Q4 2022 CACI International Inc Earnings Call
It would be astonished and proud of what CACI has become especially the positive impact we've had on countless customers employees families communities and shareholders over the last six decades.
All truly honored to carry on this legacy started over 60 years ago.
So onto our results slide five please.
Last night, we released our fourth quarter and full year results for fiscal year 2022 or.
Our results were in line with our expectations for the full year, we delivered revenue growth of 3% adjusted EBITDA margins of 10, 3% and strong free cash flow of nearly $700 million.
We also won $7 $1 billion of contract awards of which nearly 60% is new business to CACI.
That represents a one one times book to Bill for the year with a good mix of Recompete wins to support our base and New awards to drive future growth.
Slide six please.
Turning to the external environment as we look out over the next several years.
Spectra positive demand is strong and there continues to be bipartisan support for national security priorities.
Favorable government fiscal year 'twenty three budget is currently moving through Congress with higher spending in defense intelligence community and homeland security and in particular in key addressable areas like digital solutions enterprise it.
And see for ISR cyber and space.
This strong backdrop gives us confidence in our ability to drive long term growth and margin expansion.
<unk> cash flow and additional shareholder value.
Slide seven please.
We continue to invest ahead of need and differentiated expertise and technology to address key priorities that will drive long term customer demand and spending.
Give you some examples.
Within digital solutions, we are modernizing applications and consolidate and disparate systems across the federal government to drive efficiency and improved data accessibility and enhanced cyber security posture.
As an industry leader in agile software development at scale, including executing to the federal government's largest agile programs, we are seeing increasing customer interest and pipeline opportunities to leverage agile software development Dev ops and open architectures to enable digital application modernization.
Enterprise network.
<unk> modernization is the key trend.
<unk> need to improve cyber defense support and increasingly dispersed workforce and consolidate modernizes legacy networks for efficiency.
In addition, real time multi domain integrated data and communications won't be available for efforts like Genesee two without modern network infrastructure.
To address these challenges, we bring deep capabilities and past performance and we're making investments in new technologies like commercial solutions for classified or CSF seat to enable access to classified networks from commercial devices from anywhere in the world.
Broad modernization of both digital solutions and enterprise I T.
Across the federal government will drive healthy spending for the foreseeable future and is an area of CCI is well positioned with both capabilities and past performance.
Turning to see for ISR in cyber.
The electromagnetic spectrum remains critical for intelligence collection, and modern warfare for more than a decade, we have.
<unk> invested to address critical priorities electric.
The electromagnetic spectrum, including signals intelligence electronic warfare counter UAS secure communications.
For example, we provide software defined capabilities to detect signals used by your adversaries determine the location and degree C for Tonight their use as well as protect our own use of the spectrum.
In the context of the global threat environment and near peer adversaries. These are even more critical and are gaining traction with customers recognizing the necessity.
Lastly in the increasingly important space domain, we are leaning forward to position CCI areas, where we see the opportunity for decade long technology driven growth.
In Photonics, we're very excited about our continued progress in optical communications and both the higher volume Leo market and the more bespoke GL an interplanetary markets.
Our photonics capabilities has been successfully demonstrated in space.
Not just in our lab and continue to generate interest and opportunities with government customers and space platform providers.
In fact, we recently made our first production delivery optical communication systems to one of our OEM partners.
We also remain on track to put an upgradable software defined assured position navigation and timing or a PNT payload into low Earth orbit early next year.
This payload will demonstrate the unique technology qualify its capabilities in space improve out an alternative to the existing portable GPS systems, a vulnerability that needs to be addressed.
Slide eight please.
As you all know a number of years ago, we embarked on a purposeful strategy to create a different company within our market. We made significant investments in both expertise and technology to drive differentiation and value for our customers and ultimately increase the quality of our revenue.
As we stand here today.
EBITDA margins of more than 200 basis points higher than they were earlier in this journey.
We delivered sustained durable long term margin expansion over those years and.
And even with this success, we remain committed to continued long term margin expansion.
Revenue growth.
Margin expansion compounded by effective capital deployment drives our leading free cash flow per share growth and ultimately shareholder value.
With that in mind, I'll turn to our fiscal 'twenty three guidance.
We expect revenue growth of between $4, five and seven 5% and adjusted EBITA margin in the mid to high 10% range.
In addition, we expect to continue to generate healthy cash flow and Tom will provide additional details on all elements of our guidance shortly.
To wrap things up we remain committed to our stated performance goals of long term growth and margin expansion.
CACI will continue to invest ahead of customer need to drive future growth and differentiation.
As we've discussed many times before our goal is to drive free cash flow per share and our commitment remains consistent to utilize aci's strong cash flow and a flexible and opportunistic manner to deliver the greatest long term shareholder value.
That I will turn the call over to Tom.
Thank you John and good morning, everyone. Please turn to slide number nine.
Our fourth quarter results with increased revenue and strong cash flow were solid although continued to reflect the slope of funding. It was a short term headwinds we previously spoke about.
We generated revenue of $1 $6 billion for the quarter, representing overall growth of 5% in approximately 2% organic growth.
Fourth quarter adjusted EBITDA margin was nine 6% impacted by delays in mission technology sales adjusted income was $107 million for the butter and we realized a lower than expected tax rate driven by certain state tax benefits.
Ted please.
Fiscal year 'twenty two represents another year of top line growth healthy margins and strong cash flow for the year, we generated just over $6 $2 billion of revenue, representing 3% total growth and positive organic growth.
Adjusted EBITDA margin of 10, 3% were slightly below our point estimate of 10, 5% due primarily to fluctuations admission technology sales.
Adjusted net income in FY 'twenty, two was $442 million.
As a reminder, in fiscal year 'twenty one.
Real life. The large one time increase in net income from a tax method change, which impacts the year over year net income comparison.
Next slide please.
Fourth quarter operating cash flow, excluding our accounts receivable purchase facility was $152 million, reflecting continued healthy profitability and cash collections.
Free cash flow was $117 million for the quarter.
For the full year, we generated operating cash flow at $170 million, excluding our AR purchase facility and pre cash flow was $695 million.
The year over year increase for both was primarily driven by the realization of $190 billion of cash benefit from the tax method change we previously discussed.
This was partially offset by the deferred payroll taxes under the cares Act.
In FY 'twenty, one we realized the benefit of $52 million in in FY 'twenty, two we had a $47 million outflow.
We had been expecting an additional $40 million tax refund in the fourth quarter associated with the method change, but that payment is still pending.
