CACI International Inc

NYSE:CACI

Earnings Call Analysis

CACI's Fiscal 2024 Delivers Strong Growth and Sets Optimistic 2025 Outlook

CACI reported a stellar fiscal year 2024, achieving 14% revenue growth, driven by both organic growth and strategic acquisitions. In Q4 alone, revenue grew by nearly 20%. EBITDA margin for the year was 10.7%, while free cash flow rose 36% to $384 million. Significant contract awards, including a record $14 billion in new work, underscore strong market positioning. Looking ahead to fiscal 2025, CACI anticipates revenue of $7.9-$8.1 billion, representing 6-8.5% growth, with EBITDA margins in the high 10% range. Adjusted EPS is projected between $22.44 and $23.33, and free cash flow is expected to reach at least $425 million.

Strong Performance in FY 2024

CACI International had a stellar FY 2024, highlighted by a 14% year-over-year revenue growth, reaching $7.7 billion in annual revenue. The fourth quarter alone saw a 20% surge in revenue, with 19% of it being organic growth. This robust performance was driven by strong win rates on new contracts and impressive execution on existing ones, despite facing a higher tax rate and increased interest expenses. Adjusted diluted earnings per share grew 12% year-over-year, reaching $21.05.

Record-High Contract Wins

During FY 2024, CACI secured over $14 billion in contract awards, the highest in the company's history. These wins included pivotal contracts like the $2 billion NASA Consolidated Applications and Platform Services Award and a $100 million contract with the U.S. Army for signals intelligence and electronic warfare systems. Approximately 60% of the awarded contracts were renewals, ensuring a steady stream of long-term revenue.

Focused on Operational Excellence

CACI demonstrated exceptional operational efficiency with an EBITDA margin of 10.7% for the year and 11.5% in the fourth quarter. Free cash flow for the fiscal year reached $384 million, translating to a 36% year-over-year increase. The company's performance in managing working capital, exemplified by record days sales outstanding (DSO) of 46 days, was a key contributor to these results.

FY 2025 Outlook

Looking ahead to FY 2025, CACI expects revenue between $7.9 billion and $8.1 billion, reflecting a growth of 6% to 8.5%. The EBITDA margin is anticipated to remain in the high 10% range. The company projects adjusted diluted earnings per share to be between $22.44 and $23.33. Free cash flow is expected to be at least $425 million, growing around 11% from the previous year.

Future Growth Drivers

CACI is optimistic about leveraging its $32 billion backlog, which increased by 22% over the past year, as well as maintaining a strong pipeline of new opportunities valued at $14 billion over the next two quarters. The company is strategically targeting technology programs that, although slower to ramp up, promise long-term sustainable revenue and margins.

Strategic Changes in Compensation Plans

To align with shareholder interests and drive long-term growth, CACI is revising its compensation plans. Half of the granted long-term incentive shares will be tied to a 3-year free cash flow target. Additionally, a cash collection component has been added to the short-term bonus plan, thereby focusing the management team on sustainable value creation.

Long-term Vision and Resilience

The company has consistently proven its ability to adapt and thrive amidst changing market conditions. With a focused strategy on engaging in high-value, differentiated capabilities, and well-funded national security priorities, CACI is well-positioned for future growth. The company’s robust business development process, strong operational execution, and disciplined capital allocation strategy underscore its commitment to delivering long-term value for its shareholders.

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the conference call over to George Price, Senior Vice President of Investor Relations. Please go ahead, sir.

[George Price, executive]

Thanks, Rochelle, and good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI. Thank you for joining us this morning. We are providing presentation slides, so let's move to Slide 2. There will be statements in this call that do not address historical 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 our company's SEC filings. Our safe harbor statement is included in [indiscernible] and should be incorporated as part of any transcript of this call. I would also like to point out that our presentation will include discussion of non-GAAP financial measures. These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Let's turn to Slide 3, please. To open our discussion this morning, here's John Mengucci, President and Chief Executive Officer of CACI International. John?

[John Mengucci, executive]

