CACI International Inc (NYSE:CACI) Q1 2024 Earnings Call Transcript October 26, 2023
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fiscal 2024 First Quarter Conference Call. Today’s call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to George Price.
George Price: Thanks, Briana and good morning everyone. I am George Price, Senior Vice President of Investor Relations for CACI International. Thank you for joining us this morning. We are providing presentation slides. So let’s move to Slide 2. There will be statements in this call that do not address historical fact and as such constitute forward-looking statements under current law. These statements reflect our views as of today and are subject to important factors that could cause our actual results to differ materially from anticipated. Those factors are listed at the bottom of last night’s press release and are described in the company’s SEC filings. Our Safe Harbor statement is included on this exhibit and should be incorporated as part of any transcript of this call.
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I would also like to point out that our presentation will include discussion of non-GAAP financial measures. These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Let’s turn to Slide 3, please. To open our discussion this morning, here is John Mengucci, President and Chief Executive Officer of CACI International. John?
John Mengucci: Thanks, George and good morning, everyone. Thank you for joining us to discuss our first quarter fiscal year ‘24 results as well as our fiscal ‘24 guidance. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Before we get started, and as I previously informed many of you, George Price now leads Investor Relations for CACI, replacing Dan Leckburg, who has taken an executive role elsewhere in the company. My thanks to Dan for the fine job he did, and my congratulations to George, who brings us 4 years as a deputy to Dan and his significant experience as both the sell-side analyst and Investor Relations executive to the position. So with that, let’s move to our first quarter results. Slide 4, please.
Last night, we released our first quarter results for fiscal year ‘24. And I am pleased to say that our actions and results in the first quarter were directly aligned with our value creation model. As we have discussed, that value creation model is one that is built to drive growth in free cash flow per share by utilizing a combination of long-term, predictable organic revenue growth, efficient management of working capital and CapEx, profitability, supportive of continued investment and prudent opportunistic value-creating capital deployment. Against those elements, we delivered 15% organic revenue growth, $174 million of EBITDA, free cash flow that exceeded our expectations. We executed a $150 million share repurchase program. In addition, we won $3.1 billion of contract awards, which represents a 1.7x book-to-bill for the quarter and 1.4x on a trailing 12 months basis.
More than half of our awards were for new work to CACI. We had strong performance on our recompetes as well. Our first quarter performance provides us the opportunity to raise elements of our fiscal year ‘24 guidance and Jeff will provide the financials shortly. Slide 5, please. We have talked about network modernization being the critical need for our government and a significant long-term opportunity for CACI. Secure, modernized networks are the required foundation for many priorities, including AI, cyber in JADC2. We have invested to develop innovative network modernization capabilities, both organically and via the acquisitions of LGS and ID Technologies. As a result, we were awarded an 8-year contract valued at up to $1.3 billion to modernize the network of a major DoD intelligence community customer to support critical intelligence missions around the world.
We had the highest rated technical proposal. We displaced a long entrenched incumbent. We established a new beachhead for network modernization with this customer and we increased our visibility and access across the broader intelligence community. In addition, we were just notified of a $200 million DoD network modernization win. This one is specifically leveraging our Commercial Solutions for Classified or CSfC technology. We continue to see healthy demand for network modernization and a strong pipeline of additional opportunities. Now, you have heard us discuss the importance of software as an enabler for customer emissions and the software is our superpower. CACI has continued to demonstrate that we have the most mature, advanced software development capabilities, building open systems and software-defined offerings in the market today.
These capabilities led to the award of a 5-year contract with a maximum ceiling value of $917 million to continue providing software and systems engineering to support battles based awareness through the United States Air Force. In addition, our unique software-defined capabilities, coupled with our deep understanding of Signal’s and the electromagnetic spectrum, continues to differentiate CACI in the marketplace. We are seeing increased market adoption of our software-defined technology, particularly in the areas of Signal’s Intelligence and electronic warfare. This is evidenced by being selected to supply our technology offerings to an army program of record as well as the evaluation of the same offerings for another army program that enables dismounted soldiers to quickly detect, identify, geolocate and defeat signals of interest.
