CACI International Inc (CACI) Earnings Call Transcript & Summary

Thank you very much.

So just to start, for investors that might not be familiar with the defense environment or defense services, could you mind going through a big overview of what CACI does and the key markets you are exposed to?

Yes. So CACI, 60-year-old company, we've been a public company for a little over 50 years, $8.5 billion revenue business, low 11% margins. And we deliver expertise, so think about personnel to the federal government, and we deliver technology. The split for revenue, 55% is technology, 45% is expertise. And we'd like to say that we're in very narrow deep funding streams across the United States federal government. We're involved in cyber. We're involved in space. We're involved in network modernization, enterprise IT and electronic warfare, and all of our technology is delivered with software as its basis because we firmly believe that the threats were going to continue to change and hardware-based solutions were going to be something in the past, because we believe that the threat was going to be very dynamic, and that's how we built this company forward. So very, very purpose-built, and we're sort of where we are now and not by accident. It's actually a long-term strategy that sets us up well as we go forward.

So over these decades, right, you have been transforming what type of solutions you provide. How has been that transformation, especially the one that you started less than 10 years ago, towards technology, towards software from more of boots on the ground expertise purely? What -- how has that transition has been? And what motivated that?

Yes. So I came into the company in 2012. Timing is everything at the end of 2012. Sequestration hit, and low price technically acceptable hit. The U.S. was coming out of the Middle East wars. And CACI over the last 15 years prior to that was really delivering people. So when the work time came down, better buying power comes out, low price technically acceptable comes out, sort of say it's time for another strategic change. In 2012 period, we were 80% expertise and 20% technology. Our margins were in the mid-8s, and growth was low to mid-single digit. So we took a strategic pause and looked forward and said that the CACI of the future needs to be more involved in what we say is stickier. We have to come up with stickier ways to stay close to our customers. And we spent the next 2 years, frankly, looking at the expertise, delivering labor hours and saying that is a commodity market. So we knew that back in 2013 and '14 that selling labor to the federal government was a commodity. And we've all gone to business school, right? When you only differentiate on price, you either have the lowest price or you've got to be in a different market. So we quickly transformed our business to focus on technological solutions. And since we were new to that area, we were very strategically focused on everything has to be software driven because we truly believe, after the last 20 years of war, is that coming up with hardware-based solutions, where you can count on your adversary changing tactics every year, we believe it was going to go to changing tactics every day. And softwares allows you to make changes. Your iPhone has apps. Your iPhone has apps because every vendor is going to change what that app does on a -- not on a routinely basis, but whenever they believe they want to provide you something different. So we took a step back. You can look at our financials in '13 and '14, a lot of negative double-digit growth quarters, and we were really getting out of the expertise business, out of the price-sensitive expertise-type business. What we've doubled down on was expertise where there's only 2 or 3 companies that have that knowledge to sell into the federal government. So very pinpoint focus on the expertise, we're going to sell going forward. And then we have always been an acquisitive company. We've done over 90 acquisitions in the life of the company, probably 40 or so in the last 20 years and really said, "Let's build a capability-based business where we can focus on 7 markets and go very, very deep and provide solutions in a software manner." It worked because we believed we had and we did prove it, a 52-year history with customers. So in the DoD and the intelligence market, past performance matters. And what had happened in selling labor hours is past performance are no longer asked for. Because if you don't ask for past performance, you can't get lower, lower pricing. So I'm watching peers in our sector. Lower the rates, cease investments, just sell people. That became jobs that used to be 5 years long, 3 years long, 2 years long. And my premise is working recompeting for our book of business every 18 months is not really a business. So let's take all those -- all that money that we invest to rewin our book of business and apply that towards new areas. So right out of the gate, did a little of 15 to 20 different acquisitions. Many of them were tuck-ins. Some were major placeholders and really built this technology business forward. Today, we enjoy 55% of our business as tech, 45% as expertise, and that expertise is very selective. Margins are not -- we're not getting in bids for every 12 to 18 months, we're being asked to rebid. And we have an actual stature in the customers that we provide labor to. So a very different looking business. $8.5 billion business now, up from $3.5 billion, low 11% margins, up from mid-8s the last 5 years, 7% organic compound annual growth rate, about $2.3 billion of free cash flow, book-to-bill 1.6x over a 5-year window and won 11 $1 billion-plus awards, which is new for the company, because our theme was, let's stop bidding everything to move because we're selling people. Let's really look at things that are in this mode where we can bid less and win more, where we can spend more time winning larger programs. Larger programs is you'll hear about is what gives us great view many more years into the future, which is why when we talk about the craziness, which is going on now, we actually have a very healthy backlog. But the most important part to our new backlog, instead of being 18 months with 1.5 years long programs, the majority of the programs we put in the last 4 years have an average duration of 6 years, and our backlog is over $30 billion. So very different position business going forward. But it did take some quarters of negative growth and investors hanging on a way to see if the strategy played out. So...