We ended the year with net debt to trailing 12 month adjusted EBITDA margins of two five times.
Two our leverage up that started the year, even after acquiring four companies for a total purchase consideration of $600 million.
Given our strong cross flow profile modest leverage and access to capital. We continue to have significant optionality to deploy capital in a flexible and opportunistic manner to drive long term shareholder value.
Slide 12 please.
Now, let's turn to our fiscal year 'twenty three guidance.
As is our practice, we undertake a bottoms up program by program forecast I had our expectations for new business by specific opportunity in track risk and opportunities.
Corporate known market dynamics and external conditions as we finalize the plant and develop guidance ranges.
For fiscal year 'twenty, three we expect revenue to grow between four five to seven 5%.
With growth in both expertise and technology.
About $180 million of inorganic revenue is included in the guidance range.
We expect adjusted net income to be between 420, and $440 million inclusive of $56 million of after tax intangible amortization expense.
Adjusted EBITDA margin is expected to be in the mid to high 10% range. We are providing this range to reflect the dynamics of our business.
Slide 13 please.
To assist with bottling here are some of our key planning assumptions.
Direct cost of salary expense are expected to increase about six 5% driven by fringe on direct labor.
The recent acquisitions, which have a more commercial type cost structure.
Remaining expenses are increasing at a modest 1% reflective of our continued efforts to drive operational efficiencies.
Depreciation and amortization are expected to be approximately $150 million.
Net interest expense should be around $1 million up from $42 million in FY 'twenty, two due to higher interest rates.
About 50% of our debt is fixed so what we would have some exposure to increasing interest rates. It is temporary.
We are expecting a full year effective tax rate of 23, 5% up from 19% in FY 'twenty, two which benefited from additional R&D and state tax credits.
Yeah, we expect typical finally sequential increases in revenue and profitability through the year, but I would remind you that certain factors.
Quarterly trends, such as the timing of material purchases and delivery of higher margin technology.
Slide 14, please in FY 'twenty three we are expecting operating cash flow, excluding our AR facility to be at least $495 million and capital expenditures to be approximately $80 million, resulting in free cash flow of at least $415 million.
A few other items to note regarding FY 'twenty free cash flow.
We'll make the final payment of $47 million in the second quarter to repay you for payroll taxes under the cares act, but that will not result in any year over year variance since we made a similar payment last year.
We expect to receive the $40 million tax refund from the method change that we did not received in fiscal year 'twenty two.
We expect incremental cash payments of $65 million as part of the method change we adopted in FY 'twenty one.
We expect a net use of cash of approximately $60 million driven by increased net income more than offset by increases in working capital as the company grows.
And we are assuming the repeal or or deferral of section 174 of the tax code relating to R&D expense it.
If this does not occur or operating cash flow would be about $95 million slower.
Slide 15 please.
Turning to our forward indicators prospects remains strong.
For fiscal year 'twenty, three we expect 83% of our revenue coming from existing programs, 11% from Recompete at about 6% for new business.
We have $12 billion of submitted bids under evaluation over 80% of which is for new business to CACI.
Can we expect to submit another $17 billion over the next two quarters with over 80, it's over 90% of that for new business.
In summary, we expect solid financial performance in FY, 'twenty Sprague with healthy growth.
Margin expansion and strong cash flow with that I will turn the call back over to Todd.
Thank you Tom Let's please go to slide 16.
I am pleased to CACI was able to again deliver growth healthy margins and strong cash flow and free cash flow per share in fiscal 'twenty two.
In addition, with strong awards robust.
Backlog and pipeline and investments in differentiated technology, well aligned with National security priorities, we are positioned CACI for stronger financial performance in fiscal 'twenty three and beyond.
As is always the case, we achieved our success because of our employees talent innovation and commitment to customer missions, our company and each other.
I'm extremely proud of the CCI team for what you do for this company and our nation, each and everyday I am also very probably should vote in CCI as a top workplace for the eighth consecutive year.
Thank you all.
Before we open the call for questions I want to mention the release of our inaugural corporate responsibility report, which we issued yesterday on our corporate website.
Report outlines information that is important to us as a company and our many stakeholders and includes topics that are impactful from an environmental social and governance perspective.
We're proud of our heritage and we are delighted to highlight our many accomplishments in the communities, where we live and work.
We look forward to an ongoing dialogue around the positive impacts we have made in their stewardship, we intend to continue to demonstrate in the future without an idea, let's open the call for questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If you choose to move to a question. Please press star followed by Kim when the parent well I'll ask a question. Please ensure you'll find me isn't me Tonight to me. He's now it will take one question and one follow up.
So last question today comes from that C bench of Stifel. Please.
Please go ahead your line is open.
Hey, good morning.
Good morning Bert.
So John you talked a little bit about mission technology.
Something that's come up a little bit in recent quarters can you just say why our mission technology sales delayed.
But what do you think lead them to pick up I imagine. This is a big portion of whether you guys end the year at $10 nine or 10, 4% EBITA margin. So just curious if you have any visibility on on the sales or the process for rfps there.
Yeah sure Hey, Thank you very much for that for that question.
Look that's that's all folded into.
How we set up guidance for this for this year and one of the one of the visible changes that we have made as you know talking about EBIT EBITDA margin you know me.
Mid to high tens and you've actually hit right on that reason.
Does not take.
A large dollar value award to disrupt our EBITDA margin by even 10 10 basis basis points tiers.
To your specific question is there's a bunch of mission tech and other material purchases and it pushed into our fiscal year 'twenty three and there's some of that some of the dead not but our guidance does address both of those are different different cases.
You know what we're what we're most focused on is that we've been on this long term.
The drive to really establish a different looking company that would depend on both expertise and on tech technology for us to not only talk about bottom line growth, but also also topline brokers as well as well.
So I don't I don't have a very specific as to the.
Two to three awards that had gotten delayed or do they come forward or do they go away. What we are confident as is.
Is that our FY 'twenty three guidance does a good job of putting lower and upper ends of around our guidance. That's focused on the issue that you.
Correctly brought up on the go.
On the on the low end, we will have lower recoveries. Some of those mission, taking those material buys and on the upper end, we're going to really cover all of all of those that slipped out of our fiscal year.
2022 so all in all of you know we are we are proud of the way we came out of fiscal year 'twenty two as an overall year.
Measure looking forward to continue this multi year growth pattern on our bottom.
Bottom line.
