CACI International Inc (CACI) Earnings Call Transcript & Summary

Hi. Good afternoon, everyone. This is Sheila Kahyaoglu with the Jefferies Aerospace and Defense Equity Research Team, and this is the second Annual Jefferies Virtual IT Services Summit. Today, we have the CACI team with us. We have Dan Leckburg, of course, and George Price; and Tom Mutryn, who will be answering all of your questions. He's Executive Vice President, Chief Financial Officer and Treasurer of CACI.

Tom, thank you for being here and the team as well. Just to start, maybe a big picture question, how do you think about what's going on in your business, the split of your business with the Department of Defense, Civil Intelligence? Where do you see budgets going with the DoD and also with civilian budgets -- the civil budgets, if you could talk a little bit about that.

Okay. Good -- and first of all, good day to everyone. Sheila and Jefferies, thank you for inviting us to this conference, and I appreciate everyone's interest in CACI. Kind of with the new administration we have been seeing some signs of what the budget looks like. And from our perspective, the DoD and civilian agency skinny budgets, as recalled, are actually better than many people anticipated. The Biden administration continues to focus on ensuring that we have a world-class best in the world military intelligence gatherings, recognizing that a lot of threats are less about bombs and bullets, more about bits and bytes. And technology is changing the way that we would protect our nation and engage either near peers or nonstate actors. And those are areas, which we were focused on materially in the past. At the same time, there's a good amount of work associated with the transformation of government, of business systems, IT networks and the like, and we have very good capabilities in those areas. We're less focused on the DoD, civilian agency split. But rather, our framework is more of work that supports missions or work that supports enterprises is a better way to look at it. A good example is we provide enterprise technology, 2 recent wins; one was the BEAGLE win for Customs and Border Protection, which is a civilian agency; and another one was a very large TCS win supporting the NGA, which is part of DoD. So both programs are very important to us. And when we went after to win those programs, it was less about what agency, what part of the government they fall in, but can we meet the needs of that particular customer.

And maybe can you talk about the growth trajectory of those customer bases? I believe you're kind of -- what the growth outlook for DoD is and what the growth outlook for civil is?

Yes. I think in terms of our top line budget, at least for FY '22, we expect DoD top line to grow approximately 2%. Now within that, there are certain areas, which are materially fast occurrence and some areas are going to get very high levels of funding to meet emerging threats, other areas will have less funding. So there's winners and losers kind of within that. And the civilian agency top line growth is approximately 15-plus percent. So higher growth in civilian agencies. But I will point out that there's a good portion of that increase in civilian agencies. It is associated with grants that various agencies make. The Department of Energy will provide research grants to a number of institutions. And some of that increase in budget dollars is not addressable by a contractor like CACI. But I think it's fair to say both areas are growing. If I go back to the expertise -- excuse me, the mission versus the enterprise framework mission activities are expected to grow faster than enterprise. So let's focus on customers enduring missions.

And then last year, you grew at a high single-digit rate, I think, 8% organically. You have a June quarter -- June year-end, so keeping that in mind, that slow down to mid-single digits, some of that has been the COVID impact. How do you think about the recovery of the growth outlook as we head into next year and just the trajectory, given your 1.5x trailing 12-month book-to-bill?

Yes. Sheila, thank you. We feel positive about our ability to grow faster than the addressable marketplace. We're in some sustainable areas, very nice wins, book-to-bill, as you pointed out, was quite strong. FY '21, which ends in kind of June 30, just a few weeks away, had organic growth of approximately 5 in percentage. So very respectable organic growth that was hampered by some COVID headwinds, which we spoke about, some dealing with deployment of troops outside the continental -- deployment of CACI employees outside the Continental United States, some driven by delay in certain tasking in the light. Some of those will be recovered as we move into FY '22. So we do expect growth above the addressable market. We believe the market should be growing at approximately 2% kind of next year. I will point out that we do have some employees supporting U.S. Military efforts in Afghanistan. With the announced withdrawal of Afghanistan, we expect to see approximately 2% headwind as we go into FY '22. We'll be providing guidance for the full year in the beginning of August. So more to come on what we expect for the year when we provide that guidance.

