CACI International Inc. (CACI), a renowned provider of information solutions and services to the defense and federal sectors, reported significant financial achievements for the fourth quarter and the fiscal year 2024 in a recent earnings call. The company not only surpassed its revenue guidance with a 20% increase in Q4 and a 14% rise for the full year but also achieved a record $14 billion in contract awards. Looking ahead, CACI anticipates a revenue growth of 6% to 8.5% for fiscal year 2025, with a projected 11% increase in free cash flow per share.
Key Takeaways
- CACI International reported a 20% revenue increase in Q4 and 14% for fiscal year 2024, exceeding expectations.
- The company achieved nearly $800 million in EBITDA and generated over $380 million in free cash flow.
- A record $14 billion of contract awards were secured, with 60% being renewed business.
- CACI anticipates 6% to 8.5% revenue growth and an 11% increase in free cash flow per share for fiscal year 2025.
- The company's strong backlog stands at $32 billion, a 22% year-over-year increase.
Company Outlook
- CACI projects revenue between $7.9 billion and $8.1 billion for FY 2025.
- Adjusted net income is expected to be between $505 million and $525 million.
- Free cash flow is anticipated to be at least $425 million, marking an 11% increase from the previous year.
- The company plans to align its long-term incentive plan and short-term annual bonus plan with shareholder value delivery.
Bearish Highlights
- The company did not receive a $40 million tax refund as expected in FY 2024 but expects it in FY 2025.
- CACI noted that the win rate and timing of contract awards are challenging to predict.
Bullish Highlights
- CACI's disciplined acquisition strategy focuses on capabilities and customer relationships.
- The company is confident in gaining market share through its software capabilities.
- A mix of cost-plus and fixed-price contracts is expected, with an emphasis on technology programs.
Misses
- Revenue growth is slower than the book-to-bill ratio due to the ramp-up time required for technology programs.
- Profitability in the industry is not better due to the hardware element in software-based solutions and current customer buying behavior.
Q&A Highlights
- John Mengucci explained the slower revenue growth compared to the book-to-bill ratio is due to the nature of expertise and technology contracts.
- The ramp-up time and margins for new work contracts depend on the contract type, with expertise work ramping up quicker than technology work.
In the fiscal year 2024, CACI International achieved an underlying EBITDA margin of 10.7% and an adjusted diluted earnings per share of $21.05, representing a 12% increase from the previous year. The company's operational strategy, focusing on excellence and commonality of processes, has been pivotal in ensuring reliable delivery. CACI's balance sheet remains robust, and the company is considering share repurchases and acquisitions as part of its future growth strategy.
CACI's commitment to operational excellence, talent acquisition, and a disciplined M&A strategy underlines its confidence in maintaining a competitive edge. The company's $32 billion backlog and record contract awards underscore its strong position in the market. CACI's focus on software-based solutions and the integration of AI across approximately 200 programs demonstrate its dedication to technological innovation and addressing current threats effectively. As CACI transitions to an agile software model, it aims to differentiate itself and drive margins by offering software solutions that meet the evolving needs of its customers.
InvestingPro Insights
CACI International Inc. (CACI) has showcased a robust financial performance in the last fiscal year, with impressive revenue growth and a significant backlog of contracts. In light of these achievements, let's delve into some key metrics and insights provided by InvestingPro which could provide a deeper understanding of CACI's market position and future prospects.
InvestingPro Data indicates that CACI has a market capitalization of $10.19 billion, reflecting the company's substantial size within the defense and federal sectors. The company's P/E ratio stands at 24.26, suggesting that investors are willing to pay a higher price for CACI's earnings relative to the market. This could be indicative of the market's confidence in CACI's future earnings potential, especially considering the company's revenue growth of over 10% in the last twelve months as of Q3 2024.
The revenue growth aligns with the company's reported 20% increase in Q4 and 14% for the fiscal year 2024, reinforcing the positive outlook shared in the earnings call. Additionally, the company's gross profit margin at 32.72% highlights its ability to maintain profitability amidst its revenue growth.
