Ladies and gentlemen, thank you for standing by and welcome to the CACI International Fourth Quarter and Full-Year Fiscal Year 2020 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. At this time, I would like to turn the conference over to Dan Leckburg, Senior Vice President of Investor Relations for CACI International. Please go ahead, sir.

Thank you, Cole, and good morning, everyone. I'm Dan Leckburg and thank you for joining us this morning. We are providing presentation slides, so let's move to slide number 2, please. 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 3, please. To open our discussion this morning, here's John Mengucci, President and Chief Executive Officer of CACI International. John?

Thanks, Dan, and good morning, everyone. Thank you for joining us to discuss our fourth quarter and fiscal year 2020 results, as well as our fiscal year 2021 guidance. With me this morning are: Tom Mutryn, our Chief Financial Officer; and Greg Bradford, President of CACI Limited, who's joining us from the UK. Before we get started, Tom and I want to again express our hope that you and your families are healthy and safe during these unprecedented times. We also want to reiterate how proud we are of our employees, their resilience as we all confront COVID-19 and their unwavering commitment to delivering critical expertise and technology to our customers. Slide 4, please. Last night, we released our fourth quarter and full-year results for fiscal 2020, as well as our guidance for fiscal 2021. And I am very pleased with our performance. Our fourth quarter, with year-over-year growth of 9% in revenue and nearly 90% in net income, 10.9% adjusted EBITDA margin, and over $150 million in cash from operations was a strong finish to a great year, a year in which we met or exceeded our financial commitments, even as we navigated the COVID-19 pandemic. For the full fiscal year 2020, we saw revenue growth of 15%, with organic revenue growth accelerating from our initial 5.5% expectation. We expanded our adjusted EBITDA margin to 10%, grew earnings per share by 21%, and delivered robust operating cash flow of over $500 million. In addition, we booked a record $11.6 billion of contract awards, with $6.5 billion representing new work to CACI. Our award successes included the single largest contract in CACI's history, our $1.5 billion 10-year TCS award with the National Geospatial-Intelligence Agency. Half of that award is new work to CACI, demonstrating our leading network and cybersecurity technology capabilities, as well as our strong track record of delivery. We also won the five-year $1.1 billion BEAGLE award with DHS Customs and Border Protection, leveraging our differentiated technology capabilities and Agile software development. And we won significant new C5ISR work within the Army Futures Command to provide expertise enhancing the cybersecurity and resiliency of our Army networks, including next-generation 5G networks. Notably, the NGA TCS and Army C5ISR awards leverage the capabilities and past performance of prior acquisitions, a key objective of our strategic M&A program. Slide 5, please. You've heard us discuss the three pillars of our strategy: win new business, drive operational excellence, and deploy capital for growth. Our record contract awards demonstrate success in winning new business. And our margin expansion and strong cash flow are indicative of driving operational excellence. In terms of capital deployment, M&A remains our top priority. Through our strategic M&A program, we pursue high-quality, innovative companies that enhance our differentiation in critical areas of national security, fill capability gaps and expand our customer set. Yesterday afternoon, we announced the acquisition of Ascent Vision Technologies, or AVT, a company that exemplifies what we're looking for with our M&A program. AVT is a high-growth, high-margin company that brings a strong culture of innovation and best-in-class talent, with over 70 engineers, technicians and operational staff. AVT expands our mission technology capabilities by adding best-in-class Electro-Optical and Infra-Red, or EO/IR, imaging technologies. AVT's differentiated offerings include onboard digital video processing using artificial intelligence and machine learning algorithms, which is significantly more advanced than current analog capabilities in the market today. AVT's EO/IR imaging technology