And just to clarify, how big is your OCO business or your -- and the breakdown of the Afghanistan business within that?

Yes. So OCO, Overseas Contingency Operations, is a particularly budget line. Some of the funding comes from the base DoD budget, some comes from OCO and the like. We have employees in a number of other locations outside the Continental United States, like Germany, South Korea, Kuwait, other Middle Eastern locations. I think it's useful just to focus on that Afghanistan piece, which I mentioned is about to grow. Now it is possible some of those activities will still need to be done and the locus of operations will move from Afghanistan to adjoining areas, Qatar, Kuwait and the like, but more to come on that.

We'll be waiting.

Yes. So are we as we give more clarification of the customer.

You guys talked about your 4 quadrants of the businesses as you break them down, and the business is equally split right now between expertise and technology. The former is flat, the latter is up 12% year-to-date. What's driving the technology piece growth? Are there specific programs or spending areas that you're seeing capturing some of that? Obviously, BEAGLE is one of them, of course.

Yes. I mentioned BEAGLE. I mentioned TCS, a very large program supporting the NGA. A couple of things. One, we look at the underlying kind of market and be mirroring that against the desirability of winning certain programs. And while we like expertise work, it informs as it generates revenue and profitability, technology work is such that we're able to distinguish ourselves. When we bid a proposal, we are able to embed differentiators easier in technology than we do with an expertise. And since we're able to differentiate, that work generally comes at higher margins. So everything else being equal, that technology business is stickier kind of more discernable in maybe number of fronts. And so some efforts have been focused on those in particular programs. So fundamentally, we like both, but if anything, there's a bias towards technology, given our ability to differentiate ourselves when we work out and winning large programs.

Just stepping back, feedback from an investor, you talked about 5% organic growth this year, very respectable, as you mentioned. How do you think about that as it relates to your market growth?

Yes. So I think the underlying market growth this past year was probably similar to where we expect it to be next year, approximately 2%. So we were able to grow quite a bit higher than the underlying market. Now that growth would have been higher in the absence of COVID. But again, still very proud of that ability to grow organically.

Sure. And some of that growth is fueled by your pipeline. You have $6.8 billion of submitted bids, 70% new business and $13.7 billion over the next 2 quarters, of which I think you stated 80% is new business. Where are you seeing these opportunities? What are you seeing in terms of contracts? Are they getting larger? Can you talk a little bit about that?

Yes. So several years ago now, 6, 7, 8 years ago, our focus as an organization was to focus business development efforts on larger, more sustainable, critical programs for the government. Instead of chasing a large number of smaller programs, let's concentrate that effort to win larger programs. As a result of that, the average size of our wins have increased materially, ranging from the $10 million, $20 million average award size to $70 million, $80 million, $90 million of average award size with a good number of awards consistently in the hundreds of millions of dollars, $500 million, $700 million, $1 billion wins. So that has been a focus of ours. And like any activity, part of business development is determining what not to bid or pursue. And as a result of that very conscious deliberate effort, we have found a good number of large opportunities to pursue and to win. And that will be, of course, how we will continue, looking at the submitted bids in the pipeline of work to be submitted follows sort of same characteristics.

And then maybe can you talk about the hiring environment today? We've heard a lot about that, the labor market is pretty tight. Are there any near-term challenges? What are you thinking about the hiring as we head into your next fiscal year?

