Ladies and gentlemen, thank you for being here. Welcome to the CACI International Third Quarter Fiscal Year 2023 Conference Call. Today's call is being recorded. At this time, I would like to hand the call over to Dan Leckburg, Senior Vice President of Investor Relations for CACI International. Please proceed, sir.

Well, thank you, and good morning, everyone. I'm Dan Leckburg, Senior Vice President of Investor Relations for CACI International. Thank you for joining us this morning. We are providing presentation slides, so let's move to Slide number 2. 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 is 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 third quarter fiscal year '23 results. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Slide 4, please. Last night, we released our third quarter results and I'm very pleased with our performance. We grew revenue by 10%, all of which is organic, with growth in both expertise and technology. Profitability was strong with an adjusted EBITDA margin of 11% and cash flow was solid. Our trailing 12 months book-to-bill of 1.4x remains very healthy. As a result of our strong year-to-date performance, we are raising our fiscal 2023 revenue and earnings guidance, and Jeff will provide additional financial details shortly. Let's go to Slide 5, please. Turning to the external environment, market and demand trends remain very favorable to CACI. Government fiscal year '23 budgets showed healthy growth, and we continue to see positive funding trends. In addition, the President's GFY '24 budget request calls for further growth in defense, which is just a starting point as Congress begins to budget process. While budget indications are positive, we will continue to monitor the process and debt ceiling negotiations. We see continued growth in key areas of focus for CACI, driven by the heightened global threat environment, bipartisan support for national security and the need for modernization. From a capability perspective, we see continued government demand in several important areas for CACI, including broad modernization of both applications and networks and accelerating demand for cloud migration. The Space domain with photonics and situational awareness, and Electromagnetic spectrum, including software-defined Signals Intelligence and Electronic Warfare and their convergence with cyber. CACI's industry leadership and commitment to invest ahead of need positioned us extremely well to deliver innovation to our customers and value to our shareholders. Slide 6, please. We continue to successfully execute our strategy of building differentiated capabilities rooted in software and deep domain expertise. Just as important, we remain focused on exceptional execution. The combination of these two factors enables CACI to not only win new work in the marketplace, but also retain, expand and extend that work over time. Let me give you some examples. First, our Enterprise IT as-a-Service or EITaaS award with the United States Air Force is the largest contract award in our company's history. This award demonstrates CACI's leading position in broad IT modernization, while the award has been under protest, I'm happy to say that our win was recently upheld by the GAO. We are ready to get to work and look forward to beginning this important program for the Air Force in the near future. Second, I want to highlight the Army’s Integrated Personnel and Pay System or IPPS-A, which is the largest PeopleSoft implementation in the federal government and arguably the most complex PeopleSoft implementation at scale in the world, serving more than 1 million soldiers. We are excited to have rolled out the latest version of the system earlier this year. For the first time, the Army has a single system for managing more than 1 million soldiers across the Army, Army Reserve and Army National Guard. That is software development at scale. And we look forward to working with our customer to provide additional functionality and enhancements to further support our soldiers. This performance is yet another example of CACI's industry software development for both enterprise and mission customers. In the Space domain, we continue to see strong demand for our photonics technology for both government and prime customers. We also continue to invest in and advance this critical technology and as a result, continue to achieve important performance and interoperability milestones. CACI's photonics technology enables secure space-based communications networks using more powerful, efficient technology that transmits more data faster. We are currently under contract to deliver optical communications terminals for the SDA under Tranche 0 and Tranche 1, for multi-transport and tracking layers. And we continue to provide our photonics technology to a wide range of additional classified programs at multiple orbital altitudes. Finally, we continue to demonstrate leadership in the Electromagnetic spectrum, an increasingly important area of focus for national security, particularly in the Pacific and European theaters. CACI is one of the largest providers of sensing systems across all domains: land, air, sea, space, and cyber. As we've discussed before, one of our key differentiators is a strategy focused on software-defined technology. This allows us to update capabilities in a faster, more agile manner, enabling our national security customers to stay ahead of rapidly advancing adversaries and threats. The latest example of this capability is that we recently executed the first over-the-air software upgrade of an operational system on a Navy ship at sea. Rather than waiting for the ship to return to port, we deployed an over-the-horizon update to enhance capabilities while keeping the asset on mission. This software-enabled speed and agility is critical to the context of near-peer competition. In summary, we delivered strong results, and I remain confident in our long-term prospects. We are successfully executing our strategy. We're making the right investments, hiring and retaining top talent, winning new work, delivering with excellence and leveraging our financial strength to drive free cash flow per share and additional shareholder value. On top of all that, while we are effectively managing our capital structure to allow for flexible and opportunistic capital deployment and taking advantage of all available value-creating initiatives like the tax method change we recently affected. As a result of our performance to date and our strong position, we are raising our fiscal year 2023 revenue and earnings guidance. With that, I'll turn the call over to Jeff.

