Joining us. My name is Sheila Kahyaoglu with the Jefferies Aerospace Defense and Airlines Equity Research Team. We have the CACI International team with us today. I think this is the first time at our conference, 'cause we moved it so you guys could actually participate-
Right
... just for you, just so you know, George. This is George Price, Senior VP of Investor Relations, and DeEtte Gray, who's President of Business and Information Technology Solutions. So DeEtte, it's great to have you here-
Thanks
... 'cause we don't often hear from you on the investor call, so this is gonna be a real treat to us. So maybe just to start off, give us a brief overview of your business within CACI to familiarize investors. What do you provide, key customers, et cetera?
Oh, thank you. Thanks for having us today. So my business is focused on really... so my business is around $3 billion a year. It's around half the business, so it's a pretty significant one of the sectors, and one of three sectors within the business. And I'm really focused on application modernization, application sustainment, and moving things, you know, migrating applications to the cloud. We do a lot of ERP work, so we do a lot of business systems, human capital systems, financial systems, logistics systems for the federal government. And again, we're really focused on modernizing those systems and sustaining them.
We also do a lot of data analytics, data management, in our portfolio with, with some AI in there that, that's helping us really, weed through the data, if you will. The second area really, that's in my area, in my sector, is enterprise IT. And so we are providing IT to the federal government, and we start really from network modernization, so helping them upgrade their networks to sustaining their networks. You know, we run their, you know, their, applications in between, but all the way through service desk, running their service desk or help desk or tier two support and things like that. Both of these two areas really focus on modernization, and helping to grow those.
You probably recognize some of the programs that, some of the publicly announced programs that are in my portfolio. So the TCS program, which is doing network modernization for NGA, National Geospatial-Intelligence Agency. The BEAGLE program, where we do agile software development at scale for Customs and Border Protection. The Sapphire program, which we won a few years ago, which is building the next data analytics platform for NGA. And then the recently awarded Air Force Enterprise IT as a Service.
We're gonna get to that.
... some more business.
Don't, don't skip ahead.
I won't.
So your customers are pretty broad-based across the bo-
Yes
... across the services, you would say. And just on the broader government services, there's been some recent volatility. How would you characterize your addressable market and what the biggest opportunities are? Anything you'd call out in the pipeline?
Yeah. Thanks, Sheila. So, you know, during the pandemic, the flow of RFPs were slower. It was a little volatile. I would say today, it's really back to normal. We are very happy with the flow of RFPs that are coming out. It's been a busy season, if you will, with those and the awards. So the funding really is there. Our markets are growing, and the markets that we're in across the company are very strong markets with really high priorities for the federal government.
So, we, Jefferies recently upgraded your stock on some of...
Mm
... these recent big wins you've had in your business. EITaaS with the Air Force, Spectral with the Navy-
Mm-hmm
... and a large cyber award with the NSA. One could say those contracts alone are above your revenue guidance, but we won't get there 'cause George will talk me down. So can you discuss sort of-
... uh
the revenue ramp on these programs in fiscal-
Sure
... 2024 and beyond?
Sure. So I'll start with Air Force IT as a service, where we are, you know, it's a high priority for the Air Force to modernize their IT. This is a new program, so we're ramping up the program. We have to build out a service desk, we have to build out an ITSM system, and then we'll go to each of the bases and start consolidating some of those efforts. That will take us, you know, several years to do that. The contract has a very large ceiling. It's $5.7 billion, and we booked $2 billion of that based on what we could see, currently from the Air Force, their demand in this from the beginning.
But also we have a contractor teaming arrangement for small businesses, so they get small business credit, which will get some of that ceiling also. So it's a slower ramp. In FY 2024, you'll see we'll have some revenue from it. There'll be more in 2025, and it'll continue to grow in 2026. For the Spectral program, exciting win for us. It's something we pursued for many years. And this is building the next generation shipboard system for the system for EW and SIGINT. Sorry, I just went blank, for SIGINT. This is also a new program, new technology, so we will go through the first years. So in FY 2024, you know, we'll be going through the design part of that.
We'll do some of the development of it, and ultimately, it'll ramp up over the next few years into deployment. So it's also a slower ramp-up in the first year. The last one, which is our large NSA program that we won, that we're providing analysts for NSA's cyber mission and their national intelligence international foreign mission. This is existing work. This had an entrenched incumbent that had been there for many, many years, and through our great, you know, talent and expertise, we were able to take over this program. So we are working through a transition now. We're staffing those programs up.
So you'll see more contribution in FY 2024 from that program, and then you'll see some more growth in 2025, but it'll – that one will have more contribution in 2024 than the other two programs.
Just back on Spectral for a second.
Mm-hmm.