So when you think about the future, what is the right balance between this really niche expertise that you want to exposed to and the technology?

Yes. So what's crucial to the technology that we built was hanging on to some of the expertise work. I'll give you a couple of examples. We were embedded with a lot of ground forces for the better part of 15 years. What you learn are two things. One is you learn how to build the deepest relationship with your customer because you understand what their mission is. But we also had firsthand technology that worked in technology, the technology that hadn't been created. So if you look at our mobile and our manpack and our handheld software-based technology delivering to protect folks in the electronic warfare world, we understood where the threat was. We need to read specification. So we moved into this model of investing in how the customer need. So if we have an inkling from the people embedded with our customer, that tells our technology side of our business, "Here's what you need to build. Here's what the customer is talking about. Here's what they need solved. Don't wait for a specification to come out. Actually, shape that spec." Okay. We understand what the -- what our customer goes through. We are on the receiving side. So let's go front-load builds and talk to the customers about art of the possible, to really expand the DoD and the intelligence customers mind of the art of the possible because those customers are so filled with, "Here's all you can get today," because the old model is, "Here's what I'll give you today knowing that 3 years, I can resell all of that with something that you're going to need." Our model was software based. You can have whatever you need whenever you need it. And we put great business cases in place. Clearly, if we had driven revenue up, we hadn't grown margins. It would be not a really strong business case. So plenty of examples where expertise still feeds tech, and that's that level and knowledge that we want to hold. We also picked that expertise business that would not only be differentiated, but also would drive margins, right? It's -- if the competitive set goes from thousands of companies to 3, then I can differentiate on how I'm going to solve that customer's problem. I can differentiate on the skill sets of our people, therefore, garner and command higher margins that customers are happy to pay because of service that they're getting so much better at.

Sometimes, it's difficult for investors to differentiate between defense services companies, and it's probably because it was mostly labor based before. So depending on who you had as a person, as a higher position, what makes CACI unique today? And...

Yes. So we often get compared to folks in our sector. So those of you who follow GICS and NAICS codes, we really don't get to call that. So in the sector that we're in, we probably got assigned in 1965 and we've never been able to move. But having said that, we were the first and, I would say, the only that has been focused on this level of technology. We're not building platforms. So there's some phenomenal primes out there that build great ships planes or whatever it is. We're looking to build those mission suites and those packages that write on those. They are software-based. So as a threat changes, new software comes out, and you're able to more rapidly address those threats. When the government talks about velocity, quality, efficiency, that's what they're asking for is, "I don't have the ability to take a ship back to shore in the middle of a fight because my enemy just changed her tactics yesterday." That's an old fight. It doesn't matter how many ships you have, how many planes you have. So we've been very focused on talking about technology that you can touch. So we have an Investor Day last November. You can come in there and look at an entire suite, and people got the right message. Why are you a government services company? Because that's what my GICS code is, okay? But what -- so some of the examples, I guess, that show that we're different. Our EBITDA margins are just that. There's no GMO. There's no extras. It's just plain EBITDA.