opens up two large ISR growth opportunities for CACI: first, the growth expected from the increasing use of precision sensors to automate current platform capabilities; and, second, the technology refresh market of existing ISR technology across multiple domains. In addition, the combination of AVT's EO/IR technology and CACI's industry-leading RF detection and non-kinetic mitigation technology creates a best-in-class counter-UAS set of offerings. In fact, as we announced earlier this week, the Army's Joint Counter UAS office selected CACI's CORIAN system as one of three fixed/semi-fixed counter-UAS systems for use by the DoD. The same office also selected the L-MADIS system, which utilizes AVT's EO/IR technology and command-and-control software as one of DoD's approved mounted mobile counter-UAS systems. The combination of AVT's and CACI's technology will result in further enhanced products to serve the counter-UAS national security market. I'm also pleased to announce that AVT's Founder and CEO, Tim Sheehy, who is a decorated veteran of 10 years in the military, both as a Navy SEAL and Army Ranger, will continue forward with CACI, leading the business. Tim brings an unwavering commitment to customer missions and strong business skills that are crucial to leading a company accustomed to delivering cutting-edge technology directly to the war fighter. Slide 6, please. Our performance in FY 2020 positions CACI for continued success in fiscal 2021. At the midpoint of our FY 2021 guidance, we expect total revenue growth of about 7%, continued adjusted EBITDA margin expansion of 40 basis points, double-digit EPS growth, and robust cash flow generation. Tom will provide details on those financials shortly. Our fiscal year 2021 financial outlook is consistent with our established performance goals of growth above our addressable market and continued margin expansion. Slide 7, please. Despite increased attention recently to deficits and budget outlooks, we remain optimistic about our near and longer-term prospects. First, the Budget Control Act of 2019 established a budget framework for government fiscal year 2021 and, thus far, Congress is following that framework. While it's difficult to predict whether government fiscal year 2021 appropriations bills will be passed and signed on time or if we start the year under a continuing resolution, we continue to see bipartisan Congressional support for defense and national security missions. Second, while authorization under Section 3610 of the CARES Act is currently set to expire on September 30, it's clear that the COVID-19 pandemic will not be over by then. As a result, our industry is actively working to advocate for an extension of Section 3610 to ensure that critical national security programs and jobs are protected. In fact, the Senate's draft of a second round of COVID-19 legislation called the HEALS Act included a Section 3610 extension for one year. The House passed their own version called the HEROES Act, which was also supported by the defense industrial base. All indications from our interactions with lawmakers and staff on the Hill point to a bipartisan extension of Section 3610. Third, as we think about future budgets, the ongoing reality of the global threat environment looms large. Adversaries and bad actors have not let up because of COVID-19; in fact, just the opposite. We believe both sides of the political aisle recognize this threat environment and the need to continue to support national security priorities. Finally, we have a large and growing addressable market of over $230 billion. Given our market share is a little over 2.5%, we have significant potential to grow. The national security and modernization priorities of our customers are enduring, well-funded and procured under long-term contracts. We remain confident that our alignment to national security priorities, and cost-saving IT modernization, as well as our investments in differentiated capabilities, will continue to position CACI well in almost any budget environment. In closing, I'm extremely pleased with our fourth quarter and full-year performance. We continue to successfully execute our strategy, driving growth, margin expansion and strong cash flow. We manage our business to stay ahead of emerging, high-valued customer requirements and to continue generating long-term shareholder value. With that, I'll turn the call over to Tom.

