CACI International - Q1 2024
October 26, 2023
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fiscal 2024 First Quarter Conference Call. Today's call is being recorded. At this time, all lines are in a listen-only mode. Later, we will announce the opportunity for questions, and instructions will be given at that time. If you should need any assistance during this call, please press star zero, and someone will help you. At this time, I would like to turn the call over to George Price.
George Price (SVP of Investor Relations)
Thanks, Brianna, and good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI International. Thank you for joining us this morning. We are providing presentation slides, so let's move to slide two. There will be statements in this call that do not address historical fact, and as such, constitute forward-looking statements under current law. These statements reflect our views as of today and are subject to important factors that could cause our actual results to differ materially from anticipated. Those factors are listed at the bottom of last night's press release and are described in the company's SEC filings. Our safe harbor statement is included on this exhibit and should be incorporated as part of any transcript of this call. I would also like to point out that our presentation will include discussion of non-GAAP financial measures.
These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Let's turn to slide three, please. To open our discussion this morning, here's John Mengucci, President and Chief Executive Officer of CACI International. John?
John Mengucci (President and CEO)
Thanks, George, and good morning, everyone. Thank you for joining us to discuss our first quarter fiscal year 2024 results, as well as our fiscal 2024 guidance. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Before we get started, and as I previously informed many of you, George Price now leads Investor Relations for CACI, replacing Dan Leckburg, who has taken an executive role elsewhere in the company. My thanks to Dan for the fine job he did, and my congratulations to George, who brings us four years as a deputy to Dan and his significant experience as both a sell-side analyst and investor relations executive to the position. So with that, let's move to our first quarter results. Slide four, please.
Last night, we released our first quarter results for fiscal year 2024, and I'm pleased to say that our actions and results in the first quarter were directly aligned with our value creation model. As we've discussed, that value creation model is one that is built to drive growth and free cash flow per share by utilizing a combination of long-term, predictable organic revenue growth, efficient management of working capital and CapEx, profitability, supportive of continual investment, and prudent, opportunistic, value-creating capital deployment. Against those elements, we delivered 15% organic revenue growth, $174 million of EBITDA, free cash flow that exceeded our expectations. We executed a $150 million share repurchase program.
In addition, we won $3.1 billion of contract awards, which represents a 1.7x book-to-bill for the quarter at 1.4x on a trailing 12-month basis. More than half of our awards were for new work to CACI, but we had strong performance on our recompetes as well. Our first quarter performance provides us the opportunity to raise elements of our fiscal year 2024 guidance, and Jeff will provide the financial details shortly. Slide five, please. We've talked about network modernization being a critical need for our government and a significant long-term opportunity for CACI. Secure, modernized networks are the required foundation for many priorities, including AI, cyber, and JADC2. We have invested to develop innovative network modernization capabilities, both organically and via the acquisitions of LGS and ID Technologies.
As a result, we were awarded an eight year contract valued at up to $1.3 billion to modernize the network of a major DoD intelligence community customer to support critical intelligence missions around the world. We had the highest-rated technical proposal. We displaced a long-entrenched incumbent. We established a new VCHAT for network modernization with this customer, and we increased our visibility and access across the broader intelligence community. In addition, we were just notified of a $200 million DoD network modernization win, this one specifically leveraging our commercial solutions for classified, or CSfC technology. We continue to see healthy demand for network modernization and a strong pipeline of additional opportunities. Next, you've heard us discuss the importance of software as an enabler for customer missions, and their software is our superpower.
CACI has continued to demonstrate that we have the most mature, advanced software development capabilities, building open systems and software-defined offerings in the market today. These capabilities led to the award of a five year contract with a maximum ceiling value of $917 million to continue providing software and systems engineering to support battlespace awareness for the United States Air Force. In addition, our unique software-defined capabilities, coupled with our deep understanding of signals and the electromagnetic spectrum, continues to differentiate CACI in the marketplace. We are seeing increased market adoption of our software-defined technology, particularly in the areas of signals intelligence and electronic warfare.
This is evidenced by being selected to supply our technology offerings to an Army program of record, as well as the evaluation of the same offerings for another Army program that enables dismounted soldiers to quickly detect, identify, geolocate, and defeat signals of interest. These successes are great examples of our ability to deliver software-defined innovation in a fast, agile manner to support critical and enduring national security priorities. Slide six, please. In addition to winning new work, we are executing and performing with excellence on the three large awards we announced in our last fiscal year. Let me provide you with an update. First, our Air Force Enterprise IT as a Service, or EITaaS contract, is ramping up as planned.
We are on track to stand up our enterprise service desk before year-end and assume day-to-day operations of existing systems with additional program milestones on track for the second half of the fiscal year. Both of these actions accelerate support to our customer and support our financial goals for FY 2024. Next, the transition of our large NSA intel and cyber award is also progressing well. We continue to show the value of our technically superior proposal, and we are receiving positive feedback from our customer executives. Finally, our Navy Spectral program is off to a great start. Even with an extremely complex environment and technical requirements, we've hit the ground running because we invested ahead of customer need. We have a great partnership with the Navy, and our customer is pleased with our performance.