There's no A. There's no adjustment.

Right. Our growth rates have been in the low to mid-single digits because we're going to be very selective about what it is we win and because we're working on top and bottom line growth because our ultimate focus is free cash flow per share. Now most people in the sector talk about, "Well, I do technology also." It's a statement. In some police departments, they actually call that a clue. They are talking about delivering tech now. They're talking about their margins. They're talking about that they're going to bid less and win more, but that strategy has been in this company for just about a decade now. So what makes us different is we're also purpose-built for where we are today. We didn't just hear what DOGE was going to do and change how we talk about our company. I led off with the changes that we believe we're going to be needed. We believe we took the best of the aerospace and defense primes, quality and process driven, very, very rigorous. But we're not building 1,000 versions of the same exact thing. So we threw agility and mission knowledge, which government services providers bring in, and we brought in all of the commercial software development processes that have ever been created. And they were created by folks like GitLab and AWS on the cloud commodity side and others. So we retrained our entire workforce. What we've been working through is retraining our customer. As our customer still likes to write all the requirements up here, 12-year program, year 6 check in and start doing testing 7, realized over the last 7 years, the requirements have changed. You end up in these large overrun programs. We believe in build a little, test a little, deploy. Just continue that cycle. That's a commercial build process today, so I can't find anybody else in our sector. And the final statement that I'll leave you all with and why we are different is about 95% of the technology jobs that we bid on, no one in the government services sector bids against us. So that's the biggest clue there is, is that when we say we deliver technology, we are competing against the major aerospace and defense primes. We're not competing against people within our sector. It's easy to say you do technology. It's really hard to transform a business that has only sold hours into building it. We think we found that happy niche. We weren't lucky. We're actually strategically focused on, and also that's how we're addressing that market going forward.

Perfect. And you just mentioned DOGE, and I think that's the elephant in the room. How do you think about the U.S. government focusing on efficiencies? And you also just mentioned that you have been trying to push the customers to focus more on the solutions and other requirements. Do you think this could accelerate that approach? Or...

Yes. We're -- based on where DOGE was last night. I didn't get any tweets this morning, so I'm not quite sure where it's at today. But with all the reverence that these are -- I think with $37 trillion of debt, we have to find a better way to spend money and be much more efficient, period. We can talk about fraud waste and abuse. That's been in the government forever. The fact that DOGE and other people are routing that out, that's great. That's sort of a lucky strike extra. The focus for us has been resilient networks for our customer set, cyber protecting those, enterprise IT that can change with the needs of whatever organization it is. Space-based communication is very important, and everything in the electromagnetic spectrum. DOGE, when they came out focused on the networks and the government need to be rearchitected and be more nimble, and that's a true statement, and their semicolon was, it needs to be better funded, not that it's being done wrong, but it needs to be better. But it has to have the same priorities building assets because if there's no networks that are going to move that information, those assets are materially less valuable. They believed in enterprise IT that was more the dynamic and that had continuous funding. We still agree with that. They also believe that people who spend billions of dollars should be able to audit themselves and pass financial audits. We built audit software for the federal government. It started 12 years back. We're still billing today 30-some organizations. Federal government use that software. It's Software as a Service. I'm sort of dating myself used to talk about SaaS, right? But all 30 or so agencies that use it passed their audits. 100% of people who don't use it failed on it. So the Marine Corps are first DoD service that signed on to it. It's provided by the government. This is all government's software. They passed their audits for the last 2 years. So those 3 areas, we strongly believe that we're in line with DOGE. I think what has happened as a public company CEO, when you say you save the $1, you better make sure you save the $1, okay? If you saved $1 billion -- if you say you saved $1 billion and it was only $1 million, you get like 1 mistake. When the 11th or 12th or 28th mistake happens, and it's easy to see, it's not that DOGE is bad in trying to mislead, it's difficult understanding how the federal government does budgeting. It's very difficult to understand what an EAC is and what an ITD is and what an LMNOP is. So they're coming out with data that is later shown to be not accurate. So the credibility, I think, is what's hurting there. Do we still need to spend less and spend it more efficiently? Yes, and they believe the software. And if you saw the recent DoD policy that has come out sort of a software first, we're sitting here saying, "We were early to that fight. This is right in line." So for us at a macro level, they're saying all the right things. We can sort of stop it. We got to find different companies to go do this. I think the government has to buy more efficient. So we're sort of net-net happy with those. We have not had a $1 million of things that were on the wall. They know there's $3.7 million, and that turned out to be a contract that are being ended many, many months prior. So $1 million worth of impact, thus far.