Thank you, John. Good morning, everyone. Please turn to Slide 7. I am very pleased with our third quarter results. We generated revenue of $1.7 billion in the quarter, reflecting a year-over-year growth of 10%, all of which is organic. Expertise revenue increased by 13%, and technology revenue grew by 7%, driven by the ramp-up of new awards and the management of existing work. The adjusted EBITDA margin was 11% for the quarter and 10.6% year-to-date, consistent with our full-year guidance. As we mentioned earlier, we anticipated stronger margins in the second half of the year compared to the first half, and our third quarter results align perfectly with that expectation. Our adjusted diluted earnings per share for the third quarter were $4.92, up 6% from last year, with strong operational performance more than compensating for higher interest expenses and a higher tax rate. Turning to Slide 8, the third quarter operating cash flow, excluding our accounts receivable purchase facility, was $56 million, which largely reflects increased working capital due to our robust revenue growth in the quarter. Free cash flow was $41 million. We have encountered several extraordinary tax items influencing cash flow from fiscal years 2020 through 2023, which we felt could be useful to present all together for easier normalization of our reported free cash flow. Some years had favorable impacts while others faced challenges, and each of these items has been disclosed before. As we discussed regarding fiscal '23, we anticipate a $222 million cash headwind due to the CARES Act, tax method change, and Section 174, which represent the largest cumulative headwind we've faced with these three items. Moving on to Slide 9, last quarter we announced that our Board had authorized a $750 million share repurchase program. We initiated the first $250 million as an accelerated share repurchase on January 30, expecting it to be completed by August. We also launched an open market repurchase program, and by the end of the third quarter, we had repurchased an additional 45,000 shares in the open market at an average price of about $283. This remaining authorization of $500 million allows us to be more flexible and opportunistic in our capital deployment, which aligns with our strategy. This additional flexibility is vital for our commitment to increasing shareholder value by deploying capital based on business and market dynamics. We concluded the quarter with a net debt to trailing 12 months adjusted EBITDA ratio of 2.5x, reflecting the impact of the ASR and the open market share repurchases. The strong cash flow characteristics of our business, along with our modest leverage and access to capital, provide us with significant options to deploy capital to support future shareholder growth. Moving to Slide 10, due to our strong performance, we are raising our fiscal year '23 revenue, adjusted net income, and adjusted EPS guidance. We now anticipate fiscal '23 revenue growth to be approximately 7.5% to 9%, with two percentage points attributed to acquired revenue and the remainder being organic growth. We expect our full-year adjusted EBITDA margin to remain in the mid- to high 10% range. We are also raising our adjusted net income and adjusted EPS guidance based on our higher revenue outlook and a diluted share count of 23.5 million shares. Our interest expense is projected to range from $80 million to $85 million, which is about $20 million more than our initial expectations due to recent rate increases. The strength of our business allows us to offset this additional interest cost and adjust the low end of our net income guidance. Additionally, during the third quarter, we entered into $500 million of floating to fixed interest rate swap agreements to hedge an additional portion of our floating debt, which effectively fixes interest rates on about two-thirds of our debt, insulating us from rate volatility. We are updating our fiscal year '23 free cash flow guidance due to the delay of a $40 million tax method change refund, originally expected this fiscal year but postponed because of IRS timing, now anticipated in fiscal '24. Turning to our forward indicators on Slide 11, CACI's outlook remains strong. Our trailing 12 months book-to-bill ratio is 1.4x, showing strong market performance, and our third quarter backlog increased by 8% year-over-year to $25.3 billion. For fiscal '23, we expect nearly all revenue to come from existing programs, with minimal recompete and new business. Our pipeline metrics are also healthy, with $7.2 billion in submitted bids under evaluation, approximately 65% for new business to CACI. We expect to submit an additional $18.7 billion over the next two quarters, with over 80% aimed at new business. In summary, our strategy's successful execution is reflected in our strong results, enabling us to raise our fiscal '23 revenue, adjusted net income, and adjusted EPS guidance. We are confident in our ability to sustain long-term growth, increase free cash flow per share, and generate shareholder value. I will now turn the call back over to John.