With the ever-evolving threats in the INDOPACOM theater, Spectral is the type of program built with an open arch, open software architecture that breaks vendor lock and provides capabilities at the speed of the fight that the Navy requires. Slide seven, please. Turning to the macro environment, we continue to monitor the government fiscal year 2024 budget process closely. We're prepared for a number of scenarios, most of which we believe are addressed within our guidance range. As we've said many times, the world is a dangerous place, and recent events have only confirmed that view. Customer demand remains high, driven by the elevated global threat environment, the pacing capabilities of our adversaries, and a significant opportunity for modernization in government to enhance both efficiency and security.
CACI remains very well-positioned in key enduring areas of demand, including broad IT modernization, the electromagnetic spectrum, cyber, space, and intelligence. Slide eight, please. As a trusted national security company, our government customers rely on CACI to meet their most urgent and critical needs. Given the recent budget uncertainty, just such an opportunity arose when we received requests to purchase nearly $200 million of network equipment, cybersecurity licenses, and other material before the government fiscal year ended. We are proud that our team was able to rapidly and efficiently respond to these requests with $100 million of the material delivered in our first quarter and another $100 million slated to be delivered next quarter. Excluding these material purchases, our underlying organic growth was 9%. In summary, our first quarter results were strong, and fiscal year 2024 is off to a great start.
Demand signals are healthy, and we are well-positioned to address key customer priorities. We are successfully executing our strategy to invest ahead of need, to build differentiated capabilities, and as a result, we are winning in the marketplace, and we are leveraging our financial strength to deploy capital in a flexible and opportunistic manner to drive free cash flow per share growth and shareholder value. With that, I'll turn the call over to Jeff.
Jeff MacLauchlan (EVP, CFO and Treasurer)
Thank you, John, and good morning, everyone. Please turn to slide nine. Our first quarter of fiscal year 2024 is a strong start to the fiscal year. We generated revenue of $1.85 billion in the quarter, for which about $100 million was related to the unplanned government material purchases, which John just described. This activity drove 6% year-over-year growth with essentially no profit. The remaining 9% growth was driven by strong execution across the business as we capitalize on our healthy awards over the past several quarters. This performance demonstrates the effectiveness of our strategy to preserve- to pursue fewer and larger opportunities and invest ahead of customer need. A further indication of the success of our approach is that the weighted average duration of our awards extended to over six years this quarter, an all-time high. Slide 10, please.
First quarter reported EBITDA margin reflects 60 basis points of drag from the higher material volume I just mentioned. In that context, our underlying profitability is strong. Adjusted diluted earnings per share of $4.36 were unchanged from the prior year. Higher interest expense was offset by higher operating income, a lower tax provision, and a lower share count as a result of our share repurchases. First quarter operating cash flow, excluding our account receivable purchase facility, was $93 million, reflecting solid profitability and strong cash collections. We reported days sales outstanding of 49 days, just 1 day above last year's record low, as we continue to efficiently manage working capital. Free cash flow was $79 million for the quarter. Slide 11, please. Recall that last year, our board authorized a $750 million dollar share repurchase program.
As John mentioned, our value creation model is focused on driving growth in free cash flow per share, including through flexible and opportunistic capital deployment. This standing authorization has positioned us to be even more responsive to evolving market conditions. Accordingly, we initiated an open market repurchase program at the end of August, and through quarter end, executed the repurchase of another 470,000 shares at an average par price of $319 per share. After completion of this latest share repurchase, we have approximately $337 million remaining in our share repurchase authorization. Since the $750 million board authorization in January, we have repurchased over 5% of our shares outstanding.
We ended the quarter with 2.3x leverage of net debt to trailing twelve months EBITDA, reflecting the funds used in the quarter for the share repurchases. The healthy long-term cash flow characteristics of our business, our modest leverage, and our access to capital continue to provide us with significant optionality. We remain well positioned to deploy capital in a flexible and opportunistic manner to drive future growth and shareholder value. Slide 12, please. With our first quarter results and additional share repurchases, we are raising our fiscal 2024 revenue, adjusted EPS, and free cash flow guidance. We now expect fiscal 2024 revenue to be in the range of approximately $7.2 billion-$7.4 billion, essentially all of which is organic. This $200 million increase in revenue reflects the higher material purchases we discussed earlier.
This increased volume is split evenly between the first and second quarters. I want to be clear that our EBITDA dollar expectations for the full year are unchanged. Beyond the material purchases, the underlying operating results of the business are consistent with our expectations. To assist with your modeling, we expect second quarter revenue and EBITDA dollars to be relatively flattish with the first quarter. As was the case last year, and as we shared in our guidance call last quarter, we see higher profitability in the second half of the year. This second half improvement is driven by declining levels of mission technology investment from the first half, as well as second half increases in new fixed unit price work and higher volume of some mission tech programs.
We are raising our adjusted EPS guidance to reflect the lower share count as a result of our additional open market share repurchases. Our full-year diluted share count guidance is now 22.7 million shares. In addition, our full-year interest expense is now expected to be in the range of $100 million-$105 million, reflecting the additional share repurchases. The minimal net income impact of this change is accommodated within the existing adjusted net income guidance range. We are raising our fiscal year 2024 free cash flow guidance by $10 million to at least $410 million. We expect that this increased free cash flow, combined with the benefit of the reduced share count, results in an increase of 4% versus our initial free cash flow per share expectations. Slide 13, please.
