CACI International Inc (CACI) Q4 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fiscal 2022 Fourth Quarter and Full Year Earnings and Fiscal 2023 Guidance Call. Today's call is being recorded. At this time, all lines are in a listen-only mode. Later, we will announce the opportunity to questions and instructions will be given at that time. [Operator Instructions] At this time, I would like to turn the conference call over to Dan Leckburg, Senior Vice President of Investor Relations for CACI International. Please, go ahead, sir.

Well, thank you and good morning, everyone. I'm Dan Leckburg, 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 number two. There will be statements in this call that do not address historical facts 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 three please. To open our discussion this morning, here's John Mengucci, President and Chief Executive Officer of CACI International. John?

Thanks, Dan, and good morning, everyone. Thank you for joining us to discuss our fourth quarter and fiscal year 2022 results, as well as our fiscal 2023 guidance. With me this morning is Tom Mutryn, our Chief Financial Officer. Slide four, please. In July, CACI celebrated our 60th year of business. I'd like to start this morning's call with a quick moment of reflection on this milestone. Bank in 1962, our two founders started CACI with modest means, a park bench and a telephone booth for an office. What they lacked in resources, they made up for an ingenuity, confidence and shared tenacity. That spirit survives today and is foundational to our culture. Today we generate more than $6 billion of revenue and support some of the most critical missions that keep our nation and the world safe. Our founders would be astonished and proud of what CACI has become, especially the positive impact we've had on countless customers, employees, families, communities and shareholders over the last six decades. We are all truly honored to carry on this legacy started over 60 years ago. So on to our results. Slide five please. Last night, we released our fourth quarter and full year results for fiscal year 2022. Our results were in line with our expectations. For the full year, we delivered revenue growth of 3%, adjusted EBITDA margins of 10.3% and strong free cash flow of nearly $700 million. And we also won $7.1 billion of contract awards, of which nearly 60% is new business to CACI. That represents a 1.1 times book-to-bill for the year with a good mix of recompete wins to support our base and new awards to drive future growth. Slide six, please. Turning to the external environment. As we look out over the next several years, prospects are positive. Demand is strong and there continues to be bipartisan support for national security priorities. A favorable government fiscal year 2023 budget is currently moving through Congress, with higher spending in Defense, the Intelligence Community and Homeland Security and in particular in key addressable areas, like Digital Solutions, Enterprise IT and C4ISR, cyber and space. This strong backdrop gives us confidence in our ability to drive long-term growth and margin expansion, robust cash flow and additional shareholder value. Slide seven, please. We continue to invest ahead of need and differentiated expertise and technology to address key priorities that will drive long-term customer demand and spending. Let me give you some examples. Within digital solutions, we are modernizing applications and consolidate and disparate systems across the federal government to drive efficiency improve data accessibility and enhanced cybersecurity posture. As an industry leader in actual software development and scale, including executing two of the federal government's largest Agile programs, we are seeing increasing customer interest and pipeline opportunities to leverage Agile software development, DevSecOps and open architectures to enable digital application modernization. Enterprise IT, network modernization is the key trend. Agencies need to improve cyber defense, support an increasingly dispersed workforce and consolidate and modernize legacy networks for efficiency. In addition, real-time multi-domain integrated data and communications won't be available for efforts like [indiscernible] without modern network infrastructure. To address these challenges, we bring deep capabilities from past performance. And we are making investments in new technologies, like Commercial Solutions for Classified or CSfC to enable access to classified networks from commercial devices from anywhere in the world. Broad modernization of both digital solutions and enterprise it across the federal government will drive healthy spending for the foreseeable future and is an area CACI is well positioned, with both capabilities and past performance. Turning to C4ISR and cyber. The electromagnetic spectrum remains critical for intelligence collection and modern warfare. For more than a decade, we have invested to address critical priorities in the electromagnetic spectrum including signals intelligence, electronic warfare, counter-UAS and secured communications. For example, we provide software-defined capabilities to detect state those used by our adversaries, determine the location and degrade to see their use as well as protect our own use of the spectrum. In the context of the global threat environment and near cure adversaries, these are even more critical and are gaining traction with customers recognizing the necessity. Lastly, in the increasingly important space domain, we are leaning forward to position CACI areas where we see the opportunity for a decade-long technology-driven growth. In photonics, we're very excited about our continued progress in optical communications and both the higher volume legal market and the more bespoke geo and interplanetary markets. Our photonics capabilities have been successfully demonstrated in space, not just in the lab and continue to generate interest and opportunities for government customers and space platform providers. In fact, we recently made our first production delivery optical communication systems to one of our OEM partners. We also remain on track to put an upgradable software defined Assured Precision Navigation and Timing or APMT payload into low earth orbit early next year. This payload will demonstrate a unique technology, qualify its capabilities in space, improve out an alternative to the existing vulnerable GPS systems, a vulnerability that needs to be addressed. Slide 8 please. As you all know a number of years ago, we embarked on a purposeful strategy to create a different company within our market. We made significant investments in both expertise and technology to drive differentiation and value for our customers and ultimately increase the quality of our revenue. As we stand here today, our EBITDA margins are more than 200 basis points higher than they were earlier in this journey. We delivered sustained durable long-term margin expansion over those years. And even with the success, we remain committed to continued long-term margin expansion. Revenue growth plus margin expansion compounded by effective capital deployment drives our leading free cash flow per share growth and ultimately shareholder value. With that in mind, I'll turn to our fiscal 2023 guidance. We expect revenue growth of between 4.5% and 7.5%, adjusted EBITDA margin in the mid- to high 10% range. In addition, we expect to continue generating healthy cash flow and Tom will provide additional details on all elements of our guidance shortly. To wrap things up, we remain committed to our stated performance goals of long-term growth and margin expansion. CACI will continue to invest ahead of customer need to drive future growth and differentiation. As we've discussed many times before, our goal is to drive free cash flow per share. And our commitment remains consistent: to utilize CACI's strong cash flow in a flexible and opportunistic manner to deliver the greatest long-term shareholder value. With that, I'll turn the call over to Tom.

