CACI International Inc Q3 2019 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Joseph Anthony Vafi - Loop Capital Markets LLC, Research Division - Analyst : Wanted to circle back, I think, to some of your initial commentary on bidding larger -- maybe fewer but larger deals coming in. I was wondering if you could go a little bit further in the thought processes why you're doing that. Is that a function of the market? Is it a function of CACI that exists today or some other factors? And then I'll have a follow-up. Kenneth Asbury:President, CEO & Director Yes. Joe, this is Ken. So this goes -- the roots of this whole philosophy of how we were going to drive the business started about 6 years ago when we went through the Budget Control Act, and we'd just come off a very successful run of growing double-digit every single year. And then we got to the inflection point of the drawdowns in Iraq or the pullout of Iraq and Afghanistan. And we realized that our business was pretty much focused on the support to those war-fighting efforts. And as those budgets began to come down, we did not have a diversified -- enough of a strategy that was diversified enough to allow us to sort of weather that storm without just following the budget up and down. As a consequence, one of the first things we did after I came onboard is we went out and bought Six3 Systems. And while for the first couple of years, it was a little rocky on their professional services side, the core of that business, the digital signal processing, the Cyber, the -- all the work that was done with foreign weapon systems, intelligence gathering and analysis, and having -- being able to have Cyber effects is a small nucleus but that has grown very nicely over the past 6 years. And it put us now into a position where, with other acquisitions, the most recent being Mastodon and LGS, where we are at the sweet spot of where the U.S. government wants to be from being able to control all -- a multidomain fight using the electromagnetic REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2019 / 12:30PM, CACI.N - Q3 2019 CACI International Inc Earnings Call spectrum as one of the methodologies of doing it, not just relying on kinetic but using nonkinetic things. And frankly, we're seeing a lot of that work develop in the marketplace. And our competitiveness, our rate structure and our skills capabilities and now a broad network of laboratories, and the fact that we're very, very committed to being -- we want to do, I think, John pointed this a few months ago, we want to see software-defined everything. Any platform upgraded by software is going to advance our war-fighting capabilities faster than waiting on the procurement cycle of some advanced weapon. So John, do you want to add anything to that?

Question: Joseph Anthony Vafi - Loop Capital Markets LLC, Research Division - Analyst : That's great. And just kind of a follow-up in the new-business category. I mean, first quarter isn't necessarily the strongest seasonal quarter. Got federal adjudications and you did really well. I was wondering, was there -- was that just kind of positive lumpiness relative to where your submits were in the quarter? And how do you feel about kind of the cadence of new-business signings for the rest of the government fiscal year? Kenneth Asbury:President, CEO & Director Joe, this is Ken again. So I would tell you that I think what we feel is, we've -- and I mentioned it in my remarks. We've had some pretty good award quarters over the last, frankly, 10. I think we're over $1 billion for -- maybe going into 11. And you know what, we have a trailing book-to-bill now, I think, of about 1.7 -- a 12-month trailing book-to-bill of (inaudible). I'd like to point to the fact that we have been very, very studious in making sure that we understand all aspects of the capture process. We've upgraded our processes, the business rhythms at which we do it. We bid a smaller number of jobs, as I've mentioned before. And the reason we do that is because what we really want to see is a ratio of investing about 50% of the total investment before the RFP comes out. Whenever we get to that number, we find ourselves having remarkable success on the winning side. And what -- so what does that mean? That means we spend a lot more time with the customer upfront. We may spend some of our B&P money to build demonstrations or to field demonstrations, to put some of our products in the field, where they're tested against other ones, where they can see realtime, not paper comparisons. There's a lot of that going on in this OTA quick-reaction capability world. So a lot more of our investment goes in upfront, not just writing a proposal but, frankly, describing the experience a customer will have if they select us and demonstrating that well before we deal with just the -- meeting the L and M criteria that are in the RFP. I believe what we've seen and what we're -- what we experienced in the last few quarters is that this has become institutional now across all of our markets and in all of our business areas. There were times when we were bidding these same kind of jobs earlier on with the same capabilities, but we would write a green proposal. Since DeEtte Gray has been here, she's been on a plan to take every proposal from green to blue. And what does that mean? More time, more investment, more eyes on the target. That's what I would tell you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2019 / 12:30PM, CACI.N - Q3 2019 CACI International Inc Earnings Call So is it -- we'll still see lumpiness in the award area. We certainly -- we didn't see it in the third quarter. I also think that -- but I think part of the third quarter was the fact that we picked the right jobs 2 years ago to bid. Many of them happened in the third quarter. Some have slid. There's some that we expected. Others -- but we didn't see any move into the third quarter. A lot of this was -- it -- we just happened to be at the right place at the right time but having had selected the right targets. So hope that helps.

Question: Krishna Sinha - Vertical Research Partners, LLC - Analyst : Can you just elaborate a little bit more on Mastodon specifically? I see the slide here talking about the capabilities. But what's the -- who are they selling to exactly? What kind of pipeline do they have? And what's the differentiation in the growth rate for LGS and Mastodon? Maybe throw Six3 in that mix compared to the traditional sort of services -- labor-intensive services businesses that you guys have been in. Like what are you seeing in the budget that would lead you to believe that these will be higher growth than maybe some of the stuff that you're already doing?

Question: Krishna Sinha - Vertical Research Partners, LLC - Analyst : Okay. Maybe just a follow-up to that. I mean if I look at some of your competitors in the sort of C4ISR space or the comm space, like Harris and L-3 and some of these guys, they have a considerable export component to their sales. And I know that's not probably something you're targeting in the near term, but is that something we can expect from these products businesses that you've acquired over the medium to long term that there'll be an export opportunity there? Kenneth Asbury:President, CEO & Director Yes. I think so. But I think that -- I would tell you, we have an incredibly target-rich environment here in the U.S. And we -- while we have a -- for instance, we have a U.K. subsidiary that we use in it. It provides us a channel to get to both NATO and, if you will, the Five Eyes customers. We have not used that to-date as effectively as we would like. But in the future, we do see that as being a way of having some of these things, particularly, where we're looking for common kit. There's a lot more discussion about how do we have the right -- can we use the same signal collectors? Can we use the same processors? Can we have some communication devices? That's a business we haven't been in so much before. The signals part, the Cyber part, the having nonkinetic effects, I believe, we're at the forefront of. And we'll see how that matures from how we want to share some of that with our allies.