Turning to our forward indicators, CACI's prospects continue to be strong. Our first quarter book-to-bill of 1.7 times reflects strong performance in the marketplace, and our first quarter awards have a weighted average duration of over six years. First quarter backlog of $26.7 billion grew 7% from a year ago and represents almost four years of annual revenue. These metrics provide good long-term visibility into our business. For fiscal year 2024, we now expect 89% of our revenue to come from existing programs, 7% from recompetes, and 4% from new business. Progress on these metrics reflects increased confidence in our expectations for the year. In terms of our pipeline, we have $11 billion of bids under evaluation, about 65% of which are for new business to CACI.
We expect to submit another $10 billion in bids over the next two quarters, with over 80% of that for new business. These metrics reflect healthy demand and disciplined bidding. To wrap things up, the first quarter was a great start to the year, and we're pleased to be able to raise our full-year revenue, adjusted EPS, and free cash flow guidance. The business is performing well, and we remain confident in our ability to continue to drive long-term growth, increase free cash flow per share, and generate additional shareholder value. With that, I'll turn the call back over to John.
John Mengucci (President and CEO)
Thank you, Jeff. Let's go to slide 14, please. Our fiscal year 2024 is off to a great start. We continue to show that we are strategically positioned in the right markets with differentiated capabilities. We are winning high value, enduring work that supports long-term growth. We're deploying capital in a flexible and opportunistic manner. The combination of these successes is driving free cash flow per share growth and shareholder value. Key to our business success is the tremendous talent CACI has been able to attract, develop, and retain. As a leading national security company, CACI offers boundless opportunities for our employees to serve their country, grow their skills, and expand their horizons. Ours is a long-standing culture where character leads innovation every day.
The investments we've made and the value proposition we offer our people, continue to drive a number of positive outcomes, including lower attrition, increased referrals of new hires by existing employees, and numerous awards, recognizing CACI as one of the best places to work in the country. In fact, for 12 years, CACI has been recognized by Fortune Magazine as one of the world's most admired companies. CACI also continues to be recognized as a top workplace for women, new graduates, and diversity. I'm especially proud that CACI received a number of recognitions for our support of our veterans, including being named the Best Employer for Veterans by Forbes. As is always the case, we achieve our success because of our employees' talent, innovation, and commitment. I wanna thank the entire CACI team for what they do for our company and our nation, each and every day.
With that, Brianna, let's open the call for questions.
Operator (participant)
Thank you. At this time, I'd like to remind everyone, in order to ask a question, please press Star, then the number one on your telephone keypad. We kindly ask that you limit yourself to one question and one follow-up. Our first question comes from Mariana Perez Mora with Bank of America. Your line is open.
Mariana Pérez Mora (Managing Director of Equity Research)
Good morning, gentlemen.
John Mengucci (President and CEO)
Good morning.
Mariana Pérez Mora (Managing Director of Equity Research)
My question is gonna be about the macroeconomic environment and political environment without the budget. How much of the growth into this year depends on actually having a funded budget? And more specifically, when you see those, like, $10 billion of, like, bids that you're gonna submit in the next six months, how much of that depends on new contract awards and actually having a budget, and how much of that is just takeaway?
John Mengucci (President and CEO)
Mariana, thanks. I'll start with this one. Look, as I mentioned in my prepared remarks, look, we're monitoring the budget process closely. We're prepared for a number of different scenarios, but here's what we know. We know the Senate has passed. All 12 appropriations bills are out of committee. They're gonna start bringing those bills to the floor to vote. You know, the House now has a speaker, appears to be committed to avoiding any debt ceiling impacts. And we're very aware of the 1% cut in spending for 2023 if Congress can't pass those, but we are actually planning that those do get passed by the April 30th deadline.
It's hard to say how likely a full RC or a full-year CR or a shutdown is, but we're pretty confident that the majority of our work will continue with the funding. And in case of a shutdown, we're quite confident that the work that we do are gonna be continuing and ongoing through the shutdown because of the current world events. Getting closer to home, in our guidance, we considered many variables, Mariana, and one of those being duration of the FY 2024 budget process and the CR. If you all remember, the low end of our guidance, we assumed a full year CR during this entire fiscal year. The high end, we assumed a short CR, and the budget passed sooner.
As it pertains to the jobs that we have already submitted, we're waiting for the government to select the awardee and for the submitted bids. Look, we're very confident that the work that we have is in the, you know, deep streams of funding, that are exactly those areas of the budget that are not being touched. You know, whether we're in a CR or whether we're not, we spent a long time within this company making certain that the work that we bid on has to be long and enduring work. That is the major reason why we moved from being a pure government services company into one that offers both expertise and tech. So we don't see any near-term impacts to it.
I don't wanna predict, you know, our FY 25 year, given that I'm only 114 days into FY 24. But, you know, there, there's nothing that we're submitting today that we're sitting around the table saying, "Boy, if the budget is cut or the CR continues, does that present any growth to us or any concern to us?