These successes are great examples of our ability to deliver software-defined innovation in a fast, agile manner to support critical and enduring national security priorities. Slide 6, please. In addition to winning during new work, we are executing and performing with excellence on the three large awards we announced in our last fiscal year. Let me provide you with an update. First, our Air Force Enterprise IT as a Service or EITaaS contract is ramping up as planned. We are on track to stand up our enterprise service desk before year end and assume day-to-day operations of existing systems with additional program milestones on track for the second half of the fiscal year. Both of these actions accelerate support to our customer and support our financial goals for FY ‘24.
Next, the transition of our large NSA, Intel and cyber award is also progressing well. We continue to show the value of our technically superior proposal and we are receiving positive feedback from our customer executives. Finally, our Navy Spectral program is off to a great start. Even with an extremely complex environment and technical requirements, we have hit the ground running because we invested ahead of customer need. We have a great partnership with the Navy and our customer is pleased with our performance. With the ever-evolving threats in the INDOPACOM theater, Spectral is the type of program built with an open software architecture that breaks vendor lock and provides capabilities at the speed of the fight that the Navy requires.
Slide 7, please. Turning to the macro environment, we continue to monitor the government fiscal year ‘24 budget process closely. We are prepared for a number of scenarios, most of which we believe – most of which we believe are addressed within our guidance range. As we have said many times, the world is a dangerous place and recent events have only confirmed that view. Customer demand remains high, driven by the elevated global threat environment, the pacing capabilities of our adversaries and the significant opportunity for modernization in government to enhance both efficiency and security. CACI remains very well positioned in key enduring areas of demand including broad IT modernization, the electromagnetic spectrum, cyber, space and intelligence.
Slide 8, please. As a trusted national security company, our government customers rely on CACI to meet their most urgent and critical needs. Given the recent budget uncertainty, just such an opportunity arose when we received requests to purchase nearly $200 million of network equipment, cybersecurity licenses and other material before the government fiscal year ended. We are proud that our team was able to rapidly and efficiently respond to these requests with $100 million of the material delivered in our first quarter and another $100 million slated to be delivered next quarter. Excluding these material purchases, our underlying organic growth was 9%. In summary, our first quarter results were strong, and fiscal year ‘24 is off to a great start.
Demand signals are healthy and we are well positioned to address key customer priorities. We are successfully executing our strategy to invest ahead of need to build differentiated capabilities and as a result, we are winning in the marketplace and we are leveraging our financial strength to deploy capital in a flexible and opportunistic manner to drive free cash flow per share growth and shareholder value. With that, I will turn the call over to Jeff.
Jeff MacLauchlan: Thank you, John and good morning everyone. Please turn to Slide 9. Our first quarter of fiscal year ‘24 is a strong start to the fiscal year. We generated revenue of $1.85 billion in the quarter, of which about $100 million was related to the unplanned government material purchases, which John just described. This activity drove 6% of year-over-year growth with essentially no profit. The remaining 9% growth was driven by strong execution across the business as we capitalize on our healthy awards over the past several quarters. This performance demonstrates the effectiveness of our strategy to pursue fewer and larger opportunities and invest ahead of customer need. A further indication of the success of our approach is that the weighted average duration of our awards extended to over 6 years this quarter, an all-time high.
Slide 10, please. First quarter reported EBITDA margin reflects 60 basis points of drag from the higher material volume I just mentioned. In that context, our underlying profitability is strong. Adjusted diluted earnings per share of $4.36 were unchanged from the prior year. Higher interest expense was offset by higher operating income, a lower tax provision and a lower share count as a result of our share repurchases. First quarter operating cash flow, excluding our accounts receivable purchase facility, was $93 million reflecting solid profitability and strong cash collections. We reported days sales outstanding of 49 days, just 1 day above last year’s record low as we continue to efficiently manage working capital. Free cash flow was $79 million for the quarter.
Slide 11, please. Recall that last year, our Board authorized a $750 million share repurchase program. As John mentioned, our value creation model is focused on driving growth in free cash flow per share, including through flexible and opportunistic capital deployment. This standing authorization has positioned us to be even more responsive to evolving market conditions. Accordingly, we initiated an open market repurchase program at the end of August and through quarter end, executed the repurchase of another 470,000 shares at an average price of $319 per share. After completion of this latest share repurchase, we have approximately $337 million remaining in our share repurchase authorization. Since the $750 million Board authorization in January, we have repurchased over 5% of our shares outstanding.