So when we think about the short term, right, how is this continued resolution affected you so far? There is continued resolution, plus an administration transition and knowing that we'll be under continued resolution for a year long and probably extending into fiscal year '26, but it's a different continued resolution that is allowing to move money around and new starts. How do you think about that?

Yes. It actually is better, as you note, than the prior CRs. And actually, we give our guidance in a range as most do. And we have -- we craft a specific set of assumptions that go at each end of that range. And we -- when we put our guidance together, one of the things that we wanted to make sure we provided for was that we could accommodate a continuing resolution, which we have. And in fact, the added flexibility probably gives us even little opportunity among -- a little more opportunity than we had in our more conservative assumptions. So I think, actually, this -- I'm cautiously optimistic that the continuing resolution as it's crafted as well as some of the supplemental reconciliation items that I'm sure John is going to talk about it in a few minutes actually gives us a little bit of maneuvering room here. I think we can see a little bit of upside in the landscape as we view it today.

Yes. What else people should take strength from this is we gave that latest guidance after upping our guidance twice. It was the end of January. It was either just before a couple of days after the -- actually, it was prior to the election, if I'm right.

Right, I think it was.

So we have plenty of chances to sort of say, "This is going to be too ugly here. Let's just back down. Let's just run this year out." But strategy is a place where this company comes from. Everything is strategically based to an absolute driven point. So we had all the information that said we're in the right markets. We're greatly funded. There's no noise out there talking about we're going to be impacted. There's a lot of unknowns. That's the lower part of the range. But there's a lot of positive things going on at the upper side. We've been in business for over 60 years. So we've seen a lot of CRs. And we said, "Okay. We stay in the CR for the full year," which was the old style CR. We're adequately funded. 97% of our revenue is already in-house. We've got 6 months left to the fiscal year. We're July to June company. So we had -- it wasn't bold or bullish. It was just a fact of we said we're going to build a business that is immune to a lot of minor swings and also some major ones. And let's just continue to up the guidance because that's the way the year is going to finish.

Are you concerned at all in any programs that you have in the pipeline to be awarded in the next 6 months? Or not really?

The pipeline per se is not looking different to us. But it is worth observing and noting that the government, and maybe I'm saying government, but I've really mean the people that are -- that comprised of government are in a little bit of chaos, a little bit of unrest. And people are nervous about their jobs. They're worried about their friend down the hall and all the things that you would expect them to. So we do sort of note anecdotally that there are some things in the government routine administrative things, contract mods, funding obligations, invoice approvals, the day-to-day operation of the business things that used to take 2 or 3 days take 4 or 5 days. So is that a huge deal? We don't think so, but it's also probably nothing. So while we don't see any real effect of structured slowdown or added steps, people are apprehensive.