Thank you, Jeff. So let's go to Slide 12, please. In closing, CACI delivered another quarter of strong financial results. 10% revenue growth, 11% adjusted EBITDA margin, and solid cash flow. We're well positioned for continued performance with a strong track record of awards and a healthy pipeline of additional opportunities. Our performance is not by accident. We have a strategy focused on differentiation, innovation, operational excellence, and flexible capital deployment. Our objectives in executing that strategy are to drive long-term growth, margin expansion, strong cash flow and free cash flow per share, and ultimately, customer and shareholder value. And Jeff said it very well. We're pleased to see the successful execution of our strategy manifest in our results. It's also important to remember that CACI's success is driven by our employees' talent, innovation, and commitment to our customers' missions and to each other. I'm immensely proud to lead such a capable and diverse group of people. It's your dedication, your good character, and your innovative spirit that's truly foundational to our success. Thank you all. And to our customers and our shareholders, thank you for your continued support and confidence in us. With that, Emily, let's open the call for questions.

Our first question comes from Bert Subin with Stifel. Please go ahead, Bert.

Just my first question, organic growth inflected to 10% in fiscal 3Q and looks to be on track to grow around 6% in the fourth quarter, I guess, depending on where you fall within that range you gave. Can you just highlight what's driven that inflection? Has it primarily been on contract growth, just as outlays have rebounded in hiring, or has it been more a function of the new contracts you highlighted when you guys were going through your prepared remarks?

It's a little of both. We put our FY '23 plan together last August. It is playing out as we expected. During our second quarter call, Jeff mentioned that I think on the margin side at 10.2% and 10.4% in the first couple of quarters, he begged everybody, nobody panic, because this is the way the year is going to play out. That's what drove our confidence in ensuring we would finish the year at the mid- to high end of the 10s on our margin numbers. As for the revenue mix, it's really a combination of both. Over the last few years, we've really been focused on on-contract growth. When you win some of these large programs, pretty much the first year of revenue is 100% in sight. They really have to grow capabilities across the company and sort of take current capabilities to more and more customers out there. Our line leaders have done just a fantastic job there. As for some of the new programs, it's really spread across both expertise and across tech. One of the things about good news for us is both are growing. I often get asked, technology is growing at 10% and expertise is growing at 7%, you must be happy with the tech, and I often answer, I'm actually glad when they're both growing. So the fact that enterprise may have grown larger than our technology business is actually positive news for us. So I've always said, as we look at growth just don't fixate on one quarter; things are going to move around quarter-to-quarter. It's not that we focus on the outlook for the year and the longer term. We're really glad that we've gotten to this point to close our third quarter and are very, very happy that we're able to raise both top and bottom line guidance.

Yes. Maybe the follow-up to that point. You guys have had some notable wins recently across expertise in the enterprise tech side with a few multibillion-dollar wins. So it seems like that part of the business is sort of evolving at least as good or better than you expected. Can you walk us through how to think about the mission tech sales side of the business? Because I feel like that's the part that ebbs and flows more quarter-to-quarter. You noted in your prepared remarks that the optic part of the business is seeing some success with both prime and government customers. Can you just walk us through sort of how we should think about the next few quarters as it pertains to some of your businesses across EW, SIGINT, Optic, a variety of mission tech to hardware business?