Thanks, George, and good morning, everyone. Thank you for joining us to discuss our fourth quarter and fiscal year '24 results as well as our fiscal '25 guidance. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Slide 4, please. CACI delivered strong results in the fourth quarter, closing out an exceptional year by delivering 20% revenue growth during the quarter. For the full year, we delivered revenue growth of 14%, coming in ahead of our guidance, which we increased several times during the year. We delivered EBITDA of nearly $800 million with an underlying EBITDA margin of 10.7%, consistent with our guidance. We also generated free cash flow of over $380 million and free cash flow per share of $17, the latter, an increase of 41% from last year. And we won over $14 billion of contract awards, the highest in company's history, which represents a 1.9x book-to-bill for the year. Nearly 60% of that award value is renewed business to CACI, and we continue to perform very well in our [indiscernible]. Slide 5, please. The outstanding results we delivered in fiscal '24 are a testament to our successful execution of a consistent, well-defined and market-aligned strategy. A key enabler of our performance is business development. And as you can see, our BD change performance has been exceptional. Our fourth quarter awards alone were $5.4 billion, representing a book-to-bill of 2.7x. These awards add to an already impressive list of wins we have discussed in recent quarters. In fact, we have won 7 awards of $1 billion or more in the past 2 years, which supports our ability to drive long-term growth as these programs ramp over multiple years. Our strategy of investing ahead of need, bidding less and winning more, focusing on larger and longer-term duration opportunities and proactively shaping those opportunities enabled CACI to win significant new work in fiscal '24. In addition, our focus on superior execution which is foundational to the culture and always the top priority, further supports our growth through sole-source extensions and expanded recompetes. We are in the right markets, delivering high-value differentiated capabilities and executing at a superior level, all of which support our ability to grow free cash flow per share in order to value our customers and shareholders. Slide 6, please. Let me highlight a few of our fourth quarter awards that bring the successful execution of our strategy into focus. First, we won the 8-year $2 billion NASA Consolidated Applications and Platform Services Award known as NCAPS. [indiscernible] will deploy an agile-at-scale delivery model to standardize and centralize [indiscernible] development for more than 200 systems across NASA, enhancing quality, efficiency and speed of delivery. These are critical outcomes for our customers, and we invested ahead many years ago to develop industry-leading agile software capabilities, identifying and shape the right opportunities, ensure our customers [indiscernible]. With the NCAPS win, CACI is now executing the 3 largest agile programs in U.S. government and we see a healthy pipeline of additional opportunities, but these capabilities will continue to be a differentiator. Second, CACI was awarded a $100 million contract by the U.S. Army to provide signals intelligence and electronic warfare systems with a Terrestrial Layer System Manpack program of record. Our Manpack Systems enable dismounted soldiers to conduct signals detection, direction finding and electronic attack while on the move, supporting the Army's multi-domain operations and helping to dominate the electromagnetic spectrum. As we have discussed before, this is an increasingly critical domain and one where the U.S. is still in the early stages of modernization and investment. This award also highlights the progression of a customer moving from purchase order awards through acquisition of our technology via program of record that will contain larger volumes in a single award. This provides for a more consistent award basis, enhances the visibility of our business. Lastly, I'd like to highlight 2 new expertise awards that illustrate our deep domain and technical knowledge, our industry-leading talent and the opportunity to inform our technology. We won a 6-year $239 million task order to provide intelligence analysis and operational support to the U.S. Army Commands in Europe and Africa. Every day, we see the headlines of how the U.S. and its allies face increasing national security challenges across these regions, which is driving enduring requirements and resilient funding. CACI is uniquely positioned to assist the army in anticipating and responding to these fast-evolving and complex threats. We also won a 10-year contract worth up to $450 million to provide operations and technical support to the Joint Navigation Warfare Center, part of the U.S. base force that focuses on Positioning, Navigation and Timing, or PNT for the U.S. and our allies. PNT capabilities are a critical national security priority and an area where we have invested ahead of need in both technology and talent. This new work with the space force provides opportunities for future expansion as well as the potential to inform our technology investments over time. Slide 7, please. Turning to the macro environment. We continue to see healthy demand and a strong pipeline of opportunities. Customer demand continues to be driven by the elevated global threat environment, the evolving capabilities of our adversaries and the rapid pace of technology change with a significant need for modernization across government. CACI's expertise and technology are intentionally aligned with enduring and well-funded national security priorities, including the electromagnetic spectrum and counter [indiscernible], application and network modernization, cloud migration, cyber and intelligence analysis. And this is true not just for the United States but for our allies as well. From a budget perspective, government fiscal year '24 was supportive of CACI programs. We believe government fiscal year '25 will be no different. We are monitoring the GFY '25 budget process and overall, the budget is shaping up in line with our expectations. Like most years, we expect the coming year will bring -- will begin with a continuing resolution. And as I've said, this typically does not have a material impact on our business. and we are very comfortable with the funding levels we see at this time. Slide 8, please. Looking back on fiscal '24, I'm very pleased with the execution of our strategy, our exceptional contract awards and our strong operational and financial performance. Combined with the constructive macro environment, this provides a great foundation for CACI as we enter the new year. With that in mind, in fiscal '25, we expect free cash flow per share growth of 11%, revenue growth of 6% to 8.5% on an underlying basis, which excludes the nonrecurring $200 million of materials last year, and EBITDA margin in the high 10% range. Jeff will provide additional details on this guidance shortly. Our FY '25 outlook is consistent with our value creation model, which is focused on driving long-term growth and free cash flow per share. In fact, I want to share that we are making changes to both our long-term incentive plan and our short-term annual bonus plan. Going forward, half of CACI's granted long-term incentive shares will be performance stock units tied to a 3-year free cash flow target. Additionally, we have added a cash collection component to our short-term bonus plan. The result is that we're focused and incentivized on delivering value for our shareholders. That is our commitment. And I look forward to updating you all through the rest of the year. With that, I'll turn the call over to Jeff.

[Jeffrey MacLauchlan, executive]

Thank you, John, and good morning, everyone. Please turn to Slide 9. As John mentioned, we are very pleased with both our fourth quarter and fiscal year '24 performance, and not only is it continued strong performance, but it's very much in line with what we've communicated to you throughout fiscal year '24. In the fourth quarter, we generated revenue of $2 billion representing nearly 20% year-over-year growth with 19% of that being organic. The balance was generated by the 4 acquisitions we've made over the past 12 months. EBITDA margin was 11.5% in the quarter, consistent with our expectations and a 60 basis point increase year-over-year. Fourth quarter adjusted diluted earnings per share of $6.61 were 25% higher than a year ago. Greater operating income and a lower share count more than offset a higher income tax provision. Operating cash flow for the fourth quarter reflects strong profitability and record days sales outstanding or DSO of 46 days as we continue to manage improvements in working capital. Free cash flow of $135 million for the quarter represents good sequential and year-over-year increases. Slide 10, please. Turning to full year results. We delivered significant top line growth, strong margins and good cash flow. In fiscal year '24, we generated $7.7 billion of revenue, representing over 14% total growth and just under 14% organic growth. This performance was well ahead of our initial expectations. You may recall that when we provided our initial FY '24 guidance last year, we discussed a number of factors that could drive results toward the upper end of that guidance. We outperformed on most of these factors. In particular, stronger win rates on new work, faster ramp-up of our awards and successfully defending our recompetes. Underlying EBITDA margin of 10.7% for the year was in line with our guidance, which as a reminder, excludes the impact of nonrecurring $200 million of no-margin material revenue recognized in the first half of FY '24. Fiscal year '24 adjusted diluted earnings per share were $21.05, up 12% from the prior year despite both a $21 million increase in interest expense and a tax rate that was 250 basis points higher. Delivering 12% year-over-year growth despite these headwinds, underscores our robust operating execution.

