Q2 2024 CACI International Inc Earnings Call
Participants
George Price
Jeffrey D. MacLauchlan; Executive VP, CFO, & Treasurer; CACI International Inc
John S. Mengucci; President, CEO & Director; CACI International Inc
Bert William Subin; Associate; Stifel, Nicolaus & Company, Incorporated, Research Division
Josh Corn
Mariana Perez Mora; Research Analyst; BofA Securities, Research Division
Matthew Carl Akers; Senior Equity Analyst; Wells Fargo Securities, LLC, Research Division
Michael Louie D DiPalma; Analyst; William Blair & Company L.L.C., Research Division
Peter J. Arment; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division
Robert Michael Spingarn; MD; Melius Research LLC
Seth Michael Seifman; Senior Equity Research Analyst; JPMorgan Chase & Co, Research Division
Sheila Karin Kahyaoglu; Equity Analyst; Jefferies LLC, Research Division
Presentation
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fiscal 2024 Second Quarter Conference Call.
Today's call is being recorded. (Operator Instructions) At this time, I would like to turn the conference call over to George Price, Senior Vice President, Investor Relations. Please go ahead.
George Price
Thanks, Sarah, and good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI International. Thank you for joining us this morning.
We are providing presentation slides, so let's move to Slide 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 of today and are subject to important factors that could cause 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?
John S. Mengucci
Thanks, George, and good morning, everyone. Thank you for joining us to discuss our second quarter fiscal year '24 results.
With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Let's turn to Slide 4, please.
In the second quarter, we delivered 11% organic revenue growth, EBITDA consistent with Q1, and solid free cash flow. In addition, we won $2.2 billion of contract awards, which represents a 1.2x book-to-bill for both the quarter and on a trailing 12-month basis. More than half of our awards were for new work to CACI, and we continue to have strong recompete performance as well.
Looking forward, we see the second half of fiscal year '24 playing out stronger than we originally expected. And as a result, we are raising our full year guidance. Jeff will provide the financial details shortly.
Overall, our performance continues to be well-aligned with our value creation model, focuses on long-term growth and free cash flow per share. Slide 5, please.
I'm pleased to say that we are seeing growth ahead of plan across many of our new business wins, including our EITaaS award with the Air Force, Spectral with the Navy, and our Intel and Cyber award with the NSA. This performance is reflected in our increased fiscal '24 guidance, but we expect these programs to support continued growth, healthy profitability, and increasing free cash flow per share in the future.
We continue to win in the market by providing differentiated capabilities, investing ahead of need and leveraging our strong past performance. And our business development organization is executing at an impressive level in winning new work and recompetes as well as sustaining a strong pipeline of new opportunities.
The execution of our strategy is currently delivering results. Just a few years ago, our focus was to win 1 new strategic $1 billion-plus award each year. Last year, we won 3, including our largest effort by far. This year, we've already won 1, and we have a strong pipeline of additional opportunities, including several greater than $1 billion in total value.
I'm also pleased with our strong track record of recompete wins this year, which is critical to maintaining the foundation of which we will grow. We win our recompetes through strong execution, industry-leading talent, and delivering innovation well beyond the industrial (inaudible). Slide 6, please.
One area of our continued success is IT modernization. This is an area of enduring demand, driven by the need to modernize our secure network -- and secure networks, develop software and scale, and migrate workloads to the cloud.
During the second quarter, we won 2 additional network modernization contracts, solidifying our presence across the DoD, following our DIA win last quarter.
The Archon technology we acquired, as part of IDT Technologies, was critical in securing this work. Archon's software-enabled end-user technology allows out-of-the-box commercial devices to securely access classifying networks from a new location. The combination of Archon's technology and our existing capabilities in the past performance is differentiating CACI in the market.
In addition, CACI continues to demonstrate industry leadership and digital application modernization and cloud migration. We are seeing customers accelerate their adoption of cloud both in classified and unclassified environments. Our recently announced strategic collaboration agreement with Amazon Web Services was the first in the federal space, and places us at the forefront of the next wave of migrating applications to the cloud. Our partnership with a technology leader like AWS enables us to deliver high value to our customers.
And finally, Agile software development is increasingly a must-have capability in the market. CACI continues to lead the industry in Agile software development at scale, executing the 2 largest Agile programs in the federal government. One of the largest Agile programs is BEAGLE with U.S. Customs and Border Protection, which has seen increased demand given heightened activity at the Southern border. And we see a number of additional Agile opportunities in our pipeline. Slide 7, please.
In the electromagnetic spectrum, we continue to execute our software-defined strategy, invest ahead of need, and demonstrate differentiated capabilities to enable our customers to dominate this critical domain. With the expanding global threat environment, we are seeing firsthand every day how the rapid pace of change in technology and our adversary capabilities necessitates a faster and more flexible response.