Thank you, John, and good morning, everyone. Please turn to Slide number 9. Our fourth quarter results with increased revenue and strong cash flow were solid, although continued to reflect the slower funding and other short-term headwinds we previously spoke about. We generated revenue of $1.6 billion in the quarter representing overall growth of 5% and approximately 2% organic growth. Fourth quarter adjusted EBITDA margin was 9.6%, impacted by delays in mission technology sales. Adjusted net income was $107 million for the quarter and we realized a lower-than-expected tax rate driven by certain state tax benefits. Slide 10 please. Fiscal year 2022 represents another year of top line growth healthy margins and strong cash flow. For the year, we generated just over $6.2 billion of revenue representing 3% total growth and positive organic growth. Adjusted EBITDA margin of 10.3% were slightly below our point estimate of 10.5%, due primarily to fluctuations in mission technology sales. Our adjusted net income in FY 2022 was $422 million. As a reminder in fiscal year 2021, we realized a large onetime increase in net income from a tax method change which impacts the year-over-year net income comparison. Next slide please. Fourth quarter operating cash flow excluding our accounts receivable purchase facility it was $152 million, reflecting continued healthy profitability and cash collections. Free cash flow was $117 million for the quarter. For the full year, we generated operating cash flow of $770 million excluding our AR purchase facility and free cash flow of $695 million. The year-over-year increase for both was primarily driven by the realization of $190 million of cash benefit from the tax method change we previously discussed. This was partially offset by the deferred payroll taxes under the CARES Act. In FY 2021, we realized the benefit of $52 million. In FY 2022, we had a $47 million outflow and we had been expecting an additional $40 million of tax refund in the fourth quarter associated with the method change, but that payment is still pending. We ended the year with net debt to trailing 12-month adjusted EBITDA margins of 2.5 times similar to our leverage at the start of the year even after acquiring four companies for a total purchase consideration of $600 million. Given our strong cash flow profile, modest leverage and access to capital, we continue to have significant optionality to deploy capital in a flexible and opportunistic manner to drive long-term shareholder value. Slide 12 please. Now let's turn to our fiscal year 2023 guidance. As is our practice we undertake a bottoms-up program-by-program forecast either our expectations for new business bispecific opportunity and track risk and opportunities. We incorporate known market dynamics and external conditions as we finalize the plan and develop guidance ranges. For fiscal year 2023, we expect revenue to grow between 4.5% to 7.5% with growth in both expertise and technology. About $180 million of inorganic revenue is included in the guidance range. We expect adjusted net income to be between $420 million and $440 million inclusive of $56 million of after-tax intangible amortization expense. Adjusted EBITDA margin is expected to be in the mid to high 10% range. We are providing this range to reflect the dynamics of our business. Slide 13 please. To assist with following here are some of our key planning assumptions. Indirect costs and selling expenses are expected to increase around 6.5%, driven by fringe on direct labor in the recent acquisitions, which have a more commercial type cost structure. Remaining expenses are increasing at a modest 1%, reflecting our continued efforts to drive operational efficiencies. Depreciation and amortization are expected to be approximately $150 million. Net interest expense should be around $61 million, up from $42 million in FY 2022 due to higher interest rates. About 50% of our debt is fixed. So while we have some exposure to increasing interest rate it is tempered. We are expecting a full year effective tax rate of 23.5%, up from 19% in FY 2022, which benefited from additional R&D and state tax credits. We expect typical quarterly sequential increases in revenue and profitability through the year, but I will remind you that certain factors can quarterly trends such as the timing of material purchases and delivery of higher margin technology. Slide 14 please. In FY 2023, we are expecting operating cash flow excluding our AR facility to be at least $495 million and capital expenditures to be approximately $80 million resulting in free cash flow of at least $415 million. A few other items to note regarding FY 2023 cash flow, we will make the final payment of $47 million in the second quarter to repay for payroll taxes under the CARES Act but that will not result in any year-over-year variance since we made a similar payment last year. We expect to receive the $40 million tax refund from the method change that we did not receive in fiscal year 2022. We expect incremental cash payments of $65 million as part of the method change we adopted in FY 2021. We expect a net use of cash of approximately $60 million, driven by increased net income more than offset by increases in working capital as the company grows. And we are assuming the repeal or deferral of Section 174 of the tax code relating to R&D expense. If this does not occur our operating cash flow would be around $95 million lower. Slide 15 please. Turning to our forward indicators. Performance remain strong. For fiscal year 2023, we expect 83% of our revenue to come from existing programs, 11% from recompetes and around 6% for new business. We have $12 billion of submitted bids under evaluation. Over 80%, of which is for new business to CACI. And we expect to submit another $17 billion over the next two quarters with over 80 -- with over 90% of that for new business. In summary, we expect solid financial performance in FY 2023 with healthy growth, margin expansion and strong cash flow. With that, I will turn the call back over to John.

Thank you, Tom. Let's please go to slide 16. I'm pleased that CACI was able to again deliver growth, healthy margins and strong cash flow and free cash flow per share in fiscal 2022. In addition with strong awards robust backlog and pipeline and investments in differentiated technology, well-aligned with national security priorities, we have positioned CACI for strong financial performance in fiscal 2023 and beyond. As is always the case, we achieved our success because of our employees' talent, innovation and commitment to customer missions, our company and each other. I'm extremely proud of the CACI team for what you do for this company and our nation each and every day. I'm also very proud as you voted CACI a top workplace for the eighth consecutive year. Thank you all. Before we open the call for questions, I'd like to mention the release of our inaugural corporate responsibility report, which we issued yesterday on our corporate website. The report outlines information that is important to us as a company and our many stakeholders and includes topics that are impactful from an environmental, social and governance perspective. We're proud of our heritage and we are delighted to highlight our many accomplishments in the communities where we live and work. We look forward to an ongoing dialogue around the positive impacts we have made and the stewardship we intend to continue to demonstrate in the future. With that Nadia, let's open the call for questions.

Thank you. [Operator Instructions] Our first question today comes from Bert Subin of Stifel. Please go ahead. Your line is open.

Hey. Good morning.

Good morning, Bert.

So John, you talked a little bit about mission technology. That's been something that's come up a little bit in recent quarters. Can you just say why our mission technology sales delayed, and what do you think leads them to pick up? I imagine this is a big portion of whether you guys end the year at 10.9% or 10.4% EBITDA margin. So, just curious, if you have any visibility on the sales or the process for RFP there?