Yeah. Thank you, John, and good morning, everyone. Please turn to slide number 8. Our fourth quarter was an excellent close to a successful fiscal year. We generated revenue of $1.5 billion, representing overall growth of 9% and organic growth of 8%. Net income of $94 million increased significantly from a year ago, driven by increased revenue and market expansion. Adjusted EBITDA margin in the quarter was 10.9%. Slide 9, please. For the full year, we generated more than $5.7 billion of revenue, representing growth of 15% with 8% organic growth, despite the COVID-19 impacts. We continue to deliver market expansion with an adjusted EBITDA margin of 10.0%, up from last year's 9.4% margin. Net income of over $321 million represents close to 21% growth in EPS. The direct COVID-19 impact on our fiscal year 2020 revenue was around $68 million, with an $18 million impact to net income, in line with our prior results. Slide 10, please. Fourth quarter operating cash flow was $154 million excluding our accounts receivable purchase facility, reflecting continued strong cash collections and the positive impacts of the deferral of the employer payroll tax payments. DSO was at 57 days compared to 64 days at the end of fiscal year 2019. And we generated operating cash flow of $511 million for the full year, both excluding the AR purchase facility. The 41% increase in cash flow was driven by overall growth, margin expansion, efficient collections, as well as $40 million associated with the payroll tax deferral. We ended the year with net debt to trailing 12-month adjusted EBITDA of 2.3 times. Turn to slide 11, please. As John noted, yesterday, we announced the acquisition of Ascent Vision Technologies, a successful and innovative company in well-funded priority areas of mission technology. For the remainder of our fiscal year 2021, about 10.5 months, we expect AVT to generate around $50 million of revenue and $20 million of adjusted EBITDA, excluding certain one-time expenses. AVT will provide modest GAAP accretion and generate about $0.45 of accretion, excluding noncash intangible amortization and one-time expenses. The purchase price of AVT was $350 million, which we funded with our revolving credit facility. We expect to realize tax benefits related to the acquisition of approximately $40 million. On a net basis, this equates to a multiple of less than 12 times next year's adjusted EBITDA. Post-transaction, our adjusted leverage is 2.8 times and we have over $700 million of unused capacity on our credit facility. Bottom line, we acquired a differentiated high-growth, high-margin company at what we consider an attractive price and we continue to have ample capacity for additional acquisitions. Slide 12. Now, let's turn to our fiscal year 2021 guidance. As in prior years, our guidance is based on a program-by-program bottoms-up planning process. This process provides significant visibility and confidence in our outlook. For fiscal year 2021, we expect revenue to be between $6.0 billion and $6.2 billion and net income to be between $347 million and $367 million. This implies organic revenue expectations of around 5.5% at the midpoint, including expected COVID-19 impacts. We expect adjusted EBITDA margins of around 10.4%, up 40 basis points, driven by both core margin expansion and the contribution from AVT. Our healthy growth and margin expansion are driven by our new business wins in high-valued areas of our addressable market, on-contract growth, excellent program execution, and efficiencies and enhancements in our infrastructure. We are expecting operating cash flows of at least $580 million in fiscal year 2021. This includes $55 million from continued deferrals of the employer portion of the payroll tax, which currently runs through calendar year-end. Capital expenditures are expected to be in line with last year at around $70 million, which includes growth-focused investments for mission technologies in specialized facilities for a number of direct programs. Slide 13, please. To help with modeling, here are some additional expectations for fiscal year 2021, which include the AVT acquisition. Depreciation and amortization are expected to be approximately $130 million. Interest expense should be around $44 million. We are expecting a full-year effective tax rate of 22%, with a materially lower tax rate in the second quarter due to the impact of vesting the stock awards which were granted in prior years. We are expecting a typical quarterly sequential increase in revenue and profitability, with year-over-year comparisons in our first half impacted by COVID-19-related revenue and profit reductions. And our fiscal year 2021 guidance assumes a revenue impact from COVID-19 in the range of $100 million to $150 million and a net income impact of around $20 million to $30 million. This assumes the impact of COVID-19 continues through December and support under Section 3610 of the CARES Act is extended for at least that period. Slide 14. Turning to our forward indicators, prospects remain strong. For fiscal year 2021, we expect 83% of our revenue to come from existing programs, 11% from recompetes, and around 6% from new business. We have $9 billion of submitted bids under evaluation, with 80% of that for new business to CACI. We expect to submit another $13.7 billion through calendar year-end, with over 70% of that for new business to CACI. In summary, we are expecting another year of strong financial performance, with healthy top- and bottom-line growth, continued margin expansion, and robust cash flow. With that, I'll turn the call back over to John.