Hiring has always been a challenge for a company like CACI. We're looking for individuals with specific skill sets kind of data analytics, cybersecurity, computer science, electrical engineering, understanding of the electromagnetic spectrum and the like. On top of that, we're looking for people who typically have clearances, which are sometimes difficult to come by in a disqualifier for certain candidates. The way we approach hiring is to ensure that CACI is an employer of choice, making sure that we retain our existing workforce, and we provide good opportunities to new employees. Those opportunities are competitive salary and benefits, a sense of mission, a sense of purpose, internal advancement opportunities and a very positive supportive culture. And those are the ways we believe that we can differentiate ourselves in a competitive labor market and make sure that we have to do the job. One item I -- 2 items I will foot stop. One is we do annual or classy annual employee surveys. Our employees based on those survey results are highly engaged versus industry norms versus technology norm. So we feel very good about that direction. And secondly -- second, so a few years ago, we could double down on our college internship program, going to a number of schools, providing internships to people who are rising juniors or seniors or about to graduate, have them come to CACI, get excited about the company, start the clearance process. And that has been widely successful. Well over 200 students are participating in that, a high percentage are receiving job offers, and a high percentage are accepting job offers. And so that's another way for us to make sure that we have the workforce of tomorrow.

And are you seeing any sort of competitive dynamics? Tom, sorry, you're the first one I'm asking this to. Everybody's kind of pointed to their differentiation in terms of the hiring environment? Are you seeing any pricing pressure there or price inflation for wages blatantly?

Yes. Yes, it certainly is. The kind of law of supply and demand kind of works quite well in this particular area. Here's an individual with kind of unique skills, that individual kind of wants to maximize their well-being, compensation benefits in a reporting work environment, and they have choices to go to other companies, so they're often highly sought after. So we need to ensure that we have the competitive kind of benefits in place. Now a good portion of our programs are cost plus. So I'm not going to say costs do not matter because your ceilings and there's again forward pricing rates and other nuances, but in many cases, the price, the cost gets passed on to the government, and they are paying for the particular talent that they're receiving.

Of course. That's helpful. And then just transitioning to a little bit about contracts specifically. A little less than a year ago, you won your large contract in the company history, a $1.5 billion award for Transport & Cybersecurity for the NGA. How is the ramp going there? How do you think about enablers going forward and the scale of the program and capabilities that it positions you going forward?

Yes. No, that was again a great win for us. Approximately 50% of the work on that program was existing work. So we won our recompete. The government decided to consolidate. So there was a piece, approximately 30%, which was working an incumbent was doing, and we are now kind of doing that work and 20% was for new, on contract growth, which we are pursuing. The program has transitioned. We are performing adroitly on that contract. One of the unique features of the contract was we've put in place a catalog type of pricing for new installations. As the NGA expands or adds new sites into this program, we have prenegotiated, predetermined catalog prices to install networks or maintain telephony or perform various actions. Somewhat of a fixed price construct, which works well for us as we all know, if we perform appropriately, margins on fixed-price work are greater than kind of nonfixed price work. So that program is a cornerstone program for us and a very satisfied customer. I will mention that some of the work from that program came out of the L-3 NSS acquisition probably 5 or 6 years ago. Another example where our acquisition strategy leads to further growth in the company by providing various capabilities.

I remember that acquisition. And somehow I don't picture it winning cybersecurity awards. So that's a good win. I mean, on the topic of cybersecurity, what are you doing for the NGA? Can you disclose at all what the capabilities are? And then how do you think about that potentially transitioning to commercial cyber awards, whether it's solar wins and the colonial pipeline attack, if that leads to any opportunities for you guys?

Yes. So it's difficult to talk specifically about what we're doing for classified contracts for intelligence customers. There is a new security operations center, which we're maintaining and providing continuous monitoring and support for a variety of operations. I will kind of leave it at that as far as that particular construct. You mentioned solar wins and colonial pipelines. People who have been tracking this for a while, understand that there is a real threat and vulnerabilities, and these are just 2 headlines, which make the general public more aware of what people in the government and people in the industry are already aware of. Our focus is kind of multifold. One is we have some offensive capabilities supporting various kind of mission technologies and that has given us deep insights into networks, wireless networks associated with capabilities from LGS or other technologies. And that helps us inform some of the more defensive cyber work that is done, both defending networks on our enterprise side of the equation, but also platforms. The resiliency of satellite constellations or the resiliency of battlefield communications in protocols, all have a very strong cyber element involved, protecting those bits and bytes floating through various spectrums.