Yes. Bert, thanks. Terrific question. So on our mission tech side, I'll actually relate it back to the third quarter that we just finished, right? So expertise outpaced technology on the revenue side, but still at the margins that we expected. It doesn't take a lot of mission tech. Although you won't see that in the revenue side, it really has a pronounced effect on our margins, and we continue to make progress. What's very different in a historical government services business is that it's not just selling the expertise piece. The technology rate of orders is very, very different. It rarely has backlog. We'll get awards for a certain number of units, and then before that quarter is done, we have usually shipped. Like, which you're also seeing on the product side is that eventually everything does come back. We talked about some funding issues with our investors during the second and third quarter last year; that funding has all backed up. It has allowed us to make more product deliveries, thus supporting our margin. You asked about SA Photonics and where we're going in the optics world. And I could not be more pleased with our performance overall. We're very confident and continue to gain confidence every quarter that we're going to realize the strategic value that we expected. And just remember, the way to look at this is we're in the very early innings of optical comps. We are seeing strong demand. We've got great relationships and contracts with our government and our industry satellite primes. We are doing a great job of the transition and the connection, if you remember, to our heritage LGS Photonics business, so that's going well. We're expanding our production facilities down in Orlando. And we're still in the investment phase. So I would tell you, you should look for growth at the end of '24 and into '25 based on the current schedules and on funding. From a technology side, we've done an outstanding job. We're looking at bandwidth from 1 gig to 100 gig. We've got decades of development experience. We're continually getting pulled into many CRAD efforts where we can expand what we're doing there. And during the quarter, we've also secured contracts for both LiDAR and Comms applications in the air domain. So we're sort of already looking at the capability that the airborne layer is going to require as it comes to optical comms. So you should continue to look for revenue and margin growth in this space as well as what we do in our ID Tech Archon acquisition as we get more towards the end of '24 and as we continue on throughout '25.

Our next question comes from Robert Spingarn with Melius Research.

John, I want to follow up on the revenue growth question you mentioned. You indicated that it's influenced by both demand and supply, with supply related to quicker outlays. How do you see that trend developing from here? Additionally, regarding the debt ceiling situation, has customer behavior changed at all? I realize this is a challenging question to ask in a quarter with strong revenue growth, but I would appreciate your insights on this matter.

Yes, it's always dependent on budget allocations and the structure of the sub-committee budget. We're currently in the process of developing our FY 2024 plan, and I believe the government still has significant work to finalize a clear 2024 budget. There are discussions about whether it will be a full-year continuing resolution and the implications of the debt ceiling. While I cannot predict the future, I am optimistic about our situation. We have developed strong capabilities that meet customer needs, and although funding may not always match perfectly, we are positioned well within areas that show healthy spending trends. On one hand, there are valid concerns regarding the government's deficit and debt; on the other hand, there is substantial bipartisan support for national security. With ongoing conflicts in Europe and challenges from nations like China, which poses near-peer threats, we must adapt, especially in the contested domain of space and cybersecurity. At a larger scale, I am confident in our capabilities, which we have been enhancing for years. On the mission and technology front, we are starting to see rising demand for our products, including counter-UAS systems. We are involved in testing in Europe and are collaborating with the federal government to develop a plan that could support efforts in Ukraine. This is a positive trend for us. As a company focused on long-term goals rather than just quarterly results, we are pleased with how funding is aligning with our strategic areas. We have established strong relationships with major original equipment manufacturers that create exclusive platforms in space, air, and land, where our products are integrated. Looking ahead at our long-term growth strategy, I am satisfied with our positioning, and come August when we discuss 2024, we should have some substantial programs under our belt as well.

Okay. Regarding the supply side and your capacity to manage the recent intelligence leaks, will the leaked documents impact the approval process for security clearances? If so, how significant could that impact be?

We've been discussing for a long time the importance of getting both our employees and government personnel cleared. This remains a challenge, and there isn't a straightforward solution. Ultimately, we are all evaluating whether individuals have the appropriate mindset and qualities to make good decisions. There will be more to share on this front. I know there have been discussions in Congress about improving our planning in this area. As for what we can control, I am pleased with our efforts in hiring and retaining talent, although demand is still strong. We need to navigate the current budget effectively. Our attrition rates are the lowest they've been in recent years and significantly lower than those at the onset of COVID. We are successfully filling many open positions through our referral program, with about 40% of hires coming from referrals, and one in four openings filled internally. For those seeking more than just a job, there are plenty of opportunities for career growth within our company. We've been operating in this funding and budget environment for 61 years, and I am excited about our expertise, technology, and the recent significant contracts we've secured. I look forward to continued long-term growth and increasing shareholder value. Thank you, Rob.