Mariana Pérez Mora (Managing Director of Equity Research)
Perfect. Thank you very much. As a follow-up, you just mentioned transitioning to a more technology-focused company. How is supply chain?
John Mengucci (President and CEO)
Yeah, thank you. Look, we, we've talked about supply chain quite a bit. We've done a couple of things. You know, one is that, over the last few quarters, we have purchased, in a very cost-effective but wise manner, to make certain that we could get our mission technology offerings delivered, without any future delays in the supply chain. So that's one. Second, we've also instrumented all of our bill of materials with, frankly, AI technology that actually alerts us to parts that are either gonna go obsolete or, you know, predictive longer supply chain delivery dates.
When that happens, we immediately go in, and we make all the right business calls to make sure it doesn't get in the way of us, delivering our mission technology offerings. Thanks, Mariana.
Operator (participant)
Our next question comes from Bert Subin with Stifel. Your line is open.
Bert Subin (Managing Director of Equity and Research)
Hey, good morning.
John Mengucci (President and CEO)
Good morning, Bert.
Bert Subin (Managing Director of Equity and Research)
So maybe just to follow up. Hey, John, Jeff, George. Maybe just to go ahead and follow up to Mariana's question there. Is the CR having any impact on the current ramp process for the three contracts you highlighted in your slides, or are things progressing sort of as expected?
John Mengucci (President and CEO)
Yeah, Bert, thanks. You know, we truly have not seen CR create any impacts in a number of areas. RFPs and RFIs are still coming out in a timely manner. If you all heard me say in the past, every organization has their own awards DNA, and some perpetually, they're always deliver late, some deliver early. So no impact there. As for funding for our three major programs, EITaaS, our large intel program in Spectral, are all fully funded through fiscal year 2024. Through the current fiscal year that we're in. And we just haven't seen any slowdown, either awards, RFPs, deliveries, and then funds.
Bert Subin (Managing Director of Equity and Research)
Okay, great. And then, John, just, just a more, I guess, high-level question. Historically, you've talked about ever-increasing margins for CACI. Now that you have pretty clear line of sight into growth over the next couple of years, has that view changed at all near term? I guess that is to say, does the dial shift more toward growth over margins over these next two years?
John Mengucci (President and CEO)
Yeah, Bert, thanks. You know, couple of things here, and I'll have Jeff add his views as well. Look, we are very much focused on value creation model that drives free cash flow per earned share, right? So the way we built this company, and again, we're purpose-built for exactly the position we're in today. We realized seven or eight years back that we were winning work that wasn't generating the right level of full value return. So first step, focus on margins and focus on the things that we're out there bidding on. Let's build a great capability bench so we can go after more longer-term enduring work, moving a little bit from expertise to technology. That drove margin focus from the high sevens, you know, to the high tens.
Now that we're there, what we talked about coming into this fiscal year, an absolute focus on free cash flow per share. Top line growth, reliable organic top line growth, bottom line growth, capital allocation, making sure that we're running a cost-effective business. So what it is, you know, it's no longer the focus on one, it's a focus on all four. And for us, every one of those levers that we have are now available to us, and we're, you know, very happy that we've driven an additional 4% of free cash flow per share since our original guide. Jeff, anything?
Jeff MacLauchlan (EVP, CFO and Treasurer)
Yeah, no, I mean, that's exactly right. I think it's additive. It doesn't replace the profitability focus, because obviously generating earnings is an important part of generating free cash flow. But it's sort of, we kind of think of it as taking it to the next level. So now, you know, we've made significant progress on profitability, and we're not taking our eye off that ball, but we're now adding to that a focus on increased focus. We've always been focused on it, but increased focus on capital efficiency and the free cash flow per share, as John shared it.
John Mengucci (President and CEO)
Bert, also follow up, too, as it pertains to this current year that we're in, because I know we have some initial moving parts with this $200 million worth of material. I wanna make very, very clear that as we look at the underlying business, without that $200 million, we are focused on a high 10% margin, period, full stop. The fact that we had $200 million of zero-margin revenue come in, it was our decision to make that very transparent, and I understand that the math works out to 10.5 or 10.6, outstanding, but we are the underlying business is executing at a high 10s rate and will continue to do so throughout this year.
Jeff MacLauchlan (EVP, CFO and Treasurer)
Yeah, it can't be said too many times that the underlying operations of the business are entirely consistent with where we expect to be.
John Mengucci (President and CEO)
Thanks, Bert.
Operator (participant)
Our next question comes from Seth Seifman with JP Morgan. Your line is open.
Rocco Strauss (Partner and Research Analyst)
Good morning. This is Rocco on for Seth.
John Mengucci (President and CEO)
Hi, Russ. Morning.
Rocco Strauss (Partner and Research Analyst)
The 9% organic growth ex material buys was impressive in Q1. With the new guidance increase for the unplanned material buys, should we expect sales growth to be front half weighted ex the buys, or will Q2 be lower with a build throughout the year, as indicated on the prior call?