EBIT and EBITDA margins are very much driven by our entire technology portfolio and our portfolio not just mission tech, but on our enterprise tech as well.
Thanks for that John and maybe just to follow up on that it seems like you know what I'm trying to sort of delineate between your exposure sent which you highlighted a handful of items snipers C Corps ISR enterprise tax a lot of these things are.
Seemingly growing a lot and then we have budget, which at least for the Dod's started to 4% for 'twenty three.
Moving higher based on sort of what we're seeing in the process. Your organic growth for FY 'twenty. Three is just sort of low to mid single digits would put in a little below that level. How should we think about why that's the case and does that lead to a more significant ramp up perhaps in the second half of the year into FY 'twenty four.
Yes.
I'll answer the first part of that what I'll, let Tom talk about how are you know.
Quarter to quarter looks like.
Our guidance is as it has another other years it reflects a lot of different assumptions Bert and in different scenarios.
In terms of how a multitude of those factors play out if I were to look back at FY 'twenty to some of the things that we knew about coming in was that there was going to be a 100% Afghanistan with withdrawal.
Things that we were still questioning hey, as Covid in a row, how does the government go in and out of our Colgate is the C are gonna be short or long term clearly nobody anticipated a.
Peaceful country invasion by the Russians.
That was not in anticipated we look at the only the army I'm the Crown and we look at the contracting officer Challenge and how does the government move between counter car tourism as well as near peer threats in the middle of a government fiscal year.
Those are all items that some of those we actually saw coming in and trying to provide guidance around other ones did.
Not as we look at fiscal year 'twenty three we're looking at supply chain Covid.
<unk> funding, which is something that we didn't expect to we wouldn't sit here using some of your numbers and we've got a growing.
Defense budget.
For some reason are known to many of US on all of the reasons why we're not seeing funding come out to the level that you know the FY 'twenty to bunch of group. So we still have.
<unk> serves as to how the kayo shortage is going to play out as we look to FY 'twenty 'twenty three challenge.
So we're looking at a number of factors on the labor market and inflation as well. So theres. So many variables that are out there that I love to be able to say if it was only for a $12 million mission type order, we'd be much better stable business. We are very stable business. We continue to grow we finished 2022 within that.
R. R. A state of the state stated range and we more than plan on completing our 2023 within our guidance range, having a balance a lot of those different hum areas that I earlier spoke on.
Tom Yeah in Bert I think you talked about you know kind of momentum coming into FY 'twenty four.
Terms of growth and right now, we're obviously hyper focused on FY 'twenty three.
I'll say that we expect you to kind of sequential increase in revenue quarters 123 and four.
That's what we're expecting today through bar some fluctuations as we mentioned these are the either pass through materials, which are high revenue low margin or some of the mission Tech sales and so there may be some.
Variations associated with that as a result of that we're guiding for a full year trend better to look at the company on a trailing 12 month basis level than any particular quarter.
So I think we're positioned well this year and we'll see the momentum going into FY 'twenty four.
Thank you John Thank you Tom.
Thanks Robert.
Thank you. Our next question comes from Pizza oven of Bad piece of peak go ahead. Your line is open.
Yes, Thanks, good morning, John and Tom.
Good morning, John .
Regarding regarding the budgets and just looking at just maybe the Intel market specifically for 'twenty three it looks like the budgets are going to be up high single digits.
That's roughly maybe 30% of your revenues. So how quickly should we think about that converting and then just maybe related to that is regarding the funding delays, what maybe changes the pace of activity there.
Yeah, Peter So I guess.
First off but just in general.
What was a really dangerous place and it's nice that we continued to see bipartisan support for National security spending.
I do think that you framed as a wake up call.
I believe the China, another near peers as well as lingering counter kind of tourism are still going to be out there.
We like the overall budget laid out it's much more constructive today than it has in the past and I'm talking about purely on budget versus funding clearly.
But we like the increased.
Defense spending.
The 54 billion dollar Ukraine budget.
It really doesn't involve <unk> side at this time, but as non kinetic technology becomes more and more required we will be in those discussions we started to have some late fiscal year 'twenty two discussions around some of our capabilities and I would assume that those would continue to go forward in FY <unk>.
<unk> 2023 look clearly.
30% of our revenue is roughly being within the intelligence community.
We've got a wide range of advanced cyber and Intel and analytical technology.
As as well as expertise.
We like what those budget numbers will look like it's why we have spent the last seven to eight years positioning so that we can be talking about our addressable market and how we address our intelligence community needs.
We're also pretty excited about the increased spending within DHS.
And across the government has an impact on it modernization space domain. So what we've sort of set the stage for US we have an outstanding budget.
Right, what we have to work our way through is how is that going to be funded out of that funding going to be a.
Re leased so whether it's in the intelligence community, where we've seen about a 30% to 35% reduction in con tried doing officers.
We attended a conference last week about 30% of the D O D contracting.
Contracting officers.
We have moved on from just the fiscal year 'twenty. Two so I think theres other factors beyond budget, we're going to have to continue to watch and we think we set the right the right prudent prudent guidance for that Tom Yeah.
You know Peter on the last call.
You did some funky being over than the prior year and that was one of the reasons for.
Downward in the last call.
Instead of the last four months, we've seen a pickup in funding I'm looking at the April through July period, and we are close to closing the gap funded backlog at the end of June was down about 3% versus the prior year, So a decline, but not as severe as we saw at the end of the third party.
Monitoring just carefully invest as John mentioned, there are some issues that kind of well known the government contracting officers being short staffed.
We are comfortable that we'll have sufficient funding to perform within our guidance range.
We're controlling what we're controlling and monitoring it carefully and.
It kind of making sure that we do have the funding to execute kind of into the guidance.
I appreciate the color I'll jump back in the queue. Thanks.
Thanks Peter.
Thank you. Our next question comes from Robert Spingarn of Melius Research. Please go ahead. Your line is open.
Hi, good morning.
20th.
Tom I wanted to this touches on what Brent was asking about I wanted to ask a math question if I could.
The.
About the FY 'twenty two sales in the technology emission technology sales that got pushed to the right is our math correct that these higher margin sales that went to the right. We're about $22 million and the EBITDA associated with that was about $15 million.
Yeah, Yeah, so to be clear on you know kind of all we didn't say specifically that they were pushed to the right. We said that it did not materialize and so some of them could have been pushed to the right. Some of them there was changing government priorities and so.
Kind of a mixed bag I would not take a one for one movement from the fourth quarter to the first quarter.
Well.
Tom I guess, I should've phrased it that way.
