Q2 2023 CACI International Inc Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fiscal 2023 second quarter conference call.
Speaker 2: a book to build at 2.1 times for the quarter and 1.5 times on a trailing 12 month basis.
Speaker 3: About 70% of our contract awards were for new business to CACI, and we had strong performance on our recompetes as well.
Speaker 4: Overall, our execution in the second quarter and first half sets us up well to achieve our fiscal year guidance.
Speaker 5: Jeff will provide additional financial details shortly.
Speaker 6: Slide five, please.
Speaker 7: Turning to the external environment, market and demand trends remain very constructive for CACI's business.
Speaker 8: On December 29th, the President signed the Omnibus Appropriations Bill funding the government through September 2023.
Speaker 9: Budgets in general saw healthy increases including defense spending which increased about 10% from last year.
Speaker 10: Below the top line numbers, we see healthy spending trends across both expertise and technology in key areas of focus for CACI, including C4ISR, cyber, digital solutions, enterprise IT, and mission support.
Speaker 11: CACI's commitment to invest ahead of need drives differentiation and positions us extremely well to deliver innovation to our customers and value to our shareholders.
Speaker 12: Slide six, please.
Speaker 13: Let me update you on a key recent award. Last quarter, we announced the award of the Air Force Enterprise IT as a Service contract, or ITAS, demonstrating our leading position in IT modernization.
Speaker 14: This Enterprise Technology Award was protested and the Air Force subsequently undertook corrective action.
Speaker 15: Late December , we were notified by the Air Force that, after corrective action, the award for CCI was reaffirmed.
Speaker 16: We're very pleased by our customers decision.
Speaker 17: Not surprisingly, that decision was protested again and now sits for GAO for resolution.
Speaker 18: Our team is ready to go and we look forward to beginning this important work for the Air Force, which we expect will be a positive driver of growth in fiscal 2024.
Speaker 19: This award is a great example of our strategy to bid less and win more, focus on larger contracts and leverage our leading position enterprise IT modernization.
Speaker 20: Turning to second quarter awards, CACI won a sizable mission expertise contract to provide network and exploitation analysis in support of foreign intelligence and cybersecurity missions.
Speaker 21: As you know, our work and mission expertise engage as highly skilled employees who apply their technical and domain knowledge to support critical and complex agency missions.
Speaker 22: The work on this program will incorporate CCI's deep, long-standing capabilities in both intelligence analysis and cyber.
Speaker 23: We won this competitive award and displaced the incumbent by leveraging our superior ability to understand and execute the mission thanks to our industry leading talent.
Speaker 24: This award was also protested and the customer is currently taking corrective action.
Speaker 25: In the space domain, we continue to see strong demand trends, and our photonics business continues to grow in scale.
Speaker 26: As we have discussed before, we supply both government customers and defense primes with our photonics technology. In the second quarter we received additional follow-on orders from the defense prime.
Speaker 27: Our industry-leading photonics technology addresses the requirements of spacecraft operating at all ranges of space, low Earth, medium Earth, and geospatial area orbits and beyond.
Speaker 28: CACI's optical communications technology is the only U.S.-based offering operating in the space today that meets DOD and intelligence customers' stringent security and performance requirements.
Speaker 29: We continue to invest in this technology to maintain our leading position as we see increasing demand for secure high bandwidth communications across all domains.
Speaker 30: I also want to highlight our strong re-compete performance. In particular, our re-compete wins.
Speaker 31: our weak our we compete wins of our best ground investigation work for DCSA and important cyber related work for the Intelligence Community
Speaker 32: Our recompete successes are driven by strong execution and the value we bring to customers.
All of these awards, new business and recompete.
are for high value, enduring work that addresses critical priorities for our customers.
and supports our ability to deliver long-term growth, margin expansion, strong cash flow, and shareholder value.
Slide seven please.
As we have discussed before, we are committed to a flexible and opportunistic capital deployment strategy that includes internal investments, M&A, share repurchases, and other capital deployment options based on business and market dynamics.
This morning, we announced that our Board of Directors has authorized a $750 million share repurchase program, for which $250 million is expected to be executed imminently as an accelerated share repurchase.
With moderate leverage, ample borrowing capacity, and confidence in generating strong future cash flows, we're in a good position to deploy capital to drive additional shareholder value.