InvestingPro Tips provide further insights into CACI's market behavior and financial health. Notably, CACI stock generally trades with low price volatility, which may be appealing to investors looking for a stable investment within a volatile market. The company also operates with a moderate level of debt, which could suggest a balanced approach to leveraging and financial risk management.
Moreover, CACI is trading near its 52-week high, an indication of strong market performance and investor confidence over the past year. This aligns with the company's anticipation of continued revenue growth and increased free cash flow per share for the fiscal year 2025. While CACI does not pay a dividend, its profitability over the last twelve months and a large price uptick over the last six months may compensate for investors seeking capital gains.
For those seeking additional insights, InvestingPro offers a total of 10 InvestingPro Tips for CACI, which could provide a more comprehensive analysis of the company's financial and market position. These tips can be explored in detail at https://www.investing.com/pro/CACI.
Full transcript - CACI International Inc (CACI) Q4 2024:
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. Today's call is being recorded. At this time, all lines are in a listen-only mode. Later, we will announce the opportunity for questions and instructions will be given at that time. [Operator Instructions] At this time, I would like to turn the conference call over to George Price, Senior Vice President of Investor of Investor Relations. Please go ahead, sir.
George Price: Thanks, Rochelle, and good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI. 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 as of today and are subject to important factors that could cause our actual results to differ materially from anticipated. Those factors are listed at the bottom of last night's press release and are described in our company's SEC filings. Our Safe Harbor statement is included in the exhibit and should be incorporated as part of any transcript of this call. I would also like to point out that our presentation will include discussion of non-GAAP financial measures. These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Let's turn to slide 3, please. To open our discussion this morning here's John Mengucci, President and Chief Executive Officer of CACI International. John?
John Mengucci: Thanks, George, and good morning, everyone. Thank you for joining us to discuss our fourth quarter and fiscal year 2024 results, as well as our fiscal 2025 guidance. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Slide 4, please. CACI delivered strong results in the fourth quarter, closing out an exceptional year by delivering 20% revenue growth during the quarter. For the full year, we delivered revenue growth of 14%, coming in ahead of our guidance, which we increased several times during the year. We delivered EBITDA of nearly $800 million with an underlying EBITDA margin of 10.7%, consistent with our guidance. We also generated free cash flow of over $380 million and free cash flow per share $17, the latter, an increase of 41% from last year. And we won over $14 billion of contract awards, the highest in company history, which represents a 1.9 times book-to-bill for the year. Nearly 60% of that award value is renewed business to CACI, and we continue to perform very well in our leagues [ph]. Slide 5, please. The outstanding results we delivered in fiscal 2024 are a testament to our successful execution of a consistent, well-defined and market-aligned strategy. A key enabler of our performance is business development. And as you can see, our BD change performance has been exceptional. Our fourth quarter awards alone were $5.4 billion, representing a book-to-bill of 2.7 times. These awards add to an already impressive list of wins we have discussed in recent quarters. In fact, we have won seven awards of $1 billion or more in the past two years, which supports our ability to drive long-term growth as these programs ramp over multiple years. Our strategy of investing ahead of need, bidding less and winning more, focusing on larger and longer term duration opportunities and proactively shaping those opportunities enabled CACI to win significant new work in fiscal 2024. In addition, our focus on superior execution, which is foundational to the culture and always the top priority, further supports our growth through sole-source extensions and expanded re-competes. We are in the right markets, delivering high-value differentiated capabilities and executing at a superior level, all of which support our ability to grow free cash flow per share and deliver value to our customers and shareholders. Slide 6, please. Let me highlight a few of our fourth-quarter awards that bring the successful execution of our strategy into focus. First, we won the eight-year, $2 billion NASA Consolidated Applications and Platform Services Award, known as NCAPS. CACI will deploy an Agilent-scale delivery model to standardize and centralize software development for more