Operating cash flow for fiscal '24 also reflects strong profitability and cash collections that drove free cash flow of $384 million, which represents a 36% year-over-year increase. We did not receive the $40 million tax refund related to prior year tax method changes that we discussed with you last quarter and was in our fiscal '24 guidance. The IRS has accepted our treatment of the method change, and we now expect to receive the refund in fiscal year '25. Slide 11, please. The healthy long-term cash flow characteristics of our business are modest leverage of 1.8x net debt to trailing 12 months EBITDA and our access to capital provides us with significant optionality. We remain well positioned to deploy capital in a flexible and opportunistic manner to drive long-term growth and free cash flow per share and shareholder value. Slide 12, please. Now I'll provide some additional details on our fiscal year 2025 guidance. As is our practice, we undertake a bottoms-up program-by-program forecast, plus our expectations for new business by specific opportunity. For fiscal year 2025, we expect revenue between $7.9 billion and $8.1 billion, which, as John mentioned, represents growth between 6% and 8.5% on an underlying basis. EBITDA margin is expected to be in the high 10% range. We expect adjusted net income to be between $505 million to $525 million, which translates into adjusted diluted earnings per share of between $22.44 and $23.33 and does not contemplate any share repurchases or acquisitions that might occur during the year.

And finally, we expect free cash flow of at least $425 million, which equates to free cash flow per share of about $18.89 and growth of approximately 11% from last year based on our full year diluted share count assumption of 22.5 million shares. This free cash flow guidance reflects the influence of 3 factors: slightly higher DSO compared to our current record level, inventory growth associated with ramping technology programs and cash usage associated with Q4 accounts payable volume following that quarter's strong revenue growth. Additional details of our guidance have been included in our presentation to assist you with your modeling. I would note that we again expect higher profitability in the second half of the year versus the first half. In particular, we expect Q1 fiscal '25 EBITDA margin to be consistent with the first quarter of last year on an underlying basis, which was 10%. Similarly, we expect a steeper ramp-up of free cash flow during the year, and I will remind you that a period of factors can skew quarterly trends such as the timing of material purchases and higher-margin technology deliveries. Slide 13, please. Turning to our forward indicators, our prospects continue to be strong. As John mentioned, fiscal year '24 awards were over $14 billion with a healthy mix of new work and recompetes. Our trailing 12-month book-to-bill ratio of 1.9x reflects excellent performance in the marketplace. Our backlog of $32 billion increased 22% from a year ago and represents full years of annual revenue. The weighted average duration of awards that went into backlog in FY '24 was nearly 6 years. The longer weighted average duration equates to less revenue contributed in any one year, but together, these metrics provide good visibility into the long-term strength and cash generation potential of our business. As we enter fiscal year '25, we expect approximately 84% of our revenue to come from existing programs, with approximately 10% for recompetes and 6% from new business. This is consistent with how we started FY '24 as well. We continue to have a healthy pipeline of new opportunities. We have $9 billion of bids under evaluation, over 90% of which are for new businesses to CACI. We expect to submit another $14 billion of bids over the next 2 quarters with about 80% of that for new business. In summary, we delivered outstanding fourth quarter and fiscal year '24 results. As we look to fiscal '25, we expect another year of good performance with healthy growth in free cash flow driven by good top line growth and strong margins. We are winning and executing high-value enduring work that supports increased free cash flow per share, long-term growth and additional shareholder value. And with that, I'll turn the call back over to John.

[John Mengucci, executive]

Thank you, Jeff. Let's go to Slide 14, please. In summary, we had a fantastic fiscal '24. In a volatile and rapidly changing world, CACI delivered expertise and technology that made a difference to our customers, and we also delivered on our commitments to our shareholders. We won a significant amount of high-value new work delivered with excellence on our programs, and successfully defended our recompetes. We continue to invest as of need in both our capabilities and our talent. Our performance builds an increasingly strong foundation for growth in fiscal '25 and beyond. We are further demonstrating alignment with our shareholders by focusing incentive compensation on free cash flow generation. The business we have built over the last 10 years is well positioned to deliver long-term growth and free cash flow per share and increasing value for our shareholders. We've built a leading business development team, and they are winning in the marketplace, capturing larger, longer duration awards. We've driven significant improvements in margin in DSO, with a continued focus on execution, working capital management. Our leverage of 1.8x will allow us to deploy significant capital and we have a meaningful benefit for our business and our shareholders over the long term. And trust me, we're not done yet. Finally, as is always the case, our company's success is driven by our employees' talent, innovation and commitment enabled by our culture of integrity and ethics. So each and every CACI employee, thank you. I could not be prouder of what you've done to contribute to our company and to our nation. To our shareholders, I thank you for your continued support of CACI. With that, Rochelle, let's open the call for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Bert Subin of Stifel.

[Bert Subin, analyst]

Great quarter. I mean pretty impressive to see almost 20% organic growth, so pretty unusual for this industry. As we think about FY '25, I mean, you've won a ton of work in FY '24 and some of that has come in as recently as this week too into FY '25. Can you just give us a little bit of color on how you're thinking about the ramp-up for new work in '25? And then maybe how you're going about ensuring execution is not going to be an issue? Obviously, a lot of labor to be added just to go after the awards you've won. So I'm just curious how you're thinking about those 2 things?

[John Mengucci, executive]