In summary, we are pleased with our performance and we remain confident in our long-term prospects. We are successfully executing our strategy, making the right investments, hiring and retaining top talent, winning new work, managing the business efficiently, and leveraging our strong cash flow to deliver shareholder value.
With that, I'll turn the call over to Jeff.
Thank you, John , and good morning, everyone. Please turn to slide 8.
As John mentioned, we're pleased with our second quarter results. We generated revenue of $1.6 billion in the quarter, representing year-over-year growth of 11%, including organic growth of 6.2%.
expertise revenue grew 8% and technology grew 14%, which is well aligned with our view of the year.
Adjust the Deva Dha Vardhana was 10.2% in the second quarter and 10.4% for the first half of the year. Our strong first half performance is on track with our full year guidance.
Second quarter adjusted diluted earnings per share were $4.28, reflecting the higher interest expense we discussed last quarter, partially offset by our higher operating profit.
Slide nine, please.
Second quarter operating cash flow, excluding our accounts receivable purchase facility, was $22 million.
This result reflects $93 million of unusual tax items we have previously discussed.
Namely, the final repayment of $47 million of the deferred payroll taxes under the CARES Act and a $46 million payment related to Section 174 of the Tax Cuts and Jobs Act of 2017.
We have previously disclosed the full year impact of $95 million from Section 174. This quarter's payment represents a half year effect on our quarterly tax payments.
Cash flow also reflects the timing of ramping revenue recognized later in the second quarter in its intended working capital.
We ended the quarter with net debt to trailing 12 months adjusted EBITDA at 2.2 times. As we have previously discussed, the strong cash flow characteristics of our business, modest leverage and access to capital provide significant optionality to deploy capital in support of future growth and shareholder value.
To that end, we announced earlier this morning that our Board of Directors has authorized the $750 million share repurchase program.
As John mentioned, we're in the final stages of deploying an initial $250 million of that authorization as an ASR.
We expect to finalize and execute the ASR promptly and will provide you with additional details when we execute that repurchase agreement.
Beyond the ASR, we expect to deploy the remainder of the $750 million authorization in a manner based on business and market dynamics over time.
This approach to capital deployment is a refinement of our strategy to be flexible and opportunistic in the management of our capital structure.
We are now in a better position to respond with agility to changing market conditions and investment alternatives.
Slide 10, please.
We are reaffirming our fiscal year 23 guidance with the exception of free cash flow which we are updating to include tax payments under section 174.
Let me also be clear that our guidance does not yet reflect any share repurchases under the authorization we announced this morning.
We continue to expect revenue growth of between 4.5 and 7.5 percent with growth in both expertise and technology.
As a reminder, all of our recent acquisitions have now anniversaryed and so future growth in these areas will be organic.
We continue to expect our full year adjusted EBITDA margin to be in the mid-high 10% range.
and we are reaffirming our prior adjusted net income and adjusted EPS guidance.
We are updating our fiscal year 23 cash flow guidance solely to reflect the previously disclosed $95 million cash tax payment related to section 174 given no changes have been enacted.
Lastly, I want to reiterate that our guidance does not reflect any share repurchases under the $750 million authorization we just announced. We expect to provide more information after we finalize the details of the $250 million ASR. So stay tuned for more information in RPG
Lastly, I want to reiterate that our guidance does not reflect any share repurchases under the $750 million authorization we just announced. We expect to provide more information after we finalize the details of the $250 million ASR. Slide 11 please.
Turning to our forward indicators, CACI's prospects remain strong. We won $3.5 billion of contract awards during the quarter, driving our backlog growth of 10% compared to last year.
Second quarter backlog includes roughly $1.5 billion from our Intelligence Customer Mission Expertise award, as well as roughly $1.2 billion from our DCSA Background Investigation Recompete win.
These reported amounts reflect current customer requirements.
For fiscal 23, we now expect 95% of our revenue to come from existing programs.
with the remaining 5% split evenly between re-competes and new awards.
We have $6.6 billion of submitted bids under evaluation, approximately 65% of which is for new business CACI.
This is down from the first quarter primarily as a result of our strong second quarter contract awards.
And we expect to submit another $15 billion in bids over the next two quarters with over 75% of that being new business CACI.
In summary, we're very pleased with our results, which demonstrate the successful execution of our strategy.
