Hey, good afternoon, everyone. Welcome back to the Aerospace Defense Track at the 2024 JPMorgan Industrials Conference. I'm Seth Seifman, the Aerospace Defense Equity Analyst for the US here at JPMorgan. We are very happy to have with us this afternoon and very grateful to have CACI and the company's CEO, John Mengucci, and George Price is here from IR as well. We're gonna have, I guess, a little fireside chat here. We'll do some Q&A. I'll kick it off, but I'll try not to talk too much. You know, we can open things up to the group as well and see if anyone has questions. But maybe, you know, kicking it off, let's think kind of big picture. You know, one of the questions that I often get from investors about federal services is kind of what, you know, what differentiates companies. And so when people think about CACI, going forward, what should they think about as differentiating? Yeah. So, first off, thanks for having us. You know, if you look at the traditional government services space, we usually think about that as delivering expertise. So, you know, customers buying inputs, meaning, meaning ours. So what differentiates us, right off the top, is we're a technology and an expertise company. So about 55% of our revenues come from delivering technology and 45% from expertise. And I know there's a lot of talk, throughout the sector, about everybody is now delivering, delivering tech. So here, here's what differentiates us there. One is we actually deliver tech. You know, secondly, we actually talk about tech, and we have you come in and visit. What else differentiates us is what our focus point is, which is how we address customer needs. We will never stop delivering expertise. We'll always deliver tech, but it's the combination of those two parts of our business. We're a 62-year-old company. We're a $7.5 billion company. So what drives our tech investments is what the people on the expertise side of the business tell us is the customer's greatest needs. So you can look at one part of our business tipping and cueing the other part. How we approach customers, we invest ahead of customer need. So we understand exactly where the customers need to go, and we'll invest our own dollars to show them a slightly different path forward. So whether it's providing better tech or whether it's replacing the expertise part of their needs with tech. So it's the how those two parts of our business play forward. The last area is a very strong business development team. I know everybody says, says that. I love what our win rate has been. This model does not work without, without that team. And it's really about when you invest ahead of customer need, you set the customer's preference. So you walk them through the art of the possible. And when they understand what the art of the possible is, it's most times very different from what they would have asked for two years later. So we like to set that, that customer preference towards what we're going to deliver and what we can deliver. That drives a very different request for proposal, which means that majority of times we're out there bidding. If we submit a compliant proposal, we're gonna win more often than, than not. So it's an absolute focus on the markets we serve, delivering, investing ahead of customer need, setting those tables so that it favors us 'cause they've seen what the art of the possible is and then winning that job. Excellent. And so, speaking of wins, you know, the company's awards recently have been pretty strong. We've seen the backlog growing. You know, how do we think about the timeframe in which those award wins turn into sales and the trajectory on the top line? Yeah. So this is another area that does differentiate our strategy. You know, when we say that we deliver 55% tech, 45% expertise, the way revenue gets generated is very, very different in those two parts of our business. Traditional global government services work, you win that job, you're providing N number of people. You hire those folks. The ramp-up period between award and revenue is very, very quick. It sort of ramps up to sort of this straight-up level, and then it sort of levels off the next two to three or four years however long that contract is. Technology revenue ramps up slower. You're gonna do design work. You're gonna do development work. You're gonna get through qual testing, and then you're gonna deliver to N number of ships, N number of planes, and the like. So the revenue model looks very, very different. So if you look at the last few jobs that we've won, two have been technology wins. One has been expertise wins. So you'll see great growth in our top line growth because of the one expertise job 'cause that job was won last year, and it ramped up faster, but the technology job's gonna ramp up slower. What's different about our business is we're absolutely focused on duration of contract. So we'll give one or two points up of top line growth to make sure we get clarity over a much longer period of time. So we're winning multi-billion-dollar jobs that are five to 10-year. What that does in our marketplace is we're recompeting less. So those of you who have followed the U.S. government services world, you win a job that's got a four or five-year duration, and then a customer recompetes for that, for that work. Why is that? Because the customer's still buying a unit of input, which is an hour, at the cheapest, cheapest price. Okay? I went to business school. That's a commodity. You're going to