than 200 systems across NASA, enhancing quality, efficiency and speed of delivery. These are critical outcomes for our customers, and we invested ahead of need years ago to develop industry-leading Agilent (NYSE:A) software capabilities, identify and shape the right opportunities to show our customers they are as possible. With the NCAPS win, CACI is now executing the three largest Agile programs in US government, and we see a healthy pipeline of additional opportunities where these capabilities will continue to be a differentiator. Second, CACI was awarded a $100 million contract by the US Army to provide signals intelligence and electronic worker systems for the Terrestrial Layer System Manpack program of record. Our Manpack systems enable dismounted soldiers to conduct signals detection, direction finding and electronic attack while on the move, supporting the Army's multi-domain operations and helping to dominate the electromagnetic spectrum. As we have discussed before, this is an increasingly critical domain and one where the US is still in the early stages of modernization and investment. This award also highlights the progression of a customer moving from purchase order awards to acquisition of our technology via a program of record that will contain larger volumes than a single award. This provides for a more consistent award basis and enhances the visibility of our business. Lastly, I'd like to highlight two new expertise awards that illustrate our deep domain and technical knowledge, our industry-leading talent, and the opportunity to inform our technology. We won a six-year, $239 million task order to provide intelligence analysis and operational support to the US Army commands in Europe and Africa. Every day, we see the headlines of how the US and its allies face increasing national security challenges across these regions, which is driving enduring requirements and resilient funding. CACI is uniquely positioned to assist the Army in anticipating and responding to these fast-evolving and complex threats. We also won a 10-year contract worth up to $450 million to provide operations and technical support to the Joint Navigation Warfare Center, part of the US Space Force that focuses on positioning, navigation and timing, or PNT, for the US and our allies. PNT capabilities are a critical national security priority and an area where we have invested ahead of need in both technology and talent. This new work with the Space Force provides opportunities for future expansion as well as the potential to inform our technology investments over time. Slide 7, please. Turning to the macro environment, we continue to see healthy demand and a strong pipeline of opportunities. Customer demand continues to be driven by the elevated global threat environment, the evolving capabilities of our adversaries, and the rapid pace of technology change with a significant need for modernization across government. CACI's expertise in technology are intentionally aligned with enduring and well-funded national security priorities, including the electromagnetic spectrum and counter-UAS, application and network modernization, cloud migration, cyber and intelligence analysis. And this is true, not just for the United States, for our allies as well. From a budget perspective, government fiscal year 2024 was supportive of CACI programs. We believe government fiscal year 2025 will be no different. We are monitoring the GFY 2025 budget process and overall, the budget is shaping up in line with our expectations. Like most years, we expect the coming year will bring -- will begin with a continuing resolution. And as I've said, this typically does not have a material impact on our business, and we are very comfortable with the funding levels we see at this time. Slide 8, please. Looking back on fiscal 2024, I'm very pleased with the execution of our strategy, our exceptional contract awards and our strong operational and financial performance. Combined with the constructive macro environment, this provides a great foundation for CACI as we enter the new year. With that in mind, in fiscal 2025, we expect free cash flow per share growth of 11%, revenue growth of 6% to 8.5% on an underlying basis, which excludes the nonrecurring $200 million of materials last year and EBITDA margin in the high 10% range. Jeff will provide additional details on this guidance shorter. Our FY 2025 outlook is consistent with our value creation model, which is focused on driving long-term growth and free cash flow per share. In fact, I want to share that we are making changes to both our long-term incentive plan and our short-term annual bonus plan. Going forward, half of CACI's granted long-term incentive shares will be performance stock units tied to a three-year free cash flow target. Additionally, we have added a cash collection component to our short-term bonus plan. The result is that we're focused and incentivized on delivering value for our shareholders. That is our commitment. And I look forward to updating you all through progress through the year. With that, I'll turn the call over to Jeff.