Yes, Bert, thanks. So look, let's talk about ramp, but let's start that discussion around how we came out of '24 because I think it's instructive as to help you ramp when we get to '25. If you look at our 3 major program wins, that played into our revenue growth in '24. FocusedFox, approximately 90% ramps that drove a material portion of our '24 growth, [indiscernible] Spectral provide additional ramp but better than we originally planned, which drove additional growth. And then on contract growth from all our other programs were a little more net positive, the programs that we're ending, and that provided the remainder of our '24 growth. So that's how '23 awards unpacked in '24. If we look at how we look at FY '25 going forward. FocusedFox, mostly in the base, a small incremental growth. Spectral, more material growth from '24 with Spectral will be starting their LRIP phase most likely during the third quarter. It's going to require a higher-than-normal working capital. And then, look, we've talked a lot about the difference in ramp times, converting awards to revenue, as you've all asked between expertise and technology programs. This should be the use case on what we mean every time. We have the discussions around ramp. So we can all model growth better in the future. In fiscal '25, we have multiple technology programs ramping in total to just above the ramp value of FocusedFox when we went through 2024. And that fact should be very instructive because technology programs do ramp over 5, 6, 7, 8 years. So the fact that we have multiple technology wins in our $8 billion of awards in total, ramping the same value of the FocusedFox did, does show the difference between expertise and technology ramp. Now clearly, technology jobs drive so many other positive areas. So they don't immediately go into the base. And that's what drives residual growth. You're seeing that with [indiscernible] and Spectral going forward. Let me also finish the ramp piece that -- some of the $8 billion of awards are software-driven type technologies. I talked about the[indiscernible]. That's going to have a higher percentage of working capital. That's going to be required. I mean frankly, we're going to support the maturation of our products, which is going to help drive even longer-term free cash flow share. So what we should all hear in that is timing, timing of when that free cash flow per share growth comes. And look, we did our best estimate of how this is going to [indiscernible]. Look, if timing accelerates or starts to unpack sooner in the year, then we get to the right goal post, which is what we did in '24. If someone pack lighter or later in the year, there's a left goal post. Almost 5 of our major 7 programs that we won, we won during the fourth quarter. So that's going to play into how that ramp changes. You also asked about execution and that's a terrific question. Look, we're -- we've got a line organization that recognizes that we're getting larger and broader and that we need to continually ensure commonality of process so that we can reliably deliver. We have a stellar knock-on-wood track record of operational excellence throughout this company. It truly as my opening remarks stated, it is in the culture of this company. Everything we bid comes with an eye on how we're going to execute this job. And that gets into how we price and how we bid our large expertise jobs. It also gets into the terms and conditions we're willing to accept on our large technology jobs. As for staffing, we just started our fiscal year '25 with the top leaders, senior leadership operations site where our HR organization talked a lot about staffing and a lot about the fact that Zoomers are the new boomers. And how are we going to source talent not only by degrees but by the skills that they have. So part of it is making certain that we are making changes in this business ahead of when we have to, to make sure that we can enhance skills of our current employees and also look at skill-based hiring. So we're very confident on the execution piece. The one question here always is how these things have happened.

[Bert Subin, analyst]

That's very helpful, John. Maybe just for my follow-up for Jeff. Balance sheet is in extremely good shape. I mean on a trailing 12 basis, you're at 1.8 on a forward basis or even lower. Can you think about -- can you sort of help us understand how you're thinking about uses of the balance sheet. I believe can you confirm that's not included in your guide. So how are you thinking about that as FY '25 is there?

[Jeffrey MacLauchlan, executive]

Thanks for that, Bert. Yes, our guide presumes no share repurchases and no acquisitions, and we fully expect to do at least some of that, obviously. We've talked about this before. I mean our key approach here is about being flexible and opportunistic. We keep a pretty close eye on the acquisition target pipeline. We are constantly evaluating those things. John may want to -- or may want to comment a little more on targets and evaluation. But the really -- this is a result of -- you know this. I think we've said it before, a pretty disciplined, rigorous analytical process. That part is science. The art is sort of marrying that with our view of what's in the pipeline and the rate at which things may happen or not happen. So I'll let John talk a little bit more about acquisition targets. But that's sort of the framework, which is no different from what we have done in the past.

[John Mengucci, executive]

Yes. So look, we consistently get questions on how the M&A market works. I mean we are a serial acquirer, we'd like to fill long-term gaps with other companies out there. Frankly, the M&A market is looking better. Some of the potential targets would provide the opportunity for us to fill long-term gaps based on our market strategies. Some are going to be [indiscernible] Spectral area, some are going to be in cloud and AI, others are going to be in sort of the C4ISR and cyber area, although I will admit that electronic warfare is -- continues to sort of connect SIGINT with cyber with EW with AI and machine learning and all. Jeff already mentioned it, [indiscernible] but we're a disciplined acquirer. We're not buying revenue. We're buying capabilities, customer relationships that allow us to sit on these calls for a number of years talking about how that acquisition 1, 2, 3, 7, 10 years back set us up very, very well. We're going to balance that with a healthy leverage and as Jeff said, a watchful eye on measurements to stock valuation and determine the best way for us to deploy capital both in the short term and in the long term. So Bert, thank you for your questions.

[Operator]

Your next question comes from the line of Cai von Rumohr with TD Cowen.

[Cai Von Rumohr, analyst]

Spectacular book-to-bill. So John, what is the -- 40% of your bookings, I guess, were recompetes. What percent of your sales of this year are recompetes? And secondly, you mentioned the relative growth of tech and expertise. What should we look for, for tech and expertise if you kind of hit your sales growth and how fast are each of them going to grow?

[John Mengucci, executive]

Yes. Cai thanks. So 40% of our last year awards were recompetes, 10% of our '25 revenue is based on winning '25 and recompetes. I'll tell you in '24, we were north of 90%. We did an outstanding job of protecting what is ours that we believe should still stay ours. So that worked out fine. When you talk about what you should expect in the future around...

[Cai Von Rumohr, analyst]

The question was what was the relative rate of growth this year between technology and expertise?

[John Mengucci, executive]

Yes. So if we look at -- from a revenue side, Cai, if you look at how '25 plays out, the larger percentage of our new business wins were in tech. But as I shared earlier, those are going to ramp up more slowly than our expertise wins, very much similar, Cai the way '24 ramped, right? We had a large ramp, a large quick ramp-up of the large intel program in '24. So the expertise wins in '25 will ramp up in the same manner. We're doing a great job of staffing. On the technology side, we've got a number of new wins that are going to ramp up slowly, similar to what we saw in 2025 and '24. What I think I would guide you towards is sort of how we do our guidance, right? We we've got to assess a lot of variable on how the customer reacts and how the market acts. If we look at guidance in how these new programs ramp and how [indiscernible] ramp. We always look at win rates, are they lower or higher than what we assumed. Our program is going to ramp more slowly or more rapidly, '24 is a perfect example, where we put the guide right in the middle and the majority of the things go to the right goal post versus the left golf post. Funding, I believe will still stay funded. How quickly customers issue RFPs? The other factor, Cai, is that 6% of our revenue with 25% will be based on new wins that we would pick up in '25, right? So that's going to force customers to get our fees out and also make decisions in a timely manner. If they make timely decisions faster, then it will break more towards a right goal post. So look, we would expect that '25 is going to play the same as '24. We have an election year. We can talk a lot about budgets and all, but I like the hand that we have.