And in terms of just the RFP activity, are you seeing that park out since solar wins was about 6 months ago? What are you seeing there? And what customers are maybe the most active?

As I mentioned earlier, Sheila, the kind of demand to protect networks had predated solar wins. And the government has been on top of this for a while. And so we did not see any appreciable kind of funding on various programs since this is an enduring kind of issue for us. And so it just foot stops and reinforces perhaps one congress and kind of budget personnel the need to continue to focus on this.

Well, that works some. And then maybe turning to BEAGLE. Can you maybe talk about how that program is going, how the ramp is, the agile software factory because that was a differentiator for you guys. What is that for those of us not as familiar with it?

Yes. So BEAGLE is a large $1 billion program supporting the Custom and Border Protection, which is part of HHS, part of Homeland Security, excuse me, which is a civilian agency. So a large piece of enterprise technology. And Custom and Border Protection had a variety of systems and applications, and they wanted to modernize their infrastructure, you know wholesale modernization, competed the work such that one contractor CACI has 5 years' worth of work, working with the agency to make sure their applications are kind of up-to-date, coordinated, communicating with each other. The key differentiator to allow us to win the competition was our ability to do Agile at scale. CACI, first and foremost, is a software company. We develop a lot of software across the spectrum. And this is a very efficient exquisite way to deliver software, highly reliable led, to relatively low cost in an efficient manner. One example you recited on a recent earnings call is given the situation at the southern border, CBP wanted to develop some mobile applications relatively quickly to track various activities there. And we were able to deliver them solutions in a matter of kind of weeks, which very elegantly met their requirements.

Thanks for that example. I was just thinking of, can you maybe give us another example of software-defined solutions and how it enables that? I remember when we spent a day with you and John, in September, my team was scrabbling like what is this agile factory? How do we -- how is it different? Does it use less employees? Can you just give us a little bit more color there, if you don't mind?

Yes. I will. So the -- there's different ways to look at software development. And what Agile does is it breaks a large software development program down into kind of various discrete pieces and gets the relevant people together to very quickly kind of define program and tests, various pieces of a program. Imagine a personnel system. There are certain parts to the personnel system are used for interfaces. I need to go into the computer system to change my name and address. Another part would be payroll modules. One of the payroll modules may be interfacing with a benefit provider to make sure deductions are being transferred appropriately. So a variety of pieces on that large software development program. Perhaps many years ago in the olden days, someone would work on all these pieces simultaneously and at the end of the day develop a 100% solution on -- and that 100% solution may take a matter of years to develop and test. The intent of Agile software development is to break that development into different pieces, get aspects up and running and start using them without kind of breaking other parts of a system. So a very kind of deliberate software kind of a focused endeavor. Take that large program, break it into pieces and put it through a kind of factory-like environment.

So that's helpful, Tom. And then maybe transitioning to AI. A lot of your competitors use it as a buzzword. You don't quantify it or talk about it as much. But can you -- and you've disclosed that you're working on 100 AI projects at the moment. So any color you can provide there?

Yes. Well, one of the challenges, and Dan and George and I were talking earlier about the definition of artificial intelligence. It's -- different people may define it differently. In our minds, it's having some change, being able to perceive kind of learn and solve problems and kind of self-adopting. It's more than a simple computer algorithm, if and else statement, but it allows again kind of learning in some intelligence built into those in particular algorithms. We've been doing that on a number of programs for a number of years. We kind of referenced over 100 AI programs within CACI. One that we spoke about was computer vision, whereby the machines will look at images, either still images or full-motion video images and kind of work to got to learn from those images. There's a red car partially obstructed by a building and it's moving. Humans can look at that and say, "Perhaps this is a suspicious activity and it warrants kind of further investigation." And what we're doing is we're allowing those machines to make those similar observations with a variety of data. And one can imagine the value of very quick digestion of information, particularly since there's so much information in the world, open source intelligence, satellite imagery, event and the like. And so you've seen those algorithms to identify, perceive and learn is what AI is about.