Yes. Sure Bert and thank you very much for that question. Look, that's all folded into how we set up guidance for this year, and one of the visible changes that we have made is talking about EBITDA margin mid to high-10s. And you've actually hit right on that reason. It does not take a large dollar value award to disrupt our EBITDA margin by even 10 basis points. To your specific questions, there's a bunch of mission tech and other material purchases getting pushed into our fiscal year 2023 and there's some that did not. But our guidance does address both of those different cases. What we're most focused on is that we've been on this long-term drive to really establish a different looking company that would depend on both expertise and on technology, for us and to not only talk about bottom line growth but also top line growth as well. So, I don't have a very specific as to the two to three awards that have gotten delayed and do they come forward or do they go away. What we are confident is that our FY 2023 guidance does a good job of putting lower and upper ends around our guidance that's focused on the issue that you directly brought up on the low end. We'll have lower recoveries some of those missions taking those material buys. And on the upper end we're going to cover all of those that slipped out of our fiscal year 2022. So, all in all, we are proud of the way we came out of fiscal year 2022 as an overall year, measure looking forward to continue this multiyear growth pattern on our bottom line EBITDA margins very much driven by our entire technology portfolio not just mission tech but on our enterprise tech as well.

Thanks for that guidance. Maybe just a follow-up on that. It seems like -- I'm trying to sort of delineate between your exposure set, which you highlighted a handful of items cyber C4ISR enterprise tech. A lot of these things are seemingly growing a lot. And then we have budgets, which at least for the DoD started at 4% for 2023 and are clearly moving higher based on sort of what we're seeing in the process. Yet your organic growth for FY 2023 is sort of low to mid-single digits, which put it a little below that level. How should we think about why that's the case? And does that lead to a more significant ramp-up perhaps in the second half of the year and FY 2024?

Yes. I'll answer the first part of that. I'll let Tom talk about how our quarter-to-quarter looks like. Look, our guidance is as it has in other years. It reflects a lot of different assumptions Bert and different scenarios in terms of how a multitude of those factors play out. If I were to look back at FY 2022, some of the things that we knew about coming in was that, there was going to be a 100% Afghanistan withdrawal. Things we were still questioning, hey, is COVID in or out how does the government go in and out of COVID. Is this CR going to be short or long-term? Clearly nobody anticipated a peaceful country invasion by the Russians. That was not anticipated. We look at the Omicron and we look at the contracting officer challenge and how does the government move between counter and current tourism as well as near-peer threats in the middle of a government fiscal year. Those are all items that -- some of those we actually saw coming and tried to provide guidance around other ones did not. As we look at fiscal year 2023, we're looking at supply chain COVID funding, which is something that we didn't expect to and we wouldn't sit here using some of your numbers. And we've got a growing defense budget but for some reason unknown to many of us -- on all of the reasons why we're not seeing funding come out to the level that the FY 2022 budget grew. So we still have concerns as to how the KO shortage is going to play out as we look to FY 2023 challenge. So, we're looking at a number of factors the labor market and inflation as well. So, there's so many variables that are out there that I'd love to be able to say if it was only for a $12 million mission tech order, we'd be a much better stable business. We are a very stable business. We continue to grow we finished 2022 within our stated range and we more than plan on completing FY 2023 within our guidance range having to balance a lot of those different areas that I earlier spoke on. Tom?

Yes. And Bert I think you talked about kind of momentum going into FY 2024 in terms of growth because right now we're obviously hyper-focused on FY 2023. And I will say that we expect the we're going to sequential increase in revenue quarters one, two, three, and four. That's what we're expecting today. There are some fluctuations as we mentioned vis-à-vis either pass-through materials which are high revenue low margin or some of the mission tech sales. And so there may be some variations associated with that. As a result of that we're guiding for a full year trend better to look at the company on a trailing 12-month basis level than in any particular quarter. So, I think we're positioned well this year and we'll see the momentum going into FY 2024.

Thank you, John. Thank you, Tom.

Thanks.

Thank you. Our next question comes from Peter Arment of Baird. Peter, please go ahead, your line is open.

Yes thanks. Good morning John and Tom.

Good morning.

John regarding the budgets and just looking at just maybe the intel markets specifically for 2023 it looks like the budgets are going to be up high single-digits and that's roughly maybe 30% of your revenue. So, how quickly should we think about that converting? And then just maybe related to that is regarding the funding delays what maybe changes the pace of activity there? Thanks.

Yes Peter. So, I guess, first off, budgets, in general, world is a really dangerous place and it's nice that we continue to see bipartisan support for national security spending. I do think that Ukraine is a wake-up call but I believe that China and other near peers as well as lingering counter and current terrorism are still going to be out there. We like the overall budget lay down. It's much more constructive today than it is in the past. And I'm talking about purely on budget versus funding clearly. Look we like the increased defense funding. The $54 billion Ukraine budget, it really doesn't involve CACI this time but as non-kinetic technology becomes more and more required we will be in those discussions. We started to have some late fiscal year 2022 discussions around some of our capabilities and I would assume that those would continue to go forward in FY 2023. Look clearly 30% of our revenues roughly being within the Intelligence Community. We've got a wide range of advanced cyber and intel and analytical technology as well as expertise. We like what those budget numbers look like. That's why we have spent the last seven to eight years positioning so that we could be talking about our addressable market and how we address our Intelligence Community needs. We're also pretty excited about the increase in spending within DHS and across the government as it impacts IT modernization space domain. So, what we sort of set the stage for is we have an outstanding budget, right? What we have to work our way through is how is that going to be funded? How is that funding going to be released? So, whether it's in the Intelligence Community where we've seen about a 30% to 35% reduction in contracting officers. We attended a conference last week about 30% of the DoD contracting officers have moved on from just fiscal year 2022. So, I think there's other factors beyond budget. We're going to have to continue to watch and we think we set the right prudent guidance for that. Tom?

Yes. And Peter on the kind of last call we cited some fund being lower than the prior year and that was one of the reasons for slightly downward in the last call. Since then in the last four months, we've seen a pickup in funding. I'm looking at the April through July period. And we are close to closing the gap. Funded backlog at the end of June was down around 3% versus the prior year. So, a decline but not as severe as we saw at the end of the third part we're monitoring this carefully. As John mentioned, there are some issues kind of well-known the government contracting offices being short-staffed. We are comfortable that we'll have sufficient funding to perform within our guidance range. We're controlling we're controlling we're monitoring it carefully. And kind of making sure that we do have the funding to execute kind of in the guidance.

Appreciate the color. I'll jump back in the queue. Thanks.

Thank you.

Thank you. Our next question comes from Robert Spingarn of Melius Research. Robert, please go ahead, your line is open..

Hi, good morning.