Jeff MacLauchlan: Thank you, John, and good morning, everyone. Please turn to slide 9. As John mentioned, we are very pleased with both our fourth quarter and fiscal year 2024 performance, not only is it continued strong performance, but it's very much in line with what we've communicated to you throughout fiscal year 2024. In the fourth quarter, we generated revenue of $2 billion representing nearly 20% year-over-year growth with 19% of that being organic. The balance was generated by the four acquisitions we've made over the past 12 months. EBITDA margin was 11.5% in the quarter, consistent with our expectations and a 60 basis point increase year-over-year. Fourth quarter adjusted diluted earnings per share of $6.61 were 25% higher than a year ago. Greater operating income and a lower share count more than offset a higher income tax provision. Operating cash flow for the fourth quarter reflects strong profitability and record days sales outstanding or DSO of 46 days as we continue to manage improvements in working capital. Free cash flow of $135 million for the quarter represents good sequential and year-over-year increases. Slide 10, please. Turning to full year results. We delivered significant top line growth, strong margins and good cash flow. In fiscal year 2024, we generated $7.7 billion of revenue, representing over 14% total growth just under 14% organic growth. This performance was well ahead our initial expectations. You may recall that when we provided our initial FY 2024 guidance last year, we discussed a number of factors that could drive results toward the upper-end of that guidance. We outperformed on most of these factors. In particular, stronger win rates on new work, faster ramp-up of our awards and successfully defending our recompetes. Underlying EBITDA margin of 10.7% for the year was in line with our guidance, which as a reminder excludes the impact of non-recurring $200 million of no margin material revenue recognized in the first half of FY 2024. Fiscal year 2024 adjusted diluted earnings per share were $21.05, up 12% from the prior year, despite both a $21 million increase in interest expense and a tax rate that was 250 basis points higher, delivering 12% year-over-year growth despite these headwinds, underscores our robust operating execution. Operating cash flow for fiscal 2024 also reflects strong profitability and cash collections that drove free cash flow of $384 million, which represents a 36% year-over-year increase. We did not receive the $40 million tax refund related to prior year tax method changes, that we discussed with you last quarter and was in our fiscal 2024 guidance. The IRS has accepted our treatment of the method change, and we now expect to receive the refund in fiscal year 2025. Slide 11, please. The healthy long-term cash flow characteristics of our business are modest leverage of 1.8 times net debt to trailing 12 months EBITDA and our access to capital provides us with significant optionality. We remain well positioned to deploy capital in a flexible and opportunistic manner to drive long-term growth in free cash flow per share and shareholder value. Slide 12, please. Now I'll provide some additional details on our fiscal year 2025 guidance. As is our practice, we undertake a bottoms-up program-by-program forecast, plus our expectations for new business, by specific opportunity. For fiscal year 2025, we expect revenue between $7.9 billion and $8.1 billion, which, as John mentioned, represents growth between 6% and 8.5% on an underlying basis. EBITDA margin is expected to be in the high 10% range. We expect adjusted net income to be between $505 million to $525 million which translates into adjusted diluted earnings per share of between $22.44 and $23.33 and does not contemplate any share repurchases or acquisitions that might occur during the year. And finally, we expect free cash flow of at least $425 million, which equates to free cash flow per share of about $18.89 and growth of approximately 11% from last year, based on our full diluted share count assumption of 22.5 million shares. This free cash flow guidance reflects the influence of three factors: slightly higher DSO compared to our current record level, inventory growth associated with ramping technology programs and cash usage associated with Q4 accounts payable volume following that quarter's strong revenue growth. Additional details of our guidance have been included in our presentation to assist you with your modeling. I would note that we again expect higher profitability in the second half of the year versus the first half. In particular, we expect Q1 fiscal 2025 EBITDA margin to be consistent with the first quarter of last year on an underlying basis, which was 10%. Similarly, we expect a steeper ramp of free cash flow during the year, and I will remind you that a period of factors can skew quarterly trends such as the timing of material purchases and higher-margin technology deliveries. Slide 13, please. Turning to our forward indicators, our prospects continue be strong. As John mentioned, fiscal year 2024 awards were over $14 billion with a healthy mix of new work and recompetes. Our trailing 12-month book-to-bill ratio of 1.9 times reflects excellent performance in the marketplace. Our backlog of $32 billion increased 22% from a year ago and represents full years of annual revenue. The weighted average duration of awards that went into backlog in FY 2024 was nearly six years. The longer weighted average duration equates to less revenue contributed in any one year, but together, these metrics provide good visibility into the long-term strength and cash generation potential of our business. As we enter fiscal year 2025, we expect approximately 84% of our revenue to come from existing programs, with approximately 10% for recompetes and 6% from new business. This is consistent with how we started FY 2024 as well. We continue to have a healthy pipeline of new opportunities. We have $9 billion of bids under evaluation over 90% of which are for new business to CACI. We expect to submit another $14 billion of bids over the next two quarters with about 80% of that for new business. In summary, we delivered outstanding fourth quarter and fiscal year 2024 results. As we look to fiscal 2025, we expect another year of good performance with healthy growth in free cash flow, driven by good top line growth and strong margins. We are winning and executing high-value enduring work that supports increased free cash flow per share, long-term growth and additional shareholder value. And with that, I'll turn the call back over to John.