Jeff MacLauchlan (EVP, CFO and Treasurer)
Yeah, our view, Thanks for the question, Rocco. Our, our view is that the second quarter you ought to expect to be fairly flattish from the first. Remember, there's $100 million of the unplanned material buys in each of those two quarters. I think the underlying operations of the business, while we reiterated the year in our guidance, we feel like we're off to a really strong start. But, you know, we're gonna operate here for another quarter or so and, you know, reassess.
Rocco Strauss (Partner and Research Analyst)
Great, that makes sense. And then how are you thinking about future capital deployment? Is there potential for there to be a consistent share repurchase program? And how does the M&A pipeline look?
John Mengucci (President and CEO)
Yeah, boy, that's a run for days, Rocco. Look, first of all, look, we're flexible and opportunistic, and those are the dynamics that we've actually laid out there. We are gonna continue to evaluate a range of factors, you know, what our M&A pipeline looks like, as you mentioned, you know, where what our stock price is, what our valuation is, leverage, interest rates, demand trends, business outlooks, and frankly, all those options are always on the table. So, you know, they all create value, as you all know, given the dynamics at the time, because they all drive free cash flow per share over time. You know, leverage feels right. And, you know, we're gonna evaluate all of the options.
We have to look at share repurchases versus M&A. We look at internal investments versus M&A. You know, our decision is gonna be based on relevant rates of return on whatever two options that we're looking at over time. With that, Jeff, anything you'd like to add?
Jeff MacLauchlan (EVP, CFO and Treasurer)
Yeah, I mean, look, this is a very. I know you guys probably get tired of hearing flexible and opportunistic, but that really is what, where we are. I mean, we are continually looking at the pipeline, and when we see a combination of factors, where we don't see maybe near-term opportunities that are interesting to us, we see some market weakness in our share price, you know, those are times that we're going to stop and buy back some shares. I mean, it's continually under evaluation. It's a very, you know, disciplined, return-driven exercise. It does not make much sense for us to be any less levered than we are. We have a very favorable capital structure in that regard.
Those of you that follow us and study us know that, and I won't bore you with the details, but it's not particularly appealing to us to become any less levered, and so we're, you know, constantly looking at that range of options, and you'll see us, you know, continue to act as appropriate as we look at changing circumstances.
John Mengucci (President and CEO)
Rocco, you also asked about M&A, and look, you all know, we've done some really good acquisitions in the past. They've addressed a large number of gaps. But, you know, as the frankly the valuations and the sellers' expectations have been relatively slow to adjust to a changing market dynamics. That's our view, you know, in light of rising interest rates and a lot of other factors. But we do have a pipeline that is starting to build. You know, we're always looking at things in the SIGINT and EW area, in the cyber and in the space area. But, you know, when we see the market shifting back to a buyer's market from a seller's market, we may see more opportunities in the near term.
But, you know, we're really looking at that, you know, moderate-sized company that drives capabilities and customer relationships, so that five years from now, we can talk about what that company did to sort of change our, the way our company looks now. And again, with the type of returns that are gonna continue to drive longer, longer-term free cash flow for share growth. Thanks for the questions.
Operator (participant)
Our next question comes from Matt Akers with Wells Fargo. Your line is open.
Matt Akers (Senior Equity Analyst)
Hey, guys. Good morning. Thanks for the question. So you mentioned that, I guess, the $200 million of material buys that I think maybe shifted based on some of the uncertainty that's going on. Maybe people pulled that forward. I guess, if you strip that out, kind of your base business, was there any kind of pull forward in that business as well? I'm just curious how people are sort of, Your customers are acting around some of the uncertainty around the budget.
Jeff MacLauchlan (EVP, CFO and Treasurer)
Well, let's make sure first, let's unpack a little bit the premise of your question. The unplanned material buys were not pull forwards. So that was unplanned customer activity, which we, you know, which we were efficiently and, you know, responsibly addressed. Beyond that, the underlying performance of the business is slightly ahead of our expectations for the first quarter, and we think we're on a good path. We may, if anything, be, well, we think we're on a good path. So, you know, we'll be continuing to evaluate that, but, you know, it's early in the year. I mean, as John said, we're 100 days into the year, and we're happy with our position, and we'll continue to manage it.
Matt Akers (Senior Equity Analyst)
Got it. Okay. Thanks. And then I guess, you know, just any thoughts on, you know, some of the things happening in the Middle East now, between kind of U.S. involvement over there and the, the $100 billion+ supplemental that's on the table, any potential work you think that, that maybe could come out of that for CACI?
John Mengucci (President and CEO)
Yeah, Matt, thanks. Look, we've said many, many times, right, that unfortunately, the world is a dangerous, dangerous place. I think that what's going on in Ukraine was the first wake-up call. It certainly raised the urgency level around defense and national security globally, frankly. I think the attack on Israel is a reminder that despite the increase of near-peer threats, you've all heard me say this, you know, counterterrorism is still a major concern. Yes, there's more money gonna be spent on the near-peer threat, but I've always said it, in our mind, it was never an or, it was always gonna be an and. But look, you know, most of what we're doing as to specifics, you know, I frankly can't address those on this call.