differentiate on price, not what I wanna be 100% in. I wanna be 50/50. So if you look at how our awards ramp up, some give you the immediate pop, and some give you a longer duration look, which when you look at our top line growth when, you know, people, Seth, others call us and say, "Geez, you've won $7 billion of business. So where's that revenue?" It's a little bit different because it ramps up in a, you know, different manner. What we look for people to look from us is how much are we winning, and what's the average weighted duration of a contract in our backlog. The first half of this year, the first six months, the average weighted duration of a program is 72 months. So the more we continually win those jobs, the less we recompete, which means that's the next step at driving better top line growth is that we're not having to fill in divots on work that we aren't successful when we recompete those wins. Okay. Excellent. And then, yeah, those of us on the sell side are not typically a patient bunch. I'm all right with that. I guess maybe just to help people out, so they conceptualize what you're doing, those two awards you talked about on the technology side, what type of work is that? Yeah. So we had one in the Air Force area. It's called EITaaS. It's an overall 10-year, $5.7 billion job. We only booked $2 billion worth of awards. That's all we have sight to right now. And with that, we are modernizing the Air Force's way to deliver IT across the entire Air Force, so every single Air Force base and the like. The overarching view is let our airmen stop doing IT work and return them to being airmen. So make sure that all the network build-outs, how we support, how we add features, is all going to be done by us and our partners. That's a technology job 'cause we're looking at every single base's networks. We're going out and doing site surveys, understand how we can upgrade what they have and transition old systems to us so we can go up there and modernize them. So that one's gonna start up slow, and that one's going to ramp over when we hit, you know, 300 or 400 bases. Our other technology job is the Spectral award. That's a U.S. Navy job. It's a brand new state-of-the-art signals intel and electronic warfare job for all Navy surface ships. Sort of sounds like an aerospace and defense win. So what's a government services, you know, you know, company winning that? That is the beauty of our having moved to a 50 and 50% bid model. So on Spectral, we will be the prime integrator and the prime provider of taking all signals. Everything in the world emits a signal, and what's the difference between life or death on the battlefield? Ask anybody in the Ukraine right now is understand these signals that are over your head, whether they come from space, air, drones, and, and the like. We're building the next AI-based signals and intel kit that'll go below, below deck. That's every surface ship in the United States Navy. We started to shape that job in 2016. We invested ahead of customer need. That is a job that just about every aerospace and defense prime bid on. Only one won. We're not an aerospace and defense, defense prime. Raytheon and Northrop Grumman are our partners there. Did an outstanding job, but that is a true look at how you can shape a customer away from buying hardware solutions. The problem with hardware solutions today is that the pace of war today changes every 72 hours and every 72 months. So large ACAT-1, 8-year-long duration programs to do a hardware mod to ship that you gotta bring into port and an upgrade, that's not what the future is for the Navy fight. The future for the Navy fight is every 48 hours, the Houthis are changing how they deploy drones. So in 48 hours, I can't get the ship more than, you know, 15 days away from a port. So how does that baseline become software-driven? Software is our superpower. All the technology that we deliver has to have some level of software in it. So how do we continually look at new signals, reverse engineer those, put courses of action that you can defeat those signals either kinetically or non-kinetic, but get those software updates out to every single ship like that? That is the pace of war today. That's why we were selected. That's why this company won that job. And the more we're seeing customers move towards that, the better success rate we'll have. Right. You kind of preempted one of the other questions I had there, which was about artificial intelligence and just that that's, you know, obviously an area of increasing emphasis. We actually had a very informative session yesterday with the head of artificial intelligence at JP Morgan, who's a former Marine intelligence officer, spent most of his career there. And it was kinda it actually the pace of all that freaked me out a little bit. But if you could talk about it, maybe the way that that's spreading across the company, both in terms of the work that you're doing, and also internally. So if I go back seven years, that's when our first touch with AI was. You know, I'm not a hype-curved CEO, frankly. I'm actually about we like to talk about things that generate revenue. And AI and all the different variants, whether it was computer vision, RPA, machine learning, and now generative, we've been doing that work for quite a long time. So is it a, is it a set of great technologies? Absolutely so. We, we couldn't deliver a Spectral system that can take inputs from multiple sources, quickly integrate that, make sense of it, tell