And then maybe just broader implications of intel business. What are you seeing from an award perspective there? You were recently awarded a $376 million NGA contract, I believe, back in April. Just what are you hearing overall from your intelligence customers?

Yes. They -- if I go back to the budget, the intelligence agencies are key to keeping the nation safe and understanding what our adversaries or what's happening in an overall geopolitical environment. So the customers are focused on kind of using kind of technology to more easily deal with the proliferation of information, open source intelligence, millions of websites and tweets and information, overhead imagery. And at the same time, making sure that their systems and capabilities are resilient, kind of overhead assets, kind of ground assets making sure that we understand emerging technologies, 5G, different wireless protocols and the like. And so a lot of the work supporting the intelligence community is in that mission technology area along with that enterprise technology areas as well.

And then maybe another word that you guys have talked or stood out to us was a $447 million award from NSA for mission technology to support signals intelligence and cybersecurity. I think it was over 5 years. How are you thinking about the ramp on that award? And broader, we hear a big push about multi-domain -- on the multi-domain front.

Yes. So this is award that was a recompete for CACI. That award, the predecessor actually came from an acquisition as well. So again another indication that the acquisition strategy is working. And in the -- since it was a recompete, a good transition, but there was some increase in scope, and we are increasing scope on that, very much focused on kind of work at an intelligence customer, dealing with some signals intelligence on kind of missions. Another area where it's important to find the right people to work on these particular programs are people with highly sought after skills. And so the whole kind of recruiting issue is key to work on that particular program. But it has been an important program for us, and it continues to be so.

And maybe just to kind of close up the loop on overall growth. It's about from an investor. Can you talk about your DoD growth outlook for your -- and then in terms of the TAM, sorry, I'm reading off a question, growth in 2022, does that include the 2% Afghan headwind?

Yes. So the underlying market is growing 2%, and we want to grow greater than the underlying market. The fact that we have some headwinds associated with Afghanistan is incumbent upon us, CACI to find other work to fill in that gap of -- to ensure that we have that growth. Certainly, we believe we have the pipeline and the backlog to support future growth. As I mentioned, kind of DoD growing approximately 2%. The civilian agency's top line budget growing in the kind of mid-teens, but there is some kind of nonaddressable work in there. So overall, we believe our addressable market should be growing around 2% as we move into FY '22. Beyond that, it's harder to say. We're waiting some pronouncements from the administration with regard to longer term budget outlook. But I think those are good kind of reference point for investors to focus on.

That's helpful. And then maybe can you talk about how AVT is doing versus plan? You had a Counter-UAS business prior to the deal. So what are some of the opportunities from the integration?

Yes. We're very pleased with the way AVT is being integrated into CACI. In terms of short-term performance, there were a few COVID-related issues on supply chain, making sure they get the appropriate parts. There was a couple of kind of minor hiccups associated with that. That's more timing than anything else. But they're integrated into CACI, working very closely with other parts of the organization. And their solution, the MADIS systems kind of using their EOIR devices in conjunction with our Korean RF-based Counter-UAS and it creates a robust solution in that particular area. So we're pleased with the progress at AVT.

And then on your other acquisitions, LGS and Mastodon, how are those doing? It's been, I think, a little over 2 years since they closed. Can you just bring us up-to-date on those? What's the revenue like? Have there been synergy opportunities where you are providing a product along with your existing business?