For the Navy, this critical need is precisely what Spectral is addressing. While a traditional hardware model cannot readily adapt to these changes, our software-defined technology with open architectures allows us to deliver with the necessary agility, speed, and flexibility. It allows us to build for today's threats and easily adapt as stress change. In fact, we continue to see demand across all domains in areas of signals intelligence and electronic warfare.
As we mentioned last quarter, the army was evaluating some of our SIGINT/EW technology for a program to enable dismounted soldiers that could be detect, identify, geolocate, and defeat signals of interest. We're pleased to say that evaluation went extremely well, and we currently expect to receive an order in the second half of fiscal year '24.
In addition, we are also seeing increasing interest in our software-defined counter UAS, function UAS capabilities from the U.S. as well as from our allies.
I'd also like to highlight our successful recompete wins supporting the Trojan family of systems for the Army, work CACI has supported for over 20 years. Similar to Spectral, on Trojan, we will utilize software-defined technology with open architectures to deliver the speed and adaptability necessary to address the evolving global threats and enable the Army's multi-domain operations. Slide 8, please.
In Photonics, we continue to see healthy demand, capture market share and deliver innovation with our optical communications technologies. In our bespoke Photonics business, we are demonstrating unprecedented achievements. Currently, our deep space optical communications technology is connected in transmitting data to Earth from a distance equivalent to the orbit of Mars, the furthest ever demonstration of optical communications.
In addition, the ILLUMA Laser communications system was recently launched on international -- to the International Space Station, with CACI razor communication hardware on board, and the system has successfully communicated from the ISS to an Earth base ground station.
This technology and innovation is also being driven into the lower cost, higher volume, low swap terminals we are building and delivering to lower earth orbit. With higher order volumes coming sooner than we expected, we have accelerated R&D investments through our P&L for both our technology and our capability to produce in volume. These investments will help underpin future growth, profitability, and increasing cash flow. Slide 9, please.
Turning to the macro environment. We continue to monitor the government fiscal year '24 budget process closing. Despite the ongoing deliberations in Congress, it remains clear that investments trending for national security and modernization needs to continue. Customer demand remains high, money remains healthy, we continue to see good levels of RFPs, awards and customer activity.
I continue to be very pleased with our strategic positioning in enduring well-funded areas of need, as evidenced by our strong awards and robust pipeline. Slide 10, please.
In summary, our first half performance was in line with our expectations, and we're raising our fiscal year '24 guidance to reflect stronger momentum in the second half. We are successfully executing our strategy of investing ahead of need, developing differentiated capabilities, bidding on fewer and larger opportunities, and delivering superior performance to our customers.
As a result, we continue to win in the marketplace. And our strong performance positions us to deploy capital in a flexible and opportunistic manner to drive long-term free cash flow per share and shareholder value.
With that, I'll turn the call over to Jeff.
Jeffrey D. MacLauchlan
Thank you, John. Good morning, everyone. Please turn to Slide 11.
Our second quarter results are in line with the expectations we discussed with you last quarter. We generated revenue of $1.83 billion, representing 11% organic growth in addition to a modest contribution from 2 recent acquisitions in the U.K. As John mentioned, we continue to successfully execute our strategy and to win high-value enduring work.
Second quarter EBITDA margin was 9.3%, in line with our previously discussed expectations of delivering relatively flattish EBITDA compared with the first quarter. Recall that the second quarter EBITDA margin includes approximately 60 basis points of drag from 0 margin material volume we discussed last quarter.
Adjusted diluted earnings per share of $4.36 were 2% higher than a year ago. Higher interest expense was more than offset by greater revenue and operating income, a lower tax provision, and a lower share count.
Second quarter operating cash flow, excluding our accounts receivable purchase facility was $83 million, reflecting solid profitability and strong cash collections. We reported day sales outstanding or DSO of 47 days, a new record as we continue to efficiently manage working capital. Free cash flow was $68 million for the quarter. Slide 12, please.
We ended the second quarter with 2.3x leverage of net debt to trailing 12 months EBITDA, flat with the prior quarter. The healthy long-term cash flow characteristics of our business, our modest leverage, and our access to capital provides us with significant optionality. We continue to have approximately $337 million remaining of our original $750 million share repurchase authorization.
In addition, we are actively engaged in an M&A market that is beginning to look more attractive from a buyer's perspective.
As we've discussed, our value creation model is focused on driving long-term growth in free cash flow per share. We remain well-positioned to deploy capital in a flexible and opportunistic manner to drive long-term shareholder value. Slide 13, please.
We're pleased to be raising our fiscal '24 guidance. Let me take a minute to provide some context on the evolution of our guidance for the year.