Our team continues to perform well and we remain confident in our ability to generate long-term growth and shareholder value. So with that, I'll turn the call back over to John .
Thank you, Jeff. Let's go to slide 12, please.
In closing, the second quarter and fiscal first half keep us well on track to deliver our full year guidance.
I'm pleased with our continued growth, profitability, cash flow and contract awards.
Looking forward, we remain committed to delivering long-term growth and margin expansion while compounding those returns with a flexible and opportunistic capital deployment strategy.
All of this is driven by a commitment to grow pre-cash flow per share over the long term.
As is always the case, our success is driven by our employees' talent, innovation and commitment.
To everyone on the CACI team, I'm extremely proud of what you do each and every day for our company and for our nation. And to our shareholders, I thank you for your continued support for CACI.
With that Emily, let's open the call for questions.
Thank you. We will now begin the question and answer session. If you have a question, please press start followed by 1 on your telephone keypads now. Please limit yourself to one question and one follow up question only. We will take a brief pause to allow questions to come into the queue.
The first question today comes from Robert Spring on with Melius Research. Please go ahead Robert.
Hey, good morning.
Nice numbers, nice numbers and congrats on your reauthorization in ASR.
John , I don't know if this question is for you or Jeff, but Jeff has talked about the opportunity set that's out there and the pipeline. What kind of book to build should we anticipate after a strong first half here in the second half?
especially with this budget rising.
Yeah, Rob, thanks. Look, we're extremely happy with the book, the bill that we posted. We've also been able to boost the trailing 12 months now, but I think to 1.5 times. You know, $13-15 billion of additional bids in the pipeline.
I like our new business win rates. Very proud of our A compete rates that you know you're over here continually to stay above a 90% capture rate. You know what I'll use this evidence of us continuing.
to execute, I guess I would say memory management, right, around how we do business development. We've been on a long-term path of this big lesson, win and win more, and drive duration of programs in our pipeline longer and longer. Because to me, at the end of the day, I want predictable...
competitive income and take away in the intelligence community. And on the DCSA award, that is a driver of both revenue and margins. And that comes not only with some recompete volume, it also comes with some new business volume as our government customer reduce the number of people providing that service from PCA to unsettled Americans on PCA to use more funds for health benefit programs like the Rs guitar and car insurance community.
folks to choose. So, you know, I would tell you, to me on the new business front, everything is in position. You know, we don't get to win them all. But, you know, we are very focused.
on making sure we're bidding the right work. And the right work involves looking at top and bottom line growth. We've got to sort of keep this mix up whether it's expertise or tech. Growth in both of those segments, as I've always said, people tell me all the time they must be happy with that high.
you know, tech segment growth because it exceeds where the expertise one is and I consistently say I want both of them to grow. I think we're sort of getting ourselves to that point.
You know, just in that vein, do you see equal budget support for defense hardware and services, especially now that you're involved?
Yeah, Rob, look, I think that, you know, this, the, the, at least the 23 budget, first of all, it's constructive that it was passed without a long term CR. It does support very key areas of where CCI is focused.
If I look forward, I don't have to look too much further than electronic warfare, significant cyber, and sort of where those three areas go. We're beginning to become a heavier player in the space domain.
I think those are decade-long budget growth areas. So we've gotten ourselves strategically, not by accident, into those deeper river, longer flowing streams of funding. And that makes us a very different company going forward. So a lot of small left and right turns.
that is really, I believe, positioned us well so that just about any budget environment, you know, where National Security Company enrolls a dangerous place. And I'm very pleased so far with the budget.
And I apologize, I don't want to overstate, but I want to ask Jeff for a clarification. You know, John , you talked about technology versus expertise and technology mixes up in the first half, yet the margins for the first half are going to be lower than the second half. So Jeff, if you could just explain that dynamic and what changes in H2.
Sure, Rob. The mix operates in two dimensions and I think oftentimes people kind of hear fixed price and they think higher margin and they hear cost plus and they think lower margin and that's really not always the case. We have.
You know, we have plenty of higher margin cost type work, and we have some important fixed price work that's also slightly lower margin.
reflecting a lot of real business factors, risk and whatnot. It's still good work for us, but it doesn't necessarily have the same margin. So there are some lower margin fixed price sales in the second quarter that you see reflected in that mix.
Our next question today comes from Peter Arment of the BED. Please go ahead Peter.