a machine to look at every other time we've seen that signal, and push those courses of action out that fast without it. The good news is we're already doing that. In fact, we're the company that was, six years ago, using version two of ChatGPT with a lot of our customers that we don't naturally talk about. So is it a great technology? Yes. Is it, is it utterly new? No. About 100 of our 200 programs involve AI in one way, shape, or form. We never thought about making a major deal out of it 'cause the technology part of our company, service support, national security, and there's a lot of customers we do that for that we don't openly talk on. But it's a great technology. You don't have to look far in many of our programs to find it, and there's plenty of experts in that. So is it a growth engine for us? It's the next step. Generative is gonna be that, that next step. And just as importantly, we use it across our business. So how do we operate our business? What are the metrics we run the business by? How do we use machine learning? How do we use our RPA to take out some of those tactical transactional tasks, you know, processing lockbox checks every day? We used to be a team of four people. Now it's one individual for 15 minutes that sort of checks what the bot's done. So we really brought that into the company at the same time we were introducing that to our customer set. So if half of our business is in tech and half of those programs use AI, we can do that, you know, back of the envelope math. We're delivering, generating a lot of revenue delivering AI to our customers today. Excellent. I guess thinking about another area maybe where there's some increasing overlap between what CACI is doing and, you know, maybe what people have thought about as traditional aerospace defense primes is in the space area. After, especially after the recent SA Photonics acquisition that you did. And so maybe you could talk a little bit about what the opportunity is you see in space and sort of where CACI fits in and what the timeframe is for that to unfold. Yeah. So that's a great example of where we had people working with the what was now called Space Force, SDA in the expertise world. And we started to hear about, "Hey, will we ever in the U.S. move to optics? Will we move from RF links between satellites and satellite to the ground? Will we ever move to optics?" And you start to find out that, hey, the U.S. assets are not the only assets up in space. There's other countries, and some are friendly, and some are not. And some wanna do harm, and some will not. So if we wanna talk about how to make space more resilient, one area is to communicate via optics. So put data in light and push all the information back and forth via light. Is it hard? Yeah. It's wicked hard. Have we been doing it for about 15 years? So one of the acquisitions we did about six years back? Yeah. So there's a one of the acquisitions that we did was working in the area of photonics for quite a long time. And it's really about getting the algorithms right. So picture two beams of light going 22,000 miles an hour, rotating all over space, and never losing lock, so never losing that connection. Right? I lose my Wi-Fi connection sometimes. Right? We can't afford to lose that link. So the hard part was getting the software down, making sure the algorithms were done correctly. Beyond that, now you have to produce something that may have cost $10s of millions, and now it has to fit a much smaller form factor. So we're through that now. We did purchase SA Photonics. We're a highly acquisitive company. For those that don't follow us closely, we've done 89 acquisitions in the last 20 or so years. This was one that was a dilutive one with a pretty hefty investment stream because the potential market out there is ginormous. It's satellites at LEO, you know, 800, 1,000 in the commercial world, per constellation, and U.S. government moving to LEO as well. So it is a true differentiated technology. We are the only U.S.-based company that's done design and production in the U.S. I believe that will come back in a very positive way when we talk about deploying these on all of our DoD satellites and to our intelligence customers as well. So I like that uptake. We're already taking orders now. We're a merchant supplier to the majority of the large satellite primes. And that will drive growth. The investment stream pretty much wraps up through our last quarter, through the Q2 of 2024. We're a July to June company. And then we start to ramp down investment and then look just try to drive growth as we get out to FY 2025 and beyond. Is that content that goes onto some of the different SDA constellations? Yeah. That are the optical terminals. Right. That allow all of those satellite vendors to actually complete those links. So we're doing all of the opto-optical work. Right. So, and it has to be at a price point, of course, that somehow supports launching hundreds of satellites versus five. Right? And the nice part to that model is every three-four years, we launch new satellites. So it's just more and more, you know, it's great, a great follow-on business model. Right. That's an area where we've seen, I mean, there are some of the traditional defense primes playing, some of the non-traditional players. Yeah. It's a nice mix. As you said, you're a merchant supplier, and so you're pretty agnostic as to. Yeah. Who's doing it? Yeah. We make satellite design changes based on how the satellite