Yes, and I think it's -- that's normal. It's more of a human nature comment than it is some draconian budget cuts, right? People -- there's so much noise in the system today that it's tough to signal to actually get out. So we continually -- we're screaming into a 100-mile hour wind, right? It's just so many things people pick one item up. What's key to know about this company is we're a long-term company. And yes, if you're drinking tea in the morning, you pill -- pour cream on it, it's really tough to see the bottom of the cup. That's sort of the next couple of quarters, right? I think the government still -- people in the government are still sorting it out. Six months later, there's no more milk in there. It's a little more clear. What's important for us is we've been in the business for 62 years. We've been through this many, many times. There's a short-term immediacy. We've never been a quarterly book-to-bill company, so please don't look at quarterly book-to-bill numbers, as they're at the cliff. If I sold people, and that was my entire model, and I talk to you about how much direct labor I have and how many consultants I have on the bench, totally different discussion. I'm almost living hand to mouth. We've got to win things in the first quarter. The end of the second quarter is driving this year's revenue. Fact is if we get an award on January 1 or June 2, I don't care. I don't watch it. You can look at the last 48 quarters of press releases. We've had some 3, 5 book-to-bills. We never said we did record awards in the quarter. Because at some point, you're going to get 0.3 because a customer delayed a $2 billion award by 4 days. And people are going to say, "What the hell happened?" So please, I beg you that we are driven by much larger, longer-term contracts, which is more like a prime than it is the mile that goes with government services. 1.7 trailing 12-month book-to-bill, we're very happy with that. We had $24 billion of bids that have been submitted, waiting for the government to make a decision on. Will they be a little bit delayed? Perhaps. It's not that they're not going to get funded. So...

So you mentioned before that you were trying to focus on opportunities that were now competed by those sort of companies. And you just mentioned that you're looking at contracts that are -- where you have visibility. Could you mind describing your bid and proposal strategy? If you look at -- and usually, you highlight how much is new contracts, how much is technology. What is the strategy there?

Yes. It's -- the mix between technology and expertise all comes down to timing, okay? There's just plenty of bids of things that we can go out there after. But we live by that mantra to bid less and win more because there's a lot of fixed costs when you deliver bids. You have a pricing team. I don't want to ramp a pricing team from 15 people to 38 because the other 23 people that we had don't really understand how it is we price. So can we get more bids out? The metric of how much -- how big my world is, how many bids I can submit is not the important metric. It really is about, are you bidding on the right things, are you 1 of 2 or 3, are you 1 of 1,000 that are going -- you race to the bottom on rates. So what we watch is the size of our programs and the duration. It's a pretty simple business case, right? If we're bidding jobs that last 5, 6 and 7 years and we're entrenched with that customer, it's sort of the prime model for winning contracts, but we're software-based. So we're continuously delivering. And our belief, and we've already proven, if you continue to live in a software manner, the customer stays with you not because you provide a vendor lock and you can't do anything without my sign-off. It's because we're easy to work with. You're not buying people. We buy -- we procure the software and engineers. Those people are fungible to our entire business. It's a completely different business model. So we did retool our entire business development team starting a decade back. It's not anything that moves bid strategy. It's not, "I've got to put $30 billion in or I'm not going to get $2 billion out." That's not a way to run a business. So we're very selective. We stay in the 7 markets. People used to ask me, "So what's your eighth market?" I've got $250 billion addressable market in the 7 areas that we provided today. We're a [ $3.5 billion ] company. So our word is focused, okay, is making sure when people come in, "Hey, I heard this job is due." No, the answer is no. So we learned to say no a lot, okay, and that really changes how we incentivize. We have a business development team that is capture funded. So everybody in our business development team is on a bonus program, and it's for revenue captured, not for awards won. Why is that? Because a lot of companies win a $2 billion award and then they complain to you all, they can't find the people. They can't find the people because they bid too low, okay? So we fund our bonus program for business development by revenue. And that drives a very different model, and the fact that we invest ahead of customer need really is that differentiator that we've got a relationship with that customer, not the individual, not Julie or Johnny. We have an understanding with that customer that says, "Buying an agile software in an incremental manner makes a lot of sense." They spend less, they get more. It's a perfect business case. And frankly, we make better margins because we should, because we're hiring the people ahead and we have 100% of the risk. Jeff, anything?