When we provided initial guidance last August, we told you that we expected revenue to be $7 billion to $7.2 billion, with EBITDA margins in the high 10% range. Additionally, without giving specific quarterly guidance, we indicated that the second half of the year would be greater than the first in terms of revenue and margin.
In the first quarter, we raised our revenue guidance for $200 million of 0 margin material sales and reiterated that the underlying profitability, excluding those material sales was unchanged. Today, with first half performance in line with our expectations and accelerating business momentum in the second half as well as our strong recompete win rate and strength of new awards, we are raising our revenue guidance by an additional $100 million to between $7.3 billion and $7.5 billion. We are also reiterating our underlying EBITDA margin expectations in the high 10% range, which again excludes the previously discussed $200 million of material sales in the first half.
As a result, we are also increasing our adjusted net income guidance to between $450 million to $465 million, with an intended increase in adjusted EPS to between $19.91 and $20.58 per share, reflecting the higher adjusted net income as well as our first half share repurchases.
And finally, we're raising our free cash flow guidance to at least $420 million based on the increased earnings and continued strong working capital performance.
Our increased free cash flow, combined with the benefit of the lower share count, results in a 7% increase in free cash flow per share versus our initial fiscal '24 expectations.
To assist with your modeling, we now expect full year diluted share count to be approximately 22.6 million shares, and our full year interest expense to be towards the lower end of our previously communicated $100 million to $105 million range. Slide 14, please.
Turning to our forward indicators, CACI's prospects continue to be strong. Our trailing 12 months book-to-bill of 1.2x reflects strong performance in the marketplace and our first half awards have a weighted average duration of nearly 6 years. Our backlog of $27 billion increased 2% from a year ago and represents almost 4 years of annual revenue. These metrics provide good long-term visibility into our business.
Exiting the second quarter, we expected approximately 94% of our revenue to come from existing programs, with less than 5% from recompetes and less than 2% from new business.
Today, less than 3% of the remaining increase is from recompetes, giving us increased confidence in our guidance for the year. Progress on these metrics reflects our strong business development and operational performance, and yields increased confidence in our expectations for the year.
In terms of our pipeline, we have $11 billion of bids under evaluation, over 65% of which are for new business, CACI. And we expect to submit another $14 billion in bids over the next 2 quarters, with 80% of that for new business.
Our ability to maintain a strong pipeline, even as we deliver strong awards, reflects healthy demand, successful strategic positioning, differentiated capabilities and disciplined bidding.
In summary, we delivered second quarter and first half results in line with our previously discussed expectations. We're seeing good momentum in our business, and as a result, are raising our full year guidance, and we are winning and executing high-value enduring work to support long-term growth, increasing free cash flow per share, and additional shareholder value.
With that, I'll turn the call back over to John.
John S. Mengucci
Thank you, Jeff. Let's go to Slide 15, please.
In closing, I'm pleased with how our business is performing, both near term and how we are positioning for future growth. We continue to successfully execute our strategy and our performance enables us to raise our fiscal '24 guidance for revenue, adjusted net income, adjusted EPS, and free cash flow.
We are investing, we are winning, we are executing, and we are delivering on our commitments to our customers and to our shareholders. We remain confident in our ability to continue to drive long-term growth, increased free cash flow per share, and generate additional shareholder value.
As is always the case, our success is driven by our employees' talent, innovation and commitment. To everyone on the CACI team, I am proud of what you do each and every day for our company and for our nation.
And to our shareholders, I thank you for your continued support of CACI.
With that, Sarah, let's open the call for questions.
Question and Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Robert Spingarn with Melius Research.
Robert Michael Spingarn
So a nice set of numbers here. I want to ask a high-level budget question, though, just given the uncertainty in DC, the potential for supplemental and I underline the word potential, how are you thinking about the guide if we were to end up in a full year CR? And then on the other hand, it seems like you're off to a solid start to this fiscal year. So what would happen -- what would need to happen to get to the high end of the guide?
John S. Mengucci
Yes. Rob. As you appropriately stated, there's an awful lot of moving parts. Look, we're monitoring the government fiscal year '24 budget process. As you all know, back in August, we planned for very different scenarios. I think on the low end, we said funding would be slower. We have a full year CR, a real question of government fiscal year '24 budget process.
On the upper end, we said a CR would be shorter and a budget would be passed. So somewhere in between there is how we're seeing this layout now that we're in January. A full year CR appears less likely at this point, should Congress come to an agreement by the March deadline. But even so, based on how it impacts us, our large Intel award is ongoing work, its critical national security priority and remains completely funded.
Our EITaaS Air Force award, it's a large Air Force priority. It's well-funded at the government fiscal year '23 levels and that funding and support continues.
Spectral is a very critical program for the Navy, particularly supporting the (inaudible). Another recent wins are sort of getting through their process, (inaudible) test windows, those are starting to ramp up with ample funding.