primes have designed their buses, and then we move to production. We're in the middle of moving our production facility from Los Gatos to Orlando. One is closer to the design folks, and two, it's a cheaper place for us to do production. So, just ending the investment curve, just starting to get up on the volume curve, still the only US supplier of them. We have kit in orbit. We have kit that has been deployed in orbit. And some of our deep space optics have been sending data from the distance of Mars to this building. Okay. So we believe that the optics that we've built and the hardware as well as the software algorithms are working very, very well. And there's an opportunity there on the commercial side as well? Yeah. Yeah. Yeah. I mean, it's a. I mean, I would think it given the numbers of satellites, it's probably something that dwarfs the opportunity on the DOD side. Yeah. Yeah. Definitely. I mean, look, I think we're gonna hear about other people building their own optical terminals. And when you look at the actual components, if you can take a commercial wireless today on the ground, and you can get that into space-qualified parts, and you get that into, you have the hardware built, the issue you're always gonna have is we've got 15 years, $100 million of investments getting how optics works and how lasers work to make sure you can actually close that link. So that's where we believe software is our superpower. And we really like to, you know, we've been telling people and proving it to them that it's the software that's inside of those gimbals that actually make these links close. Okay. So. Excellent. Maybe to take it down from there to kind of a cruder financial level, when we think about that ramping up and, you know, the returns that we see there and we can make this maybe a broader question, just about Spectral, and, you know, about optical capabilities, that these are kind of new, unique capabilities that CACI has. They're a little bit more in the, I guess, a little bit more in the manufacturing or. A little bit more in the product-y side. Sure. Versus the company's legacy. And, you know, you typically think about those being areas with a higher return on sales. But it's also a new area. And then there's often a, you know, a process of maturing that needs to take place before, you know, margins can expand. So how do we think about with more of this type of work coming into the mix and what that means for margin rates at CACI? So we're a free cash flow per share company. Right? We've always been focused on cash, on cash flow. We've taken that in a couple different bites. If you went back six or seven years, we're an 8% EBITDA margin business. Today, we're in the high 10s. That's on a non-adjusted basis, sort of peanut butter and chocolate. There's no additives in that. So that was our first step at trying to grow quality of earnings. And what that did was allow us to exit some lower-margin expertise work 'cause it was my belief eight years back that LP, LPTA, low price technically acceptable and better buying power and sequestration alike was gonna force the government to buy services work, buying an input, one labor hour, buy it as cheaply as you absolutely can. And that's sort of that model that maybe doesn't show itself today, but over time, as the government keeps recompeting, they get roughly the same quality for slightly less price. What stops you from recompeting? I would never, never stop doing that. I'd just keep getting prices down lower. So that's the expertise piece. So it's true that on the technology side, if you look at the mix of our business, technology is at a macro level a few hundred basis points higher, 300 basis points higher than the expertise work. What's driven our margins from 8-ish to the high 10s has been that transformation of bringing more technology work in. We've had some volume technology today. We still got a long way to go there. And then you talked about optical terminals. So I don't think I have a low or a high point on margin. The way we're looking at our business now, we're reliably better than mid-single-digit top-line growth company, which is different than what our model may have been three or four years back. So the combination of consistent long-term view of top-line organic growth coupled with flat to increasing margins, and then couple that with an absolute focus on capital spend, being very judicious there, and then tie that to flexible and opportunistic capital deployment, be it through acquisitions or through share repurchases, we are really poised to drive a nice free cash flow per share for the, you know, foreseeable future based on the fact that we have good insights into what's in our backlog. Maybe I'll take a brief pause here, just look out at the audience, see if there are any questions in the room. John Raviv. Thanks very much. Thanks for taking the question. Talking to us through how perspectives have shifted over the last two weeks, one or two years maybe on M&A, it seems like things got a little bit quieter last year. Yeah. And then second part of the question. Actually, I feel like, oh, sorry. Now I'm loud. I also feel like in GovCon, traditionally, the M&A model has been focused on customers' capabilities and contracts. Sorry to make you write this down, John. I got it. I wonder in this environment you mentioned kind of with photonics a little bit is the focus a bit more, at least for your business, on the capability side, and once you build those out, the