The sales that didnt materialize or moved or whatever the math still applies the 22 million to $15 million, what I'm getting at is the margins.
Yeah, Okay, yeah, so, but what you don't get margin impactful you know John mentioned, the kind of leverage associated with some of the kind of mission technology sales.
EBITDA.
<unk> $700 million.
And some of the mission technology sales high margins are going to generate you know 510 $15 million of contribution and so one or two sales is shifting or disappearing or re occurring.
Is impactful on margins, but I think your arithmetic is generally correct. We were guiding to 10, 5% EBITDA margins.
Came less than that and that's really what the numbers are.
Okay. It just highlights the fact that some of this mission technology work is very profitable.
Really weird.
Yes.
Yes, absolutely and in fact, you spoke about that in the past when we spoke about the EBT and mastodon acquisition and some of the margin EBITDA margin and see these companies were in the 35, 45% EBITDA margin range and so you know quite profitable and so it would be a real impact on any one particular month or quarter.
Yeah.
So just as a follow up on this one is for John sticky sticking with this discussion on mission technology versus expertise. So to speak yeah. You in light of this and a number of the peers are all going in this direction. What is the optimal mix of these two types of.
And how do you compare the growth what's content for example in the guide for 'twenty three what is the contemplated growth for these two areas.
Yes, Rob.
I guess at a macro level optimal to me.
<unk> been very transparent on this you know there are quarters, where we get asked.
The your technology partner business grew at 10% and your expertise shrunk by three you know we must be elated Oh, no I'm never related right I love bold to be growing at you know 10, 10%.
But I don't think there's an optimal dial Rob when when we set this course a number of years back.
We're a.
$2 5 billion dollar revenue company and we're at eight 8% margins and how do we look at where the government budgets are going to go next and how do we position. This company for the next six theatres of growth what we what we knew it was it was getting involved in you know low rates shoot outs for selling expertise to winter.
This customer where there's thousands of.
Folks out there when better buying power two dano took away past performance right. So you know anything thats going to soon be a commodity is nowhere, we're seized and wanted to be so we embarked on how do we get involved in another part of this market that is one stickier to you know maybe at times not perfectly.
<unk>, but over the long term, we're going to drill them grow a much better looking company and a much more differentiated company going forward I I can't tell you what the Io strategy or the Booz Allens strategy frankly, with all due respect I don't watch what their strategy is I I can impact ours and ours is about making sure we have the right mix of expertise.
And technology, so that expertise is informing the technology that we can create differentiated on and get a leg up maybe some of the major primes or are there other people were looking at them more.
Non kinetic type solutions, and making certain that our technology can be used to drive expertise work, where we're no longer dependent on solely finding people in a specific labor labor rate, we don't adjust EBITDA for a number of people sitting on the bench and number of people that we wish we could've been employed we.
Wanted to have a very very clean quarterly report, having said all of that optimally.
50, 50 worked for US I would love to have a little more pushed towards technology and expertise. Some of these companies we bought a mere four years back.
Pretty early in that in their overall, you know nine inning game of being able to.
We've just company board so it's why when I see.
2017, we went from 80 to 85.
And then a final year, we were greater than that the long term trend line. We're trying to generate here is where we are driving a higher quality.
<unk> earnings business and by doing that over a long period of time will be a much better solid company, because whether it's top line growth or bought our bottom line growth or whether we buy shares back or we buy outstanding companies, we're going to drive free cash flow per share and that's what we're absolutely focused on so there are some years, you'll tend to find is gonna be a 10 three there is some.
It tends to happen is gonna be a tightened nine but overall trend line you know over a number of years, we positioned this company in a much better position, which is why we enjoy to Peter's question, a great defense spending we've got a very strong defense business are very strong and Intel business and we're willing to put that business up against that Andy.
What else is in over over time, we're going to continue to grow both top and bottom yeah yeah.
Rob.
Go ahead.
Well I was going to say Tom to John was just in the current environment is there any way to characterize the relative growth in those two areas. Even if we're just looking at a snapshot of it now.
Yep Yep Yep Yep.
Yeah totally wrong, yeah. So in our FY 'twenty three guidance were assuming about both technology and expertise CRO with technology are growing at a higher rate, but they're both positive growth and so you know there was a.
I've got a variation there are a few some expertise is growing kind of one or 2% then to get to the guidance range technology has to grow greater than that.
Two other observations one is as we said in the past technology margins are on average higher than kind of expertise margins and so that can continues to hold and I will say from our acquisition strategy.
It's more likely than not and further acquisitions would be in technology. How does not exclusively we will look at all opportunities, but that over time would tend to increase technology at a faster rate.
Okay makes sense. Thank you both.
Thanks, Rob.
Thank you and our next question comes from Gavin Parsons of Goldman Sachs. Catherine. Please go ahead. Your line is open.
Hey, good morning.
Morning, Kevin.
Guys I just wanted to go through the cash flow bridge, and maybe trying to understand kind of normalized cash flow a little bit better.
If you could give us a little bit more detail on the methodology change, but I think that looks like the.
40, and the 65 almost offset each other this year, if we add back the 50 carriers reversal and then maybe the 25 from that net methodology change is that about the normalized cash flow starting point or how should we think about that.
Yes, so Kevin there's a you know a few numbers that you're quoting here on the <unk> reversal.
We had an outflow in both trying to get children twenty-three repaying debt deferred payroll tax of $47 million and so on a year over year basis, that's a wash.
So.
That really doesn't Goldman to the bridge.
The method change was a tax planning strategy, we embarked upon in FY 'twenty one at the FY 'twenty, one generating approximately $16 million benefit to CCI.
That benefit was going to be realized over four years.
Such that in the first year, we would have a cash outflow.
A very large inflow in the second year, which is our FY 'twenty two and then some outflows in the third and fourth year FY 'twenty, three and 'twenty four and so that.
Adjusting for that you'll see that kind of work down bridge on slide.
14 in terms of the.
The cash flow.
The last piece.
It deals with a combination of kind of working capital and other invest the company gets kind of more profitable we should be generating more operating cash flow, which is the case, but thats being offset this year by some expected increases in working capital.
Let me give you some color on that.
Generally speaking larger companies when you're growing consume working capital and so we're seeing some of that impact on inventory you know as we deliver more mission technology.
Products, we are increasing our inventory levels on a year over year basis and in some cases, we were planning to buy ahead of need critical components supply chain related protecting against inflation. So that's another use of working capital.
Payments.