So as always, Rob, when we talk about budget, we focus on things that we can control. We're running the business, driving long-term growth, shareholder value.
On the other hand of this, look, the world is a dangerous place. Facing threats in China. You've got the Ukraine-Russia, was a wake-up call. Israel-Hamas situation shows that -- as I've always said, the counters (inaudible) are still can be there, it's going to be there for a long, long time.
But remember that our strategy is strongly aligned around (inaudible) and security modernization priorities, and invest ahead of need, and differentiated expertise and technology positions us extremely well.
Our resiliency to the budget is not accidental. It obviously happens to be due to the strategy we have consistently shared, and that was to make sure that our pipeline and jobs that we go after and the jobs that we win are well-funded, extremely important mission, our expertise and technology areas of the federal government.
So long story short, that the budget process does support us through this year. And as you all know, when we get to next August, we'll be talking about our next fiscal year.
Robert Michael Spingarn
Well, that's great color, John. And just quickly for Jeff. On Section 174, if that were repealed or deferred on a retroactive basis back to '22, if that were to happen, would you expect to receive a cash tax refund? And then how might you deploy that? Could that go into a repo?
Jeffrey D. MacLauchlan
Well, yes, Rob. As you know that the devil here is in the details. And while there appears to be pretty strong bipartisan support, a lot of the implementation steps are still unclear.
You ought to think about the size as basically being a reversal of what we communicated previously as the negative impact when it expires. So that would basically be undoing those earlier hits, almost dollar for dollar, really.
And with that extra cash, it would get factored into our normal capital deployment rhythm of evaluating all of our opportunities. And we have a very, as we've talked before, very disciplined, return-based paradigm or (inaudible) framework for evaluating those options. And as we have more capital, we'll deploy it effectively and efficiently.
Operator
Your next question comes from the line of Bert Subin with Stifel.
Bert William Subin
Jeff, I think the first question is for you. If we look at the current guide, it implies about 57% of your earnings, kind of, in the back half with a solid step-up in margins, at least looking to the midpoint. .
Can you just walk us through how good your visibility into that improvement today is? Does it imply that there's a pretty substantial step-up in technology sales? And historically, those has been a little less predictable.
Jeffrey D. MacLauchlan
Yes. I would not -- I don't think you can draw that conclusion, but let me give you a little bit of color, and John will likely want to add some to this.
If you look, first of all, at what we shared with you as far as the statistics for the rest of the year's revenue base, that's an important part of that. And we have really very, very strong visibility into what the rest of the year looks like. I would also call your attention to a couple of things we talked about in the prepared remarks, which may have been a little bit subtle to answer your question.
But we talked a little bit about increased investment in some of our photonics activities in the first half, which we're nearing the end of. And then we also have, as you allude, as you point out, sort of the classic timing and mix that we could see in the second half. But this activity is in backlog. We can see it. You've noticed, if you're looking at second order kind of consequences, you'll notice a little bit of inventory growth in the quarter. All of which is sort of setting up the second half that we see that gives us really strong confidence of what the next couple of quarters look like.
John S. Mengucci
Yes. Bert, let me add a couple of other things for that. This is around confidence in how we see the back half playing out.
Look, it -- confidence for us, it really starts with the fact that we delivered our first half of the year in line with our August expectations. It's bolstered by seeing stronger second half momentum than we expect back in August, namely our 3 large programs as well as other recent wins. And all of that work is at the underlying margin rate, which is in the high 10s.
We're raising guidance for revenue. We're not keeping it as it is, which shows confidence we have in the second half. We've pulled the bottom range of net income, and we've raised free cash flow, which would, you know, confidence.
We are holding to our fiscal year '24 EBITDA margins on the underlying business. We're executing on our strategy. We're investing at a need. We've got strong awards and strong execution.
As I provided to Rob on his earlier question, if we do look back at our '24 guidance call in August, we provided 6 reasons why we could end the year at the low end, 6 big reasons why we can finish at the upper end of the that. Since August, we captured 5 of our 6 of our upper end guidance range expectations.
You all should expect that we'd be raising guidance. That is what we did. That additional $100 million is coming at our high 10% area. And we believe that we're on track.
What's not covered, tied into your question, and Rob, if the government completely shuts down for 3 months, probably not covered by our August guide. But look, we're going to stay focused on what we can control. We've got the book of business. We got ramping up happening to be much stronger than we thought, and we'll be sitting here at the end of the year, talking about a successful fiscal year '24 for the company.
Bert William Subin
Got it. Okay. That's very helpful.