Yes, good morning, John and Jeff.
Hey John , maybe just first a clarification just is there a deadline date on the GAO? You know when we see a resolution on the Air Force contract and then just as a second question Photonics obviously has been a huge focus for you And the war tech continue to pick up, you know, how does the runway look regarding scale? I know you just mentioned space is going to continue to be big
holding on to that award. We have a lot of confidence in the Air Force, you know, seeing this through with us. We're ready to go. We are, you know, very well, very well staffed and, you know, already have had
discussions with our customers. So we would expect this ought to be ramped up in the April timeframe, Peter. We will not and is not planned to be a large contributor of revenue in FY23, but we clearly would expect as we get things ramped up and started up.
to see this deliver in FY24. on the space front where we are with our optical compounds business.
I'm very happy with where we're at. I've been very transparent. Picking up the photonics business of LGS and combining that with the SA photonics business really is the best example of putting a guest peanut butter with chocolate.
I really like what that's going to deliver to us. We're going to continue to invest in it, so you all are going to continue to see us investing in that area. That's a good decade long, nice growth business for us at better than average margins.
You know, I think we're on the right path to get onto that on ramp at the right time. We're really working on...
expanding into, you know, already into future related markets that are going to include some airborne systems, you know, potted and non, and then really working on pulling the synergies together between LGS and our SA Photonics business. So you have one other question on that and I didn't catch it.
Air Force contract space. I think I remembered Air Force contract.
Thanks, Peter.
The next question comes from Matt Acres with Wells Fargo. Please go ahead, Matt. Hey, good morning. Thanks for the question. I wanted to ask about kind of capital structure and your target leverage. You've been running kind of two, three times the last several years, but interest rates were very low. Did that change at all?
given where rates are now and you think about the mix of variable rate debt and differently enough.
Yeah, Matt, I'll start off and I'll turn it over to Jeff.
But for a long, long time we've been talking about, you know, we are comfortable, you know, and everything up to a four and a half range, maybe temporarily getting a little bit higher than that to do something that was very transformational. You know, what I like about where we are now, you know, leveraged somewhere in the low to one range, we're going to be really comfortable right now in this argument because you know, we all others have a big...
and it really leaves us considerable capacity for other options. And to me, that's the kind of flexibility and optionality we were looking for. So, Jeff? Yeah, just to add a little bit to what John just said, you guys are probably tired of hearing flexible and opportunistic.
But that really is what this is. We're in a really nice spot here to operate the company in the near term. In kind of the mid twos which gives us a good chance to have plenty of options as we approach either
you know organic investment or acquisitions. We really are in a nice spot with lots of options which is just exactly where we'd like to be.
Got it, thanks. And then if I could do one more, I guess, you know, on M&A, it's been slower than you sort of have done historically. Could you talk to us about, you know, what are sort of the hurdle, you know, rates you're looking at and where are some of those deals falling short? Is it just valuation or, you know, just not the right assets out there that are the right fit for CACI? That sounds great to me.
Yeah, there are a few observations we'd make here.
The pipeline is not necessarily any smaller. I think we're starting to see some...
valuation rethinking as the market sort of adjusts to the current circumstances. I imagine a lot of that is interest rate driven or some amount of it is interest rate driven, but we remain very active lookers.
And we're going to continue our practice of being very thoughtful and deliberate and strategic. And you know, when the right, that's the other part of this optionality, right? When the right opportunity presents itself and the right fit and the right time, we're, you know, we're poised to move.
with some speed. Our next question comes from Bert Subin with CIFIL. Please go ahead Bert. Hey, good morning.
Our next question comes from Burt Steuben with CIFIL. Please go ahead Burt. Hey, good morning. Good morning Burt. Thanks for the question. Good morning.
So just to follow up on the earlier question, you know, if I think about it, maybe on a near term basis, either the DOD's O&M budget is expected to grow high single digits, RD&T is expected to grow even faster than that.
But your organic guidance is still for low to mid single digits in fiscal 23. Even if we factor out your army exposure, at least from our seat, it seemed like higher budgets and easing labor would yield more opportunity just relative to what your view was last summer. Is there a reason that's not the case?
Yeah, thanks. Look, let me start off with saying that we're really happy with our first half performance. I mean 5% organic, 10.4% adjusted, even top margin. So I like how that sets us up well going forward. You know, we've said in the past.