But I can tell you is that we're engaged and we're supporting. You know, we're hearing the same thing that you're all hearing about the $100 billion plus-up, as well as, you know, other international spending. Look, we, we deliver mission expertise and technologies to all the Five Eyes countries today. I'm convinced that the Eastern European allies are also going to be increasingly interested in our products. We've made a few trips there to some key countries. We know what they're looking, they're looking for. It's exactly what our software-defined missions technology suite was built for. You know, the electromagnetic spectrum and everything in the EW world, ensuring vision and signal. You know, nations around the country wanna know where that signal is, what it is, and how can they defeat it.
So, you know, I'm sure that expansion throughout Eastern Europe and NATO, and other, you know, select countries, is what we'll start taking a, you know, a look at. But frankly, it's too early to discuss the specifics. We're gonna, you know, be very, very, conservative and very, very, calculating as to how we enter the international markets with the offerings that we have. Thanks, Matt.
Operator (participant)
Our next question comes from David Strauss with Barclays. Your line is open.
Josh Korn (Assistant VP of Equity Research)
Hi, good morning. This is actually Josh Korn on for David. Good morning. I wanted to ask if the materials purchases in the quarter were considered expertise or technology. It sounded like technology. So if that's the case, X, those purchases, it seemed like expertise growth was up 20% and tech was flat. So I wanted to ask if that implies anything about the remainder of the year or anything specific in the quarter. Thanks.
John Mengucci (President and CEO)
First of all, they were technology. John will wanna add to this, but I don't think there's a particular conclusion to extend from that. I mean, these statistics, you know, move around obviously, and we're generally kind of managing mix. Yeah. Thanks, Josh. Look, I've probably said this, right? The good news is, they're both growing, right? So I'm extremely pleased with every dollar of expertise growth, just as much as I am, you know, excited by every dollar of tech of technology growth.
I think some of what you all see in some of those tables, whether it's expertise in tech or fed civil DoD, but we see expertise is seeing the benefit of lapping the Afghanistan withdrawal, and then also the ramp-up of our new NSA intel and cyber program. At the end of the day, they're both extremely important to us. Expertise informs tech, and tech enables more cost-effective expertise. And I have to tell you, within our mission technology space, Todd Probert here does an outstanding job of picking up all the mission expertise work that we're doing and all those tips and cues to understand how we invest.
DeEtte Gray, who runs most of our enterprise work, does an outstanding job of finding ways to bring new technology, whether it's AI or agile software development at scale, anything that takes the cost of expertise down, which frankly, when we do that, that helps us drive markets as well. So I think quarter-over-quarter, Josh, you're gonna see different pieces of our business grow at different rates. But there's, you know, usually some large movements that are easily explained with the latest 12 months of work that we've won. Mariana, I think we're ready for our next question.
Operator (participant)
Our next question comes from Connor Walters with Jefferies. Your line is open.
Connor Walters (Equity Research Associate)
Hi, guys. Congratulations on a strong quarter, and thank you for taking my question. I just wanted to dig into some of these major programs a little bit more. Now that FocusedFox is over a quarter into the ramp, can you provide an update on the cadence and progress around hiring and how we should think about the contribution to revenue and profit in the next few years there?
John Mengucci (President and CEO)
Yeah, thanks. So look, it's a, you know, major expertise program for us, and we've always said that, you know, at a normal level, expertise ramps up faster than our technology programs. You know, we are, we won the work as our CACI proposal was technically superior. And frankly, program is ramping up just as we proposed, maybe slightly ahead, but nothing but positive feedback from our customer to date. What's crucial to know about that program is we won that program by making certain that we would have a low to zero risk transition from the long-term incumbent to us. And that transition is, you know, well down the path of the way it was planned in our proposal.
I would- I'm not gonna talk about the exact quarter by quarter and year by year, you know, but all I'll tell you is it's a $1.5 billion worth of awards that we recognize. I would say we're somewhere in the 80% ramped up phase today. Connor, and I would expect that great performance by Michelle Leasey and her team to continue.
Connor Walters (Equity Research Associate)
Got it. That's super helpful, and maybe in the same vein as it relates to the new $1.3 billion award with the intelligence community customer, how should we be thinking about the timing of the ramp and contribution at scale from that?
John Mengucci (President and CEO)
Yeah, Connor, I think that's, I think it was an eight year award, $1.33 billion. You know, that's, that's a network build-out job, so that ramp-up curve is gonna be a little bit different, right? When we do these large-scale network jobs, there's a lot of front-end work, specification, making sure that we, we revisit what the customer wanted. You know, technology's changing, either in the full, network realm or at that last mile, or at where the actual device is connecting, which is what makes our CSfC offering so unique.
But those programs start up a little bit on the light side, Connor, and I would say over a period of the next year, we'll have what that design looks like, and then working with the customer as to how we would roll that out. That's a network that is used globally. And so, you know, and again, we just won that work, so, you know, we'll be putting that plan in place. If there are no protests on it, you know, we'll see some lighter revenue come in in the third and fourth quarter, but nothing that's gonna change what our guidance is today. Thanks, Connor.
Operator (participant)
Our next question comes from Jan-Frans Engelbrecht with Baird. Your line is open.