Thank you, Tom. Let's go to slide 15. To reiterate, CACI performed exceptionally well in fiscal year 2020, and we remain confident in our prospects going forward. We delivered record financial results for the year, including increased organic revenue growth, continued margin expansion, and robust cash flow. We won a record amount of contract awards. And we expect healthy revenue growth, continued margin expansion, and robust cash flow, again, in fiscal 2021. None of this is possible without our employees' talent, innovation, and commitment to our customers' missions. These are truly unprecedented times and I am proud of how our entire team, everyone, is stepping up, each and every day. Critical national security and modernization challenges remain, and CACI will be there to help our country to meet these challenges. And with that, Cole, let's open the call up for questions.

And we will now begin the question-and-answer session. And our first question today will come from Robert Spingarn with Credit Suisse. Please go ahead.

Hi. Good morning. Nice numbers.

Morning, Rob. Thank you.

I wanted to ask you a couple of product questions. First, you did discuss AVT in the prepared remarks. But how do their products differ from other EO/IR suppliers out there, like L3Harris, in terms of capability, target markets, type of contracts that you'll be going after?

Rob, thanks. A couple of pieces there. I won't comment specifically on competitors. The differentiation is significant. What we see in AVT going forward is very advanced digital EO/IR imaging technology based on proprietary software that processes imaging data on the platform itself. So it does not have to come down to the ground to get processed; it's processed within the EO/IR system itself. That's a large differentiator. It also has advanced artificial intelligence, intuitive command-and-control, and sophisticated machine-learning algorithms. This aligns with how we've built our mission technology portfolio: finding innovative software-enabled technology that we can deploy on any device. An EO/IR gimbal-based SIGINT imagery collection system is similar to other hardware-based products we deliver. There's a broad trend to automate platform capability: automated vehicles, automated weapon systems, expanded precision. These systems need to be digital, have onboard processing, find smaller objects faster, and integrate with other mission packages. While AVT is known for Counter-UAS, their EO/IR technology is broadly applicable beyond that. We plan to combine AVT's capabilities with CACI's complementary RF and SIGINT technology and radar sensing. For investors, think about merging fixed systems with mobile systems—combining algorithms and software to produce lower size, weight, and power solutions. In short, AVT differentiates through onboard digital processing, advanced AI, and system-level integration that goes well beyond typical EO/IR suppliers.

Okay. Thank you for that color. And then, on a separate note, could you delve into SteelBox a little and give us a sense of how big that opportunity is?

We are seeing strong interest in SteelBox, which provides secure mobile voice and mobile text as well as sending e-mails. Interest is high across multiple agencies, though COVID slowed contracting processes somewhat. We have a number of agencies across DoD and the federal civilian market expressing interest in scaling up over the next six months. We currently have about 1,000 users. We're working on subscription models that will inform our growth trajectory. We anticipate something just under 20,000 subscribers by the end of calendar year 2021. SteelBox is a product-based mission technology where we invested ahead of need. We partnered with BlackBerry for some of the intellectual property and combined it with our IP. Customers historically sometimes only adopt solutions after an event, so we expect demand to increase in the next six to nine months. A subscription model should deliver higher early margins than our typical contracts.

And our next question will come from Joseph DeNardi with Stifel. Go ahead.

Hi. Good morning. Tom, can you provide a little bit more clarity around the cash flow outperformance for this year and then the sustainability of that cash flow guidance for next year? Is that kind of the new run rate for the business going forward? Thank you.

Sure. For FY 2020, the strong net income, driven by revenue growth and margin expansion, contributed materially to cash flow. DSO improved to 57 days from 64 days a year ago; each day of DSO is roughly worth $15 million to $16 million, so that reduction materially improved operating cash flow. The payroll tax deferral also helped. Collections have remained robust during this period despite COVID. Our team focused on aged receivables and getting invoices processed, and the government continued to pay. That helped us finish FY 2020 quite strong. For FY 2021, the continuation of strong net income, combined with noncash items such as depreciation, amortization, and stock compensation, and the payroll tax deferral, drive stronger cash flow. We assume DSO will remain comparable to exit levels, supporting our cash flow guidance for FY 2021.

Tom, can you grow cash in 2022 off of FY 2021 or does the tax relief make that more challenging?

The payroll tax deferral is effectively a loan from the government showing up in operating cash flow. We deferred about $100 million in total across the time period. We'll have to pay the government back in fiscal years 2022 and 2023. That repayment will be a headwind, and we wanted to be transparent about that so investors have the right framework for underlying cash flow across 2020, 2021, 2022, and 2023.