Yes. Yes. Thank you. So a combination of Mastodon and LGS in some legacy CACI work, which first started when we applied Six3 Systems have all proven to be effective, a lot of complementary technologies, making sure that we're making the appropriate investments when we bring those technologies together, here is what we have. Here are some perhaps kind of duplication or overlap, so let's take best-of-breed if we have some gaps, fill in those particular gaps, developing better capabilities to deliver products, kind of manufacturing capabilities, keeping attractive inventory kind of more sophisticated new procurement processes. And certainly, the demand signals are there in all those 3 areas, including AVT. Mastodon focusing primarily on signal collection devices, situational awareness; LGS with some cyber capabilities as well as kind of deep understanding of wireless, wireless communication protocols, which is in high demand as well. So complementary activities, allowing us to grow in that important mission technology quadrant, which is producing some very nice margin characteristics.

And speaking of margins, that brings us to profitability next. You're, I think, 11.7% -- 11.8% margins last quarter. You're tracking 11.7% year-to-date. Even ex the fixed price contract that was profitable, you're up 100 bps. What's driving some of that? How long is that sustainable?

Yes. So this past year, FY '21, we had a series of puts and takes in terms of margins, some COVID-related activities. We had an issue with some state sales tax, which we discussed, albeit one program, which had an unusually high level of profitability, which is not sustainable. So we have attempted to provide some of those ups and downs to our investors. And as a result of that, we believe that the underlying margin for CACI, excluding those factors in FY '21, is around 10.7%, which is very close to what we initially guided to ex COVID. So we are delivering what we said we're going to deliver. And that is an EBITDA margin, which is several hundred basis points higher than it was 2017, 2018. There, we were kind of 8.5% EBITDA margin. So material improvement in margins to a kind of new normative level. And our commitment was to not only grow greater than the addressable market, but an ever-increasing margins. And so our take up point is 10.7%, and we expect to increase margins beyond that as we move into FY '22.

So is the framework still 10 to 30 basis points of annual margin contribution -- margin expansion? And I guess, what's the structural ceiling, given your business mix is changing to more technology shifts? Do you employ less people per contract? Is that helping some of that 200 basis points of margin expansion you mentioned?

Yes. Yes. So we've kind of changed our message either subtly or unsubtly depending upon how you want to look at it. Ever-increasing margins, and so we're being less specific about how much of those margins are going to grow, but we do believe they will grow. So that is what we're ensuring with our investors. Is there a natural ceiling? Kind of given a relatively large portfolio of expertise and mission, there probably is. Now there are government contractors, some are sizable, some are less sizable, who are generating 13%, 14% to 15% in EBITDA margins. There are some companies providing products and we have a product portfolio, which are generating margins in the 20% or 30%. But given the mix of work we do, we will always have some parts of the business generating higher margins than others. But again, having that ever-increasing margin is a good kind of goal to keep in mind, and we will continue to make progress there.

I thought you guys dropped that 10 to 30 bps, but I wasn't sure. So it is so.

Okay. So you picked up on it, yes.

Maybe can you talk about your free cash flow bridge. You expect operating cash flow of at least $600 million and with CapEx of $70 million, and it implies net income to free cash flow conversion of 115%. How much of that is sustainable? You have some CARES items, tax items in there. Maybe if you could quantify the free cash flow bridge this year to help us think about the baseline for fiscal 2022?

Yes, there was a couple of large items this year in terms of free cash flow, kind of one item helped us. We had a deferral of the employer portion of payroll tax, which was a provision in the CARES Act that allowed us to defer those payroll tax payments of approximately $45 million into next year. So that was a good guide. We did some tax planning in our fourth quarter whereby we needed to pay approximately $75 million of taxes faster than we anticipated. We will get refunds of those payments in the coming years. But that was a short-term headwind. So with that, we have an operating cash flow of around $625 million, kind of less CapEx, $70 million, $75 million, gives you the baseline of free cash flow next year. Looking -- taking a step back, looking at operating cash flow, I always start with the statement of cash in our SEC filings. We start with net income. We add noncash expense. And for CACI, you're considerable, stock-based compensation, depreciation and amortization and also the intangible amortization associated with acquisitions and then some deferred taxes. And so there's a good amount of noncash items. And then after that is a change in working capital. This past year, we dropped DSO at least 4 days, which generated approximately $60 million of additional operating cash flow. But with flat DSO ahead of net income plus the noncash items should get operating cash flow ahead of net income. And that 115% that you mentioned without doing the arithmetic directionally seems to be the right zip code.