Jan-Frans Engelbrecht (VP and Senior Research Associate)
Good morning, John and Jeff. I'm for Peter today.
John Mengucci (President and CEO)
Good morning.
Jan-Frans Engelbrecht (VP and Senior Research Associate)
Great. So just wanted to quickly revisit the the M&A comments that you made, and with net leverage of 2.3 today. Could you provide some color on sort of how high you would go if you identified an attractive target?
John Mengucci (President and CEO)
Yeah, you know, that's not a perfect answer to the hypothetical. You know, for a long time we said that we would occasionally perhaps consider 4.5. I think in the current environment, that's gonna be less. You know, but I could imagine for the right asset, you know, 3.5, you know, maybe a little more is sort of in the zip code we'd consider. It's difficult to answer that, obviously, outside the context of a specific target, but certainly, you should think about us as thinking about, you know, up to a third or so of what we've historically said.
Jan-Frans Engelbrecht (VP and Senior Research Associate)
Great. That's, that's really helpful. And then just a quick follow-up on the, on the Spectral award. Just given the heightened threat environment in the Indo-Pacific, strength in the Navy budget, that should, should likely continue for the next couple of years, are there any sort of additional bidding opportunities that you see in the next 12-24 months, specifically related to, to Navy electronic warfare, signal, signals intelligence?
John Mengucci (President and CEO)
Yeah.
Jan-Frans Engelbrecht (VP and Senior Research Associate)
That we should look out for?
John Mengucci (President and CEO)
Yeah, yeah. Great. Look, you know, our, our electronic warfare and our electromagnetic spectrum detection and countering equipment is deployed on a lot of assets today. Actually, it's not so much about the next 12-24 months, what are the other bids that we can put out there? It really talks about the reason why my prepared remarks mentioned that Spectral is the program, right? Our customer on Spectral is already looking at how do we morph the program as it was awarded to something that can do two things. One, that it actually gets updated for today's current threats. Remember, we began investing in on Spectral, I think it was fiscal year 2016, if I remember right.
That job was awarded this past year, and we're having a lot of detailed discussions around what does a threat look like today? Is there anything we can do to get delivery sooner? And then can we address more platforms that we have set up in the contract today? You know, when we won that program, it was a $1.2 billion award. I believe we booked that at $600 million, and we're sort of sorting through what the other $600 million looks like. So we've done an outstanding, outstanding job. We are all over this market. The Navy is the perfect, you know, purpose-built customer for us, as we're, you know, out there delivering.
And I'd also say that as we start to show what Spectral has, and we deliver to the Navy, there's other customers out there that are getting another look at where our capabilities have moved to. And then tied back to an earlier question, in light of what's happening on the global stage, there's other countries that are seeing those types of capabilities. So one, love the funding that we have in place on Spectral. Two, you know, we made all the right calls to invest ahead of customer need, so we would start up immediately. And then three, a great technology team here is working with the Navy to find out how can we deliver that even quicker, because that near peer threat in the entire INDOPACOM region is going to depend on it.
Operator (participant)
Our next question comes from Toby Sommer with Truist Securities. Your line is open.
Tobey Sommer (Managing Director and Senior Research Analyst)
Thank you very much.
Talk about trends that you're seeing in, in terms of billable headcount growth and the outlook for that. Any, any sort of changes in difficulty in recruiting and the implications for kind of, both revenue growth and associated expenses as we turn into calendar 2024?
John Mengucci (President and CEO)
Yeah, Toby, thanks. You know, first off, look, I love when expertise and technology grow. You know, I'm looking for material growth in both of those markets as we get through the year. You know, just having raised guidance says we're gonna have organic growth between 7.5 and 10.5. And based on some of the jobs that we're you know winning, frankly, whether they're expertise jobs or they're technology jobs, we're going to need talent. Look, we're well positioned there. You know, we've got three great internal hiring programs, #Making Moves, frankly, is one where we want people to move around the company on different projects. That's the beauty of building a technology business here.
Folks are much more fungible, and we can move them around, and that helps them build their career. Over 40% of our hires today, Toby, come from a referral, which is outstanding for us. It keeps our talent acquisition costs down, and we already know people have assessed people, right? We sort of have this tagline, "Great people know other great people," and it's working very, very well. And then last, you know, how does the job market look? Look, we've done a lot to draw people to our business. We've got a—we have a large intern program. For our company size, well over 300 interns. And then we, you know, moved to this flexible time off and financial wellness program, which is what new hires are absolutely looking for.
Frankly, if we find a way to differentiate ourselves in the marketplace around expertise for technology, labor, this is the company they're going to find that from first. So flexible time off, a really good financial wellness program that comes free of charge to all of our employees. So look, we finished FY 2023 with attrition running about a full percentage point lower. You know, you can do 1% on 22,000 people and back into how many less people we have to go out there and hire. So for both expertise and for tech, I like what the market's giving us, our ability to hire and retain talent.
Tobey Sommer (Managing Director and Senior Research Analyst)
If I could get your perspective, what do you think of the proposed changes in merger guidelines at the FTC, and how does that impact your acquisition program, and thoughts around that?