And our next question will come from Edward Caso with Wells Fargo. Please go ahead.

Hi. Good morning. Congrats on the results. Just curious about your ability to control an offering set now that is going into different areas: services, products, and one that appears to be becoming more international. Our research noted AVT has an office in Australia and sales into Thailand. How do you, one, manage a product business and a service company? And, two, how do you manage what appears to be an expanding international footprint?

Ed, thanks. We think about our business in four quadrants across enterprise and mission, and delivering both expertise and technology into each. The majority of our recent growth is in the technology area, though we continue to perform expertise work. Mission tech focuses on what technology customers need and how we invest to deliver it quickly. We manage it as a portfolio of technology and intellectual property rather than as separate product silos. We look at multiple missions and form factors, and how to deliver ahead of need without multi-year, multibillion-dollar development programs. Specifically for AVT, they bring world-class digital EO/IR tech and strong AI and machine-learning capabilities. On the international question, AVT's engineering presence in Australia is an extension of the global engineering footprint we already have, similar to what we have in the UK with Greg Bradford. This lets us do leading algorithm development in-country and take that software into other products and offerings globally. In short, we are not managing disparate products in isolation; we build synergies across mission technology, and that is the growth area. Every incremental dollar of revenue in mission tech brings a multiple of earnings.

My other question is with the upcoming election and the key government fourth quarter in September. While there is no lack of RFPs, we're also hearing some slowness in decision-making. Can you talk about what you're seeing in the key September quarter, particularly in the context of the upcoming election?

On the September quarter, we have not seen a slowdown in RFPs or awards. Where we've seen slower activity is in task orders from single-award IDIQs, largely COVID-related due to fewer acquisition personnel in offices each day. That affects the pace of taskings. Regarding the election, both sides support defense and national security; we have not seen material change due to election-related uncertainty. Awards can be lumpy, but we have not experienced a change in awards. The larger issue so far has been COVID slowing task orders, and we are working with our government customers to help pick the pace up.

And our next question will come from Matt Akers with Barclays. Please go ahead.

Hey. Good morning, guys. I wonder if you could touch briefly on your latest long-term thoughts on margins, where they could get to. It looks like you're expecting pickup in fiscal 2021, even though there are some COVID impacts in there. Can you continue to get the 10 to 30 basis points uptick you mentioned in the past?

Matt, we are on a path of growing revenue faster than our addressable market and expanding margins. We used to describe a 10% to 30% ambition, but the core idea is ever-increasing margins. Our confidence comes from the shift toward technology, where margins are higher, and our ability to deliver software in an agile fashion with lower defects. The technology side of the business provides higher margins and lower risk because we can win longer-term contracts and deliver quickly. Our expertise in Agile software development allows us to bid work at attractive margins by lowering customer risk. Lower risk to the buyer typically results in higher margins for the provider.

To add some context, in 2017 our EBITDA margins were 8.5%. This year we're guiding to about 10.4% including COVID impacts, effectively a 200-basis-point shift over four years. Operational actions like filling positions quickly and driving efficiencies help, but fundamentally our technology business comes at significantly higher margins than our enterprise business. We expect the disproportionate growth in technology—both mission and enterprise tech—through acquisitions and organically to continue and drive future margin expansion.

Thanks. One more: on the new wins like TCS and BEAGLE, how should we think about pacing as you go through the year? Any color on how those programs ramp up? And if we start the fiscal year under a continuing resolution, is there anything from a new program start standpoint that could be at risk or how do you manage through a CR again?

For TCS, it's a $1.5 billion 10-year program with about half recompete work and half new work and additional taskings. The recompete work continues at its steady pace, and I expect additional taskings for the new portion in the next six to nine months as the customer defines additional network capabilities. BEAGLE has already ramped and should hit year-one run rate by the end of this year; it's a five-year award and we are nearly fully staffed. Regarding a continuing resolution, we've seen many CRs historically and they have not materially impacted CACI's business. Our strategy is to focus on areas where the U.S. government needs to spend, and those typically proceed well under a CR. I don't expect a material impact whether we start under a CR or not.