John Mengucci: Thank you, Jeff. Let's go to Slide 14, please. In summary, we had a fantastic fiscal 2024 in a volatile and rapidly changing world, CACI delivered expertise and technology that made a difference to our customers. We also delivered on our commitments to our shareholders. We won a significant amount of high-value new work, delivered with excellence on our programs, and successfully defended our recompetes. We continue to invest as of need in both our capabilities and our talent. Our performance builds an increasingly strong foundation for growth in fiscal 2025 and beyond. We are further demonstrating alignment with our shareholders by focusing incentive compensation on free cash flow generation. The business we have built over the last 10 years is well positioned to deliver long-term growth and free cash flow per share and increasing value for our shareholders. We've built a leading business development team, and they are winning in the marketplace, capturing larger, longer duration awards. We've driven significant improvements in margin in DSO, with a continued focus on execution, working capital management. Our leverage of 1.8 times will allow us to deploy significant capital and we have a meaningful benefit for our business and our shareholders over the long-term. And trust me, we're not done yet. Finally, as is always the case, our company's success is driven by our employees' talent, innovation and commitment enabled by our culture of integrity and ethics. So each and every CACI employee, thank you. I could not be prouder of what you've done to contribute to our company and to our nation. To shareholders, I thank you for your continued support of CACI. With that, Rachel, let's open the call for questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Bert Subin of Stifel. Your line is open.
Bert Subin: Hey. Good morning, John and Jeff.
John Mengucci: Good morning.
Bert Subin: Great quarter, I mean, pretty impressive to see almost 20% organic growth, so pretty unusual for this industry. As we think about FY 2025, I mean, you've won a ton of work in FY 2024 and some of that has come in as recently as this week to into FY 2025. Can you just give us a little bit of color on how you're thinking about the ramp-up for new work in 2025? And then maybe how you're going about ensuring execution is not going to be an issue, obviously, a lot of labor to be added just to go after the awards you've won? So I'm just curious how you're thinking about those two things.