Jeff MacLauchlan (EVP, CFO and Treasurer)
Yeah. John will probably wanna, may wanna add some thoughts to this. It's not... I don't expect it to have a large impact on our thinking about managing and evaluating the pipeline. I mean, we're in a position where our focus is on gaps and sort of filling strategic areas that are of interest to us. There's very little, very little in our pipeline that involves either vertical integration or acquiring competitors. It's really about complementary capabilities, which is probably, you know, one of the less threatening, one of the less threatening areas in terms of competition. But I don't know, John, any thoughts you had?
John Mengucci (President and CEO)
I think, I think you've answered.
Jeff MacLauchlan (EVP, CFO and Treasurer)
Okay.
Tobey Sommer (Managing Director and Senior Research Analyst)
Thanks, John.
Operator (participant)
Our final question comes from Louie DiPalma with William Blair. Your line is open.
Louie DiPalma (Research Analyst)
John, Jeff, and George, good morning.
Jeff MacLauchlan (EVP, CFO and Treasurer)
Good morning, Louie.
John Mengucci (President and CEO)
Hey, Louie.
Louie DiPalma (Research Analyst)
Electronic warfare has proven particularly disruptive in Ukraine, and your CTO, Glenn Kurowski, at AUSA, he gave a great presentation on your success with integrating Spectral SIB, your payload into 89 different drone platforms. And has CACI and Spectral SIB distinguished itself versus the many other electronic warfare platforms out there? And are there opportunities, you know, beyond Ukraine for, you know, your solution to be, you know, integrated, like, across the European Union as the country appears to be, you know, investing in preparation of other future conflicts? Thanks.
John Mengucci (President and CEO)
Yeah, Louie, thanks. Look, here's where my mind goes, right? We believe we have some best-in-class electromagnetic spectrum tools, whether it's fixed, whether it's, you know, geo, GEO. When we put a technology model in place, our goal was that we wanted to be a mission package provider to the platform companies, as well as deliver our offerings directly to customers. And which you heard Glenn talk about is the very first part, which is when we build these tools, and I'm sorry, we build these offerings; it's all software-defined. So at the end of the day, if I can put my software-defined unit in somebody's hand, I can put it on someone else's platform. The form factor almost doesn't matter to us because the goal is the software inside.
It's why we talk about software as our superpower. If we look at delivering to an international front, those are going to come with ITAR regulations and the like. So it is not a difficult modification to take a variance of what we use in the, U.S. Some of our partners will want to unilaterally work with us, and if they're a Five Eyes country, they're gonna get potentially more capability. If you're not a Five Eyes country, you're gonna get slightly less. But the beauty of that is the timeline and the small amount of investment we need to make those changes, whether it's a form, fit, or function, is very easy for us because everything is software-defined.
So whether it's Spectral SIB or Spectral Guard or Mag, or Magpie or Accordion or SkyTracker, all of those mission technology offerings for us have a relatively shared baseline. And when we spend money to make that investment case better, we're able to spend it in one, at one time and distribute all of that logic and all those algorithms to many different offerings out there.
Louie DiPalma (Research Analyst)
Thanks, John. That relates to my second question. You just discussed this shared baseline for your software offerings and the CACI team has also developed software for Sapphire, Fade, and Mist, and you also have the large BEAGLE program. For these different software platforms, are you able to recycle a lot of the common components such that you have, like, favorable operating leverage on the next platform?
John Mengucci (President and CEO)
Yeah. So let me take the first part of that. We build and we deliver a lot of AI-based systems, and visualization systems that allow both our DoD and our intelligence customers the ability to take, you know, terabits of data a minute and take all that data and transform that into information so we understand what has to be targeted and what doesn't. Those systems have been in place for a number of years. We continue to move those from one intelligence customer to another, and our, you know, team does a phenomenal job of bringing other users on board.
So one is all of those data visualization tools and all those mapping tools, frankly, are all foundational AI work we've been doing for a long amount of time, whether it's computer vision or whether it's, you know, other facets of AI. We're actually delivering the base reference models and making certain that those models, frankly, are real and they're deployed. We're not advising customers how to make AI happen, we're actually delivering it, and it's being used by the warfighters, both DoD and intel, across the board. As it pertains to the software, yes, those baselines are also built in a manner that we can share those reference models and all of that software across all of our products.
So in that domain, really, not so much the actual form, you know, swap type of things that we would assign to a hardware solution. It's really more about software being this company's superpower, and just how well we have architected things. So when we get the capabilities in place, we're able to stop and repeat, and we deliver. Thank you for the questions.
Operator (participant)
This concludes our question and answer session. I will now turn the call back over to John Mengucci for closing remarks.
John Mengucci (President and CEO)
Thanks, Brianna, and thank you for your help on today's call. We'd like to thank everyone who dialed in, or listened to our webcast for their participation. We know that many of you will have follow-up questions, and Jeff MacLauchlan and George Price are available after today's call. Please stay healthy. All my best to you and your families, and thank you for your continued interest in CACI International. This concludes our call.
Operator (participant)
Concluded.
John Mengucci (President and CEO)
Thank you and have a great day.
Operator (participant)
You may now disconnect.