Good morning Rob.

Tom I wanted to -- this touches on what Bert was asking about. I wanted to ask a math question if I could about the FY 2022 sales and the technology -- the mission technology sales that got pushed to the right. Is our math correct, that these higher-margin sales that went to the right were about $22 million and the EBITDA associated with that was about $15 million?

Yes. So to be clear, Rob, we didn't say specifically they were pushed to the right. We said that they did not materialize. And so some of them, could have been pushed to the right. Some of them there was changing kind of government and the priorities. And so, kind of a mixed bag, I will not take a one-for-one movement from the fourth quarter to the first quarter.

Tom, I guess I shouldn't have phrased it that way, but sales that didn't materialize or moved or whatever. The math still applies the $22 million and the $15 million. What I'm getting at, is the margins.

Okay. Yes. So, what was - your kind of margin impactful. John mentioned, the kind of leverage associated with some of the kind of mission technology sales. Our EBITDA approximately is $700 million, in some of the mission technology sales high margins are going to generate $5 million, $10 million, $15 million of kind of contribution. And so one or two sales is shifting, or disappearing, or reoccurring is impactful on margins. But I think your arithmetic is generally correct with regarding to 10.5% EBITDA margin. It became less than that, and that's really what the numbers are.

Okay. It just highlights the fact, that some of this mission technology work is very profitable. And that's really, where I'm going with this.

Yes, absolutely. In the fact, we spoke about that in the past, when we spoke about the EBT and Mastodon acquisition, some of the margins the EBITDA margins of these companies were 35% 45% kind of EBITDA margin range. And so quite profitable. And so a material impact on any one particular month or quarter.

So just as a follow-up, and this one is for John. Sticking with this discussion, on mission technology versus expertise so to speak. You and Leidos and a number of the peers are all going in this direction. What is the optimal mix, of these two types of business? And how do you compare the growth? What's -- for example in the guide for 2023, what is the contemplated growth for these two areas?

Yes, Rob. I guess at a macro level optimal to me and I have been very transparent on this. There are quarters, where we get asked your technology part of your business grew at 10% and your expertise shrunk by 3%. We must be related. No, I'm never related, right? I love both to be growing at 10%. Look, I don't think there's an optimal dial, Rob. When we set this course a number of years back, we're at $2.5 billion revenue company and we're at 8.8% margins. And how do we look at where the government budgets are going to go next? And how do we position this company, for the next 60 years of growth. What we knew it was it, was getting it evolved in low rate shoot-outs for selling expertise, to enterprise customer where there's thousands of folks out there, when Better Buying Power 2.0 took away past performance, right? So anything that's going to soon be a commodity is nowhere where they've wanted to be. So we embarked, on how do we get involved in other part of this market that is one stickier two, maybe at times not perfectly predictable, but over the long term we're going to grow a much better-looking company in a much more differentiated company going forward. I can't tell you, what the Leidos strategy or the Booz Allen strategy frankly, with all due respect, I don't watch what their strategy is. I can impact ours. And ours is about making sure, we have the right mix of expertise and technology so that expertise is informing the technology that we can create differentiated on and get a leg up of maybe some of the major primes, or other people were looking at more non-kinetic type solutions. And making certain that our technology can be used, to drive expertise where we're no longer dependent, on solely finding people at a specific labor rate. We don't adjust EBITDA for a number of people sitting on the bench, and a number of people that we wish could have been employed. We want to have a very, very clean quarterly report. Having said all that, optimally 50-50 works for us. I would love to have a little more push towards technology than expertise. Some of these companies, we bought nearly four years back. That's pretty early in that overall 9-inning game of being able to move this company forward. So it's why, when I see in 2017 it went from 8.8% to 8.5%. And then the following year, we were greater than that. The long-term trend line we're trying to generate here, is where we are driving a higher quality of earnings business. And by doing that over a long period of time, we'll be a much better solid company, because whether it's top line growth or our bottom line growth or whether we buy shares back or we buy outstanding companies, we're going to drive free cash flow per share and that's what we're absolutely focused on. So there are some years 10.5% is going to be 10.3%. There's some years where 10.7% is going to be 10.9%. But overall, trend line over a number of years, we positioned this company in a much better position, which is why we enjoy to Peter's question, a great defense spending. We've got a very strong defense business a very strong intel business. And we're willing to put that business up against anybody else's. And over time we're going to continue to grow both top and at the bottom.

Well, I was going to say Tom to John was just in the current environment, is there any way to characterize the relative growth in those two areas, even if we're just looking at a snapshot of it now.

Yes, you have you're absolutely, right.

Yes. So in our FY 2023 guidance, we're assuming that both technology and expertise grow with technology growing at a higher rate, but they're both positive growth. And so there is a kind of variation, there if you assume expertise is growing kind of 1% or 2% then to get to the guidance range. Technology has to grow kind of greater than that. Two other observations. One is as we said in the past, technology margins are on average higher than expertise margins and so that continues to hold. And I will say from our acquisition strategy, it's more likely than not and further acquisitions would be in technology. Kind of not exclusively we'll look at all opportunities but that over time would tend to increase technology at a faster rate.

Okay. Makes sense. Thank you both.

Thanks, Rob.

Thank you. And our next question comes from Gavin Parsons of Goldman Sachs. Gavin, please go ahead. Your line is open.

Thanks, good morning.

Good morning, Gavin.

I just wanted to go through the cash flow bridge and maybe try to understand kind of normalized cash flow a little bit better. So maybe if you could give us a little bit more detail on the methodology change but I think that looks like the $40 million and the $65 million almost offset each other this year, if we add back the $50 million CARES reversal and then maybe the $25 million from that net methodology change. Is that about the normalized cash flow starting point, or how should we think about that?