People, who look at our balance sheet will notice that we had an increase in payables at the end of June versus last year. So we expect to have a.
Abnormal outflow with payments.
I kind of get to a more normalized level.
That's dealing with some cash tax payments and some other kind of a bedroom payables.
Lastly, I kind of DSO and we ended the year at DSO was 55 days or we got as low as 52 days at the end of our first quarter. So right now, we're assuming DSO should be somewhat flat or FY 'twenty right.
We've seen some delays in payment offices, you know theres disc.
Discussion about you know short staffing and various government agencies and the payment offices are part of that so although we are planning flat DSO will do everything in our power to drive that lower and hopefully be able to kind of minimize some of that impact of higher working capital.
Okay. So if I strip out anything abnormal this year and it doesn't sound like working cap falls in that category.
What is what is free cash flow or a conversion ratio.
Well, so the free cash flow.
So $495 million of <unk>.
Operating cash flow, which I think is at a more normalized basis less $80 million of Capex gives you $4 15, our free cash flow and I think that's a pretty.
Yeah.
I guess I could add you know a few of those payroll tax deferral issues in it to come up with a quote normalized level.
And then the conversion is simply dividing that by net income.
Got it okay. Thanks, and then maybe just on the long term growth outlook I wanted to ask if you updated your kind of rolling forward view of the addressable market growth rate and thoughts on to what extent you could outgrow that.
Yeah sure sure Gavin look we're oh.
When we look at the addressable market five year CAGR, it's about four 5% this year. Unlike any other year frankly, we've been reviewing the addressable market.
And really had to look at some of those factors that are now here that haven't been there in the past things like inflation.
You know what the what the impact of the Ukraine budget was going to be on us at least in our fiscal year 'twenty three number was a five year period.
Customer contracting officer constraints in some of the things I've already spoken on we actually see our industrial market pretty much where we've where we pegged it at when we were coming out of FY 'twenty two.
It's north of $240 billion to $40 billion.
And the way I see it at the macro level $6 billion company with 240 billion dollar addressable market growing at about six for 6% and 23.
Sort of feels right.
To us.
Okay. Thank you very much.
Yes, thanks, Kevin.
Thank you and our next question guys came out okay. So with Wells Fargo. Please go ahead. Your line is open.
Hi, Thank you and good morning.
I Wonder if you could talk on kind of capital deployment, and especially kind of share repurchases in general if you go back to when you guys did the a S. R. A little over a year ago I think it was it sounded like that.
That could maybe be a bigger part of of.
Capital deployment.
All right way to think about it or are you more focused on M&A at this point.
Yeah, Matt Thanks, John .
Look we are we're still on that path right.
As we mentioned during fiscal year 2022, we were about 50 50 as to how we deploy capital.
Between for M&A, as we did and in our a S. R.
That's over the last 12 to 18 months, we're sitting here at <unk>.
Our leverage around two and a half times.
And we're going to continue to assess those type of gaps that we want to fill.
Quickly.
As well as looking at valuations of our stock and many other factors that go into us deciding to doing a N a S. R.
Both of those receive the E E equivalent amount of discussions frankly.
And you should expect to see us be a.
Very flexible as we continue during fiscal year 2023, as this year plays out I mean, there is theres a lot of things that are known that we can control. There's a lot of other unknown items and part of the part of that as you know.
The the status of what our M&A pipeline looks like.
And to the extent that we need to fill additional gaps. So I would say that we are right. We are still there and we're going to monitor all our options, we're going to deploy capital in 'twenty three that does the best job of driving free cash flow per share.
Okay, Great and then I guess, just one more kind of at a high level I mean, theres been a lot of delays and you've talked about some of the procurement delays and stuff with Covid and budget.
Issues over the last couple of years.
What extent is there like a catch up is there sort of pent up demand and maybe.
Once we sort of normalize things to grow kind of above that long term market growth or to what extent is that working sort of kind of a lost opportunity at this point.
Yeah, Matt Thanks for that question, because that's really at the crux of what we're trying to walk folks through through today right. This is this is so much about what we can control and what we can't control and we can look at budgets and we can you know if if we only looked at the budget and not look at funding every other year up to two.
<unk> thousand 23 that was a simple thing to bunches went up that's great. We didn't talk about 30% of contracting officers things, we cannot control the level of funding or the priority order. When you have 30% less employees, what's where's that priority. It doesn't mean that not everything is a priority of where it had been in a bunch of them.
If it wasn't so when Matt when things normalize back to we have a budget, we pretty much are a wide sector, who understands how to play within that CR world unless we get a complete anomaly like we had in FY 2020 two.
We're all pretty competent understand how to balance what our ex bank expert expectations are there.
What we're doing we're going to focus on continuing to run our business, we're going to focus on operational efficiencies, we're going to continue invest in the right. The right areas Tomorrow afternoon at 330 space is not going to be a priority whether those funding awards come out in July where they come out next January so our job of BNA.
A major company within this space to make certain that we are positioned in the right markets. So we're not positioned in markets that are going away actually positioned in markets that over the long term are going to continue to grow so I'd love to tell you that all of those things that we can't control are going to get resolved when we get to that.
October one the.
The next government fiscal year chances are they are in a lot of those very fluid areas or what goes into our guidance that we have for fiscal year 'twenty three yes mission technology place higher our margins every dollar revenue place heavy on our on our top line growth and our job is to be to as prudent as we can be.
<unk> make certain that we're putting that right range in place that shows you what the.
The volatility is but also the fact that we are in a we're in a growing marketplace, where a customer pays on time.
There are a lot of concerns that we do not do not have so you know I like the hand, we have I like the strategy we have that.
We've been playing over the next number of years.
And the fact that we got through fiscal year 'twenty two.
Showing top line growth.
Driving free cash cash flow, we're in the right areas, we just need a few things to get straight straightened out thanks for that question Matt.
Yeah, that's great. Thank you.
Thank you. Our next question comes from Seth Statesman of Jpmorgan. Please go ahead. Your line is open.
Thanks very much.
Morning.
Just to follow up a little bit on that question and thank.
You talked about some of the emission technology work this year.
Perhaps some of it has slipped out which.
It's something that we've seen kind of across the sector and some of it just may not materialize.
With regard to the stuff that just may not materialize like.
How do we think about how that happened whether there are any implications for your market share. What gives you the confidence that it actually is going to materialize in the future given the plans to build up working capital.
Ahead of need going into fiscal 'twenty three.
Yeah. Thanks.