Is it fair to say it's, like, your marquee AI program, and how—like, if you could expand upon, like, maybe the AI element of that one?
Yeah, I would say, it will definitely have AI will be a part of it. I would say AI is a technology that's really becoming entrenched in everything we do. So it's, Spectral is one place that will be... The program is really a software-based program, and what we're building out is, you know, software capability that takes, you know, SIGINT data, processes that data, and gives the analysts, at the same time, the ability to do some analytics on it. We will use AI in that, as we do on our other programs. Another program that we do that is, for example, Sapphire, which is at NGA.
So we are building the next generation, the new platform for analysts to process the national geospatial data, so geospatial data, and it's all types of data from full-motion video to, you know, objects. We use AI there, embedded into the program to detect objects. It's an algorithms that we built. They can go through and through the imaging can detect, you know, whether it's a truck, whether it's a person, and then follow those, follow that capability throughout. So AI is in all of our programs, we're, you know, we're doing some form of AI or RPA is another area that we see across many of our programs to automate some of those manual processes, and so it's a tool that we use.
It's not really a market by itself, but it's a tool we use across our programs.
Sorry, I got ahead of myself a little bit there.
No, no.
I just wanna, like, close the loop on AI then.
Okay.
You know, how is CACI leveraging AI, whether it's internally or externally? And do you see that more frequently in the contracts that you're bidding on?
As I said, I wouldn't think of AI as a business by itself. I would think of it like a tool like cyber. Cyber is embedded across everything we do. AI is becoming the same thing. It is a tool to enable automation, to enable, frankly, for us to get through more data faster than a human really can. So it's really become more of an enabler and tool in that. But I can tell you it's real. We're doing it across multiple programs. We're investing in AI, I mean, to look at advanced... you know, what's the next thing with AI? How can you advance our cause?
We do work for DARPA, too, so in the, I think, really advanced AI and thinking farther out, we're doing some of that kind of work for DARPA, with DARPA.
Just going back to those key wins, you know, what do you think were the drivers of those wins? As you were kind of explaining it, I thought, you know, the characteristics were so disparate. So what differentiated CACI in the bidding process versus peers, and do those wins open new doors to those customers or other customers over time?
Yeah, so you know, we approach everything starting with our strategy. I mean, it really started. In all three of these programs, we started several years ago, and it really started with our strategy. We took our differentiator capabilities, we invested ahead, and we looked at what the customers were gonna need, where the customers were going, and we invested in those areas. So they were all pursuits that we, you know, have been working for several years. So it's not by accident that we were fortunate enough, you know, to win all three of these programs. On the Enterprise IT as a Service, it started a few years ago with a strategy to expand into, frankly, Enterprise IT and DoD. We really didn't have a large presence there.
Air Force, we knew Air Force was on a mission to modernize, and so we said that was a good target with a customer that wants to do something different. And so we started pursuing that. Part of that was by, you know, investing in strategic hires, people that understand the mission of the Air Force. And then as we advanced that, you know, investing in capabilities that can help them do that. And really, frankly, for that win was really leveraging our past performance and experience at some of our other agencies, like DHS and folks like that. For the NSA program, it really came down to our talent. I mean, we have the talents that really understand the NSA mission.
We've been at NSA for quite a long time, and really our, you know, our ability to really deliver excellent program management, and that really is a program management, you know, be able to staff those programs. And Spectral actually started probably 10 years ago as a target. We knew this was a need for the Navy. They need to move more from a hardware-based systems to more of a software-based system. We saw that need. When we bought the Six3 acquisition, we got some capabilities that helped us in SIGINT. We advanced our SIGINT capabilities in that at that point, and then LGS, we added some of those capabilities.
But over the last few years, we've been investing in, you know, building out a software-based capability in SIGINT and EW, and that's really what we used for the Spectral one.
Great. And then you've recently announced a strategic collaboration with AWS to accelerate cloud adoption. You know, how does CACI benefit from, from this, and what's the market opportunity for cloud?
So, the agreement we have with AWS is a truly investment on both sides. This really stemmed from a relationship we've had with AWS for quite a long time, investing in our training, building out our capabilities. In this case, it's really talent. But I can tell you that the demand for cloud migration, which is really where our play is, is really increasing. The government spend on cloud is about 15% of their spend today. They have a long way, lots of opportunities in cloud migration. I can say that, you know, in my portfolio, where we're running, you know, government multiple applications for the government, we are migrating them to the cloud.
You know, every single one of the programs, if they're not migrating or on that journey, they're definitely planning those out, including the very complex ERP systems that we're, you know, that we're running for the government. They're looking at: How do I migrate them to the cloud? We moved the Air Force financial system, which is an Oracle-based system, we migrated them to the cloud, and we're just beginning even that journey. So there's a lot of opportunity of helping customer migrate to the cloud.
