Yahoo Finance CACI International Inc (NYSE:CACI) Q3 2024 Earnings Call Transcript
CACI International Inc (NYSE:CACI) Q3 2024 Earnings Call Transcript April 25, 2024
CACI International Inc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fiscal 2024 Third Quarter Conference Call. Today's call is being recorded. At this time, all lines are in a listen-only mode. Later, we will announce the opportunity for questions and instructions will be given at that time. [Operator Instructions] At this time, I would like to turn the conference call over to George Price, Senior Vice President, Investor Relations. Please go ahead.
George Price: Thanks Dennis, and good morning, everyone. I'm 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.
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's 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 third quarter fiscal year '24 results. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Move to Slide 4, please. CACI delivered outstanding third quarter results across the board. We grew revenue by 11% with contributions from both expertise and technology programs. EBITDA margin of 11.3% showed significant expansion from last year, consistent with our expectations of stronger margins in the second half. And we delivered healthy free cash flow of $102 million. In addition, our third quarter awards of $3.5 billion represents a 1.8 times book-to-bill for the quarter and drove trailing 12-months book-to-bill to 1.5 times.
About half of our awards were for new works at CACI, and we continue to demonstrate excellent performance on our recompetes as well. Our third quarter results are well-aligned with our value-creation model, which focuses on long-term growth and free cash flow per share. As a result of our strong performance, we are again raising our full-year guidance. Slide 5, please. Let me provide a few thoughts on the macro environment. Recent passage of the government fiscal year '24 budget and supplemental is a positive development and removes an element of uncertainty for our customers. Budget levels and growth are very consistent with what was laid out last year by the debt ceiling agreement, and the supplemental could provide funding that would support additional growth of our Counter-UAS technology.
The proposed GFY '25 budget is also in-line with our expectations and like most years, we expect we'll begin with a continuing resolution, which typically does not have a material impact on our business. One thing remains clear, national security and IT modernization remain key focus areas for our government. As we've said many times before, the world is a dangerous place and we continue to see clear demand signals driven by world events. CACI continues to be strategically positioned in enduring and well-funded areas that align with our nation's most important priorities. Slide 6, please. A number of years ago, we undertook a strategy to become a more focused, differentiated and resilient company. It was even better-positioned to drive long-term growth and shareholder value.
This strategy has five key elements. Focus on key enduring priorities for national security and IT modernization, leverage software to rapidly address critical needs, bid less, win more and prioritize larger, longer duration opportunities, invest ahead of need to develop differentiated capabilities, and deploy capital in a flexible and opportunistic manner. All of these elements are focused on driving long-term growth, particularly in free cash flow per share, which we believe is the ultimate metric for long-term shareholder value creation. Slide 7, please. Today, you can see the successful execution of our strategy manifest in several ways. First, we are well-positioned in key national security and IT modernization priorities with the Federal Government, with agile software development methodologies and software-based technologies.
On the national security front, our capabilities in the electromagnetic spectrum are differentiated and in high demand. Every day, world events are demonstrating the increasing importance of signals collection, intelligence, geolocation and electronic attack. Software enables us not only to provide these capabilities to our customers, but also to adapt and update these capabilities with speed and agility as adversaries change their tactics. On our US Navy Spectral program, we are working with our customer to modify and enhance what will be delivered when, made possible by our open architecture and software approach, which allows for contemplated changes and requirements. And we are beginning discussions with the Navy in an effort to consider reusing elements of Spectral as a baseline for other systems, because that's one way to provide fleet-wide capability upgrades when and wherever required to keep pace with rapidly changing adversaries and technologies.
In addition, we are building out our ability to deliver our technology to Five Eyes countries, select NATO countries and other allies. We have already made deliveries to several of these countries. In fact, during the quarter, we received our first order from the Canadian government, for our software-defined, man-portable Counter-UAS technology called BEAM. We are also providing our software-defined SIGINT technology being mounted on OEM UAVs to assist in signal collection missions. On the IT modernization front, last quarter, we discussed how our capabilities are addressing increasing demand for network modernization. In addition, we are also winning and delivering on other IT modernization requirements. For example, this quarter, we won our recompete of IT work supporting both EUCOM and AFRICOM, enabling our customers' missions as they respond to an ever-increasing list of critical world events.
IT modernization using our Agile software development and DevSecOps capabilities also recently held the US Marine Corps to achieve the first-ever clean financial audit for a branch of the military. This highly visible achievement adds to our strong record of past performance and enhances our ability to pursue additional modernization opportunities across the US government. Slide 8, please. Second, we're continuing to enhance the long-term visibility of CACI's business through disciplined bidding on larger, longer duration opportunities. As I mentioned, we had yet another fantastic quarter for awards and I'm very pleased with our business development organization's performance. Our $3.5 billion of awards in the quarter had a healthy mix of recompetes.
And in several cases, we were able to expand those contracts. On the IT work I mentioned earlier, this supports both EUCOM and AFRICOM. We not only won our week for our recompete, we nearly doubled the size of that contract to well over $1 billion. Successes like this drove our third quarter backlog to a record $28.6 billion, representing nearly four years of annualized revenue. The weighted-average duration of awards that we booked into backlog remains well above five-years on a year-to-date basis. We continue to have a robust pipeline of new opportunities that allows us to be discriminating in the work we pursue. These wins in the delivery duration metrics provide visibility not only to support current year growth, but future year growth as well.
Slide 9, please. Finally, we continue to invest ahead of need and deploy capital in a flexible and opportunistic manner. I previously mentioned our Agile software development and software-defined capabilities in the Electromagnetic Spectrum, two examples that illustrate investing ahead of need as well as our organic investments in our Photonics business to name just a few. You also may have seen, we've made a few smaller acquisitions this year, both in the UK and here in the US as our M&A pipeline continues to expand. During the third quarter, we closed the acquisition of Quadrint, a provider of digital application modernization primarily for the intelligence community. Quadrint brings specific customer relationships and past performance in the IC that are additive to our business.