And our next question will come from Gavin Parsons with Goldman Sachs. Please go ahead.

Hi. Good morning. I wanted to ask about the drivers of the 5.5% organic growth in guidance and how you get there, given: fourth quarter organic was 8%, third quarter was 10%; the implied COVID headwind in the first half is about the same impact as in the fourth quarter, and that headwind goes away in the second half; you've won a ton of new work, some of which you just talked about. Help bridge to the 5.5% from the 8% you just reported and what drives the implied slowdown.

Gavin, great question. First, I'm pleased with the healthy improvable growth, margin expansion and cash flow in a difficult year. We delayed guidance to better understand COVID impacts so we could provide the most accurate guide. The initial COVID impacts we call direct impacts—work covered under Section 3610 and reduced travel or discretionary purchases—are improving. When I last spoke in Q3, about 10% of billable hours were covered by Section 3610; today we've gotten that down to about 5%, which is a material change. However, since May and June we've seen indirect impacts: slower return-to-work at customer sites, slower clearance adjudication, delays in tasking on IDIQs, and deferred training and international deployments. Those indirect effects reduce our ability to ramp people onto new awards when clearance and travel are delayed. We've provided a range for COVID impact in FY 2021 of $100 million to $150 million in revenue and $20 million to $30 million in net income to capture the distribution of possible outcomes given evolving conditions.

Let me add qualitatively. Direct impacts have improved, but indirect factors—clearance delays, travel restrictions, and task order delays—are affecting organic revenue. We can't generate revenue on a new award without cleared people, and those challenges have been slower to resolve than we expected. I'm confident these will rebound before the end of the calendar year, but they drive the bridge from an 8% exit to the 5.5% guide midpoint. Despite this, margins, cash flow, and award wins remain strong. We're changing our portfolio risk profile—less expertise, more tech—which makes us more resilient to disruptions like COVID.

To add, we provided a range for COVID impact in FY 2021 of $100 million to $150 million; some aspects have more uncertainty, such as fee lost on CARES Act hours. In our forecast we have a base and then an assessed set of risks and opportunities, and those COVID-related risks represent the distribution that leads to the revenue and net income ranges we provided. New business, on-contract growth, and wins will fill program completions and expected runouts. We provided the midpoint guidance with those dynamics in mind.

Quick clarification: the indirect COVID impacts you described, are those encompassed in the $100 million to $150 million range or are they incremental?

Correct. The $100 million to $150 million range is all-encompassing, including both direct and indirect COVID impacts.

Right.

One more: going back to 2011 when budgets declined, what factors contributed to the decline in organic growth back then and how has your positioning or exposures changed today so you can sustain your target of outgrowing the market regardless of budget environment?

In 2011 the government underinvested in defense and national security and the environment then was materially different. Today, we are a different company with a larger technology footprint across mission and enterprise. We are less exposed to the types of impacts that hurt us in 2011. Our strategy focuses on areas where funding persists—national security and modernization—and our investments in mission and enterprise technology, plus Agile development capabilities, make us more resilient to budget variability. I believe both sides of the aisle recognize the threat environment and will continue to support national security priorities. In short, we're better positioned today than we were in 2011.

And our next question will come from Cai von Rumohr with Cowen. Please go ahead.

Thank you. Quick follow-up on COVID: your assumption is that the COVID impact will be greater in the first half than the fourth quarter rate, and yet you said indirect impacts should improve by year-end if Section 3610 is extended. Why is that number so large? And is the impact all lumped into the third quarter, because other companies say Q2 was the biggest impact?

We have certain items with high certainty and others where we provide a range of outcomes. For FY 2020, the $68 million and $18 million numbers were direct impacts. There are indirect impacts we did not enumerate in FY 2020 which, if adjusted for, would have increased results. Given the evolving situation, we've provided a broader range of outcomes for FY 2021 to reflect the uncertainty of indirect factors that have developed since May and June.