Yeah, you would say it's fairly mature in the commercial market-
Yeah
... but not so mature in government. You know, any, like, percentage you could ascribe to commercial cloud adoption in the government, or, like, what services may be more ahead than others?
I don't know percent, but I would say that it's definitely priorities of all the CIOs. I mean, if you go look across the federal government and the CIO priorities, cloud is always one of the, one of the top. And it's, of course, cloud because the efficiencies, but a part of it, too, is the security, too, because you lower the threat platform of vulnerabilities for those customer-- for those customers. I mean, even simple things, they want out of their data center. So there's tons of drivers for it. So I couldn't really size it. I just know there's a lot of opportunity for us-
No problem. I put you on the spot with a percentage, and-
Yeah
... George knew I would.
Yeah.
So, you know, when it comes to CACI, you guys are in a slightly different position than your peers in that you're 70% federal exposure-
Mm-hmm
... versus peers at about 50, given they have a little bit more of civil mix. You know, I don't know what percentage-
DoD and civil.
Sorry, DoD, sorry.
Yeah.
How do you think about that advantage of that mix? And, you know, within your business, is it all DoD? Can you talk about that a little bit more?
Sure. Yeah, we don't approach the market from a customer, you know, customer side. We don't say: Hey, I wanna go grow in, you know, fed civilian agencies. We focus it more on our capabilities. So what are our core capabilities? What are our differentiated capabilities? And then, what customers need, have a need for those capabilities? And that's really how we approach the market. And so, my business is actually made up of DoD intel and fed civilian. Our fed civilian is a lot of that is DHS, which is great 'cause DHS still has lots of opportunity for a lot of opportunity we can help them with. But we do have some of the other, you know, federal agencies, the work we have.
But a good example is our human capital systems capabilities. So we deployed the Army's HR system, the IPPS-A program you've heard about. We deployed that. It went live in December, and that's the largest PeopleSoft implementation in the world. It has 1 million users on it. If you think all the soldiers, National Guard, and reservists are on this one, you know, new state-of-the-art HR system. So that gives us a great past performance to go to other agencies, and so we have a long pipeline of opportunities to go to agencies, both intel, fed civilian, and DoD, to help modernize their HR systems. So that, that's just a great example of how we approach the market versus, you know, taking it on from a customer side.
And maybe talk about, you know, just reliance on labor. You might not be as reliant as your peers are. We've seen attrition as a major challenge across the group, as well as wage inflation. How does this sort of play into CACI's financial profile and retention from a top-line perspective?
So I would say, you know, rehiring, retention and recruiting and retention is a watch item for us. It's not a challenge for us at this point. I'll talk first about attrition. Our attrition actually from FY 2022 to FY 2023 actually dropped about 1%. So we're very, very happy with the way our attrition is. I can say that's because the programs that we've been implementing around the company, you know, talent is so important to us. And so we've invested in, you know, a program called Hashtag, 'cause making... # Making Moves, and that's really to promote employees moving around the company to get more experience. I want them to move in the company versus moving out of the company for new opportunities.
Another program is our referral program. You know, about 40% of our programs, 40% of our new hires come from referrals, which is great 'cause they stay longer. And then we just recently rolled out a program, a flexible time off program, which gives employees more flexibility in how they, they utilize their time. From a salary perspective, I think that was the second part of your question, from the increase in salary, you know, we've, we've always paid the right salary for high-tech, you know, high-tech skills, and we will continue to pay that for high-tech skills. 60% of our business is cost-plus, so the increased salaries will, we pass on to the government.
The 40% that we, you know, could be susceptible, that we manage, we manage very well, and some of that is through using technology versus people. So we don't have to hire the people, or we can hire the higher salary folks, and then, you know, don't have to have as many people. So we balance all that in, I think, very well, actually.
That's great. And then CACI has been known to do a lot of M&A over the past few years. How do you think about M&A and acquisitions, upgrading or enhancing your addressable market?
... So again, like we started, we, you know, everything starts with our strategy. So when we think about M&A, we think about filling gaps. And so we, as we build our strategies, when we evolve our strategies, we think about, you know, what are those gaps? And a gap could be a technology gap. You've seen us, you know, buy some technology companies that were added to, as I use example of Spectral. You know, we added those, some companies that brought some new technology that were already advanced. But we also think about M&A sometimes to get, you know, from a customer presence. So we, when we were talking about fed- the fed civilian market, there are some agencies that we're not in, and we will, we will, you know, bid and go into those markets organically.
