right around wage inflation, let me talk about that piece first and then we'll talk about margins.
Look I've I've said at least over the last few future quarters.
Paying up for top talent with specialized technology skills, certs, and clearances and the like is nothing new and we're very happy to pay people for that.
You know are increasing technology, the technology work, we're able to be more efficient and flexible in who we hire and how we leverage that talent. So revenue is not necessarily linear to head count. So we have a number of ways to.
Absorb absorb wages.
60% of our revenue today is cost plus so in a detailed manner.
All of our costs are passed on to our customer and our customers want us to hire the best and the brightest they want they wanted us to.
Look at folks who are technology, Nato's and make absolutely certain that those people are going to focus the long term careers and national security. So 60% of our revenue all of these costs will get passed on to our customer set as all previous costs have always always been on the firm fixed price side.
You know that that that as well as some cost plus work gets pushed back to how efficient are we and we believe with our internship program. We're hiring the best and brightest. So you know it may take 45 hours to get some job done and based on the talent, we're bringing in that now takes 35 hours. So the government wins, we went on a margin side the government Wednesday.
As we get more capability out to them sooner it allows them to procure even more capabilities from us. So and then on the indirect side look we put our shared service center in long before we talked about wage inflation, because wage inflation compared to other parts of the Oh, I'm, sorry wait wage inflation of the Washington D C Northern Virginia area.
It's very different than what you'll see out west.
And that's why we decided to invest it yeah and.
And in terms of kind of overall kind of indirect expense.
In the quarter, we were up around 2% and on a year over year basis with comparable revenue growth.
Absorbing our annual merit increases, which would give to our employees on and absorbing some higher one time expenses in the quarter associated with some acquisitions and kind of refinancing the debt as well so kind of despite sow cost.
Cost pressures, we're able to drive efficiencies across the enterprise and actually realize in our minds can a very efficient cost controls and so you know that is productive as well for us.
Got it and then a follow up on strategy within the context of some of the recent competitions.
Competition Khakis excuse me CACI has been involved.
Can you discuss the extent the dod's splitting out software versus hardware bids and how is that affecting the ramp of your growth.
Yeah, Colin Thanks.
You know once things are splitting it out.
To a large extent today.
But youll see some customers buying software in a very different manner. So let me share a couple of things there.
With our Beagle contract with customs and border.
You know, where there's hundreds of couple of hundred Digi.
Digital applications that are out there that customers and border agents, who use us day in and day out.
They were looking for.
Productivity enhancements so for the same dollar they could get more enhancements done to their digital apps.
So we had already pivoted a number of years four to five years back moving towards agile software development building three different agile development, our agile solutions factory agile software factory sorry.
To make to make certain that we were ready for that for that need.
So from a pure the way software was delivered to the way it's being delivered today, we are seeing customers find very very differently, where I have these and number of apps that I need to have moderate.
What does it cost me to modify an app to App and that's what the Beagle contract funnel. So they are beginning to contract differently.
On the on the technology side.
Dominantly mission technology side, we are seeing customers move more towards software or software based devices.
Which is that when the when the threat changes how do I not go out and repurchase millions of devices the perfect.
The example is I know you all have heard me say this I hate using the iPhone as an example, but it is a perfect example.
Theres been what 15 versions of the iPhone and Theres been no 50.
55 billion apps, so one would say that software on those phones changes far more often than the hardware device itself. So take that model move that towards handheld devices mobile fixed site devices that are that are tough to get at look at surface ship.
Systems that are out there that what they really need when the mission changes, it's a software upgrade to bring it into poor inter circuit cards out and racks of equipment and change size weight and power issues, that's where the Dod is going for a company our size size, we don't need that many customers moving towards that on a year over year basis to be.
We're able to drive not only top line growth, but also bottom line growth.
The next question comes from Mariana Perez Mora of Bank of America. Please go ahead.
Good morning, gentlemen, good morning Rihanna.
Well my question, yes.
Yes.
Tom T API.
To date on an almost 800 million army penchant for any.
Did I pick up a cockpit.
With Pan Pizza in thinking here.