Thank you. A quick follow-up on the cash flow: you mentioned $40 million in the fourth quarter and $100 million this year for payroll tax deferrals. My understanding is the deferral is repaid over the next two years. Is $100 million the net benefit for this year or the gross amount you will have to pay back later?

Let me clarify. For fiscal year 2020, the payroll tax deferral benefit was about $40 million. For fiscal year 2021, covering July 1 to December 31, the benefit is about $55 million. In total, across those periods, it's close to $100 million that will need to be paid back in fiscal years 2022 and 2023.

To be clear, you'll pay it back in fiscal 2022 and fiscal 2023, not in the second half of fiscal 2021?

Correct. The repayment will occur in fiscal 2022 and fiscal 2023.

And our next question will come from Jon Raviv with Citi. Please go ahead.

Thank you. On organic growth, is it reasonable to expect acceleration in 2022 as COVID recedes? Also, how are customer needs shifting or accelerating in light of the pandemic and what is CACI doing to address those challenges?

We're focused on reaching and exceeding the guidance we've provided for fiscal 2021. Many of our awards are beginning to deliver revenue, though indirect COVID-related issues have slowed some ramp-up. Some mission tech programs result in rapid product deliveries within 60 days; product revenues come at differentiated margins that materially affect results. We continue investing ahead of need, filling capability gaps through M&A and partnerships, and we're confident in our M&A strategy given our experience. Our acquisition pipeline and mission alignment give us strong confidence in ramping beyond COVID, which should support better growth rates as the environment normalizes.

A follow-up: you discussed the quadrants last September. Could you update where sales stand by quadrant and comment on the enterprise side, especially given larger deals like NGEN and other big IT programs where CACI isn't prominently involved?

NGEN and similar large IT deals are one slice of the market. We prefer programs where we can provide differentiated software and mission technology, often using Agile development, rather than large traditional managed services where returns and structure can differ. Our enterprise tech skills complement mission tech. As software development shifts toward Agile and more automated methods, exposure to COVID-like disruptions decreases. We're excited about the enterprise tech capabilities we have, which complement our mission tech work.

For FY 2021, we expect expertise area growth in the low single digits and technology growth in the double digits. Technology is coming at margins 300 to 400 basis points higher than expertise. The disproportionate growth in higher-margin technology—both mission and enterprise—drives margin expansion in the foreseeable future.

And our next question will come from Greg Konrad with Jefferies. Please go ahead.

Good morning. You were awarded a contract for open system design and software algorithm development. What are you seeing in broader opportunities around command and control and platform integration, which historically has been more defense-prime based?

We have a respectable seat at the table for multi-domain ops initiatives like ABMS and related efforts. Beyond those, command and control opportunities are expanding into areas like Counter-UAS, where integrating multiple sensors and providing a single user interface is crucial. AVT's capabilities help us combine sensors and build mobile and fixed solutions. We're focusing on how predictive analytics, AI, and system integration can provide multiple courses of action to the war fighter. Whether we provide the end-to-end technology or a component, our command-and-control frameworks are positioned to integrate disparate systems across many programs.

One clarification: on program roll-offs and COVID impacts, should we expect that the revenue lost to COVID will be recaptured in fiscal 2022?

I wouldn't use the term recaptured. Envision CACI's trajectory over the next five years: COVID causes a dip relative to that trend line, but COVID is temporary. At some point we'll get back to the trend trajectory. COVID impacts are generally one-time in nature, not long-term systemic.

On ramp-up: some recoveries are made up by increasing staff, delivering contracted deliverables that had been delayed, or using overtime once clearances or travel are available. Some of the missed near-term revenue is recoverable; some is not.

And our next question will come from Tobey Sommer with Truist. Please go ahead.

Could you comment on the due diligence process for an acquisition conducted during COVID? How did remote due diligence go and does that change your ability to complete larger deals?

We took a short hiatus early in COVID to focus on operations and understand implications, but our phones still worked. We had identified AVT and were already engaged in late summer and fall, so we were able to pick up diligence where we left off. We worked remotely extensively, limited travel to essentials, and leveraged prior meetings and in-person interactions from before COVID where possible. Our streamlined, repeatable acquisition process across functional areas helped greatly; we've done many acquisitions and have a well-honed process. Remote diligence worked well with data rooms and virtual meetings, and we can do larger deals—it's more about strategic fit than logistical constraints.