We're gonna do that anyway, but if we wanted to advance that, that's a potential area of M&A. So we think about, we think about it in those ways. In my business, two of the acquisitions that we've benefited from, in 2016, we bought L-3 NSS. We actually picked up several intel IT programs, which gave us some past performance, larger past performance that we didn't have in the past. So that we've benefited from that. It led into what the TCS program is today. And then, not talked about a lot, but when we bought LGS, they actually had a smaller piece of that business was network modernization.
That was moved into my sector, and that joined up with the network O&M work we did on TCS and some of the other programs, gave us a, you know, one plus one equals three scenario. So we've been able to grow that, too.
Great. And how does your business help CACI outgrow the broader market?
The broader, say that-
The broader market.
Say that again.
Is there, like, a growth rate associated with your business and how it... we could skip it if you want.
No, it's okay. No, so, I mean, we have a very nice opportunity this year for growth both on the current programs we have with the Air Force IT as a Service, but also, you know, in some of the pursuits. We have a, you know, very nice pipeline of opportunities that we're bidding this year.
How do we think about profitability, whether it's for CACI overall or your business in particular, the long-term margin story for your business? You know, between mix shift and operating leverage, you know, what can we think about profitability and reaching, reaching in the longer term? Is, like, 11% the maximum margin levels you guys see, or how do you guys think about it internally?
I think there is opportunity for, you know, continual market expansion. I mean, it's a balance. We're not gonna, you know, we're not gonna starve our investments, that we make for growth, you know, to increase our margins. So it's all balanced between that. You know, we also look at cash flow, as a, as another metric from a value, proposition, but I think there is opportunity for margin expansion as we continue.
That's great, 'cause you don't always hear that from government IT services companies, continued focus on operating margin expansion after, I think, up 300 basis points in the last 5 years or so.
Yep.
Maybe just to close the loop overall, you know, how do we think about your business with your 1.5 times book-to-bill over the past year? How should investors think about it as it relates to forward growth potential and the conversion of the backlog and revenue of that time, plus the margin expansion?
So we're very happy with our. You know, we finished the year last year with 1.5 book to bill. We have $26 billion in backlog, so that gives us good visibility into the future, from a revenue perspective. And so we're very, very, you know, pleased with where we are, and we think that's gonna continue in, you know, in the future.
Yeah, I would, I would just add on to that. You know, if you look at, the weighted average duration of, the awards that, that went into backlog this past year, you know, that reached, six years. And, you know, if you go back about five years, it was probably, just under four years. So we've added a, you know, a significant amount of duration that those awards going into backlog, right, are longer and, you know, provide good visibility to the business. So that's, you know, it's an important element.
Great. Thank you both for being here and participating in our conference, and thank you all for joining.
Thank you.
Thank you.
Thanks, Sheila.
... Geveden.
Geveden, okay.
First syllable soft G.
I'll test you on my last name later. Good morning, everyone. My name is Sheila Kahyaoglu of the Jefferies Aerospace Defense and Airlines Equity Research Team. Thank you so much for being here. We have BWXT up, Rex Geveden. We're gonna test each other's last names in a second. So, Rex is President and CEO of BWXT. If you don't know, he's going to give a brief presentation, and then we're gonna get into Q&A, if that's okay.
Yeah, that'd be great.
Thanks, Rex.
Thanks. Okay, good morning, everybody. So BWX Technologies, BWXT, is, has been a public company for about eight years now. We spun from a company called Babcock & Wilcox on July 1st, 2015, and the result of that was a pure play nuclear technology and manufacturing company, and that's what we are today. We're forecasting over $2.4 billion in sales for this year. That's high single-digit year-over-year growth. Four hundred and seventy-five million dollars in adjusted EBITDA, also high single-digit year-over-year growth. We're expecting to generate about $200 million in free cash flow. That's notable and important right now, given that we're coming off of a few years of heavy, heavy CapEx spending.
We now have right about 7,600 employees who are located primarily at 14 different operating sites in the U.S. and Canada, and now one in the U.K. We have what I think are some extremely compelling missions. We're using nuclear technology, nuclear manufacturing, to address what I think are some of the world's most important problems right now, which include generating clean energy, providing for global security. We're participating in a revolution in nuclear medicine that will change the face of oncology. We're enabling the exploration and settlement of the solar system with nuclear technology, and we're also involved in large-scale nuclear environmental remediation campaigns. And so a lot of reasons to wanna put on the badge if you're an employee of BWXT, and I think a pretty noble set of missions.
We are organized into two different operating segments: government operations, as you can see there, and commercial operations. Geographically, it turns out that government operations is our U.S. business, and the commercial operations are our Canadian business. Just the way that it turned out to be. And those are obviously very different kinds of businesses, very different strategies that we have, and very different kinds of approaches that we take to it. But just by-