Yes. So, Gavin, there's few numbers that you're quoting here. The CARES Act reversal we had an outflow in both 2022 and 2023 and repaying that deferred payroll tax of $47 million. And so on a year-over-year basis that's a wash. So that really doesn't go into the bridge. The method change was a tax planning strategy we embarked upon in FY 2021 – at the FY 2021, generating approximately $60 million benefit to CACI. That benefit was going to be realized over four years such that in the first year we would have a cash outflow a very large inflow in the second year which is our FY 2022 and then some outflows in the third and fourth year FY 2023 and 2024. And so that – adjusting for that you'll see that kind of walk down bridge on Slide 14 in terms of the cash flow. The last piece, it deals with a combination of kind of working capital and other and that's the company gets kind of more profitable we should be generating more operating cash flow which is the case. But that's being offset this year by some expected increases in working capital. Let me give you some color on that kind of generally speaking, larger companies when you're growing consume working capital. And so we're seeing some of that impact. On inventory, as we deliver more mission technology products we are increasing our inventory levels on a year-over-year basis. And in some cases we're planning to buy ahead of need, critical components, supply chain-related protecting against inflation. So that's another use of working capital. Payments, people who look at our balance sheet will notice that we had an increase in payables at the end of June versus last year. So we expect to have a normal outflow of payments kind of get to a more normalized AP level that's dealing with some cash tax payments as some other kind of debt repayables. And lastly, on kind of DSO, kind of we ended the year at DSO with 55 days. We got as low as 52 days at the end of our first quarter. So right now we're assuming DSO should be somewhat flat for FY 2023. We've seen some delays in payment offices. There's discussion about short staffing and various government agencies and the payment offices are part of that. So although, we are planning flat DSO. We'll do everything in our power to drive that lower and hopefully be able to kind of minimize some of that impact of higher working capital.

Okay. So if I strip out anything abnormal this year and it doesn't sound like working cap falls in that category, approximately what is free cash flow or a conversion ratio?

Well, so the free cash flow that we're – so $495 million of operating cash flow, which I think is on a more kind of normalized basis less $80 million of CapEx gives you $415 million of free cash flow. And I think that's a pretty – I guess I could add a few of those payroll tax deferral issues in it to come up with a "normalized level." And then the conversion is simply dividing that by net income.

Got it. Okay. Thanks. And then maybe just on the long-term growth outlook. I wanted to ask if you updated your kind of rolling forward view of the addressable market growth rate and thoughts on to what extent you could outgrow that?

Yes, sure. Sure, Gavin. Look we're -- when we look at the addressable market five-year CAGR, it's about 4.5% this year unlike any other year frankly we've been reviewing the addressable market, and really had to look at some of those factors that are now here that haven't been there in the past things like inflation what the impact of the Ukraine budget was going to be on us at least in our fiscal year 2023 not it was a five-year period. Customer contracting office constraints and some of the things we've already spoken on. We actually see our addressable market pretty much where we paid to that when we were coming out of FY 2022. It's north of $240 billion. And the way I see it at the macro level a $6 billion company with a $240 billion addressable market growing at about 6% in 2023. That, sort of, feels right to us.

Okay. Thank you very much.

Yes. Thanks, Gavin.

Thank you. And our next question goes to Matt Akers of Wells Fargo. Matt, please go ahead. Your line is open.

Hi. Thank you. Good morning. I wonder if you could talk on kind of capital deployment and especially kind of share repurchases in general if you go back to when you guys did the ASR, a little over a year ago I think it was it sounded like that could maybe be a bigger part of capital deployment? Is that still the right way to think about it, or are you more, kind of, focused on M&A at this point?

Yes Matt, thanks. This is John. Look we are still on that path, right? As we mentioned during fiscal year 2022, we were about 50-50 as to how we deploy capital between four M&As we did and our ASR. That's over the last 12 months to 18 months. We're sitting here at a leverage around 2.5 times. And we're going to continue to assess those type of gaps that we want to fill quickly as well as looking at valuations of our stock and many other factors that go into us deciding to do an ASR. Both of those receive the equivalent amount of discussions frankly. And you should expect to see us be very flexible as we continue during fiscal year 2023 and as this year plays out. And there's a lot of things that are known that we can control. There's a lot of other unknown items. And part of that is the status of what our M&A pipeline looks like. And to the extent that we need to fill additional gap. So I would say that we are right -- we are still there. We're going to monitor all our options and we're going to deploy capital in 2023 that does the best job of driving free cash flow per share.

Okay. Great. And then, I guess, just one more kind of at a high level. I mean there's been a lot of delays in -- you've talked about some of the procurement delays and stuff with COVID, and budget issues over the last couple of years. To what extent is there like a catch-up? Like is there a sort of pent-up demand that maybe once we sort of normalize things could grow kind of above that long-term market growth, or to what extent is that work is sort of kind of a lost opportunity at this point?

Yes Matt thanks for that question because that's really at the crux of what we're trying to walk folks through today, right? This is so much about what we can control and what we can't control. And we can look at budgets and we can -- if we only looked at the budgets and not look at funding every other year up to 2023 that was a simple thing. The budgets went up. That's great. We didn't talk about 30% of contracting officers things we cannot control. The level of funding or the priority order when you have 30% less employees where is that priority sit. It doesn't mean that not everything is a priority it wouldn't have been in the budget if it wasn't. So when -- Matt when things normalize back to we have a budget, we pretty much are a wide sector who understands how to play within that CR world unless we get a complete anomaly like we had in FY 2022, we're all pretty competent to understand how the balance what our expectations are there. But what we're doing we're going to focus on continuing to run our business. We're going to focus on operational efficiencies. We're going to continue to invest in the right areas. Tomorrow afternoon at 03:30 space is not going to be a priority whether those funding awards come out in July, when they come out next January. So our job of being a major company within the space to make certain that we are positioned in the right markets. So we're not positioned in markets that are going away or we're actually positioned in markets that over the long-term are going to continue to grow. So I'd love to tell you that all those things that we can't control are going to get resolved when we get to October 1 the next government fiscal year. Chances are they are. And a lot of those very fluid areas are what goes into our guidance that we have for fiscal year 2023. Yes, mission technology plays higher our margins every dollar revenue plays heavy on our top-line growth. And our job is to be -- to as prudent as we can be make certain that we're putting that right range in place that shows you what the volatility is, but also the fact that we're in a growing marketplace where a customer pays on time. There are a lot of concerns that we do not have. So I like the hand we have. I like the strategy we have that we've been playing over the next number of years. And the fact that we got through fiscal year '22 showing topline growth, driving free cash flow. We're in the right areas, we just need a few things to get straightened out. Thanks for that question, Matt.

Yes, that’s great. Thank you.

Thank you. Our next question comes from Seth Seifman of JPMorgan. Seth, please go ahead. Your line is open.

Thanks very much and good morning. Just to follow up a little bit on that question. And you talked about some of the mission technology work this year. Perhaps some of it has slipped out which is something that we see kind of across the sector and some of it just may not materialize. With regard to the stuff that just may not materialize like, how do we think about how that happens? Whether there are any implications for your market share? What gives you the confidence that it actually is going to materialize in the future given the plans to build up working capital and kind of buy ahead of need going into fiscal '23.