Right. And just to clarify, you'll have -- next year when you guide, you'll report adjusted EPS for the first time instead of GAAP EPS. So you'll add that amortization back?

That is correct. Yes. We had, as I mentioned, a large noncash charge. And while we disclosed that information already in our SEC filings, as a matter of convenience, and just I'll put another kind of useful metric in place, we will show net income and earnings per share adjusted for that large noncash item.

And on that adjusted net income, it will still be greater than 100%?

It should be, yes, yes.

Okay. Just double chucking.

Well, I spoke too quickly. I haven't did the arithmetic. So let us investigate that.

Sorry about that, Tom. I was just double checking, as I was thinking about your guidance change in -- when you give it in August. And something else that I believe was different for you guys is you announced an ASR for the first time in a very long time. Why was that? Was it pressure from our end? Is M&A environment just too competitive? What are you seeing there?

Yes. So we found ourselves in a situation where we had relatively low leverage, less than 2x, a very favorable interest rate environment and a relatively attractive stock price. And it was advisable for us to undertake that ASR of $500 million, provides leverage of around 2.5x, but that still allows us capacity to pursue acquisitions anywhere between $1 billion and $2 billion of headline purchase price dependent upon those characteristics. And we married that against our acquisition pipeline and felt that we could do both. So a less of an either/or strategy, but an and strategy. Let's return funds to the shareholders and preserve capabilities to grow through acquisitions. The fundamental framework is how do we develop -- deliver the best long-term shareholder value to our owners. And both of those are useful mechanisms in depending upon kind of market conditions and other scenarios we will have that balance in a flexible capital equipment strategy going forward.

And then just going forward, what do we think about the right leverage level, is it 2.5x? You mentioned capacity for $1 billion to $2 billion in deals. How are you thinking about leverage right now?

Yes. So we're very comfortable getting leverage kind of north of 4x, 4x, 4.5x, given the right set of facts and circumstances. And so right now, at 2.5x, we have capacity. And that capacity is -- provides optionality for us to pursue acquisitions. And assuming that we're successful, we would do -- continue to grow and fill the gaps. But to the extent that we're not and we find ourselves in a low leverage situation, and our stock is attractively valued, then another option is to continue to deploy capital through share repurchases.

And then just lastly, on the M&A environment, what are you seeing? Do you still find your stock more attractive? I think you're trading at like 10x, 11x EBITDA versus what multiples you're seeing in the market for other assets? Or what M&A opportunities are attractive, and what areas for you guys?

Yes. So we always use M&A to fill gaps. We have gaps in a number of areas, oftentimes in the technology space, either mission or enterprise technology, electronic warfare, kind of broadly speaking, data analytics, artificial intelligence, cyber capabilities. Those are all areas where, while we have some qualifications, there are companies with exclusive technologies that would be additive to CACI. And I will mention that while multiples are of interest, they are not sole determinant. If we find a company that is high margin, high growth, expected to grow 10%, 20%, 25% for the next several years, it will command a higher multiple just because the discounted cash flow arithmetic supports the higher purchase price divided by trailing 12-month EBITDA mathematically shows higher multiples. So the multiples, in my mind, are oftentimes indicative of the growth characteristics of the acquired property.

With that, Tom, that concludes our 45 minutes. So thank you very much for the time, and to Dan and George for allowing you to be here with us.

Okay. Good...

Thanks everyone for joining.

Yes. Thank you as well. I appreciate your time.

Thanks.