Pardon me.
We know these type of conflict Wonder why is that right.
It sounds like that's been out from the crowd.
Right.
Kathy how do you plan to navigate pardon me today keep all the laptops.
Yeah.
Hey, Marianne I'm, sorry, this is Dan you're breaking up a little bit in your question.
And I'm not sure if it's just the connection we have if you don't mind just give us a quick summary of that question one more time.
Thanks, Jeremy.
Yes, it is better thank you.
So the last week.
Third claim found CACI ineligible to beat on a <unk> 8 million contract pardon me Army part of bankruptcy by.
And because they found conflict of interest with Seaspan.
Can you walk you through with bad time.
As you grow your technology offering how are you.
Glen could mitigate these type of overlap seem to be eating.
It looks like.
Got it.
Thanks, Okay. So we've been talking about is a recently awarded army contract.
Which is still.
In E.
And open protest window, so I don't want to talk specifically about that award and where we stand there, but the most the more the more broad.
Question, we are extremely extremely careful to make certain that we're not involved in any of the requirements processes as to how the armies and any other agency for that matter is going to.
Procured new equipment. So we don't have things like OCI and the like sort of.
Catching us clearly we wouldn't spend the dollars that we're spending.
And investing ahead of customer need and submitting proposals if we ever believe we have that issue we've been very careful.
In fact, we've got 100% track record of making certain that as we turn the knob down on some expertise business or in some parts of expertise business. We used to do a lot you know some.
Assisting customer at work, we're no longer doing that work. So we're very very careful we have processes across the company to make certain that those parts of our business. We're looking to build expertise work.
We will not bet on that in favor of bidding on the technology work because that's the that's the the right in line with the strategy for us to continue to grow CACI will top and bought and bought in bottom line.
Oh perfect. Thank you for the color on that.
All you have to follow up what is causing that.
Headwind.
And once we got there might be paved yard capacity and.
This is more like a more normal healthy ACI.
Mike could add up to support robust demand the demand Gen and actually come back to contract under the current operation with sanctions.
Yes, so maryann I'll take a first stab at it.
We do have a abnormal set of circumstances, the resurgence of Covid omni kron.
Supply chain issues.
No change in People's Psyche.
Our reduced workforce in the government and the like and so I think everyone recognizes these are had unusual events and I think it's very reasonable to expect things to either get back to a more normative level, where people learn to adjust associated with it and the demand signal this out there and the government costs.
Or will you eventually.
We couldn't come to terms with it and ensure that they have the ability to get things on contracting and.
Purchase services or goods to allow them to meet their central mission requirements and so I think it's very reasonable to assume that we will get back to kind of more normative level of it unexpected that after crowded.
When we put our guidance together at the beginning of the year. We did mention that you know we expected things to be a more normative level. This was a.
You just something again unexpected so.
Think that's a reasonable framework to look at to world.
Once again, if you would like to ask a question. Please press Star then one.
And our next question will come from Scott Forbes of Jefferies. Please go ahead hi.
Good morning, I wanted to do that.
Just to follow up on capital deployment, Tom you mentioned, you're in essentially two eight times leverage following the tax refunds three one at the end of the quarter. How are you viewing capacity and the appetite for further deals from here.
So.
It's essentially the way we've always kind of viewed the acquisition. So we start with the strategy here is where we believe the demand signals are curious we want to go in the long term and let's look for acquisitions to fill in gaps they could be customer gaps they could be technology gaps it could be geographic gaps in lids.
Find companies with this right cultural fit the right growth prospects at the right price and filling those and so we continue to look for opportunities.
These.
Are somewhat episodic.
It could be the organization doesn't necessarily like to do two or three simultaneously it put stress on the organization, but when they come available we need to act when we got the capability to act on.
I'll kind of very choppy, but you know that.
Desire to drive long term value and long term.
Increases in free cash flow per share and a long term sustainable businesses could ever present.
Thanks, and then a quick follow up for Tom there's been a shift around R&D expense recognition for tax purposes, and there is some room for interpretation around.
What's kind of included in there.