customers and contracts will come? Thank you. Yeah. So let's unpack that. So flexible and opportunistic capital deployment is really down to acquisitions, long-term growth. We're a 62-year-old company, so those provide great baselines for us to continue to grow. We're a strategy-based company. Strategy is the place from where we come from. We serve seven markets across the federal government. We're a $7.5 billion business. We got a $250 billion addressable market. So when people ask me, "Where's the eighth market?" I'm like, "Let's drain the first seven first. Let's stick with what we're really good at." And then it comes down to, do we do acquisitions? Do we do share buybacks? Do we do both? Okay? It truly is not gonna be balanced. It's gonna be flexible and opportunistic given a lot of variables that whatever time that is. We believe our stock is undervalued, which it's always undervalued. Who wouldn't who wouldn't say that? Right? But then what are those key capability or customer relationships? We buy acquisitions to fill a capability or customer gap. I don't buy revenue. We'll never buy revenue. I will beat you in the open marketplace mercilessly 'cause I trust in a deep-benched business development team, a great set of solution architects, investing ahead of customer need, letting the customers say we're their preference, right? The RFP angled more towards me than everybody else may not be fair, but I'm good but not being fair, and we'll win the majority of things we have to go out there and bid on. So I don't wanna burn capital out there buying revenue, making me, you know, 70% market share versus 50. I'll just we'll, we'll, we'll get there. On the M&A front, so the last couple of years, multiples and valuations and the like just haven't been what we'd like to see them at. There's some good properties out there. They could have filled some nice small to medium-sized capability gaps that we have but not for the valuation numbers that are out there. And even in light of higher interest rates and all the like, those valuations do not come down back into line. I I sorta struggle with that. So there's not an acquisition we have to do. We're a very discriminating buyer. You know, you never bid against an irrational bidder, and we're pretty good at not getting pulled into that. So, as John mentioned, it's customer relationships or capabilities. So if you looked at where we built this technology business out, we did that mostly through our acquisitions. And then there's some sprinkling of internal investments along the way. Right? We have a gap. We're gonna invest internally if we have the timeline to build whatever that intellectual property is. If we don't because the market's coming upon us, we had a great photonics business, high-end. We needed one that I could be producing that in volume, bringing SA Photonics. It was a dilutive acquisition. We were very clear on that, but I wanted to buy that at the knee of the curve because time was of the essence. So we will continue to do it. The last couple of years, though, the actual valuations of some of the targets were just too high. So you would say, "So the last couple of years, CACI bought a lot of stock back. You know, I get plenty of advice. Why don't y'all just keep buying that shares?" Yeah. Great. Right? You know, maybe. But we're sorta looking at what's there in the long-term view. It's not M&A first, and if not, then go do share buybacks. It really is an even-weighted game. We used to be a company that would always do an acquisition first and very rarely buy back shares. But that's not realistic 'cause it was our estimation at some point, we hit a market, an M&A market that wasn't fraught and wasn't able to fill any of our gaps. So since January, we bought back 6% of our shares on the open market. We have another $350 million or so left on the last authorization to buy it in the market. So a lot more flexibility in our capital deployment plan going, going forward. But that's what drove the last couple of years. And I should also say we're of a size where we can do both. You know, three years ago, we did a $500 million share buyback and a $500 million worth of acquisitions that brought us ID Tech and brought us SA Photonics. Do you see with the things you're looking at when, when you think about valuations? I think now, you know, we all look at what's going on in, in the private markets and kind of a follow-up question on this. But, you know, there's this idea out there that, you know, the defense market needs more Silicon Valley-esque technology. And as a result, we're seeing some high, very high valuations in, in the private market. Does that kind of affect the things that you're looking at? And is that kind of the high valuation levels that you're talking about? Yeah. I mean, part of that is right. I actually think that there's really smart people on the right-hand coast also. Right? I've been doing this for a long, long time. So, you know, the fact that we have to go out to the west, west, west coast to get the, the, the new-age tech, I, I, I'm not sure I buy into all of that. There's a lot of great tech being done all, all, all, you know, all over. You know, I think what it is is we there are there are folks who would like to take commercial technology and bring it into the federal government. It doesn't mean anybody's wrong to try to. It's just really hard. It's hard. It's different. It's not that the federal government couldn't use some of that if it's a, you