John Mengucci: Yes, Bert, thanks. So look, let's talk about ramp, but let's start that discussion around how we came out of 2024, because I think it's instructive as to help you ramp to how we get 2025. If we look at our three major program wins that played into our revenue growth in 2024. FocusedFox, approximately 90% ramps that drove a material portion of our 2024 growth, EITaaS and Spectral provide additional ramp but better than we originally planned, which drove additional growth. And then on contract growth from all our other programs were a little more net positive over programs that we're ending, and that provided the remainder of our 2024 growth. So that's how 2023 awards unpacked in 2024. If we look at how we look at FY 2025 going forward. FocusedFox, mostly in the base, a small incremental growth. EITaaS and Spectral, more material growth from 2024 with Spectral will be starting their LRIP phase, most likely during the third quarter. It's going to require a higher than normal working capital. And then, look, we've talked a lot about the difference in wrap times converting awards to revenue, as you've all asked between expertise and technology programs. This should be the use case on what we mean every time. We have the discussions around ramp. So we can all model growth better in the future. In fiscal 2025, we have multiple technology programs ramping in total to just above the ramp value of FocusedFox when we went through 2024. And that fact should be very instructive, because technology programs do ramp over five, six, seven, eight years. So the fact that we have multiple technology wins in our $8 billion of awards in total, ramping the same value of the FocusedFox did, does show the difference between expertise and technology ramp. Now clearly, technology jobs drive so many other positive areas. So they don't immediately go into the base. And that's what drives residual growth. You're seeing that with EITaaS and Spectral going forward. Let me also finish the ramp piece that -- some of the $8 billion of awards are software-driven type technologies. I talked about the DLS [indiscernible] job. That's going to have a higher percentage of working capital. That's going to be required. I mean, frankly, we're going to support the maturation of our products, which is going to help drive even longer-term free cash flow share. So what we should all hear in that timing, timing of when that free cash flow per share growth comes. And look, we did our best estimate of how this is going to back for. Look, if timing accelerates or starts to unpack sooner in the year, then we get to the right goal post, which is what we did in 2024. If someone pack lighter or later in the year, there's a left almost five of our major seven programs that we won during the fourth quarter. So that's going to play into how that ramp changes. You also asked about actually institution that's a terrific question. Look, we're -- we've got a line organization that recognizes that we're getting larger and broader and that we need to continually ensure commonality of process so that we can reliably deliver. We have a stellar knock on wood track record of operational excellence throughout this company. It truly as my opening remarks stated, it is in the culture of this company. Everything we bid comes with an eye on how we're going to execute this job. And that gets into how we price and how we bid our large expertise jobs. It also gets into the terms and conditions we're willing to accept on our large technology jobs. As for staffing, we just started our fiscal year 2025 with the top leaders, senior leader leadership off site. Where HR organization talked a lot about staffing a lot about the fact that Zoomers are the new boomers. And how are we going to source talent not only by degrees, or the skills that they have. So part of it is making certain. We're making changes in this business ahead of when we have to, to make sure that we can enhance skills of our current employees and also look at skill based hiring. So we're very confident on the execution piece. The one question here always is how these things have happened.
Bert Subin: That's very helpful, John. Maybe just for my follow-up for Jeff. Balance sheet is in extremely good shape. I mean on a trailing 12 basis, you're at 18 on a forward basis even lower. Can you think about -- can you sort of help us understand how you're thinking about uses of the balance sheet. I believe can you confirm that's not included in your guide. So how are you thinking about that as FY 2025 is there?
Jeff MacLauchlan: Thank for that, Bert. Yes, our guide presumes no share repurchases and no acquisitions, and we fully expect to do at least some of that, obviously. We've talked about this before. I mean our key approach here is about being flexible and opportunistic. We keep a pretty close eye on the acquisition target pipeline. We are constantly evaluating those things. John may want to value -- or may want to comment a little more on targets and evaluation. But the really -- this is a result of -- you know this. I think we've said it before, a pretty disciplined, rigorous analytical process. That part is science. The art is sort of marrying that our view of what's in the pipeline and the rate at which things may happen or not happen. So I'll let John talk a little bit more about acquisition targets. But that's sort of the framework, which is no different from what we have done in the past.
John Mengucci: Yes. So look, we consistently get questions on how the M&A market works. I mean we are a serial acquirer. We'd like to fill long-term gaps with other companies out there. Frankly, the M&A market is looking better. Some of the potential targets would provide the opportunity for us to fill long-term gaps based on our market strategies. Some are going to be in lithimatic spectrum area, some are going to be in cloud and AI, others going to be in sort of the C4ISR and cyber area, although I will admit that electronic warfare is -- continues to sort of connect sign with cyber with EW with AI, machine learning and all. Jeff already mentioned it, but I'm going to foot stop, but we're a disciplined acquirer. We're not buying revenue. We're buying capabilities, customer relationships that allow us to sit on these calls for a number of years talking about how that acquisition 1, 2, 3, 7, 10 years back set us up very, very well. We're going to balance that with a healthy leverage and as Jeff said, a watchful eye in measurement to stock valuation and determine a best way for us to deploy capital both in the short term and in the long term. So Bert, thank you for your questions.