We've got a large growing addressable market, so there's plenty of opportunities for a six and a half billion dollar CECI. I like the strong awards that Rob highlighted earlier. We got a nice pipeline. Back on guidance, look, it reflects.
a lot of different assumptions and scenarios in terms of how a multitude of factors are going to play out. That is why we provide a range beginning of the year to put a little color on what goes on here when we look at, you know, do we hold our guidance.
You know, what we had a strong first half do we do we you know narrow guidance to we do we raise it? We mentioned things like new award timing facility customer access COVID exposures They have you know and the FYI 23 budget is positive Those are all trending more positive than what we would have seen you know back in the July August time
current employees and hire new ones. And then the whole contract officer resources, those are about the same. So we've got some things that move us closer to the right goal post, and there are some things that keep us somewhere along the left one. So we're just trying to balance risk and options.
You know, we could probably throw in some of the, you know, 20, 24 comments, commentary, and does that blow back on to 23? You know, so we're very comfortable with the guidance that we have out there. We're very strong and well positioned to land within that guidance.
And we'll be able to potentially make different moves and different comments on the journey we get to the end of our third quarter.
Okay, that's super helpful. Maybe just as a follow-up to that, you know, if we look at that guidance, it implies a pretty healthy step up in the second half, you know, from 428 in earnings and 2Q to something north of 450 per quarter, I guess, based on the cadence in the back half.
Do you just walk us through what changes and to your comments there on 24, you know, are you starting to contemplate anything like a potential government shutdown or hearing anything like that? Just any commentary around, you know, what steps up in the back half and what those risks are.
Yes, I think I'll – maybe I'll start that off and then let John address the second part of your question. The mix phenomenon that I alluded to a few minutes ago, a few questions ago, extends really nicely into your question here about the back half.
And we see a growing fixed price content, but we see some of that margin mix that I alluded to earlier changing in a way that is favorable to margin. You can see a little bit of that if you look at our cash usage and a little bit of
inventory growth, you can see sort of the front end of that starting to happen. And in my prepared remarks, I referred to that when I talked about ramping revenue at the end of the second quarter and that attendant working capital growth. So we're starting to see the front end.
of exactly what we expected to see in the second half. And again, at the risk of repeating myself, it's really lining up nicely with right where we expected to be at this point in the year.
Jeff, thanks. And Bert, you brought up a little bit about Government fiscal year 2024. Look, we're hearing the same, I guess I'll choose my word wisely, I'll call it commentary. I've been asked noise rhetoric, but look, there's always a lot of noise and there's always a lot of headlines.
We're a 60 year old company, we've been through many environments, administrations, budget cycles, we've heard a lot of commentary and a lot of politeness over time. Look, it all says on one side you have legitimate concerns about the government's deficit and debt situations.
and therefore talk about budget cuts in government for the year 2024. On the other side...
There remains significant bipartisan support to fund defense and national security just given the geopolitical environment and threats. So if there's a war in Europe , there's near-peer threats like China who has surpassed us in some ways. Where is the great equalizer, whether that's Iran or North Korea?
A decade plus ago we were at war in Afghanistan, very germane to us. We operate in the skies, the electromagnetic spectrum, and all of them means pretty much unencumbered.
And that's most likely not going to be the case in any type of near-peer conflict And we're relying much more heavily on space and that domain is now contested So, you know if I had to write that, you know pluses and minuses But we're going to continue to monitor it. But to some extent I'm a guy and we're a company that
of those needs. We're a strategic based company, strategy is where we come from. We're not in these high growing very important markets by accident. So I like the fact we have a full government fiscal year 23 budget. This supports where we want to head and we're going to continue to focus on long term strategy that delivers consistent value no matter what that commentary happens to be.
But thank you, Bert, for that question.
Our next question comes from Seth Seifman with JP Morgan. Seth please go ahead.
Thanks very much and good morning. So I guess I think it was a few quarters ago maybe it was around the middle of 2022 when you know there was some of the slowness in government funding.