So at a macro macro level. The strategy of this company is to derive revenue from both expertise and from Tech technology technology, both in the enterprise side as well as the mission mission side that strategy is playing out extremely well we have enjoyed oh well.
Physician topline growth.
The quality of that revenue has continued to improve over the last seven years to eight years, we've had a lot of things that have come in in the last eight years and things that have not but normalized net net we're in the right places at the federal government spend where in C. Four I saw we're in AI and hybrid 30% of our of our.
Annual revenue is in the intelligence community.
Continues to be a priority for nationals journey, and what we delivered to them.
<unk> continues to be well funded we have come out of other areas that have not been as well funded or that had been commodity commodity commoditized.
Over the last number of years, we're on this journey to reposition this company and all I can tell you is it is a long term model.
We are much better positioned company than we have been in the past, they're gonna be awards that come in and do not come in where you thought about awards being lumpy.
At the end of the day this guy for us to the 6% midpoint topline growth.
Be it some of the acquired and some of his organic even the acquired revenue and needs to have funding come in we need to win awards and the like.
And we believe we have the right prudent guidance, which is our job is sitting here today to make certain that we're able to.
Provide the way prudent guidance allows you all to be determined where this company does in this upcoming fiscal year.
Great. Thanks, Thank you and then.
Just as a follow up we see the effort at the department of Justice to.
Block the Booz Allen acquisition.
Ever watch I don't I don't really expect you to comment on their M&A, but it's not an isolated events that in terms of what we see from the Justice Department and the FTC in this administration with regard to the approach to M&A.
Does that enter into your thinking at all about.
And the M&A strategy.
Yeah. Thanks look short answer is no.
Ours is still.
From where I see it it's a large competitive relatively fragmented market.
Governments small small business programs are constantly enabling new business creation.
So at the level of acquisitions that we're looking at looking for no.
Theres no.
Different path.
That we're going to take on an M&A front over the number of years 30 to 40 years. We're a strategy based company strategy is where we come from we're always going to be looking for.
Gaps in some of those we've we've learned to fill through internal investments.
I want to partner partnerships.
There isn't anything on that question, specifically, south that's going to change how we handle our M&A M&A program.
You for that.
Thanks very much.
Thank you. Our next question comes from Sheila Thank you Jeff.
Jefferies. Sheila. Please go ahead your line is open.
Hey, good morning, guys.
John maybe another big picture one for you I can continue to ship.
<unk> and move toward technology and.
How are you dealing that with your bid pipeline like.
Yeah, I you deciding to bid on certain contracts are you hiring people that focus on that more can you expand upon your strategy I know, it's been ongoing for several years, but.
How are you continuing to focus on it.
Yes, Sheila Thanks terrific terrific question look.
What I would tell you is.
Historically, we were part of what I would now call more command Commoditized work.
Today, you're seeing the evolution in our business approach.
To check and expertise where expertise is informing tech.
Longer term, what we expect is us to further differentiate ourselves within the overall federal market. So on a on a tactical level.
As we have.
Recompete bids come up and what we've historically had you know predominantly in our expertise area. We're taking a really hard looks at those right. Every dollar of investment is a dollar of investment that we want to make certain that we are making the absolute best call. There there have been some businesses and I have shared district Benson.
Vic programs, if not customer sets that it just didn't make business sense and national security frankly for us to bid on work that 18 months from now we have the honor of bidding it again to generate lower margins. So yes that has taken a historical longer term hit on our top line growth number, but I will make.
That decision 100 times out of 100, because at the end of the day, we need to continue to position. This company away from that from that work and you know what I think the the largest travesty would be would be that if we got ourselves we have to at least grow with this amount topline. So we hang onto some of that work because what it does to the organization it becomes very.
As frightening so we're going to make some of these calls right in the right year and some of them, they're not going to be as right now they're not major bets, but there are a series of smaller smaller bets. So over time, what we're looking to do is sort of turn this ship to a to a day, where we're not talking about number of people, we've hired and you know what our direct labor.
And what are you know pass through material bits are so they're all very judiciously.
These decisions.
And over time, you've already seen the results of those decisions right. We have we have driven top line growth to a level that we're comfortable with where we'd love to have a greater absolutely so but those margins right.
Don't go away are we like the <unk>.
<unk> that we have done there Tom yes.
There are kind of the naval there with some of the increased technologies is some of the R&D activities we've been doing.
Investing a significant amount of money ahead of need to make sure. We have the right kind of technologies like to sell to customers. We've hired a number of people both in our <unk>.
Technology era or business development area, who have a lot of expertise understanding the market client executives are kind of making those investments to propel that particular growth and so those are enablers to kind of get to see our partners with some top notch technology companies as well so they all go into the mix will allow us to go.
After.
More technology content into bids and be successful winning those.
Yeah that helps thank you and then Tom maybe one more follow up for you in terms of slide 14.
A lot, but yeah do we think about working capital as a continued usage going forward for the business or is it just that it's called twenty-three anomaly given.
<unk> I'm sorry.
Yeah.
Yeah, I think again good.
Good question.
Perhaps a bit of anomaly in FY 'twenty three what we saw you know over the last several years is working capital being a source of operating cash flow our DSO before years ago. It was 65 days now it's down to 55 to 10 days and so that was a.
Adding to operating cash flow.
We're getting to a level, where it's going to be hard to make material improvements to cut a DSO.
Inventory pressures.
Growing countries require working capital. So we will try to keep working capital somewhat neutral kind of going forward I'll get a piece of V.
Our operating cash flow in 'twenty, three 'twenty four 'twenty five but this year there was a bit of a headwind we're going to do all we can to admin.
Buys that headwind.
Okay, great. Thank you.
Thank you.
Thank you. Our next question comes from Tobey Sommer of trading Securities Tobey. Please go ahead. Your line is open.
Thank you.
Give us some commentary on it.
Particularly the optical part of your business.
Maybe talk about the competitive positioning any kind of lead.
And having that most of the home.
Viable commercial product or not.
Then.
Maybe in the context of that describe what success looks like from your perspective, you know three or four years out.
Yeah Tobey. Thanks look we're we're really happy frankly.
Frankly, with where we are in the photonics and the laser community Communications area.
As I mentioned in my prepared remarks, we have production units in space.
And we're involved in several missions many that there that we can't talk about here.
And I.
Tobey I I look at our market in two different areas right. The first step into optical communications, whether it was with our lgs acquisition.
Very bespoke think about Geo and interplanetary community communications.