[Cai Von Rumohr, analyst]

Great. And maybe give us an update on where we are with Photonics. I guess a big focus last year was on completing your investment, and this was going to be the harvest period, where are we in that?

[John Mengucci, executive]

Yes, Cai. So I believe in previous calls, we -- I was quoted saying, we were in the seventh inning of investments in the bottom of the first delivery. Look, the majority of investments are complete, and that got us to a reliable design on our photonic optical terminals. Look, we're always going to have investments in producibility maturation that's going to continue to require both CapEx and working capital as we move forward. But I'm very pleased with the position that we're in.

We delivered in the mid-teens terminals during FY '24, Cai. We're looking to deliver 6 to 8x that volume during FY 2025, and that's going to take us somewhat up that curve of deliveries while we're still entertaining additional bids and other applications or where we can take Photonics. And I think that Photonics is another example, as TLS Manpack is and the fact that we're going to move towards Spectral production most likely in the third quarter, those production-like programs really connects to Jeff's prepared remarks, around additional use of working capital. It should be clear now that the percentage growth in our business is not to predict our working capital, but more importantly, as you always ask how these programs ramp, the type of programs that we're delivering, very little capital very little CapEx around the expertise programs, but materially more as we look at that technology as it should be because that's going to be the larger growth metric.

[Operator]

Your next question comes from the line of Peter Arment of Baird.

[Peter Arment, analyst]

John, just to echo everyone's results, terrific results, $14 billion contract awards and then we think about pipeline of new bids and you've got, I think, in your charts, you had next 2 quarters, you've got $14 billion of bids that potentially, I guess, be submitted for 80% of its new business. Do you think -- how do we think about like the -- your mix from a contract structure, either it's cost plus or fixed price or however you want to explain it via technology. When you look at this pipeline, do you see this kind of mix changing? Or is a lot of it still in the same wheelhouse of where you've been in previous awards?

[John Mengucci, executive]

Yes. Peter, $14 billion, it's a record, right? I mean it's quite awesome. Now what I'm going to make sure I say at least once on this call is that awards are lumpy. You all know that I'm not fond of holding a record but I have to admit it's an awesome delivery. Look, let me start with, I think how we got here. And I will talk about mix between contract type and what you all can see. But I think it's important to sort of take a slight step back and just make sure we all understand that the hand we're playing is not by accident. Our job is to ensure we continue growth in everything that we do. Those warrants are a result of working really hard to stay focused on our long-term strategy, which is really hitting year-over-year markers that to mirror the sign of a business that's intentional and not opportunistic. We can talk about where the drone threat is. We bought a company 9 years ago to worry about [indiscernible] and where drones are going to end up. And yes, we bought maybe a little bit ahead of customer need and we put some worthy investment. That's the beauty of our M&A plan, that we're looking for those long, narrow deep streams of funding. Where we sit today where we can talk about great growth and great free cash flow per share. It's even a strategy that's intentional. We really try to find things at the nexus of the needs of the customer that need software-based solutions that can keep pace with the threats that they are facing.

The repeatable BD process is creating quality captures. And when we look at how that mix comes out, we expect it to be always more technology than an expertise, but it's lumpy. Why do I say that? It doesn't mean that expertise work is not an interest to us. We've won some phenomenal jobs. It just means they can be much more selective, okay? And most of those expertise jobs, Peter, are going to be time and material jobs or cost-plus jobs because in many instances, the customers sort of know the kind of support that they need, but that always changes. On the technology programs, a lot of the work is going to be a mix of cost plus and fixed price, right? And what we enjoy since our solutions are software-based is that let's get the design done under a cost-plus framework. And then let's move to a fixed-price production side. When your "production" is, I don't know, 60%, 80% software-based, it's not as risky as any method, right? You can make changes for swiftly, Spectral, perfect example. RFP 4 years back, customer awards at the threat completely changes, customers every day are more excited that they selected us over everybody else because we're able to use software to make changes to that program to actually stay with our original LRIP production schedule. So I think you're going to see the contract mix move around. I think it will always be predominantly cost plus but a nice part delivery model where we're delivering to purchase orders and we well should deserve higher margins because that's our investment dollars, making sure that we're there to support our customers.

[Operator]

The next question comes from the line of Mariana Perez Mora with Bank of America.

[Unknown Analyst]

This is [indiscernible] on for Mariana. I guess just double-topping on those submitted bid pipeline and what you're expecting to submit in the next 2 quarters? How should we be thinking about the win rate on those new opportunities? And then also kind of a breakdown, are those new opportunities or like new-new opportunities or takeaway contracts?

[John Mengucci, executive]

Got you. One, I would expect that the pipeline plays out consistent with last year. I'd love to be very predictive on win rates and all and if I was [indiscernible] the business -- but look, I think we're doing the right things. We're not bidding on things that are out of our sweet spot. It's all within the markets that we serve. There's so many factors, frankly, that goes into win rate. I'll also tell you that a lot of this is timing. We have $5.7 billion of rewards in the fourth quarter. Be it by 2 weeks, we might have had $2 billion less than and had $2 billion in the first quarter now. So -- but I think what's important and foundational is when we share those numbers, it's not so much the numbers, it's the quality of things that we're out there chasing. We're not giving really nice strong win rates by accident. It actually is a function of a great line and this is how the team is working together with our client-focused folks, making certain that what we're bidding on is a quality bid So look, I like the odds of us winning more than not. What we feel confident about is we did some prudent work on our potential win rates [indiscernible] guide. And again, if win rates improve as they did in '24, from where we see their potential now, we'll be at the upper end of the guide. If they're not there or they get delayed, then we can be slightly towards the left hand. But nice quality, similar type mix, more technology than expertise and all focused on at or above the current margins that we produce today.