Yes. Thanks. So at a macro level, the strategy of this company is to drive revenue from both expertise and from technology both in the enterprise side as well as the mission side. That strategy is playing out extremely well. We have enjoyed a well-positioned topline growth where the quality of that revenue has continued to improve over the last seven to eight years. We've had a lot of things that have come in in the last eight years and things that have not. But normalized net-net we're in the right places of the federal government spend. We're in C4ISR we're in AI we're in fiber, 30% of our Al revenue is in the Intelligence Community that continues to be a priority for National Security and what we deliver to them. Cyber continues to be well funded. We have come out of other areas that have not been as well funded or that have been commoditized. So over the last number of years, we're on this journey to reposition this company. And all I can tell you is it is a long-term model. We are a much better positioned company than we have been in the past. There are going to be awards that come in and do not come in. We talked about awards being lumpy. At the end of the day this guide for us at a 6% midpoint topline growth albeit some is acquired and some is organic. Even the acquired revenue and needs to have funding come in. We need to win awards and they'll like. And we believe we have the right prudent guidance which is our job by sitting here today to make certain that we're able to provide the right prudent guidance that allows you all to determine where this company goes in this upcoming fiscal year.

Great. Thank you. And then just as a follow-up we see the effort at the Department of Justice to block the Booz Allen acquisition of our watch. I don't really expect you to comment on their M&A, but it's not an isolated incident in terms of what we see from the Justice Department and the FTC and this administration with regard to the approach to M&A. Does that enter into your thinking at all about your M&A strategy?

Yes. Thanks. Look short answer is no. Look ours is still from where I see it were -- it's a large competitive relatively fragmented market. Government small business programs are constantly enabling new business creation. So, at the level of acquisitions that we're looking for no. There's no different path that we're going to take on an M&A front over the number of years 30 to 40 years. We're a strategy-based company. Strategy is where we come from. We're always going to be looking for gaps. And some of those we've learned to fill through internal investments going through partner and partnerships. But no there isn't anything on that question specifically Seth, it's going to change how we handle our M&A program. Thank you for that.

Thanks so much.

Thank you. Our next question comes from Sheila Kahyaoglu of Jefferies. Sheila, please go ahead. Your line is open.

Hey, good morning guys. John maybe another big picture one for you as you continue to shift the strategy and move towards technology and mission. How are you doing that with your bid pipeline? Like are you deciding to bid on certain contracts? Are you hiring people that focus on that more? Can you little expand upon your strategy? I know it's been ongoing for several years, but how you're continuing to focus on it into fiscal '23?

Yes, Sheila thanks. Terrific, terrific question. Look what I would tell you is historically, we were part of what I would now call more commoditized work. Today you're seeing the evolution in our business approach to tech and expertise where expertise is informing tech. Longer term what we expect is us to further differentiate ourselves within the overall federal market. So, on a tactical level, as we have recompete bids come up, and what we've historically had predominantly in our expertise area, we are taking really hard looks at those, right? Every dollar of investment is a dollar of investment that we want to make certain that we are making the absolute best call there. There have been some businesses and I have shared this, there have been some specific programs if not customer sets. That adjust it and make business sense and National Security sense frankly for us to bid on work that 18 months from now, we'd have the honor of biding it again to generate lower margins. So yes, that has taken a historical longer-term hit on our top line growth number. But I will make that decision, 100 times out of 100, because at the end of the day we need to continue to position this company away from that work. And what I think the largest travesty would be that if we got ourselves, we have to at least grow at this amount top line, so we hang on to some of that work, because what it does in the organization it becomes very distracting. So, we are going to make some of these calls right, in the right year and some of them they're not going to be as right. They're not major bets, but there are a series of smaller and smaller beds. So over time, what we're looking to do is sort of turn this ship to a day, where we're not talking about number of people we've hired and what our direct labor is and what our pass-through material bids are. So, they're all very judicious decisions. And over time, we've already seen the results of those decisions, right? We have driven top line growth to a level that we're comfortable with, but we'd love to have it greater, absolutely so. But those margins right that don't go away. We like the job that we have done there. Tom?

Yes. And the other kind of enabler with some of the increased technologies is some of the R&D activities we've been doing investing a significant amount of money ahead of need to make sure we have the right kind of technologies to sell to customers. We've hired a number of people, both in our technology area, our business development area, who have a lot of expertise, understanding the market, client executives', kind of making those investments to propel that particular growth. And so those are enablers to kind of get us there. Partners with some top notch technology companies as well. So they all go into the mix to allow us to go after more technology content and bids and be successful winning those.

No, that helps. Thank you, both. And then Tom, maybe one more follow-up for you. In terms of slide 14, it's been hyped up a lot, but do we think about working capital as a continued usage going forward for the business, or is it just a fiscal 2023 anomaly given supply chain shortages.

Yes. I think -- good question. Perhaps a bit of anomaly in FY '23. What we saw over the last several years is working capital being a source of operating cash flow. Our DSO four years ago was 65 days. Now, it's down to 55 to 10 days. And so that was an adding to operating cash flow. We're getting to a level where it's going to be hard to make material improvements to cut a DSO some inventory pressures growing companies who require working capital. So, we'll try to keep working capital somewhat neutral, kind of going forward in vis-à-vis operating cash flow in '23, '24 and '25. But this year, there is a bit of a headwind and we're going to do what we can to kind of minimize that headwind.

That’s great. Thank you.

Thanks, Sheila.

Thank you. Our next question comes from Tobey Sommer of Truist Securities. Tobey, please go ahead. Your line is open.

Thank you. Could you give us some commentary on particularly the optical part of your business in space, maybe talk about the competitive positioning, any kind of lead you have in having a sort of a viable commercial product or not? And then, maybe in the context of that, describe what success looks like from your perspective three or four years now?