We have laser terminals on satellites.
Satellites, and we'll be heading to the Moon is part of the Artemis mission. We've also have units transmitting on airborne assets for very specialized.
Missions, but they've been going on.
And a timeline measured in years on the higher volume, where we start talking about.
Proliferated leos.
We are still building manufacturing scale and we believe we have the right capabilities in place to produce high volume small form factor devices part of the thesis on picking the best say photonics was to take some of the exquisite technology you know.
Read algorithms that we have on our bespoke solutions as sort of give those to the.
The high volume small form factor device world. So that we make sure that we can close links and much more assured manner without adding additional additional costs.
We've already have production units in space, we have connected links we've been transferring data and at rates of around one gig per second if not if not higher.
Got some great programs with both DARPA and the S T a.
Our photonics business to us is real it's very tangible it's operating in a multiple domains both in space and in an error.
You know what the notes success.
Excess through FY 'twenty, three is making the requisite investments that we talked about when we bought them last December that lets say for O tonics.
To make sure that we are positioning them.
As best as we can to make sure that there are ready to take on not only the defense proliferated you know.
Leo market through other satellite price, but also in the commercial side.
This is going to be one of those markets that I mentioned, we're looking at in FY 'twenty, four where we really see material revenues.
And based on the successes we've had in some of the earlier testing.
And getting down to some of those price points that are very much of a challenge for us to take a large you know reed millions of dollars per spoke solution and get them to hundreds of K you know high volume I like where we are on that path. So successes that in 'twenty four we started talking about the.
The increased revenue that we see from that from that market and we should see additional movement of our bottle of our of our bottom line numbers as up as volumes go north. So hopefully that gives you a pretty good cover of where we think.
Certainly does from a capital deployment standpoint could you just comment what a higher interest rate mean to you you're at two five times.
Or are you less aggressive in share repurchases and acquisitions as a result of the interest rate environment in your view.
Variable exposure there.
Yes, so last year in FY 'twenty to kind of LIBOR averaged around 35 basis points in there today. It's you know right at two 4%. So we've seen an increase.
2% ish, let's say.
In the Grand scheme, that's not material.
Share repurchases.
We'll still be driving incremental free cash flow per share, albeit at slower levels will have to repay some kind of interest expense, but it's not going to have a material impact similar to buying or borrowing additional debt to fund acquisitions, whether we're borrowing at 2.5% or four and a half per se.
That should not materially impact our decisions to make those investments.
Yeah.
And I can assume that you have embedded in your guidance continued rise in LIBOR at least for the next several months.
Absolutely.
What we have embedded in the guidance is an expectation that LIBOR.
Get to approximately 3.5% in June of 'twenty three.
No.
As you know, we shall say that seem to me he's got a middle of the road past somewhat consistent with.
Various economic forecasts and yield curve.
Forward curves or the like so we'll see how we do.
Thank you very much.
Yep. Thanks.
Our next question comes from Hamzah <unk> of Barclays. Colin. Please go ahead. Your line is open.
Hey, Thanks for fitting me in can we talk a little bit about the potential growth in EBIT impact on PSA the TSA impact contact and what you're assuming with respect to the guidance.
Yeah, Colin that job is under protest we have some amount of revenue in our FY 2020 three plan and pretty much all we're going to say until we see what the government's outcome is but.
The way, we haven't laid out laid out now we believe that we have that program sufficiently covered in our FY 'twenty three guidance.
Got it got it and then maybe if you can talk a little bit about the multiyear margin environment is 11% still possible considering the level of underwriting that we're seeing in both the expertise and technology and I think on the expertise and he's talked TSA impact it was.
No kind of one to two per cent margin below your implied bid and then on the technology side a lot of the FBA calculation.
Coming into kind of low to no margin. So you mentioned in your be back kind of the exquisite optical link pricing you know needing to come down. So maybe you can talk about that margin framework versus your 11% visibility.
Yeah.
Yeah look we're on a continuous path to grow top and bottom line.
You know I don't think 11% is a magic number I just thinking right now given what our FY 'twenty three guide it looks like we believe that tend to have to 10 nine or so is a prudent guide.
As we started this fiscal year off it is not dependent on any one specific item. Yes. It is true that there's some expertise work that is.
Bidding bid down that's predominantly why seven years ago, we went on a different path, making certain that we were not going to be part of a commodity commodity commoditized business.
The last seven years, just proves that we've done a pretty darn good exquisite job of moving away from the commodity work given that our margins have gone from eight eight to 10 seven or so if you take the midpoint of this year's guide.
There's been some ups and downs based on winning programs, losing programs, making some decisions that work and making some decisions that didnt, but.
You sort of can't erase the fact that we're a much different looking company and as markets like.
After the article comps over the next decade continue to proliferate nothing brings pricing down better than volume.
Also do believe that we've got a head start on that because we do have.
Products out in the space, we understand what some of those collection items are and we've got a long history longer than you know where we've been tracking what we're doing on the higher higher billing work I'm understanding the dynamics of space, which is why we are on a number of prime satellite builders teams.
Throughout the SDA and then the DARPA DARPA World and I would never on a call like this talk about margins that those are at because we have targeted margins are going to drive you know a decade worth of growth just not third quarter of FY 'twenty three.
Got it thanks for the color.
Yes, Thanks Colin.
Thank you. Our next question comes from Mariana Perez Mora with Bank of America Marianna. Please go ahead. Your line is open.
Good morning, everyone.
Good morning, right up on M&A, you already mentioned that.
You want to do good morning.
That's going to be biased towards technology. However, we have heard that.
Space Technology for example is getting quite pricey could you. Please give us some color around your M&A pipeline on the M&A environment.
Yeah sure.
Look it's what.
What we've seen is our.
Pipeline has sort of flattened.
<unk> 2021 levels over the past six months there are some opportunities are available out there no I wouldn't characterize the market as robust, but the way. We go about strategically picking wherever you want to go it doesn't always have to be robust just have to be quality assets out there.
At the right price with the right cultural mix that allows us to continue to build out either our expertise or our tech technology portfolio. We're going to continue as Tom mentioned, we're going to continue to focus.
Focus on SIGINT, and EW, and cyber and AI and analytics and you know anything that helps us do a more cost effective I T modern monetization.
And also our strategy does consider areas that would be additive to our customer presence.
And our past performance. So those are also areas that an acquisition could potentially position us differently with a you know within our current customer set but a different PEO that we believe will be very very crucial to our continued to drive us in our topline and bottom line growth.