Just as a follow-up, I mean, Jeff just mentioned some of the photonics investments in the first half. Obviously, some of the investments you've made in EW/SIGINT, and cyber and software development are paying off. Can you talk about what inning you think we are in when you focus in on your tech investments, reaching the payout base? And then relative to that, how does that make you think about M&A over the next 1 to 2 years? Are there still capabilities that you need to bolster?
John S. Mengucci
Yes, Bert. Let me unpack that. Technology investment, SIGINT/EW, I really like where we are. We have invested the larger tranche when we expected to, and it's already paying off. You're seeing that our margins are now into the high 10 area, that plus a growing revenue base is going to continue to provide nice strong growth for free cash flow per share.
On the photonic stuff, look, it's modestly relative to the size of the overall company. As we've been discussing, and as our prepared remarks share, there's strong demand from both government and our satellite primes. We're proven, we're deployed, we're operational, and we're tested for various orbits.
As my prepared remarks stated some of those bespoke solutions are out there, sending signals from Mars to Earth That's all high-tech algorithms, a lot of government and CACI investment dollars to get the art of how to connect laser signals between 2 different points over millions of miles. All of that technology and all available algorithms go into the lower spot, lower-cost terminal market.
If we look at demand, look, we are seeing a higher order volume than we expected, which is why we accelerated some of the P&L investments that tied to (inaudible). On SDA Tranche 0 and 1, we're currently under contract to deliver terminals. SDA Tranche 2, we've got roles with 2 price, for both beta and alpha. We expect tracking awards in quarter 3.
So look, we believe it's a burgeoning 5- to 10-year market. I'd say we're probably in the seventh to eighth inning of investment. We're probably in the early second inning of growth. So I see this as a business being a much more meaningful contributor as we mentioned, exiting '20 and '24, but really playing into '25 and beyond, which was our investment thesis when we bought SAP Photonics just a couple of years ago.
Operator
Your next question comes from the line of Peter Arment with Baird.
Peter J. Arment
Yes, John, Jeff, George. Maybe just to circle and follow on with Bert's kind of questioning. As this technology mix continues to grow, and it sounds like you're in the -- as you mentioned, the seventh inning roughly on the investment side. As the volume starts to pick up on the technology, should we still view this to be a lift to margins longer term?
And then just related to this, Jeff made a comment that the M&A environment is getting a little more potentially attractive. Is that -- that there's just more assets coming available or prices resetting? Any color there would be helpful.
John S. Mengucci
Yes, Peter. See, let's start with margins first, because when I hear margins, I sort of get my head back into free cash flow per share growth. And look, that has many, many levers, right?
Look, first, we're taking a long-term approach to driving organic revenue growth in areas that actually matter. And I think based on earlier discussion, you know, dot, dot, dot, it will also going to be well-funded, right? We can't guarantee everything we're going after is always going to be well-funded. But given the size of the overall defense budget and the size of CACI and the size of things that we need to have funded, that risk meter gets low at the top level, when it gets lower and lower as you really look at those narrow, deep funding streams that we're part of.
Margin expansion for us, yes, it is still -- it has our attention. Our focus is the long term. I think I've mentioned, I'm not going to short arm investments that are going to be driving long-term future growth. We're not going to do unnatural acts to achieve it. I'd also say that our EBITDA is just that, EBIT plus D&A. There's no other additives, no other subtractions, no adjustments.
So on the margin growth side, yes, that plus beginning to push this company from the low single-digit revenue growth to the mid-single-digit revenue growth business, it has been a large achievement over the last number of years, and we will continue to look for work on both.
As you talked about M&A, and I'm going to let Jeff provide some comments here as well, but we're going to continue to look at those key technology areas. We're always going to be looking at SIGINT/EW. It's a massively large front, we are watching, as my prepared remarks stated, we are watching in some of these events around the globe just how quickly the adversary changes their behaviors. There used to be a time where we had a lot of ACAP1 programs, and your adversary would change their (inaudible) once every 3 years. These are changing once every 3 days.
Let's try this, see how that works, see how that may react, then let's make changes in the SIGINT and the EMS world. That needs great software-defined tech that can be built quickly ala Agile.
So anything in that SIGINT/EW area, IT modernization, I love the hand that (inaudible) team have been playing. That's sort of -- been double down on network modernization as well. And frankly, in core CACI technology and recent technology from other recent acquisitions is what has positioned us well.
So I'll let Jeff talk about how the M&A market is looking today.
Jeffrey D. MacLauchlan
Yes. For the second part of your question, the short answer is both. Probably more important to us is we're seeing a little bit of modulation and tempering of valuation expectations. So we're starting to see some of the consequences of interest rate environment and broader regulatory constraints, whatnot, sort of manifest themselves in a little bit more reasonable valuation premises.
That also probably is a company by a little bit more in the pipeline in terms of volume, but it's really more about valuation expectations that could afford us with some interesting opportunities.