Operator: Your next question comes from the line of Cai von Rumohr with TD Cowen. Your line is open.
Cai von Rumohr: Yes and thank you very much, and spectacular book-to-bill. So John, what is the -- 40% of your bookings, I guess, were recompetes, what percent of your sales of this year are recompete? And secondly, you mentioned the relative growth of tech and expertise, what should we look for tech and expertise if you kind of hit your sales go. How fast are each of them going to grow? Thank you.
John Mengucci: Yes. Cai thanks. So 40% of our last year awards were recompetes, 10% of our '25 revenue is based on winning '25. I'll tell you in '24, we were north of 90%. We did an outstanding job of protecting what is ours that we believe should still stay ours, so that worked out worked out fine. When you talk about what you should expect in the future around -- I lost the question.
Cai von Rumohr: The question was what relative growth -- relative rate of growth this year between technology and expertise.
John Mengucci: Yes. So if we look at -- from a revenue side, Cai, if you look at how '25 plays out. The larger percentage of our new business wins were in tech. But as I shared earlier, those are going to ramp up more slowly than our expertise wins, very much similar, Cai the way '24 ramped, right? We had a large ramp, a large ramp quick ramp of the large intel program in '24. So the expertise wins in '25 will ramp up in the same manner. We're doing a great job of staffing. On the technology side, we've got a number of new wins that are going to ramp up slowly, similar to what we saw in 2025 -- '24. What I think I would guide you towards is sort of how we do our guidance, right? We we've got to assess a lot of variable on how the customer reacts and how the market acts. If we look at guidance in how these new programs ramp and how lesser ramp, we always look at win rates, are they lower or higher than what we assumed. Our program is going to ramp more slowly or more rapidly, 2024 is a perfect example, where we put the guide right in the middle and the majority of the things go to the right goalpost versus the left goalpost. Funding, I believe will still stay funded. How quickly customers issue RFPs. The other factor, Cai, is that 6% of our revenue with 25% will be based on new wins, we pick up in 2025, right? So, that's going to force customers to get our fees out and also make decisions in a timely manner. If they make timely decisions faster, then it will break more towards direct goalpost. So, look, we would expect that 2025 is going to play the same as 2024. We have an election year. We can talk a lot about budgets and all, but I like the hand that we have.
Cai von Rumohr: Great. And maybe give us an update on where we are with Photonics. I guess a big focus last year was on completing your investment, and this was going to be the harvest period, where are we in that?
John Mengucci: Yes, Cai. So I believe in previous calls, we -- I was quoted saying restore we were in the seventh inning of investments in the bottom of the first on delivery. Look, the majority of investments are complete, and that got us to a reliable design on our Photonic Optical terminals. Look, we're always going to have investments in producibility maturation that's going to continue to require both CapEx and working capital as we move forward. But I'm very pleased with the position that we're in. We delivered in the mid-teens terminals during FY 2024 Cai. We're looking to deliver 6 times to 8 times that volume during FY 2020, 2025, and that's going to take us somewhat up that curve of deliveries while we're still entertaining additional bids and other applications or where we can take all Photonics. And I think that Photonics is another example as TLS Manpack is and the fact that we're going to move towards spectral production, most likely in the third quarter, those production-like programs really connects to Jeff's prepared remarks, around additional use of working capital. It should be clear now that the percentage growth in our business is not to predict our working capital, but more importantly, as you always ask how these programs ramp, the type of programs that we're delivering, very little capital very little CapEx around the expertise programs, but materially more as we look at technology as it should be because that's going to be the larger growth end. Thanks Cai.