[Jeffrey MacLauchlan, executive]

The second part of that question about the new content, the $9 billion under evaluation, about 90% of that is due to us. The $14 billion we expect to bid in the first half of FY '25, 80% of that is due to us.

[Unknown Analyst]

And then for those new contracts, what kind of gives you the confidence that CACI can win market share for any of those that are maybe a takeaway contract where there's a different incumbent now? Kind of what gives you that confidence?

[John Mengucci, executive]

Yes, it is the recipe we put in place a number of years ago, and we continue to build on. We're going to be involved in programs where we've spent a number of years shaping what we believe are the possible customers. So a typical capture for us starts 2 to 3 years prior when the RFP comes out. A great example is our NCAPS job, right? So we're very, very well steeped in agile software development and how we deliver and how we can rapidly update what our customer needs. So that was foundational on the NCAPS job. The second piece was spending 3 years with the customer. How do you like the value that's being delivered to you today by whoever your current delivery is? If they say they're not extremely happy and that they like to take this somewhere else and we sit with them and show them this is possible and then based on that, we'll invest ahead of customer need and we'll put investments in place to make certain that, that customer gets a comfort with working with us. That's over 1,000 days before the RFP comes out. And if we're to that point that we have a pretty good idea of how the customer operates, the type of contract vehicle that works for them and us, the level of budget that they have to plan for and then if you wrap that sort of putting the right key personnel in place, that is the recipe for a Spectral win and a large intel customer enterprise expertise win. And it was the recipe that brought $2 billion multiyear and capital for us. So we have some history here that doesn't always work, but it gives us the confidence that we're spending precious dollars on growing the business versus playing a lot of time reinventing the stuff that's already in our revenue. Thanks for the question.

[Operator]

Your next question comes from the line of Robert Spingarn with Melius Research.

[Unknown Analyst]

This is Scott on for Rob Spingarn. John, I wanted to ask you a question. So Spectral was a big award for you guys that we normally would have expected to get to the large traditional defense primes, but you leverage software to deliver a solution there. And [indiscernible] actually joined your team on that. So I was just wondering if you could elaborate on other opportunities where you think your software capabilities can be a differentiator to win larger programs that typically would go [indiscernible]?

[John Mengucci, executive]

Yes. Look, one thing speaking of [indiscernible], they're phenomenal companies. They all build eye-watering platforms, and we should be proud of everything that those companies do. We just believe here that there's a level of mission that we can deliver more agilely and in a manner that allows customers to address threats at the speed of the fight. And I actually believe wholeheartedly, that's a better value proposition to our customers who are facing our pricing all around the scope. So when we looked at software and the teaming, we partnered with [indiscernible] outstanding team, they sweetly augment our Spectral delivery, okay? Because they have expertise in areas that we don't. And that's what our customers want us to go to go do, lead with software, lead with agility, connect with partners who can provide the other pieces that we don't provide and then give them an experience and a set of outcomes that are absolutely eye-watering. I shared NCAPS, that's a customer that has 200 or so different systems and apps that need to be continuously updated in an agile manner across all of NASA. You can look at the counter [indiscernible] threats. It's the same step and repeat, okay? What we do on Spectral, all software processing below the deck plate taking threats and signals and what is that, how do I find it? And how do I rid that of my world is similar to what the [indiscernible]. And frankly, there's a lot of companies that are looking at these level 1 and 2 drones that are not what we can have it across the world, okay? These are -- these are large country state actors, Level 3, 4 and 5 drones that are very complex. They change their tactics and their TTPs every other hour. So there's a large amount of work in the counter [indiscernible] world. There is also where do we take things like Spectral, where do we take things like [indiscernible]? Where do we take things like [indiscernible]? It's a step and repeat model. And once customers feel comfortable that a software-based solution is actually better and quite more in the current decade of what this customer base needs. Frankly, the opportunities is not our worry, the opportunities are basis for us to select the right ones. And those are going to be with customers who are willing to change. So -- and it's going to be changing how they buy. Having the Army moved to a program of record to buy exquisite electromagnetic spectrum technology is a major step forward as investors and sell-side analysts don't pass that because that is extremely important. That is called acceptance. And to wrap up, a customer like the United States Navy picking CACI, a software powerhouse, bringing all their traditional vendors along is also another marker that says that, that part of the market is ready to [indiscernible].

[Operator]

Your next question comes from the line of Matthew Akers with Wells Fargo.

[Matthew Akers, analyst]

I wanted to ask about free cash flow conversion. I think in the past, CACI has been kind of well above 100%. So you guys a little bit this year and makes sense to some of the working capital. But I guess do we get back to that 100%? Or is there something sort of different about some of this technology work that maybe a little bit more working capital-intensive?

[Jeffrey MacLauchlan, executive]

Yes. Thanks for the question, Matt. You should continue in the longer term or even medium term to think about us as a 100% net income conversion. We happen to have an influence of factors here in the ramp of new programs as well as sort of finishing up a couple of years of nonrecurring items that are kind of anomalous. And we're working through of that phase of our cash profile. But steady state over time here over the next year or 2, we fully expect to be back in that sort of range, and that's the way you ought to model us in the longer term.

[Matthew Akers, analyst]

Got it. That's helpful. And then I guess one more, just the O&M outlays data, I think a lot of us look at every month, be pretty weak lately. Is there any kind of signs you're seeing from your customer that would explain it? Or any way you can help us sort of understand kind of the difference between that data and what seems to be a pretty good growth for you guys?