Consistent with our M&A strategy, the acquisition is accretive in year one. Slide 10, please. Overall, I am very pleased with our strong performance. We are seeing an accelerating growth as the larger awards we've won over the past few years continue to ramp. And we see on-contract growth in our existing portfolio. As a result, we are raising our full-year guidance and Jeff will share the details with you shortly. In summary, we continue to successfully execute our strategy, our investments ahead of need, differentiated capabilities, strong execution and exceptional business development, position CACI to drive topline growth, strong margins and increasing free cash flow per share. With that, I'll turn the call over to Jeff.
Jeffrey MacLauchlan: Thank you, John, and good morning, everyone. Please turn to Slide 11. In the third quarter, we generated record revenue of over $1.9 billion, representing 11.1% growth, of which 10.2% was organic. The balance was generated by the three acquisitions we've made over the past 12 months. Third quarter EBITDA margin of 11.3% represents a sequential increase of 200 basis points, which is in-line with our expectations and what we have communicated to you throughout the year. Adjusted diluted earnings per share of $5.74 were 17% higher than a year ago. Greater operating income, along with a lower share count, more than offset a higher income tax provision and higher interest expense. Third quarter operating cash flow, excluding our accounts receivable purchase facility was $114 million, reflecting strong profitability and cash collections.
We reported Days Sales Outstanding, DSO of 50 days as we continue to efficiently manage working capital. Free cash flow of $102 million for the quarter represents good sequential and year-over-year increases. Slide 12, please. The healthy long-term cash-flow characteristics of our business, our modest leverage of two times net debt to trailing 12-months EBITDA and our access to capital provide us with significant optionality. As John mentioned, we made an acquisition in the third quarter and we remain well positioned to deploy capital in a flexible and opportunistic manner to drive long-term growth in free cash flow per share and shareholder value. Slide 13, please. We're pleased to again raise our fiscal '24 guidance as a result of our strong business performance.
We're raising our revenue guidance to between $7.5 billion and $7.6 billion. This represents growth of 11.9% to 13.4% for the year with the organic component being 11.3% to 12.8%. We are also affirming our underlying EBITDA margin expectations in the high 10% range, where we now expect to be about 10.7% for FY'24. Recall that this margin guidance excludes the previously discussed $200 million of material sales in the first half of the year, which equates to approximately 30 basis points of impact to the full-year margin. As a result of our stronger revenue outlook, we're narrowing and increasing our FY'24 adjusted net income guidance accordingly to be between $455 million and $465 million, with an intended increase in adjusted earnings per share to between $20.13 per share and $20.58 per share.
And finally, we're maintaining our free cash flow guidance of at least $420 million. You will recall this assumes receipt of a $40 million tax refund related to prior year tax method changes. The IRS has accepted our treatment of the method change, though timing of the payment is entirely up to the IRS. In addition, our free cash flow outlook now assumes about $80 million in capital expenditures, down slightly from our prior expectation as we're able to realize efficiencies in our capital spending. This is largely offset by slightly higher working capital usage from the higher revenue we expect through the end of the fiscal year. Please note that additional details of our updated guidance have been included in our presentation to assist you with your modeling.
Slide 14, please. Turning to our forward indicators, our prospects continue to be strong. Our trailing 12 months book-to-bill ratio of 1.5 times reflects strong performance in the marketplace. Our record backlog of $29 billion increased over 13% from the year ago and represents just under four years of annual revenue. These metrics provide good long-term visibility into the strength of our business. For fiscal year '24, we now expect approximately 98% of our revenue to come from existing programs with approximately 1% each from recompetes in new business. Progress on these metrics reflects our successful business development and operational performance and yields increased confidence in our expectations for the year. In terms of our pipeline, we have $11 billion of bids under evaluation, over 70% of which are for new business to CACI.
We expect to submit another $15 billion in bids over the next two quarters with 90% of them for new business. Our ability to increase both of these metrics from last quarter, even while delivering a 1.8 times book-to-bill ratio reflects the healthy demand, successful strategic positioning, differentiating capabilities and disciplined bidding we have discussed. In summary, we delivered outstanding third quarter results. We continue to see good momentum in our business, and as a result are raising our full-year guidance for the third time this year. We are winning and executing high-value enduring work that supports long-term growth, increased free cash flow per share and additional shareholder value. And with that, I'll turn the call back over to John.
John Mengucci: Thank you, Jeff. Let's go to Slide 15, please. In closing, I'm very pleased with our strong third quarter performance and our ability to again raise full-year revenue and earnings guidance. At the start of this fiscal year and over the past several quarters, we have outlined our expectations of how and why our financial results would progress through the year. We discussed the fact that many of our larger technology awards would take time to ramp, and the timing of investments in deliveries would drive higher margins in the second half versus the first half. The stronger growth and increased profitability we've reported are entirely consistent with those expectations. We continue to successfully execute our strategy.
It is a thoughtful and intentional strategy of focusing on current key enduring priorities, investing ahead of need, developing differentiated capabilities and then deploying capital in a flexible and opportunistic manner. And it is a strategy that is driving higher visibility, long-term growth, increasing free cash flow per share and shareholder value. As is always the case, CACI's success is driven by our employees' talent, innovative spirit and commitment to customers' missions and to each other. I'm immensely proud to lead such a capable and dedicated group of people. To everyone on the CACI team, thank you for what you do each and every day for our Company and our nation. And to our shareholders, I want to thank you for your continued support of CACI.
With that, Dennis, let's open the call for questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question is from the line of Robert Spingarn with Melius Research. Please go ahead.
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