Our next question comes from Matt Akers with Wells Fargo.

I wonder if you could talk about kind of the longer-term view of margins. I mean, if you go back a few years ago when you guys first started talking about the technology versus expertise, you were kind of a high 9% to 10% business, and now you're kind of high 10%. Is there a lot more room to go? Can you get to kind of like 11%, 12% margin or does it sort of get harder to improve from here?

Yes, Matt, thanks. It really comes down to mix, frankly. I love the fact that we're talking with analysts and our shareholders about what else can we do to continue to grow margins. You're absolutely right about 6 years back to where we are today; we're up about a little north of 200 bps. And while at the same time, we restructure how we go after the market. We've added an entire part to our business in the mission tech area. So it's really the mix of business we have, and it's the volumes that we can achieve in our mission tech business. And frankly, change is hard. Change is hard for our customers. You got to remember, 6, 7 years back, we had pretty bright budgets. And we were a nation at war. We were looking for that day when budgets would be tighter, frankly. With tightness and with spending constraints, comes new ways we can look at the technology that we need out there. So how do we do software-defined devices? How do we collapse five devices into one? How do we do over-the-air upgrades, which I talked about during my prepared remarks? If we end up in a conflict in the INDOPACOM regions, it's a long haul to assure to do a hardware card upgrade, right, to change the capabilities on ships. The fact that we can do that via software and software is this company's super weapon that will drive margins. Some of the work we've done with our ID Tech acquisition, and our Archon product line. Some of that we expect relatively strong growth. But again, that's an area where a customer has to change how they buy multiple devices. Long term, we're very well positioned. Along the way, our mix of programs continues to drive margins. And it won't be every quarter. It may or may not be every year. But if I look at the trend line from 6 years back to where we sit, in FY '23, north of 200 bps, while we've been building new parts and new capabilities, I think there are continued opportunities. As for our number, Matt, I really shy away from whether it can be 12%, can it be 13%, because it really is that mix. But we're doing everything that we should be doing as a responsible public company management team to make sure we make the right investments at the right time to make that probability of success even higher. We see that getting better each quarter.

Can you talk about the cash flow impact mentioned on Slide 8? What do the moving pieces look like as we head into 2024, and how does the $222 million figure appear for next year?

Sure. For 2024, obviously, we'll have the $40 million related to the CARES Act refund that we expected this year and moved out. The CARES Act activities at this point are finished. The R&D tax credit starts getting much smaller, steps way down. I think we're in probably low double digits or so next year. It starts getting quite small.

Our next question comes from Tobey Sommer with Truist Securities.

I was wondering if you could tell us what the hiring and retention looks like. It's sort of a different angle on the revenue growth that you're able to achieve in terms of filling open positions, not just in the cleared categories?

Yes, Tobey. Thanks. We're doing an excellent job at hiring and retaining talent. As I've mentioned before, winning large programs is pointless if we're bidding at rates that make it difficult to find the right people. Investors aren’t satisfied with impressive award numbers if we can’t follow through. I'm pleased to say that we are not that kind of company. We invest a lot of time to ensure we adhere to the principle of bidding less while winning more significant projects. A prime example of this connection between hiring and securing large programs is our EITaaS award. I’m extremely pleased that this award was recently reaffirmed by GAO for the second time. All staff work has been lifted, and the government has made it clear that progress on this project will not be hindered. The team is nearly fully staffed, and we just held kickoff meetings earlier this week with DeEtte Gray and her outstanding leadership team. We're progressing and discussing how to initiate the project from OpsCon, as well as identifying areas where we can accelerate the re-architecting of the Air Force's baseline networks. There's a strong link between our recent large project wins and our ability to staff them properly. If you look at the labor market, many high-tech companies are laying off employees, but we haven’t had layoffs here in years, which gives us a valuable source of readily available talent. We are monitoring the market for recent commercial layoffs and may tap into the pool of individuals with specific technology skills. Our team is passionate about the mission and enjoys our approach. We will bid responsibly and pursue large programs, particularly in areas where we can adequately staff. Failing to do so would mean disappointing our customers, and maintaining our status as a 61-year-old company requires that we do right by them. Where we're able to win substantial contracts, we ensure that we are fully staffed. This commitment also enhances our long-term growth prospects.