know, SaaS model and, you know, tools off the shelf. You know, but in our enterprise IT business, we use a lot of tech in those. We partner with, you know, Splunk. We partner with AWS and others to bring those kind of great large-dollar investments so we can provide better scale to the U.S. government. That works great. So there are places for it. But you also have to recognize that when we're talking about AI and we're talking about building these large engines out and data analytics and all, we're not looking for the cheapest blue polo shirt at the mall. We're actually looking across the entire globe for somebody who's looking to do us harm. So we can't be right like 75% of the time. Right? We all use our mobile phones. They sorta connect 90% of the time. Sometimes we get a fast busy. When that's on the warfighters' hands, it's gotta connect 100% of the time. There's no, like, one miss. So the theory is, "Let's take something that's cheaper and produce it and, you know, reproducible, bring it in," but it doesn't meet the specs. Right? So I think it's a nice blend of us being able to partner with commercial companies and either get a leg up in our technology business so we can start further ahead. That model works extremely well for us. and maybe one other question with regard to capital deployment and thinking about internal investments, you know, thinking about the direction you're going and some of the capabilities that you're talking about, is there, you know, is there a different kind of CapEx requirement for the company going forward or expense to R&D? Yeah. There's definitely a different level of CapEx spend. Right? And that's sorta that other clue. Right? That when people in the sector say, "Well, we do tech," "Well, let's look at the CapEx spend. Let's look at sharing how much what percentage of your business do you wanna sign up to as tech versus expertise?" And that discussion sorta wanes off. Right? Yeah. So we have a higher, you know, CapEx spend. With the slowdown of the investments because we're just about completing SA Photonics and our optical comms business, you should see CapEx come down, to "some normalized levels." Doesn't mean we're gonna stop investments in other areas, but there'll be something that you can measure there. But look, at the end of the end of the day, if we're looking at free cash flow per share, we're gonna measure all of that. Right? We're going to manage all of that as well. And on the free cash flow side, you know, industry-leading in our sector, DSOs of 47 days, that's an absolute focus that says, you know, "If we went back seven or eight years, our DSOs were in the 70s." Okay? There's no reason for that, not in our marketplace. We have one of the best-paying customers there is. We can debate whether budgets are always clear, but whatever budget we have today is good enough for us based on our size. But it's really about making sure everybody in the business understands that, you know, more cash sooner is better, in really man-managing that. So it's the combination of how we manage capital and how we manage cash that is going to drive, you know, a really nice future free cash flow per shares. Yeah. Excellent. Navy, I know, I'm looking at George right now, and I know we got to keep you on schedule. So we've got a few minutes left, but I think we might have to cut it off just a couple of minutes early here. Maybe if I could sneak in just one last question. Sure. I think, and it's just another kind of financial question, but wanted to ask it. You know, we look at the H2 of the year, and you know, it's a pretty significant ramp-up in earnings that's coming for the H2 of the year. And so I think people look at that, and they're like, "How much risk is around that?" but maybe you can tell us some of the things that give you confidence in the guidance for this year and why the H2 of 2024 can be much stronger than H1. Yeah. So when we give guidance every August - again, we're a July to June company - we do our best to try to shape the year. We may not do a great job of shaping the quarter. Right? And we usually say, "Hey, this year, H2 's gonna be stronger than the first." Some people, stronger is like decaf, and some are regular caf and A, and some are bold. Right? This year, our back cap is probably on the bold side versus the A cap side. We've raised guidance twice. We've raised free cash flow per share 7% since our year started. The fact we're raising guidance and we're driving the company forward, we're in a nice position to finish the year strong. Although I will admit, you know, when you look at the numbers, the point margin's gotta go from X to X plus a lot. Part of that is a mix. It's a little richer mix in the back half, half of this year. And the other part is, you know, we fund the investments in our optics business right off of our own P&L. So every dollar of investment is a dollar less that we can throw to the bottom line the H1 of the year, and that ramp's starting to come down. So it's a little artificially lower. Right? But every dollar we don't invest in the H2 gets driven down into the profit line. So that's the way I would look at things. We got our Q3 wrapping up here in the next few weeks and feeling nice and confident that we'll, you know, finish the entire year within our guide. Excellent. Very good. Let me let you get going. Fair enough. John, thanks very much for being here. Yeah. Really appreciate it. Seth, thanks so much. Appreciate it, everybody. Thanks for coming.