Yes. The other point I would -- that I'd note is John talked about bidding fewer jobs, larger jobs, longer-duration jobs. One of the other things that's important to the strategy is that you could see those farther away. So John talked about investing ahead of need, but it's not super speculative investment. It is disciplined, deliberate demonstrations, working with customers, talking about alternative solutions that's shaping that ecosystem that we've been describing, the shaping that, that lets us do is an important part of the business development differentiation. It really brings a couple of those things together and is a distinct quality of our process.

And how long -- or how much time ahead you have to prepare for before the, I don't know, request for information is out, right? You have to be ready with the software.

Yes. So on our BEAGLE program, so we run the 3 largest agile software development programs across the federal government. So that is a marker. We worked with Customs and Border Patrol about 2.5 years before they put their recompete. They were traditionally procuring 400 to 500 people to update all the applications that a Customs and Border agent uses. And when we told the story 5 years back, it really didn't have any teeth to it. Now I think there's a lot of teeth on what goes on the border. But we work 2.5 years to convince that customer to buy the application. We got 140 some apps. Do you want to update them 4 times each year? Perfect. Write a 1-page spec. Don't talk about labor hours and time material rates because people will hit those rates. And then you're going to be stuck managing 500 people trying to do a major software development effort. So it took 2.5 years to convince that customer to put a very thin RFP out. Majority of the people who bid on it continually asked, "You didn't provide me labor rate guidance," which to us said we're differentiated enough that you came to bid on the job. That's 2.5 years spectral, major electronic warfare, software-based attack system for all Navy surface ships. That was a 5, almost 6-year investment stream that led to that. Why was that? Because you're going after a program which is a statement program, which is can we go directly against aerospace and defense primes on a major program win. We pulled 2 prime contractors to put them on our team. Everybody else bid against us, and we were successful at winning. So that was a longer-term setup. But the payoff of that job is in billions of dollars.

So when you think about software, right, where are the key areas where software-driven solutions will make a difference, I'll say, in the near term and then in the longer term?

Yes. So very much in electronic warfare, we say that it's all of our Counter-UAS systems. All of our Counter-UAS system, we have thousands of those around the globe. For every type of drone, which is out there Class 1 through Class 5, hundreds and thousands of confirmed kills. Those are systems that the tactics of the enemy changes every 4 hours. So think about putting a system out in a field. Every 4 hours, a threat changes, and it changes enough that I can see it or I can't see it. That's a major threat model that doesn't exist today. And that's -- so we look at major software systems there. It's very germane to our business there. Our network modernization, software-defined networks, very, very important, because the networks of today that we're designing are going to carry everything from unclassified to secrets, a top secret data over. We have to know everybody who's on that network, the access that they have, the access that they don't, and we also have to handle our resiliency for our networks. Today, a lot of the government networks are manually rerouted, believe it or not. So we have an outage here. It's a manual reroute. Software-defined networks came out 20 some years back, right? So it's very important to make certain that these networks are more resilient, more dynamic, especially when we get into areas where we have the tourney of distance, which is INDOPACOM, not a lot of landing spot, there's an awful lot of water. So how do we create a resilient network space-based and the like? So a lot of what we do in the technology and the majority is all going to be software-based. And that's not because we believe that to be so. It's because customers are asking for it.

So when you think about these opportunities,and -- or even analyzing what you see, it's going to be in the warfare environment 5 years from now, how do you think about building those capabilities organically versus going through the acquisitions?

Yes. Some of that, we've already done, right? A lot of our software-based solutions, we sort of invest ahead of customer. We do a little test of it. So we're out there investing prior to. But again, I'm going to harken back to the fact that we were embedded with troops, whether it was Army, Navy, and every lasting version. We have a good understanding of what we have to build and what the customers are looking for. That allows us to invest ahead of need to make certain that we're providing the right solutions. Jeff?

Yes, that would -- because you kind of brushed up against M&A there. If you talk about organic, you have to talk about inorganic. Our pipeline and our acquisition strategy, very much gap focused. We don't buy scale. We buy presence. We buy technology, customer footprint access, past performance. And we maintain a list of -- maintain a pipeline that we're kind of continually refreshing and monitoring, which obviously ties into our broader capital deployment discipline as well. But acquisitions are -- we are and have been and will be continue to be a serial acquirer. It's an important part of the strategy.