Operator
Your next question comes from the line of David Strauss of Barclays.
Josh Corn
This is actually Josh Corn on for David. Just to ask, we've seen really strong growth in DoD revenues over the last couple of quarters, and a little bit of a decline in the federal civilian. So I just wanted to ask how that may look going forward and what the bid pipeline looks like there?
Jeffrey D. MacLauchlan
Yes. The driver of that is our background investigation work, which is a long-standing established franchise. It has been administered for a number of years through the Office of Personnel Management, OPM, you'll know is a civil agency, and then transitioned a year or so ago to DCSA, Defense Contractor Services Agency.
So while it is a change on the chart, it's not really a substantive change to the business. There have been a few other small changes, but the driver is that.
John S. Mengucci
Josh, I'll also add to the sort of part of your question that was looking forward. We're in fine markets out there today, we're actually structured around markets. Think about that as capabilities where we run every single customer through it. So from time to time, those numbers are going to move around based on where we win network modernization work, 1 quarter, maybe with DHS, which is in (inaudible), that may have 1 ramp-up period. And then in other areas like Army DIA and other areas, we're after winning network modernization works as well.
We sort of look at that year-to-year. It's been those different quarter-quarter points, things move around. I think another example, as you look at the commercial work, yes, maybe over 1 quarter, that work sort of moves around because something got delayed or something came in early. But over 2 quarters, it's sort of flat, so.
Operator
Your next question comes from the line of Matt Akers of Wells Fargo.
Matthew Carl Akers
I wanted to just ask a quick on this hiring trend headcount. Any color you can give there on sort of how you're doing year-to-date?
John S. Mengucci
Yes. Matt. Look, hiring, you guys think of just a broken record. It's -- the demand for talent remains high. Given all of our recent wins, our talent and acquisition team has been doing an outstanding job. We set a goal each year across the entire company as to how well all of us, because we're all involved in talent acquisition, is working. It's working extremely well.
We continue to strive to meet Employer of Choice, all 3 of our programs are #MakingMove program, our referral program, great people and other great people, and our employee value proposition around your potential is limitless, so is ours. They're all contributing to strong hiring.
And the flip side of that piece, Matt, is that our retention numbers across the company are at exceptionally strong levels, not really sure what those numbers are, but it is suffice to say, it's a material level below what we saw prior to COVID.
We've expanded our internship program. We're making sure our employees know the value diversity and inclusion. We're engaging regularly with all of our employees, and it's sort of working. We continue to win numerous Best Place to Work awards. And again, these are based on our employee surveys, not what the CEO believes. And we're able to find talent, part of what drives that talent pipeline, our employee referral program and our interim program, right?
Both of those are bringing large numbers of folks in, and the referral program just under 50%. So think about that. 50% of the people this company brings in come through referrals. And that has a double positive effect, folks. One is it gets us employees faster than are proven. Secondly, on the retention side, people who refer somebody statistically stay materially longer than those who don't, right? Assume these are company as who they referred some great talent, and that talent that was referred stays longer because they "look up to and owe it to somebody who's already in the company that has referred them."
So it's really working extremely well. That ties back to the culture of this company, a 62-year-old company deeply involved in mission, very closely coupled to a customer, 38% veterans, it has all the right mix in it. And I hate to say, it makes the job easier, but it makes it easier for us to continue to be the employer of choice.
Matthew Carl Akers
Got it. And then I guess if I could do one more on margins, Jeff. I guess a lot of sort of noise in the EBITDA margin this year, first half versus second half. Is there a way to think about kind of going forward, the starting point for fiscal '25? Does that look more like the '24 average? Does it look more like what the back half is implied? Just any way, you can sort of frame that for us.
Jeffrey D. MacLauchlan
Yes. We're not going to kind of front run our '25 guidance at this point. I mean, you will appreciate that, that's still going to actively work.
I don't know that there's a lot to add to the earlier question. I mean, we have a couple of areas where we're investing in the first half, and we see that sort of winding down as we achieve a number of milestones, and we had good visibility into the backlog, and there's some timing and mix there as well. So I don't think there's a lot to add to what we've already said about it.
Operator
Your next question comes from the line of Seth Seifman of JPMorgan.
Seth Michael Seifman
Okay. wanted to ask one more question about the M&A pipeline, and you talked about things maybe loosening up a little bit. And I wonder if it's stuff that you see more that might be kind of -- almost like an investment in a technology or R&D to help build out capabilities, maybe more on the product side? Or if you see more opportunities for companies that might be -- that have a solid earnings stream now and might be more accretive to earnings and cash flow in the near term?
Jeffrey D. MacLauchlan
It really goes across the spectrum. We talk about the fact that our program is grounded in strategy and filling gaps. Sometimes that's a technology gap, sometimes it's a mature position with a customer or an area that we see a need to add to the portfolio. It really runs the spectrum. It's really across the board. I don't know, John?