I think you talked a little bit, John , about being unsure in terms of figuring out what might be delayed versus what might be lost. I wonder if six months on or so, if you've gotten a better sense of that, and particularly on the product side. I'm not sure if you've gotten a better sense of that, but I think you talked a little bit,
since it seemed like that was an area where maybe there was some more dislocation in terms of what was expected. Yes, thanks. So I'll start off as Jeff mentioned, the years playing out as we expected and we're
You know, some of the mission tech work that we have out there, you know, is clearly planned to deliver during the back half of the year. Look back to where we were and you're actually right, second half of fiscal year 22 we were looking at funding.
and dips and the like. And look, some has come back and some has and will come back in a slightly different, different form. So the update to that is, you know, while funding was the original issue and while the customer struggled through funding, some of the threats and requirements changed. You know, it's required enhanced capabilities versus what we all may have delivered.
We continue to watch, but it does unnaturally play into this concept of software-defying, low-sized weight and power, multi-mission tech that can really take on different needs. If we look at what's going on in Ukraine, it's a lot of people are saying,
There is a lot of UAS activity there, and even those requirements continue to change as the face of battle changes. So the fact that we don't have to push all those mission tech sales out through the end of the year is a great kudos to our earlier acquisitions and that they were very software defined. So we'll be able to get back on track.
all the stuff that we analysts throw into our models. But if I look at the consensus for next year, it looks like people are thinking about kind of a 10.9% EBITDA margin, something close to 11%. Do you think that maybe there's still some anchoring around with the idea of ever expanding margins and stuff that might be...
where things in this environment that we're in now, this operating environment, where things might take a little longer to deliver on that or be a little bit tougher, and maybe expectations need to be a little bit more in check for now.
Yeah, I think what I'll say to that is we're 186 days into our year. We've got another 180-something days left. We're going to focus on making sure we button up FY23 to our guidance and to a level that our
shareholders that come to enjoy. Look on the margin side, long term is what I would stress to everybody on the call. We were a 8%ish, even margin business six, seven years back. You know, it's great to be having the discussions of mid to high tens.
you know, and then where that cap is. The way we see it internally is...
but we are getting into higher and higher, greater and greater funding streams. It's how we move from 8 to mid to high 10s frankly. It's really strategically taking a look at the bulk of business we have and not resting on where we've been, but looking at where the trend lines are going to be, and the fact that there was going to be greater spend in some areas that we had no involvement.
So four or five years ago, six years ago, getting ourselves involved more into the national security side, getting us more into space gives us much better chances at continuing to drive margins than we would have been with our fiscal year 17 portfolio.
I'm going to shy away from crystal balling FY24. I really want to focus on the share and finish strong. Get the share buyback executed. Look for places where we still think we're not highly valued enough and take some opportunistic stabs at. leads on to the fight. Festival day is right at 6. Tune in next Friday at 6AM here on the
taking some additional shares out and really trying to position as well for our guidance call that comes along on August of 23.
Thanks so much sir. Our next question comes from Mariana Perez-Mora with Bank of America. Please go ahead.
Good morning. My first question is a follow-up on the political commentary about next year's continual resolution probability about that. Have you seen any impact in your customer behavior from this increase uncertainty? Have you seen that commentary actually impacting?
award environment, spending environment? Yeah, Mariana, thank you. Well, look, I.
Nothing around FY24, right? I think right now, as I shared earlier, from where I sit, a public company CEO , national security space, it's sort of an unbalanced scale between, you know,
I like what this nation is going to do going forward and I would say there's a higher probability that there are supportive FY24 budgets than not. You know if you look at FY2023, we have a fully approved, signed off and appropriated government fiscal year 2023 budget. So with our customers there's much more certainty.
In my senior level meetings, there's much more certainty around how they're going to push funding out. We still have this contracting officer thing and everybody in the federal government sees that and they're all working that. That's going to take some time to get a fully corrected.
But I see a much more positive environment with a customer set that we're supporting. Everything we're doing in the EW, in cyber and how that begins to converge. What we're doing in commercial solutions for
for Classify with our ID tech acquisition where we are seeing it in space. But those are all highly funded areas that are absolute must-dos within where we had. And on the IT modernization side, we have won some nice size contracts there. You have to get through some of this protest period. But yeah, I have not picked up
any concerns, Marianna, around funding. You know, where we going FY24? We're all going to have to watch. I hear the same thing as you all here. You know, could we have a full year CR perhaps? But, you know, we're in some pretty important areas that I believe will still continue to receive the right percent funding.
Thank you. And then you mentioned these recent wins. You have recently won significantly large multi-billion dollar wins.