And do you want to discuss what is your capital deployment strategy generally?

Yes. The capital deployment strategy is really driven by the fact that we like to be kind of between 2.5 and 3x trailing 12-month EBITDA, which we think is the right combination of reducing our cost of capital by having a meaningful amount of less expensive debt in our capitalization, but also giving us the ability to flex opportunistically up to 3.5x or so for brief periods and then get back to our target range. If you look over the last 10 years, I think we've done that 3 or 4 times, jumped up to sort of mid high 3s and then quickly over a series of ensuing quarters back to where we intended to be. So within that, when we get toward the lower end of our range, we're really looking at alternatives in the pipeline and market dynamics, obviously, on the share price. And then, often, the return analysis is kind of a relative one. Both of them happily have given us plenty of opportunities to deploy capital in a way that's accretive to our returns, and we're well above our WACC. And so we're able to just look at the acquisition pipeline, see how things are coming together, when they might be right to transact and balance that against share repurchases.

And one more on M&A. How strong is the pipeline today? And do you have any expectations of this change in administration, change of focus?

I think in the near term, it's probably less conducive to M&A. I think valuation volatility is part of that. Sellers generally process multiple contractions more slowly than do buyers. And so I think if you're in the mode where you think you might be in a position to sell, many of those counterparties are thinking, "Well, I'm going to wait for a quarter or 2 or 3 to see how things bake out." So that's part of it. And also, just broadly, I think a lot of the things that the government has undertaken will get more clear over the next few quarters, and we're starting to see some of the decisions we've already seen, the continuing resolution, some of the budget decisions, the Presidential budget request here will be out hopefully in a couple of months. All those things will bring a little bit of clarity to our view of what's in store over the next year or 2.

Yes. A lot of moving parts, right, but a long-term strategy, right? So we put a 3-year guide out in November. We could easily change those numbers. We could have said new administration, what's going to happen, worry where we worry beat. You're sitting on 4 years of backlog, and a lot of it is 6 years long. You can sort of look at your future differently. High single-digit, 3-year growth numbers, $1.6 billion in free cash flow, margins in the mid-11s, but the most important number is $1.6 billion in free cash flow over the next 3 years in an area where there's a little bit of turmoil, there's a little bit of uncertainty. But you're a long-term company. You've got to be talking long term. So we probably don't talk about quarterly book-to-bills. Why we don't talk about quarter points in our guidance? Because it's a lot of wasted effort. We're going to hit our numbers year-over-year. And it really does play into we're a capability-based company. So M&As are done, as Jeff said, to fill gaps, not to buy revenue. If I'm buying revenue, I'm buying my competitor's book of business to gain market share is how I see it. And that's the worst spend of dollars. You might as well just beat them in the open market. It is cheaper. It's more enjoyable. People get a bonus for actually winning. There's a lot of positives in it. And that's how this company rolls. We're in 7 markets. We ought to be able to win the jobs we want, and we want to win. And you start with business development, and you drive everything through. So free cash flow per share for us is the ultimate metric. And Jeff will continually say our 3-year plan takes 0 credit for the $1.6 billion.

When I was...

Yes. Go ahead.

No, no, no. You just said it. There's no assumption about the deployment of the capital or any attended returns in those 3-year revenue and margin targets.

Perfect. And now I'll open up to Q&A. If someone has a question, please raise your hand.

There's obviously a huge environment [indiscernible] is there anything that you can sell into that?