[Jeffrey MacLauchlan, executive]

Yes. Look, a couple of things there. One is when we have an extended CR as we had while we're income with fiscal year '24, what traditionally happens, is that, that spend at no greater than last year's spending rate. That really bottles up O&M spending early in the year. So you're going to see customers in more O&M towards the end of the year as they get to the end of September, and that's something that we're watching. We're a big modernization through sustainment companies as well in those O&M dollars that could bring some additional growth. So it's both of those things. It's nothing that's extraordinary. But what you'll see is that O&M dollars to be placed is going to be larger, the longer you see ACR go forward. So similar to other CR years, but a nice trend. Also allows customers to [indiscernible] funds to go after more urgent needs. And I would put out there that in my lifetime, there -- I've never seen a time when there's so many urgent needs across numerous Commanders where some of that end of the year all want may make it place towards defending some of those threats. Thanks, Matt

[Operator]

Your next question comes from the line of Tobey Sommer with Truist Securities.

[Unknown Analyst]

This is [indiscernible] on for Tobey. If we could maybe just double-click on sort of what you're seeing in terms of recruiting for top tech and expertise talent and if you've seen any sort of change in your retention or attrition in the past couple of months?

[John Mengucci, executive]

Yes. Thanks. I made some reference to our senior leadership offsite earlier in our fiscal year, second week July and really talked about how the workforce is changing. It's nothing that's going to happen tomorrow afternoon at 3, but it's going to be something that is starting to show its end. And a company like ours is very strategically based. We talk a lot about markets we serve and investing ahead of customer need. We also invest ahead of talent needs as well, right? You don't generate revenue with great awards if we don't have talent. Look, we're very focused on how do we as a company look at taking people into the company with a skill set that, frankly, across the majority of things that we do within 5 years, that skill set is going to be not fulsome enough to do the work we need to do. So how do we internally, how do we build a program, it's not just about leadership training and some additional training. It really is about core skills upgrading. We get folks in this company as Zoomers and 20 years from now, everything that they came to the company with is going to be completely different, right? So good news is we are a strategic company. Strategies in place where we come from and our HR department got all of us on board saying, here, so we're going to have to hire differently. Here's the kind of skill set programs. Here's the changes in our internship program to make certain that even while folks get to us as a stop for knowledge, frankly, it will be 3 years if they're part of our company, their skill sets are going to need to be online. How are we doing? About 50% of our world-class force comes from referrals. About 25% of all the openings in our company are filled by someone else within the company. So I'm doing this today. I want to go do that tomorrow, maybe need a skill set upgrade, pull into the ramp and get your skill set trading and then go back out on the track doing different work for us. So look, I'm really happy and really confident. Retention is up, attrition is down. Again, something else it doesn't happen by accident, great first-line leaders making certain that we're keeping folks here with us. And frankly, you win $14 billion of awards or last year double-digit awards on the things that matter in markets that matter that are well funded, you're a younger employer due to the work workforce. I'm going to pick a company that's software-minded because that implies change and that change implies opportunities, and we're going to invest in that.

[Operator]

Your next question comes from the line of David Strauss with Barclays.

[David Strauss, analyst]

Just on the margin profile throughout the year. So last year, without the material purchases, you were around the 10% level in the first half and 11% plus in the second half. It sounds like you're implying a similar profile this year. What explains that? Is that just volume? Or is there something else that explains that first half versus second half difference in margins?

[John Mengucci, executive]

Yes. Thanks, David, for the question. We have -- as you know, we have over the last couple of years, developed a pattern of having higher volume and higher margins in the back half of the year over the first half. And it really relates to customer buying patterns. It's not a -- it's not a mysterious thing, but -- we have certain customers and certain particularly technology solutions that seem to -- that fall into those periods in the year. It's just -- it's customer buying behavior.

[David Strauss, analyst]

And on the -- to put a finer point on cash flow. So Jeff, it looks like maybe you're assuming about $100 million of working capital usage for the year, is that right? And then I guess, a couple -- and then Section 174, is this the last year of that impact? And I guess the last question I had was your book tax rate you're implying a bit higher this year, what's driving that change?

[John Mengucci, executive]

Thank you. So the working capital, I'm probably not going to get into the specific amounts, but it's sort of on that order. And it's split across the 3 things that I have mentioned in my prepared remarks. The -- let's see, what was the other one, the tax rate. The tax rate from the midpoint of our guidance range is about 160 basis points up -- it's driven by several things, but the 2 real drivers in it are a higher blended effective state tax rate, which is just the distribution of the income that we generate by state moving around a little bit to higher rate jurisdictions. And then the second thing is last year's increase in the U.K. statutory rate, we have now for a full year. And I think we had it like 7 months last year. So we now -- we have it for a full year. And then the Section 174, no, it continues, although it's declining, in accordance with the guidance we've given you before. I think about $20 million a year, but there are 2 more years of that to go.

[Operator]

Your next question comes from the line of Seth Seifman with JPMorgan.

[Christopher Barbero, analyst]

This is Rocco on for Seth. Does CACI have any work directly or like second order related to Ukraine that could be at risk if the U.S. cuts off funding? And if so, would you guys be able to size it?

[John Mengucci, executive]

Yes, thanks. We have a nonmaterial amount of work in the terms of revenue that we're doing there. I really can't size it beyond that, and I probably can't say much more than that other than -- you all know the kind of technology that we deliver and what we do, and I'll leave you to your assumptions there, but it's not from a revenue side, Rocco. It's not the -- there are other international customers that are looking at what it is we deliver. And in future quarters, we'll be talking about how we're building out what our international strategy is there. But I think that's probably all I can talk about.

[Christopher Barbero, analyst]

Okay. That's helpful. And then how is CACI progressing on integrating AI into the contract award and execution processes?

[John Mengucci, executive]

Yes. We've got about 200 programs that have some version of AI in it. So as I mentioned, look, we are on the mission side of many of our customers. Since we're on the mission side. We're on the data side of many of our customers. We're well versed everything from visualization to computer vision to machine learning and all the other elements around AI. It's sufficient to say that the fact that we're software-based and on the highly technical side, and we actually deliver things that we like to call AI today versus advice on it. We've been pretty steep in it. A lot of it is in the intelligence community, so we don't talk about a lot. But you can only imagine, given where the world threats are today, the fact that we are present in every combat and command the fact that we're responsible for protecting troops and defending this nation. This is a company that actually uses and delivers AI to the folks who are building and looking for mission technology to sort again an informational advantage. So we've been in AI for a really long time. We continue to [indiscernible] for an extremely long time because everything we do at the mission level with our software-based technologies have demanded for decades that we understand how to do more with less and how to process more of our data faster.