Regarding the Photonics business, if we receive a large number of significant orders in a short period and are increasing production, are there any immediate financial concerns we should consider to better understand the potential impact over the next few years?

Yes. I mean when we executed that acquisition, we were very transparent to talk about we were buying that business very early on in their cycle, right? The thesis to that acquisition was, let's take what we purchased with LGS on the large, extremely reliable bespoke kind of solutions market. And then here's SA Photonics who could use some assistance on the algorithm piece, but also they had phenomenal early-stage successes at building satellite-based optics at scale. So I'll reiterate, we are in the investment phase still. When we look at our capital deployment strategy and how we fill gas, and talk about investments, acquisitions, partnerships, and then share buybacks, this is one that's going to continue to take a larger share of our CapEx spend to make certain that we've got our algorithms right, that we've gone through the producibility model correctly. I mentioned we're looking to move a lot of that production to Orlando, which is not only a cost move but it's a consolidation move to make sure that we are building all of our optics in the same place. So yes, there is a curve still through FY '24, although I'm not trying to guide you all here yet. But there will be more on the investment case than there will be on the profitability case throughout '24. As we get into '25, we'll see revenue meet up with profitability, sort of that chocolate and peanut butter game, giving us a 5- to 10-year strength in what we're going to do in the satellite-based optical comps. So hopefully, that gives you some additional color.

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

Good morning, everyone. So first, I'm going to ask a follow-up question to Rob. A question about the debt ceiling. And it's probably the quarter too early, but as you think about the risk of, let's say, a year on GAO resolution, but on the other side, you have over this multibillion dollars week. How are you thinking about your growth for the next summer?

Yes. So yes, there's a lot of bunch of parts moving around. And we've got one large new win here, and we're looking at finally securing the second large win. Look, as for specific guidance, we're going to provide that when we get more towards August. But to your point, Mariana, obviously, we have some nice awards. We had EITaaS reaffirmed. We're waiting on a large Intel award that's still under protest, look into that hopefully by the middle of this quarter. We got a trailing 12-month book-to-bill of 1.4x. Some of that is going to take some time to ramp. We've got some nice budget growth. What we have to guide on now is the FY '24 President's budget. If I look at the budgets for SBA for other satellite-based work for IT modernization, for cloud, and for a lot of the great things that the intelligence community does, making certain we have the right analysis of some of the Intel. I like our opportunities to continue driving growth into '24, and then when SA Photonics and our Archon Solutions picked up, then more into '25 and beyond. We're going to continue to monitor the budget process. We're going to continue to monitor the debt ceiling negotiations. At the end of the day, based on the size company we are and where we play, we've got a great portfolio of expertise in technology. Our expertise informs technology, and technology makes expertise more effective and more outcome-based. Ultimately, we're looking at how well are the things that CACI has world-class capabilities in and how well are those funded. So it immediately becomes less of what the overall defense budget is, but in these four, five or six specific areas, how well are those being funded? I can tell you, with an exclamation point, everything that we're doing today and for the things that are going to drive growth in the future years are very well funded as we look at some early FY '24 budget numbers.

And my follow-up is, could you please provide some color on the guideline of submitted bids? You mentioned how much of those are new businesses precisely, but could you just describe if you have like any multimillion-dollar opportunities there? Or how much of those new businesses are takeaway opportunities versus new opportunities?

Yes, sure. Jeff shared some of our pipeline specific earlier. We have a great set of proposals that are being generated now. There was some talk, we had a 0.6x book-to-bill in the third quarter. I'll remind you all again, awards are lumpy. We've always said that. We never took pride in a 2x book-to-bill each in the first and the second quarter. The number I'm watching is 1.4x. Historically, for the last 7 to 10 years, we've always been above 1x, 1.3x, which is clearly enough to be driving growth. We're looking to have some really nice bid pieces submitted. What's really important is that long-term strategy of bid less and win, and win more, driving the duration of contracts in backlog greater and greater each and every year gives you all, I guess, our investors a really much more clear, transparent picture of what you could look for growth as we go forward.