John S. Mengucci
No. I think, Josh, is absolutely right, right? The capability, customer relationships. We've done a number of acquisitions that actually bolster customer relationships. So in that example is that we've got a strong hand in SIGINT and we're not deeply in customer [X] and some other companies have got great relationships there. They've got a long-term mature delivery track record. Cash performance is strong, cultures match. And what way to better step and repeat with the capability we have, when our customer set in to sort of bring those kind of customer relationships in.
So we sort of take customer relationship plus a core CACI capability, as well as add what the incoming company has and that allows us to really focus our pipeline more efficient, efficiently, allows us to continue this long -- a long history of successful M&As that are driving top and bottom line growth.
Operator
Your next question comes from the line of Mariana Perez Mora with Bank of America.
Mariana Perez Mora
So I would like to dig deeper on pipeline of opportunities. When I see the bids expected to be submitted in the next 2 quarters, they raised to $14 billion from just like $10 billion last quarter. Is that -- or that significant increase is just a seasonal trend? Or is it indicative of any changes in like strengthening our environment, evolving the CACI strategy and/or new opportunities?
John S. Mengucci
Mariana, so when we look at the pipeline, I actually look at visitor under eval and ones that are going to be submitted. So $25 billion in total. And maybe a little more color here for folks on the line. It comes down in my mind to 2 or 3 elements. I hate to say 3, then I'll forget one and I'll end up with 2.
But the first is size, right? We always have said, as we rebuilt the business development machine here, it's a bit less and then more, and if given the choice, always bit larger, right? Because larger portends longer duration, which although it may not ramp up as fast as some of you would likely win some of these programs, we're looking at that 4-, 5-, 6-year dependable growth stream that we have out there.
So one is going to be sized. So there's several billion dollar opportunities in the pipeline across a number of our markets. And these and other long duration one provide confidence in our long-term growth.
The second one, I sort of would put in a bucket called location, network modernization, cloud, SIGINT software, Agile software development, well-funded, right? So back in our milestone's general process of 7 different milestones that we submit and get awarded a bid, is this the right size, can we differentiate, have we invested to have a customer need? Is it in the sort of zip code or work that we do very, very well? And the last piece is, what I would call, is it mission tight? Is it related to the work we do well, we do today? Is it a nice step that we are going to repeat? Are we doing work with the Navy that we want to introduce the Army too? Spectral would be a perfect example. How do we build some things to win like Spectral for the Navy? How do we take all that technology and look right to a 20-year customer in Army Trojan and bring some of that capability forward?
So the pipeline is built years ahead of when we actually have to execute it because they want time to build the relationship. We want time to invest and show the customer they are to the possible. So our pipeline today is made up of a lot of those opportunities. We can't win all of them. But we like to make certain that we're sort of stacking the odds in our favor as we put things into the pipeline, and we all, collectively, all those, through the bid, through the eval, and then through the ramp-up cycles. So hopefully, that provides you some additional color.
Mariana Perez Mora
Yes, that's great color. And you mentioned and you have been working on this "Bid Less, Win More" strategy for quite time now. What is the target win rate that you are like -- that you want to achieve when you do these bid proposals? And how is that trending lately?
John S. Mengucci
Point in the realm, 100%. No. Look, I hate to get into sharing really valuable market data. But we like our recompete rates year-over-year. More shares been not over 90%. And if you take our collective win rate, it will be in a 40-ish percent, 50% in some years, 30% in others. But we're very well in tune of what's in the pipeline. We don't have a lot of bluebird bids that come in 2 months before the bids do and somebody else has to shape that win, but we want to get our -- a bit submitted number up. They really are methodically thought out. They go through a very rigorous process.
So I think we have a respectable win rate. Again, you can manage your business out of business, driving for a much higher win rate because it's only been on things you think you ever 100% chance to win.
So it's a tough, tough question to give a pinpoint answer to, but look, over the last 7 to 9, 10 years, I'm really impressed with the change that we made in our business development organization, depth of understanding on how to do that, and our BD organization is extremely deep, below the sector level, into all of our BD leads, which includes our technology sales, sales team as well.
Operator
Your next question comes from the line of Sheila Kahyaoglu with Jefferies.
Sheila Karin Kahyaoglu
Lots of questions on margins first half versus second half. So I was wondering if we could talk about the Photonics investments because you mentioned that quite a few times. Can you talk about maybe the impact in H1, but also like how do we think about this investment, what program opportunities that could open up as well?
Jeffrey D. MacLauchlan
I don't think we're going to get into any of the specifics, but it's generally related to the Photonics programs that John mentioned related to a family of SDA programs that you'd be familiar with, and a number of our other Photonics product as opposed to the Bespoke Solutions, the Photonics products business.