How is your appetite to pursue those kind of larger...
contracts, like in the pipeline of submitted bids or the bids that you expect to submit in the near term. How much of that is multi-billion dollar contracts?
Yeah, look, you know, we've been on a long-term strategy here of, you know, bidding larger and larger jobs. And, you know, for a company like ours, we have to contrast that against winning a lot of work that, you know, gets a nice revenue pop, doesn't do much with margins. And if you find yourself in that.
in that gray area where you're bidding programs with tighter and tighter rates. The reward for that, trust me, is you get to recompete on that and that works even sooner. So it's why we've been very strategically focused on duration of contracts in our backlog which is now around four, four and a half years.
Yes, it does mean that awards are lumpy. It does mean that there's a much larger price on winning some of those larger ones because you're not chasing these really small ones that can sort of fill that in. I think we've got the right, I think we have the knob dialed right, Mariana, and that we're out there winning some nice seaport wins.
But we're also, when these go up by billion dollar ones, it frankly provide a nice floor and a nice base so that we can be, again, quote unquote, more predictable long-term growth. So yeah, we have the appetite for it. We've got an outstanding business development team, an outstanding sales support team. We've been building it over the last decade.
So we're going to stay with that strategy because once you win something like that, not only do you deliver the long-term tech tail, but then you get into the O&M of those programs and that then loses it to really nicely position expertise with. Thank you for those questions.
Our next question comes from Sheila Caugliu with Jefferies. Please go ahead Sheila. Hey, good morning guys and thank you.
overall growth in 6% in the second quarter and your numbers are as they always are spot on 5% of all organic growth for the first half. But that is really playing out because of previous larger wars that we've been able to book, get to the protest period and then every one of these larger tech jobs has a slightly different ramp up plan. So those are starting to all get into alignment.
On top of that, the mission technology work, we've been very transparent on that. Rarely does that make it deeply into our backlog. We're usually getting an award. It's a 30 to 60 day recycle. So we sort of get that award and that immediately goes to revenue and then better profits and adjusts.
touched on that looking towards our second half. So I like the book of business we have today. And I'll sort of move forward to the ones that we just won. We're extremely pleased with what we have won there. They are two...
Really nice jobs that you know those and a few others are going to send us up well You know look on the award side you've always heard me say awards are lucky right you'll never see me Post any kind of headline you know record award quarter because I fear coming to you all Showing you that the quarter after that you know we're slightly left so look award
ball, but I see more more upside than downside to that decision. Sheila, I really see that being, you know, the next step up for us as we look at how we're going to solve for FY24 or organic growth. The other cyber related IC award.
For everybody out there, we're going to continually call it that because it is a very sensitive program. On behalf of our customer set, we're not going to just discuss the program name or our direct customer. I can tell you that that is in the protest period. We're waiting for the customer to take corrective action. We're hopeful.
We may hear something before this month is out. But you know as I mentioned on the Air Force job, when we go to these large awards, we're always planning a 90 to 120 day protest period. So we know when we can count on revenue from that job so we don't peak too early.
So I do like what we've done there. Those are really strong strategic wins. We had the right best value solution in both cases. We continually shake these awards from 2, 3, 4 years before anybody else sees them. And again, we are leading with investment ahead of customer need. We Ok expr
benefit, we'll talk more about it as we get to the protest period, that investing ahead of contract award is showing these customers the art of the possible.
Okay, here's where the threats are going to go. Do you want a more technological solution? It really takes the risk of having to find 2,000, 3,000 cleared folks. How can we bring technology more in to sort of lower their risk? All in all, I like how 24 is setting up.
I do believe that we'll find our way through these projects. Our next question comes from Toby Summer with Cheerios Securities. Please go ahead Toby. Thank you. You mentioned your addressable market increasing substantially. How does the spending growth that...
that the company can tap into, compare, and perhaps differ from the headline rates of growth of this year's budget.
Yes, so if I remember right Toby, there's been talk around it's a 10% growth budget. You know, we control inflation in that. Then we have to take out things that we don't do. You know, we're always looking at that, you know, five-year PAGR budget and I think we've called that growth. We're always looking at that growth budget and I think we've called that growth budget and I think we've called that growth budget and I think we've called that growth budget
22 and 27 somewhere in the 30% range. Overall budgets in 23 some are going to grow faster in any given year but the work that we've done says this is at least a 3% growth market all through 27. What I like is...