Yes, Tobey, thanks. Look, we're really happy frankly where we are in the photonics and the laser communications area. As I mentioned in my prepared remarks, we have production units in space. And we're involved in several missions, many that we can't talk about here. And I -- Tobey, I look at our market in two different areas, right? The first step into optical communications was with our LGS acquisition. Very bespoke think about geo and interplanetary communications. We have laser terminals on satellites and we'll be heading to the moon as part of the Artemis mission. We've also have units transmitting on airborne assets for very specialized missions that have been going on in a time line measured in years. On the higher volume, where we start talking about proliferated LEOs, we are still building manufacturing scale and we believe we have the right capabilities in place to produce high-volume, small form factor devices. Part of the thesis on taking up as photonics, was to take some of the exquisite technology REIT algorithms that, we have on our bespoke solutions and sort of give those to the high-volume small form factor device world, so that we make sure that we can close links in a much more short manner, without adding additional cost. We've already have production units in space. We have connected links. We've been transferring data at rates of around one gig per second if not higher. We've got some great programs with both DARPA and the SDA. So our photonics business to us is real. It's very tangible. It's operating in multiple domains both in space and in air. What denotes success through FY 2023 is making the requisite investments that we talked about, when we bought them last December that meaning Sa Photonics, to make sure that we are positioning them, as best as we can to make sure that they're right to take on, not only the defense proliferated LEO market through other satellite price, but also in the commercial side. This is going to be one of those markets that, I mentioned. We're looking at in FY 2024. We really see material revenues. And based on the successes, we've had in some of the earlier testing and getting down to some of those price points that are very much of a challenge for us to take a large – read millions of dollars for Spok solution, and get them to hundreds of thousand high volume. I like where we are on that path. So success is that in 2024, we started talking about the increased revenue that we see from that market, and we should see additional movement of our bottom line numbers as volumes go north. So, hopefully, that gives you a pretty good cover of where we think.

Certainly, does. From a capital deployment standpoint, could you just comment what higher interest rates mean to you you're at 2.5 times. Do you – are you less aggressive in share repurchase and acquisitions as a result of the interest rate environment and your variable exposure there?

Yes. So, because last year in FY 2022 kind of LIBOR averaged around 35 basis points. Today, it's at 2.4%. So we've seen an increase kind of two percentage, let's say. In the grand scheme that's not material. Share repurchases, we'll still be driving incremental free cash flow per share albeit at a slower level, we'll have to repay some kind of interest expense, but it's not going to have a material impact similar to buying or borrowing additional debt to fund acquisitions, whether we're borrowing at kind of 2.5% or 4.5% that should not materially impact our decisions to make those investments.

And I can assume that you have embedded in your guidance continued rise in LIBOR at least for the next several months?

Yeah. Absolutely. What we have embedded in the guidance is an expectation that LIBOR will get to approximately 3.5% in June of 2023. So we shall say that seems to be kind of middle of the road path somewhat consistent with various economic forecasts and yield curves and forward curves and the like. So we'll see how we do.

Thank you very much.

Yeah. Thanks.

Thank you. Our next question comes from the Colin Canfield of Barclays. Colin, please go ahead, your line is open.

Hey, thanks for getting me in. Can we talk a little bit about the potential growth and EBITDA impact on the TSA, the TSA impacts on track and what you're assuming with respect to the guidance?

Yeah. Colin, that job is under protest. We have some amount of revenue in our FY 2023 plan, and pretty much all we're going to say until we see what the government's outcome is. But the way we have it laid out laid out now, we believe that we have that program sufficiently cover in FY 2023 guidance.

Got it. Got it. And then maybe, if you can talk a little bit about the multiyear margin environment. Is 11% still possible considering the level of underbidding that we're seeing in both the expertise and the technology and I think on the expertise and we saw PSA impact it was kind of 1% to 2% margin below your implied bid? And then on the technology side, a lot of the FDA cancellation bids are coming in at kind of low to no margin. So – and you mentioned in your feedback kind of the exquisite optical link pricing needing to come down. So maybe you can talk about that margin framework versus your 11% visibility?

Yes. Look, we're on a continued path to grow top and bottom line. I don't think 11% is a magic number. I just think that right now given what our FY 2023 guide looks like, we believe that, 10.5% to 10.9% or so is a prudent guide as we start this fiscal year off. It is not dependent on any one specific item. Yes, it is true that, there's some expertise work that is continually being bid down. That's predominantly why seven years ago we went on a different path making certain that we were not going to be part of a commoditized business. The last seven years has proved that we've done a pretty darn good exquisite job of moving away from the commodity work given that our margins have gone from 8.8% to 10.7% or so if you take the midpoint of this year's guide. There's been some ups and downs based on winning programs, losing programs, making some decisions that work, making some decisions that didn't. But you sort of can't raise the fact that we're a much different looking company. And as markets like after optical comps over the next decade continue to proliferate. Nothing brings pricing down better than volume. We also do believe that we've got a head start on that, because we do have products out in space. We understand what some of those correction items are. And we've got a long history, longer than where we've been tracking what we're doing on the higher-volume work of understanding the dynamics of space, which is why we are on a number of prime satellite builders teams throughout the SDA and in the -- that world. And I would never on a call like this talk about margins that those are at, because we have targeted margins that are going to drive a decade worth of growth just not third quarter of FY 2023.

Got it. Thanks for the color.

Yes. Thanks, Colin.

Thank you. And our next question comes from Mariana Perez Mora of Bank of America. Mariana, please go ahead. Your line is open.

Good morning everyone.

Good morning, Mariana.

So my question is a follow-up on M&A. You already mentioned that you want to do -- good morning, that's going to be biased towards technology. However, we have heard that space technology for example is getting quite pricey. Could you please give us some color around your M&A pipeline and the M&A environment?

Yes, sure. Look, it's -- what we've seen is our pipeline has sort of flattened off of 2021 levels over the past six months. There are some opportunities that are available out there. I wouldn't characterize the market as robust, but the way we go about strategically picking where we want to go it doesn't always have to be robust. Just have to be quality assets out there at the right price, with the right cultural mix that allows us to continue to build out either our expertise or our technology portfolio. We're going to continue, as Tom mentioned, we're going to continue to focus on SIGINT EW and cyber and AI and analytics. And anything that helps us do a more cost-effective IT modernization. And also our strategy does consider areas that would be additive to our customer presence and our past performance. So those are also areas that an acquisition could potentially position us differently within a current customer set, with a different PEO that we believe will be very, very crucial to continue to drive us in our top line and bottom line growth. Look, there's -- PEs are very active. There's a lot of start-ups out there just to provide a little more color on what we see. Some of the valuation expectations as you mentioned do remain high. That's in general and we're not going to compromise our well-founded 20-year discipline as how we bring those M&As in. So is it a frothy market? No, does it have to be? No. Are we going to continue to be very, very select? Yes. And is the fact that recent government of version around M&A is that going to play a major factor is the deciding continuing to grow to this company in a manner absolutely not. So did that provide some additional color?