We ended the quarter with 2.3x leverage of net debt to trailing 12 months EBITDA, reflecting the funds used in the quarter for the share repurchases. The healthy long-term cash flow characteristics of our business, our modest leverage and our access to capital continued to provide us with significant optionality. We remain well positioned to deploy capital in a flexible and opportunistic manner to drive future growth and shareholder value. Slide 12, please. With our first quarter results and additional share repurchases, we are raising our fiscal year ‘24 revenue, adjusted EPS and free cash flow guidance. We now expect fiscal ‘24 revenue to be in the range of approximately $7.2 billion to $7.4 billion, essentially all of which is organic.
This $200 million increase in revenue reflects the higher material purchases we discussed earlier. This increased volume is split evenly between the first and second quarters. I want to be clear that our EBITDA dollar expectations for the full year are unchanged. Beyond the material purchases, the underlying operating results of the business are consistent with our expectations. To assist with your modeling, we expect second quarter revenue and EBITDA dollars to be relatively flattish with the first quarter. As was the case last year and as we shared in our guidance call last quarter, we see higher profitability in the second half of the year. This second half improvement is driven by declining levels of mission technology investment from the first half as well as second half increases in new fixed unit price war and higher volume of some mission tech programs.
We are raising our adjusted EPS guidance to reflect the lower share count as a result of our additional open market share repurchases. Our full year diluted share count guidance is now $22.7 million. In addition, our full year interest expense is now expected to be in the range of $100 million to $105 million, reflecting the additional share repurchases, with minimal net income impact of this change is accommodated within the existing adjusted net income guidance range. We are raising our fiscal year ‘24 free cash flow guidance by $10 million to at least $410 million. We expect that this increased free cash flow combined with the benefit of the reduced share count results in an increase of 4% versus our initial free cash flow per share expectations.
Slide 13, please. Turning to our forward indicators, CACI’s prospects continue to be strong. Our first quarter book-to-bill of 1.7x reflects strong performance in the marketplace and our first quarter awards have a weighted average duration of over 6 years. First quarter backlog of $26.7 billion grew 7% from a year ago and represents almost 4 years of annual revenue. These metrics provide good long-term visibility into our business. For fiscal year ‘24, we now expect 89% of our revenue to come from existing programs, 7% from recompetes and 4% from new business. Progress on these metrics reflects increased confidence in our expectations for the year. In terms of our pipeline, we have $11 billion of bids under evaluation, about 65% of which are for new business to CACI.
And we expect to submit another $10 billion in bids over the next two quarters, with over 80% of that for new business. These metrics reflect healthy demand and disciplined bidding. To wrap things up, first quarter was a great start to the year and we are pleased to be able to raise our full year revenue, adjusted EPS and free cash flow guidance. The business is performing well and we remain confident in our ability to continue to drive long-term growth, increase free cash flow per share and generate additional shareholder value. And with that, I will turn the call back over to John.
John Mengucci: Thank you, Jeff. Let’s go to Slide 14, please. Our fiscal year ‘24 is off to a great start. We continue to show that we are strategically positioned in the right markets with differentiated capabilities. We are winning high-value enduring work that supports long-term growth. We are deploying capital in a flexible and opportunistic manner. The combination of these successes is driving free cash flow per share growth and shareholder value. Key to our business success is a tremendous talent CACI has been able to attract, develop and retain. As a leading national security company, CACI offers boundless opportunities for our employees to serve their country, grow their skills, and expand their horizons. Ours is a longstanding culture where character leads innovation every day.
The investments we have made and the value proposition we offer our people continue to drive a number of positive outcomes, including lower attrition, increased referrals of new hires by existing employees, innumerous awards, recognizing CACI is one of the best places to work in the country. In fact, for 12 years, CACI has been recognized by Fortune Magazine as one of the world’s most admired companies. CACI also continues to be recognized as a top workplace for women, new graduates and diversity. I am especially proud that CACI received a number of recognitions for our support of our veterans, including being named the Best Employer for Veterans by Forbes. As is always the case, we achieve our success because of our employees’ talent, innovation and commitment.
I want to thank the entire CACI team for what they do for our company and our nation each and everyday. With that, Briana, let’s open the call for questions.
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