Yes. So we currently today have legs into Eastern Europe for some of our high-end software-based electronic warfare equipment. You can imagine why we went there first. And we're very central -- our central focus there is in Poland. As we look at the defense budgets, as we look for certainty there, which is that it's in the books and spend begins, for a smaller company, it's not an easy task to say, "Tomorrow afternoon, we'll go into the international market." I actually came from that world in my previous job. You can spend a lot of money in international market without a lot of gain. Having said that, there are nations out there who we have discussions with through the U.S. government customers that are very much more than enamored with the electronic warfare equipment we have, whether it's counter drone work or whether it's sort of assessing all the signals in any given space to make sure you know where the red forces are and where the blue forces are. So yes, that is a strong possibility going forward. I'm going to need to see how that money is spent. Is it going to be EU-only money? Is it going to be partner partnerships that we're going to need to sort of take the logical step? As the CEO who builds a lot of these things, I'd love to say, "Yes, that's a ginormous market, but you're not going to hear a spin from us." It's really much of we are assessing it, we're making certain that we can address that market and when and if we have a very willing U.S. customer who already is a strong user. The second way we'll hit that market is through programs like Spectral. So a majority -- there's a lot of countries out there and the Navy is already talking about, this would be the company's first large-scale FMS case. As we go forward, we see upgrade, the Navy's inventory. And that's probably another avenue, perhaps slightly safer because it's backed by the U.S. government for us to deploy these software-based kits. So there's a couple of different avenues there. So far more upside than there is downside. And that's not a market we have to chase because we already have products that would be useful there. Thank you for the question.

So this is my last question because we're coming on time. But hiring is important and how you attract people. And you describe how you have this bonus program for the bid and proposal team. But in general, you have a structure where you try to, I don't know, [ make tall grass ] is something important in your structure. Do you mind like -- would you mind discussing how you treat that and how you align the incentives of your employees and the company?

You don't get to continue a 60-some year-old company without taking care of people. And people, whether it's expertise or tech, you need individuals. You need really bright people, people who enjoy being up, skilled people who enjoy changing what their skill set is. There's a lot of studies out there about how long the current skill set lasts. But what we began a number of years back was an employee referral program. And this has been a gem. That, plus our internship program is pretty much what we focus on. And it simply is if you refer someone, there's a bonus payout. And it did a couple of things. One, great people know other great people. People love working in a high-tech world. No other folks would enjoy a high-tech world. Do you have to have a national security focus? Yes. So I was asked a number of years, years back, 3 or 4 years after -- during COVID and afterwards, but people can go to the high-tech world and they can make a hell of a lot more money. We've hired a lot of those folks because we actually provide longer-term employment. We don't overhire and then send anybody else back out to the market when we realized we grossly overhire. What's important about the referral program is it helps attrition. It raises a retention. Lowest attrition because if I refer you as an employee, our statistics show over an 8-year period, the odds of you leaving are draconianly less because you referred somebody to the company. And people who come to the company as a referral, their attrition rate is draconianly less because the second thought they had between, I had 1 bad day is what's Mariana going to say if she nominated me and then I left within 1 year. And it works, and people build on that. We're also an acquisitive company, so we're consistently bringing new ideas in and new folks, and that is a positive. We're not the company that says, "We bought your house. We changed the countertops. You're going to do it our way." We actually listen to how some of these companies got to be successful. We don't have all the best ideas. And a lot of the processes we have in our company today have been modified by smaller companies coming in and saying, "Have you thought about that?" So it's that culture that actually drive folks. Do you have to have a bandwidth for national security? Absolutely so, okay? It's what drives us. Last point I'll share is 40% of our employees are veterans through a lot of skilling programs, and that drives a great ethos, and it drives a great understanding. So when we look at our stock price 4 months back and when we look at it today, there's a lot of noise in the system, okay? We're a long-term company, doing everything we always do. And frankly, if any of you came into our business and you stay with us for the next 90 days, you'd rarely hear the word DOGE. You'd really hear anybody focused on, "My lord, what's happening other than our stock price?" Because people are going to go forward and do their mission. We're burning off backlog. We're doing the right things. We're delivering to a customer that enjoys the past performance that we deliver. And the way we attract people is the way they wants to us to because it drives a longer-term relationship with these folks.

Perfect. Well, thank you both very much.

Thank you.

Thanks, Mariana.