Yes, Mariana, I would go back to my prepared remarks too. I would point out that we have about $7 billion of bids submitted under evaluation right now, about two-thirds of which are new, and we have nearly $19 billion that we will submit in the next two quarters. To John's comments about bidding less and winning more, I would add that one of the things that we do keep track of closely is the length of the awards that we're winning, which over the last couple of years has increased from about 4.5 years on average to 6.5 years. So we're bidding fewer things, we're winning bigger things, and we're winning longer things.

The next question comes from Prescott Forbes with Jefferies.

Just a follow-up on Matt's question. I appreciate the mix is the real driver of kind of margin improvement, but we talk a lot about the differential between technology and expertise margins. Can you provide some color into how you've seen margins trend within just the expertise portfolio? And how much room there is to drive it in there, excluding the kind of mix shift towards technology?

Yes, sure. Thanks. We've historically said that on average, I'm going to stress the word average, right? On average, technology margins are about 300 bps greater than expertise. The tough thing when we're looking at long-term growth is that in any one quarter, a lot of other things happened. Cost-plus revenue, that people sometimes associate with lower margin versus firm fixed price, we've got some fantastic expertise work that are cost-plus, that are more at a firm fixed price margins because of the extreme expertise somebody needs in a mission expertise quadrant of our business that you're not going to find those people just anywhere. It really gets back to Rob's earlier comment around talent. So we try to give you a few different looks at this. One is what's the mix of our revenue. So that's step one, right? But if my margins in technology are 300 bps higher, then over time, revenue numbers from technology aren't going to be as high to drive a much higher margin. On the expertise side, we're not bidding jobs at a loss. We're not bidding expertise jobs, so we can't in a relatively quick time generate revenue from. If we look at jobs like EITaaS, that's an enterprise technology job. That is really making sure we're re-architecting networks. So it's not the old style services bachelor kind of job. This is one where we're drawing from across the company, software skilled talent that is only working on the EITaaS job. So long and the short of it, Scott, is this quadrant and this expertise versus tech reserve sort of guide, but in any one quarter, we could do $40 million more of expertise work and add a higher margin to it. It also brings some of our technology deliveries up. So you're going to see revenue growth as you saw in the third quarter, but you're also going to see us holding margin. So I wish I had the perfect modeling formula for you, but just remember that on the expertise side, margins can go from something like 4% to something like 15%. So just lend those things cash in.

Our next question comes from Seth Seifman with JPMorgan.

This is Rocco on for Seth. What drove the approximately $135 million increase in accounts receivables this quarter? And when are you expecting to see that unwind?

It's driven largely by the volume increase. There is some amount of variability, I know you know, in general, around accounts receivable. But largely, it's driven by the accelerating volume that we're seeing in the business. It ought to stabilize to a more normal level over the next quarter or two, even though it will continue to grow from its historical levels.

Great. Then on capital deployment, how does the M&A pipeline look? And how are you thinking about M&A versus returning capital to shareholders via buybacks?

Yes. When discussing being flexible and opportunistic, this aspect is central to our strategy. We want to be able to quickly adjust our approach as new opportunities for acquisitions or other investments arise, moving away from share repurchases when necessary. Over the past year, the market hasn't presented us with many appealing options, but we are starting to see a shift. There are a few prospects on the horizon that may capture our interest. In the coming quarters, we may identify some targets worth pursuing. We will remain prepared to shift our capital deployment strategy based on what becomes more appealing.

Yes, Rocco, I would like to point out that being flexible and opportunistic really means just that. Whether we are engaging in mergers and acquisitions or direct share repurchases, the focus on enhancing shareholder value remains paramount. As we pursue M&As to enhance our capabilities or build customer relationships for long-term growth, we believe this will ultimately benefit our shareholders. However, as Jeff noted, there are times in our M&A cycle when suitable opportunities may not be available. We believe we have the capabilities we need, which may lead us to consider alternative capital deployment strategies. We plan to concentrate on internal investments, particularly as we approach 2024, given the previous discussions about Archon and SA Photonics to ensure we have the right developments in place. Ultimately, we assess all options based on current market conditions, and every possibility remains open. We are committed to reducing debt and have successfully lowered our leverage to a manageable level. I am pleased with our cash management and balance sheet strategy, as we anticipate market conditions to shift. Should the M&A landscape evolve and we require additional capabilities or customer connections, we are well-equipped to conduct M&A, utilize and extend value, and ensure we make informed investment decisions.