Look.
Theres PS are are very active there was a lot of startups out there just to provide a little more color on what we with what we see.
Some of the valuation expectations as you mentioned do remain high that's in general and we're not going to compromise our well founded 20 years.
Discipline is how we.
Bring those emanates in so is it a frothy market notice after be no are we going to continue to be very very select yes. In is the fact that you know recent government aversion around it I'm in Asia is that going to play a major factor in our society are continuing to grow.
So this company in a manner no absolutely not.
Does it provide some additional color.
Yes, perfect and then probably a different one on one.
'twenty three guidance.
I would like to understand where these concerns that gets done.
So you have a robust pipeline.
It's additional 17 that you're expecting something soon and with high content of Newark, Taliban Army, you're only expecting like 6% contribution to growth from new work. So I'm.
Sorry about this coming from.
Oh man.
Right. It's the protest environment do you believe that you have.
Hum.
Sure Mary Anna Thanks for that look I would tell you that.
Probably the best way to answer this look at the low end of our guide in the high end of our guide and just talk about some of the different variables I'll start off with the majority of this guide as it has every year.
From a complete detailed bottoms up and then at each level. We're looking at a lot of the things that we can control and then also these things that we can for the unknown unknown unknowns that can really throw this guide off.
You know at the low end, we're looking at funding recovery being slow and uneven and at the higher end it improves completely right that these the contracting officers and all the things that myself and other fellow Ceos don't understand and why funding has been delayed those resolve them.
Themselves.
We talked about timing of some of our Tech awards in the mission Tech World.
We talked a lot about.
You know those recover quickly all the way up to that they grow higher than what we would see one potential area is in the Ukraine conflict is as that moves potentially from a little less on kinetic to more non kinetic is there room for counter UAS systems.
It's a room for other things there and then in the future. If that is the case, how do we drive that across the international.
The pace of New awards and contract expansions, we've been talking about that has been materially delayed.
If it ramps up slower will be on the lower end of the guide if we can see some things come in faster.
It's a big difference between bids to be submitted bids to be Judah adjudicated that one late and then ramp up there's a lot of different factors and again I'm going to restate its our job to do the right prudent examination of all of these variables to make certain that we are doing our absolute best to guide Teo resources are going to be another.
Element.
Wage and wage inflation, we haven't talked at all on this call around inflation.
And what those are.
Potentially impacts or at least to FY 'twenty three wage inflation is real 60% of our business is cost plus that means 40% of our business is not and you know how we golar Golar go about covering down on you know higher wage increases, which is the right long term business prudent thing for us to do but how.
Do we handle that.
Difference between 'twenty, two and 'twenty three is that a is that a potential margin hit to US yes, do we have that factored in our guidance absolutely. So and then there's a lot of things that in the macroeconomic and geopolitical.
Noise for lack of a better better term that is going to continue to want to play with funding. So we do try to assess all of those items a $4 five guide or seven 5% guide in the year that we're looking at the kind of business that we're looking to go after.
We're comfortable with that with that Guy because again, our job is to make sure. We're doing the absolute best that we can just sort of tell you where those narrow deep holes are Tom yeah, Andy Mary onto the other point to observe as well we have a healthy pipeline and we expect to win our CDR.
A good amount of that activity as John mentioned, it's going to ramp up over time.
Like the other factor is at any point in time some of our work is coffee end of useful life.
So we have a natural falloff in revenue you'd like to win 100% of our Recompete. So Unfortunately, we don't and so there was also a gap to fill and so some of that new business win is going to kind of fill the gap of either some loss recompete or natural program lifecycle falloff.
And so I think that piece will help you with your arithmetic.
Amazing Red color. Thank you.
Thanks Meyer, Thank you very very much Maria.
Thank you. Our next question comes from Josh Sullivan of the Benchmark Company. Josh. Please go ahead. Your line is open.
Hey, good morning.
Good morning, Josh you mentioned counter UAS. There you guys were early to the game of Sky tracker tactical environment, Ukraine, highlighting a threat, but could you talk about how that market's evolving how you get upfront you know a lot of increasing competition in the market but.
And then just how big of an opportunity you see that.
Yeah, Josh Thanks.
Cant counter counter UAS is one of them was one of the very first areas. We talked about as you were moving more towards tuck in that that all started with the acquisition of six three systems actually.
And we've been following some of the recent Kearney layoffs.
Legislation, which has been out there, which you know I I truly applaud.
Because it's it's really trying to zero in two who has the author of Altra authorization, who has the right.
<unk>, a leader leadership for where counter UAS goes.
You know, we do call ourselves the leader in counter UAS to share some information with you Josh we got a large operational foot print frankly over 1200 systems have been deployed globally protecting.
Protecting some of the most critical federal assets, we've got the largest library of signals of interest because we've got 20 years within this domain.
And we have capabilities that go from tracking and.
Geo locating all the way from Groupon, which of those smaller commercial.
UAS is up to the large nation state ones better at group group five.
Okay.
Draft legislation is a step in the right direction, we continually upgrade and moderate and modified many of those 1200 systems.
And if you look at the legislation is written we're also looking at protocol infrastructure owners, so think about power plants and water.
Sources and the like those will now be a potential addressable markets as we go forward. So.
So we do see increased volume volume there as.
As we continue to build out our over 1200 systems that we have deploy globally.
Got it. Thank you for the detail and then just a follow up on the photonics strategy as well.
As you work with the commercial pricing environment is there any thought of offering a usage model or just to get more dynamic to penetrate the commercial opportunity.
Yes, I mean, yes, we are Josh.
We have a number of models that we're contemplating.
Today.
Some of those models will work and frankly, some won't and you know, but theyre all going to be based on volume right.
We believe we have the right Pat.
Technical solution, we believe we have the right hardware and software solution.
The other thing what gets you from extra half of access some of the earlier questions.
Is going to be volume.
We believe we have the right pricing model in place we know we're not yet at the most exquisite price price point, we're always going to protect margins as well.
So I would tell you in that nine inning game, we're sort of at anything too.
But what I wanted to make certain of is before we took a deep step into this marketplace, which is a decade long market is completely new to us.
Picking up market share at a rate that we can achieve that makes sense for us and that we're partnered with the right folks.
Gonna be you know, how we're going to move forward on the commercial side I can tell you on the more we spoke side we've been doing this work for quite some time.
We are in the only.
Ladies and gentlemen, my first question, Mike I'll speak line, please standby as I really can't.
Yeah.