Given the evolving portfolio, what do you peg the organic rate of growth of your markets to be, and how does the 5.5% guidance stack up?

A 5.5% organic guide in a pandemic year is a solid result given the circumstances. We're confident in our guide and our ability to execute. We have 65% of our workforce teleworking and are managing reserve hours and clearances to support growth. We remain focused on driving both revenue and margin growth.

And our next question will come from Seth Seifman with JPMorgan. Please go ahead.

Good morning. Given the structure of the enterprise IT market, the returns and competitive dynamics, does it make sense to pursue very large awards in that space given your goal of growing margin at the pace you'd like? For example, had you won NGEN, would it have impacted margin expansion this year?

Contracts vary widely in structure. Some managed services start with lower margins and may grow over time. We view our four quadrants as complementary; different programs help drive revenue, support IR&D, and fund bid and proposal efforts. We pursue opportunities when they are a strategic fit: if we've shaped the program to favor our probability of win, tested solutions with decision-makers, and established preference, we will bid. We focus on long-term growth across quadrants rather than optimizing for a single quarter. Strategic large programs remain fair game if they align with our long-term objectives.

Thanks. One more: can you comment on hiring and onboarding given the pandemic and what net headcount growth you expect in fiscal 2021?

Hiring and onboarding has been largely in line with expectations to support how we finished 2020 and our growth plans for 2021. The primary constraint recently has been clearance adjudications and travel, not ability to hire. We continue to recruit and onboard, and we are working on ways to get people off reserve hours and into active delivery. Overall, hiring and headcount growth are where we need them to be to support current awards.

And our next question will come from Louie DiPalma with William Blair. Please go ahead.

John, Tom, Dan, good morning. Of your $9 billion in pipeline-submitted bids, is there a skew towards ISR and signals intelligence? Are there many $100 million-plus opportunities available? Also, did the Saudi Aramco drone attacks last September act as a watershed leading to more robust demand for AVT-like and counter-UAS solutions?

Our $9 billion of submitted bids is a nice mix between new business and recompetes, and there's a larger share of bids outstanding in the technology area versus expertise. This supports continued growth in technology. Counter-UAS demand has been increasing; we do just under a couple of hundred million dollars of Counter-UAS work today across the federal government. Incidents and evolving threats certainly increase attention to Counter-UAS, and combining AVT's EO/IR capabilities with our RF and detection technologies strengthens our position. We expect the Counter-UAS business to continue to grow at respectable margins as we integrate technologies from our internal teams and acquisitions.

And our next question will come from Mariana Pérez Mora with Bank of America. Please go ahead.

Good morning. Can you remind us what the recompete risk is for FY 2021?

Recompete risk for FY 2021 is similar to prior years. In terms of composition for FY 2021, we expect 83% of revenue from existing programs, 11% from recompetes, and 6% from new business. Some recompetes will need to be won; our recompete win rate has been around 90% over several years and we expect that to continue.

Thanks. On Section 3610, your guidance assumes an extension through December. If that extension does not happen, how large would be the delayed impact?

If Section 3610 is not extended past September 30, we would need to work through how to handle employees and subcontractor hours currently supported by 3610. About 5% of our billable hours today are covered by Section 3610. Across the industry, we're advocating for an extension to allow the use of FY appropriations for those covered hours. In terms of magnitude, it's a bounded risk in our view and part of how we modeled the COVID impacts in our guidance range. We remain optimistic a bipartisan extension will be achieved given ongoing needs.

And this will conclude our question-and-answer session. I'd like to turn the conference back over to John Mengucci for any closing remarks.

Thanks, Cole, and thank you for your help on today's call. We'd like to thank everyone who dialed in or listened to the webcast for their participation. We know that many of you will have follow-up questions. Tom Mutryn, Dan Leckburg and George Price are all available after today's call. Stay healthy and all my best to you and your families. This concludes our call. Thank you all and have a very good day.