We have total addressable market of $260 billion and we're a $6.5 billion company. That total addressable market, how I measure it is if we hadn't done the acquisitions, if we hadn't been strategically focused, if we hadn't gotten ourselves into these funny streams, if we had done no acquisitions at all, there are some in this marketplace that don't do any.
that we would not have positioned ourselves well and we've been able to drive additional shareholder value. So look, strategy is a place where we come from. We're not here by accident. $260 billion investment market is almost two times what it was in 2012. So all I can tell you from a macro level, you know, we're not here by accident.
budgets are holding up well enough for us to continue to grow. And we like what the future holds. Is there anything you or the industry can do to affect change in terms of the chronic and burdensome protests that kind of
plague the industry and procurement environment. Just wondering if you see the possibility for change.
Yeah, you know, Toby, I've been in this market a long time. This is almost 40 years now. Look, the federal government provides the protest path.
for, and I will say for good reason. There's days we're happy for that process and the days we're not. It depends on whether I'm on the left side versus the right. So look, it would be more helpful to us clearly if we could come to you all that we win this job.
You know, the next five days we're going to see pops in revenue and in margins, but it's just not the market we're in. So the best we can do, as you probably say many times, is we control what we can control and we work on. That is, when we win jobs like ITAS and it gets announced in our first quarter, right, we pretty much have to recognize that it may be early fourth quarter before we can recognize revenue.
That's if a lot of other factors stay stable, right? But on the flip side of that doing business with the federal government, they're a well-paying customer, right? I'm not worried about whether 40 million people click on this app. We know what national security needs are. We can be much more seriously focused. And I would say the protest process is just something we have to work through. We have to be reasonable on it.
And at the end of the day, you know, you all and our shareholders have been extremely patient that these things eventually work themselves out and, you know, we all get to move to move forward.
Thanks, Robin. Our next question comes from Louis De Palma William Blair. Please go ahead, Louis.
Good morning John , Jeff, Dan, and George. Good morning, Louie. How are you doing, Louie?
Jeff, Dan, and George.
Great. As a follow-up, John , to your reply to Seth's
Follow up, John , to your reply to Seth's question.
Ukraine has employed a wide range of systems to counter UAS and loitering munitions. Are Skytracker orders expected to ramp in the future as you develop the software modifications that you reference? Yes, let's talk a little bit about what we're seeing in Ukraine.
capabilities that are going to be relevant and are already relevant in the Ukraine fight. There's also avenues for some of our intel analysts, our training and operational support and our logistics folks in the mission expertise issues. Look, I think issues in the Ukraine are going to be there for quite a long time. It's just going to be a key part of how we're going to resolve this author
We're all talking about expanding their defense budgets. Just as much as looking at what's going on in the Ukraine, you know, we're already delivering some of our technology to the Five Eyes countries. We're going to look across our Eastern European allies. They're increasingly interested in our counter UAS.
methods and systems, as you mentioned, far beyond the Skytracker line. And as they increase defense spending, we're going to be involved in those discussions. We're already out there understanding what their requirements are. It's still too early to discuss specifics, but look, it's another potential market for us every time we can do things to grow our...
level solutions that do counter UAS up to and including moving from
Kinetic mitigation versus non-kinetic is what we're looking at next. So I think we've got a long potential growth line there.
Great, and it appears as though your work with the Air Force's Enterprise IT as a Service Program is close to moving forward, you said potentially April . Are you also in contention potentially for the Wave 2 and the Wave 3?
associated with that program, you obviously won Wave 1, but there's two other ones that are probably big. Does having Wave 1 put you at an advantage to winning either of the other two?
Yeah, Louie, thanks. You know, I'm going to stick to our long tried and true practice of not commenting on things that aren't awarded. Yes, Wave 2 is the network builder of that. I think we were very well positioned.
on wave one and we'll have to see how that plays out.
Thanks Emily and thank you for your help on today's call. We would really like to thank everyone who dialed in or listened to the webcast for their participation. We know that many of you will have follow-on questions so Jeff McLaughlin, Dan Lechberg and George Price are all available after today's call. Please stay healthy and all my best to you and your families.
Emily, that concludes our call and thank you all and have a great day. Thank you. Thank you everyone for joining us today. This concludes our call. You may now disconnect your lines. Leah Target.