[Operator]

We'll take the final question from the line of Sheila Kahyaoglu from Jefferies.

[Sheila Kahyaoglu, analyst]

Great quarter. Jeff, maybe 2 questions for you guys. First on top line, if that's okay. So John, on top line, you talked about the technology ramps as being a reason. The revenue growth is maybe slower and expertise ramps faster than the book-to-bill might suggest. Why is that? Can you just distinguish that? Is it constrained by the customer or just timing of that hiring, onboarding or material overseas? If you could just talk about that a little bit, please?

[John Mengucci, executive]

Yes, sure. So let's take the expertise side first, right? And I'll talk it at a high level. When we win a large program that's on the expertise side, it's traditionally work which is out there today that a customer may be adding some additional scope too. But at the end of the day, when we talk about an expertise, the customer is procuring talent, I used to call that labor hours. So you sort of get a leg up with the fact that you're going to look at folks who were currently on that previously held contract. So you can immediately move people to start to build to that contract and address that customers need. It's also their expectation, right? There's many contracts we signed that could be an 8-year expertise contract for $1 billion with a 60-day start-up window. So within 60 days, 90% of the job has to be staffed. And that's just the nature of how that work works. When we look at a program like -- let's use Spectral, that is our design and development program, [indiscernible] software creation, first our vertical testing and then building kits beyond that, just by its nature, you're not looking at labor on our build-up, you're actually looking at outcome and units of outcome. So those programs, even at your major primes are going to start up slower and when you see a major fighter jet program, there's 8 to 10 years of design work before you get to the larger revenue build. So at a high level, that's how we see it. So when we announce more technology wins on an expertise jobs, that should be a huge clue that, okay, this is longer duration is going to ramp up more over time, which really gets to some of my introductory remarks. We have a number of programs that are technology wins that are going to ramp up with the same revenue delta that a single large expertise [indiscernible]. But hopefully, that's helpful.

[Sheila Kahyaoglu, analyst]

No, that really is. And then maybe just kind of adjacent to that and a bigger picture question on profitability for the industry. Obviously, you guys are demonstrating growth. The customer is changing the example with the Army buying software acceptance of what they buy? Why isn't profitability for the industry better given the software offering? How come the -- how could you change how the customer buys from you?

[John Mengucci, executive]

Yes. Well, look, I think we've done a material job of giving the customer to buy it differently. Let me split here that may help. When we talk about software based, there's still a hardware element to it, but it's software based. So when customers buy technology from us, they're looking at the ability to say, okay, so I bought the phone but I wanted to put different apps on it for a really long time. I'll use a commercial reference there. When we hear about the government having trying to buy software today, they buy licensed products, think commercial shrink-wrapped software. It is a licensed model. We frankly don't believe in the license model because that puts our customers in a really rough spot. And it may reduce margins for a couple of quarters. But we're serving a mission that is how do I buy something that's going to be enduring that we continue to modify? So our software delivery and the fact that we've had a customer need, we deliver on a purchase order, those for all sort of 3 elements that allow us to drive margin. Look, we moved from an 8-ish percent margin to the high 10s. We're still consistently focused on how do we drive both top and bottom line growth, clearly free cash flow per share benefits from either and/or both of those. And that's what we're looking towards. So look, I have to give our customers that they are working through how do they address today's threats more rapidly. And frankly, that gets yourself to an agile software model. And the fact that there's very few people who do it well, right, differentiation drives margin, right? It makes the ask heavier and then some of the terms that we're willing to accept. And the last lever is are we doing some of our software [indiscernible] manner? The answer is yes. We understand how to do it well. We're able to sell it in different manners. So I like how this company is set up for us to continue to drive bottom line -- bottom line growth.

[Operator]

One more question came in from the line of Louie DiPalma with William Blair.

[Louie Dipalma, analyst]

And this is rehashing several of the earlier questions, but the awards in the book-to-bill this quarter were superlative and 70% of the awards were for new work. Are you assuming a slow ramp for the new work in terms of it taking several years to reach peak run rate? And also for the first year of the new work, is the margin initially dilutive and so should we expect for these sets of contracts that the revenue run rate will increase in year 2 and so will the margin?

[John Mengucci, executive]

Yes, Louie. So let's see on the 70% new work, how does that ramp? As I mentioned earlier, the expertise work is going to ramp up quicker. There's a higher percentage of technology in our fourth quarter awards and our full year awards, as you mentioned. So that is going to ramp up slower. Based on the contract type really tells you how the bottom line ramps, how profitability and EBIT is generated. On the technology programs that have firm fixed price elements to it, will be in an EAC model. And yes, we will hold back some of that profit dollars based on risk as well, and it's a well-defined process that's got back up as to which risk we still have to burn off. But on the other technology work that we have, I'll let Jeff make any comments. Profit is going to follow [indiscernible].

[Jeffrey MacLauchlan, executive]

Yes, I would also -- let me start by noting that was 60% new on 70%. And I would just echo John's margin comments. I mean the ramp is, as you would expect, we are slower to -- we protected our early booking decisions, some development work and the cost type work generally, the margin is what it is right now [indiscernible].

[Operator]

That concludes our Q&A session. I will now turn the conference back over to John Mengucci for the closing remarks.

[John Mengucci, executive]

Thanks, Rochelle, and thank you, everyone, for your help on today's call. We'd really like to thank everyone who dialed in or listened to the webcast for their participation. Many of you are going to have follow-up questions. So Jeff MacLauchlan, George Price and Jim Sullivan are available after today's call. Please stay healthy, and all my best to you and your families. Operator, this concludes our call. Thank you all, and have a fantastic day.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.