Our next question comes from John Franz Engelbert with Baird.

I wanted to clarify your thoughts on fixed price versus cost-plus as you begin planning for 2024. Could you also touch on how this nearly 30% revenue mix might be impacted by DCSA and the new airports contract as you look ahead?

Yes, I'll start. If I look at our revenue mix trend towards more cost-plus over time, sometimes driven by firm fixed price and the like. There's no particular trend. The last couple of quarters, you might recall, we saw stronger growth in fixed price. So I hate to use the word lumpy again, but it is lumpy. In some ways, it's almost non-deterministic. But we're ramping new work that happens to be cost-plus. We've got material purchases. We have to do under different types of contracts that actually come in at slightly lower margin. But when we look at the mix, we are going to come out of the year with a greatly expanded revenue guide holding margins between mid- and high 10s. It also matters what kind of work we're doing. As I mentioned earlier, margins on cost-plus can run the gamut. We've got a lot of time-material contracts; we can get cost out of those. Whatever we're not spending on the cost side of that, that really falls to the bottom line. Programs like DCSA, what that really does is just we were looking in '24 and '25 to drive more volume. We've gone from some three providers of that service to two. So that would be an indicator of potentially some additional revenue that we could generate from that program, where we've got a lot of programs in the end. So it's just constantly moving mix, and our job is to give you a guide that really covers what those different cases could look like.

Many programs involve a variety of contract types, which can change over time. As we develop different phases of a program, whether we are purchasing equipment or defining upcoming steps, various activities and contract types become relevant. We prefer fixed pricing when it allows us to financially benefit while providing our customers with pricing certainty. This arrangement can reduce risk for them and be advantageous for both parties. However, programs often have multiple aspects that evolve over time, making it challenging to draw broad conclusions.

And just a quick follow-up. You mentioned the Intel award. So just sort of going with your sort of your bid win, bid less, win more mantra. Are there any areas that we should look out for any sort of maybe not the size of the Air Force award, but sort of large type awards in 2024, and maybe just the areas?

We prefer not to provide specific details, but I can share some additional insights based on your question. We're currently awaiting a significant cyber-related ICE award decision. This project has been in the works for several years, and we believe it will allow us to deliver improved and more sustainable capabilities to a key customer. It was a competitive process, and we successfully replaced the previous provider by offering enhanced capabilities rather than just competing on price, ensuring we can meet their desired outcomes. This is an important mission for us. Going forward, we anticipate more of these opportunities as our capabilities align with customer needs, especially as they increasingly transition to the cloud. In the intelligence and delta communities, we are advancing more applications to the cloud than the next five competitors combined. Our partnerships with AWS and Microsoft Azure are exceptional. I'm confident in our position in both enterprise technology and mission expertise. We are also awaiting the results of several larger mission tech bids we've submitted. It’s essential for us to strike the right balance across our operations since pursuing low-margin projects that create staffing challenges won’t support our long-term goals. These might address short-term issues, but our focus is on providing sustainable, predictable growth for our shareholders. Transparency is key, as highlighted by the time our programs spend in backlog, which helps us forecast future performance more accurately. While we might not experience immediate growth, being transparent is crucial. As we expand our business and improve our margins, I see substantial opportunities across all areas. Our expertise informs our technology, and conversely, our technology enhances our expertise for our customers, both of which are vital for our growth.

Thank you, everyone, for your questions. Those are all the questions we have. So I will now turn the call back over to John Mengucci for closing remarks.

Well, thanks, Emily, 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 many of you will have follow-up questions, and Jeff MacLauchlan, Dan Leckburg, and George Price are available after today's call. So please stay healthy, and all my best to you and your families. This does conclude our call. Thank you, and have a great day.

Thank you, everyone, for joining us today. The call has now concluded, and you may now disconnect your lines.