I think we've been pretty open about our win rates there and the programs that we're on our position with a couple of times. We have some DARPA contracts, just an accelerating portion of the business where we're focused on producibility and transitioning from development to production, kind of both.
John S. Mengucci
Yes, Sheila, a little extra, extra call in our Photonics business because remember, when we did the SA Photonics acquisition, combine that with the Photonics business of LGS as well as our own capabilities, I mentioned that for that business, we would be investing through fiscal year '24. As we saw volumes starting to pick up sooner than we expected on the producibility side, we decided to double down our investment more now as we look at it in hindsight, more in the first half of the year versus the second half.
So one, that provides us with some producibility enhancements that gives us more confidence in '25 and beyond. We can deliver in a timely fashion. And then two, just that delta between what was spent in the first quarter -- first half shows up as positive to margin in the second half.
Sheila Karin Kahyaoglu
Yes, no. I appreciate that color. And maybe one more, if I could ask, you announced that new $525 million GENMOD contract this quarter. How do we think about that program as a driver of growth in fiscal '24? And any additional color you could provide on what you're doing there?
John S. Mengucci
Yes. I mean it's -- it's a fantastic program. It's another network modernization job. And we've got others in our pipeline of things that we're looking for award. But it's going to unpack similar other larger network modernization technology jobs. We've got a lot of unpacking of things as we've won a lot. But they're all coming in at different rates.
So on that one, it's going to unpack more into '25 and beyond based on timing of when we won that job. But there are other programs out there that are doing an outstanding job of actually ramping up at a plan. We've got EITaaS, which is ramping up ahead of plan. We've got additional work. We mentioned it would start with upfront planning and design, team's done an outstanding job at ramped up faster.
Customers adding scope that has the hand in the guidance range. If we look at Spectral, that one is ramping up ahead of plan as well. Customer really like the open architecture and our software-based approach. We mentioned that, that would start up with planning and design. Clearly, given the nature of the world events, we've had many more meetings than we believe we would have. Navy is very, very pleased. They're very impressed by the pace of our work and innovation.
And the last, many of you have written about this. Our large Intel job ramped up ahead of plan. We're providing network exploitation. We're delivering as you would assume we would, the government selected the technically superior solution, and they're getting superior results. And that's driving even better top line growth than we had originally expected.
Operator
Your next question comes from the line of Louie DiPalma with William Blair.
Michael Louie D DiPalma
You referenced your 3 large wins over the past year. And it seems there are 4, if you include your Defense Intelligence Agency ECS3 award. On the slide deck, also discussed how awards or newer awards over the past year have approximately a 6-year duration.
But if you were to group these 4 mega billion contracts together, when would you expect the revenue run rate to be fully ramped? And I think, John, you just said that Spectral is ramping faster than initial expectations, but is it a smooth 3-year runway? Yes, that's the initial question.
Jeffrey D. MacLauchlan
John would want to add to this, but they really vary, Louie. I mean the NSA Intel job ramp relative -- is ramping relatively quickly, and it will kind of reach a steady state run rate over the next handful of quarters.
EITaaS and Spectral, in particular, are a little bit slower ramp because the front end of the program really is focused on planning. So the fact that, that -- those planning phases are proceeding ahead of schedule doesn't obviate the fact that they are still in the planning phase. So those will continue to ramp into -- well into FY '25 or so.
I don't know if you want to add anything about the ECS3?
John S. Mengucci
No. I mean, look, that's a very recent win. We're working through start up with our customer set. Louie, you know, very de minimis as we get out of '24. So you'll see that one ramp more in the '25 period and beyond.
Michael Louie D DiPalma
Great. And a lot has been made about like increased R&D associated with SA Photonics. But as these programs are ramping, do they initially carry like a lower than company average margin structure? And so should the margin profile for these 4 awards increase over the next 2 years?
Jeffrey D. MacLauchlan
No. There isn't necessarily a one size fits all here. But as a general rule, you're thinking about it the right way. I mean, they're less profitable in the beginning as we're ramping up and focused on producibility and transitioning into production. And of course, rate production becomes more profitable, both more profitable in terms of rate, but also volume.
Operator
There are no further questions at this time. I will turn the call to John Mengucci for closing remarks.
John S. Mengucci
Thanks, Sarah, and thank you for your help on today's call.
We would like to thank everyone who dialed in or listen to the webcast for their participation. We know that many of you will have follow-up questions. Jeff MacLauchlan, George Price and Jim Sullivan, who has joined our IR team are available after today's call.
Stay healthy, and all my best to you and your families. This concludes our call. Thank you, and have a great day.
Operator
This concludes today's conference call. We thank you for joining. You may now disconnect your lines.