Yes, perfect. And then probably a different one on FY 2023 guidance. I would like to understand where these conservatives come from. So you have a robust pipeline $12 billion of submitted bids additional $17 billion that you expect to submit soon and with high content of new work. However, you're only expecting like 6% contribution to your growth from new work. So where is this counter systems is coming from? Is it like the award environment? Is your win rate? Is the protest environment. Could you please give me some color on where is that coming from?

Sure. Mariana, thanks for that. Look I would tell you that probably the best way to answer this look at the low end of our guide, and the high end of our guide just talk about some of the different variables. I'll start off with the majority of this guide as, it has every year comes from a complete detailed bottoms up. And then at each level, we're looking at a lot of the things that we can control and then also these things that we can't or they're unknowns right, it's the unknowns that can really throw this guide off. At the low end, we're looking at funding recovery being slow and uneven. And at the higher end it then improves completely right that the contracting officers and all the things that myself and other fellow CEOs don't understand why funding has been so delayed those resolve them themselves. We talked about timing of some of our tech awards in the mission tech world that we talked a lot about. Do those recover quickly all the way up to that they grow higher than what we would see? One potential area is in the Ukraine conflict as that moves potentially from a little less on kinetic to more non-kinetic is there room for counter-UAS systems. There's a room for other things there. And then in the future, if that is the case, how do we drive that across the international? The pace of new awards in contract expansions we've been talking about that has been materially delayed. If it ramps up slower, we'll be on the lower end of the guide. If we can see some things come in faster. It's a big difference between bids to be submitted, bids to be adjudicated that run late and then ramp up. There's a lot of different factors. And again, I'm going to restate, it's our job to do the right prudent examination of all these variables to make certain that we are doing our absolute best to guide. KO resources are going to be another element in a wage inflation. We haven't talked at all on this call around inflation and what those potential impacts are at least to FY 2023. Wage inflation is real. 60% of our business is cost-plus. That means 40% of our business is not. And how we go about covering down on higher wage increases which is the right long-term business prudent thing for us to do. But how do we handle that in a difference between 2022 and 2023. Is that a potential margin hit to us? Yes. Do we have that factored in our guidance? Absolutely so. And then there's a lot of things in the macroeconomic and geopolitical noise for lack of a better term that is going to continue to want to play with funding. So we do try to assess all of those items. A 4.5% guide to a 7.5% guide in the year that we're looking at the kind of business that we're looking to go after, we're comfortable with that guide because again our job is to make sure we're doing the absolute best that we can to sort of tie where those narrow deep holes are. Tom?

Yeah. And Mariana, the other point to observe is, while we have a healthy pipeline in respect to -- you can kind of win or a good amount of that activity as John mentioned it's going to ramp up over time and the like. The other factor is at any point in time some of our work is covet to end of useful life. And so we have a natural falloff in revenue. We like to win 100% of our recompetes. Unfortunately, we don't. And so there is also a gap to fill so some of that new business win is going to kind of fill the gap of either some lost recompetes or natural program life cycle fall loss. And so I think that piece will help you with your arithmetic.

Amazing. Great color. Thank you.

Thanks, Mariana.

Thank you very much, Mariana.

Thank you. Our next question comes from Josh Sullivan of The Benchmark Company. Josh, please go ahead. Your line is open.

Hey, good morning.

Good morning, Josh.

You mentioned counter UAS there. You guys were early to the game with SkyTracker tactical environment Ukraine highlighting the threat. But can you talk about how that market is evolving, how you get the upfront a lot of increasing competition in the market. But -- and then just how big of an opportunity do you see that?

Yeah. Josh, thanks. Well look counter-UAS was one of the very first areas we talked about as you were moving more towards tech and that that all started with the acquisition of 63 systems actually. And we've been following some of the recent counter-UAS legislation which has been out there, which I truly applaud because it's really trying to zero in to who has the authorization and who has the right leadership for where counter-UAS goes. We do call ourselves a leader in counter-UAS to share some information with you Josh. We got a large operational footprint. Frankly, over 1,200 systems have been deployed globally, protecting some of the most critical federal assets. We have the largest library of signals of interest because we've got 20 years within this domain. And we have capabilities that go from tracking and geolocating all the way from Group 1 which are those smaller commercial UAS is up to the large nation state ones that are at Group 5. The draft legislation is a step in the right direction. We continually upgrade and modify many of those 1,200 systems. And if you look at the legislation as it's written, we're also looking at critical infrastructure owners. So think about power plants and water sources and the like. Those will now be potential addressable markets as we go forward. So we do see increased volume there as we continue to build out our over 1200 systems that we have deployed globally.

Got it. Thank you for the detail. And then just a follow-up on the photonic strategy as well. As you work with that commercial pricing environment, is there any thought of offering a usage model or just to get more dynamic to penetrate the commercial opportunity?

Yeah. I mean, yeah, we are -- Josh, we have a number of models that we're contemplating today. Some of those models will work and frankly some won't. And -- but they're all going to be based on volume, right? We believe we have the right technical solution. We believe we have the right hardware and software solution. But at the end of the day what gets you from x to half of x to some of the earlier questions is going to be volume. We believe we have the right pricing model in place. We know we're not at the most exquisite price point. We're always going to protect margins as well. So I would tell you and in that 9-inning game we're sort of at inning two. But what I wanted to make certain of is before we took a deep step into this marketplace which is a decade-long market that's completely new to us. Picking up market share at a rate that we can achieve that makes sense for us and that we're partnered with the right folks is going to be how we're going to move forward on the commercial side. I can tell you on the more bespoke side, we've been doing this work for quite a long-time. We are in the only the...[Technical Difficulty]

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Operator, this is the speaker line here with CACI, John Mengucci and Tom Mutryn. We were at our last call. Can you hear our last question can you hear us?

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Okay. Thank you. I'm going to turn the call back over to John Mengucci, for a quick wrap-up to end the call.

Okay. Well thanks Nadia and thank you for your help on today's call. We'd like to thank everyone who dialed in or listen to the Webcast for their participation. We know that many of you will have follow-up questions, Tom Mutryn, Dan Leckburg and George Price available after today's call. Please stay healthy and my best to you and your families. This concludes our call. Thank you and have a good day.

Thank you. And ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect your lines.