Operator: Your next question comes from the line of Peter Arment of Baird. Your line is open.
John Mengucci: Hey Peter.
Peter Arment: Thanks. Good morning John, Jeff, George. Hey John just to echo everyone's results, terrific results, $14 billion contract awards and then we think about pipeline of new bids and you've got, I think, in your charts, you had next two quarters, you've got $14 billion of bids that potentially, I guess, be submitted for 80% of its new business. Do you think -- how do we think about like the -- your mix from a contract structure, either its cost plus or fixed price or however you want to explain it via technology. When you look at this pipeline, do you see this kind of mix changing? Or is it a lot of it still in the same wheelhouse of where you've been in previous awards?
John Mengucci: Yes. Peter, very time I hear $14 billion, it's a record, right? I mean it's quite awesome. Now, what I'm going to make sure I say at least once on this call is that awards are lumpy. You all know that I'm not fond of holding a record, but I have to admit it's an awesome delivery. Look, let me start with, I think how we got here. And I will talk about mix between contract type and what you all can see. But I think it's important to sort of take a slight step back and just make sure we all understand the hand we're playing is not by accident. Our job is to ensure we continue growth in everything that we do. Those warrants are a result of working really hard to stay focused on our long-term strategy which is really hitting year-over-year markers that to mirror the sign of a business that's intentional and not opportunistic. We can talk about where the drone threat is we bought a company nine years ago to worry about petrometic spectrum and where drones are going to end up. And yes, we bought maybe a little bit ahead of customer need and we put some worthy investment. That's the beauty of our M&A plan, right, is that we're looking for those long, narrow deep streams of funding. Where we sit today where we can talk about great growth and grade three free cash flow per share. It's even a strategy that's intentional. We really try to find things at the nexus of the needs of the customer that need software-based solutions that can keep case with the threats that are facing. The repeatable BD process is creating quality captures. And when we look at how that mix comes out, we expect it to be always more technology than expertise, but it's lumpy. Why do I say that? It doesn't mean that expertise work is not an interest to us. We've won some phenomenal jobs. It just means they can be much more selective, okay? And most of those expertise, job, Peter, are going to be time and material jobs or cost-plus jobs because in many instances, the customers sort of know the kind of support that they need, but that always changes. On technology programs, a lot of the work is going to be a mix of cost plus and fixed price, right? And what we enjoy since our solutions are software-based is that let's get the design done under a cost-plus framework. And then let's move to a fixed-price production side. When your production "production" is, I don't know, 60%, 80% software-based -- it's not as risky as any method, right? You can make changes for swiftly, spectral, perfect example. RFP four years back, customer awards at the threat completely changes customers every day more excited that they selected us over everybody else because we're able to use software to make changes that program to actually stay with our original LRIP production schedule. So I think you're going to see the contract mix move around. I think it will always be predominantly cost plus theater, but a nice part delivery model where we're delivering to purchase orders -- and we well should deserve higher margins because that's our investment dollars, making sure that we're there to support our customers.
Operator: The next question comes from the line of Mariana Perez Mora with Bank of America.
Unidentified Analyst: This is Sumit [ph] on for Mariana. I guess just double topping on those submitted bid pipeline and what you're expecting to submit in the next two quarters? How should we be thinking about the win rate on those new opportunities? And then also kind of a breakdown, are those new opportunities or like new opportunities? Or takeaway contracts?
John Mengucci: Got you. One, I would expect that the pipeline plays out consistent with last year. I'd love to be very predictive on win rates at all and if I was, I'd probably be the business -- but look, I think we're doing the right things. We're not bidding on things that are out of our sweet spot. It's all within the market that we serve. There's so many factors, frankly, that goes into win rate. I'll also tell you that a lot of this is timing. We have $5.7 billion of rewards in the fourth quarter. Be it by two weeks, we might have had $2 billion less than and had $2 billion in the first quarter now. So -- but I think what's important and foundational is when we share those numbers, it's not so much the numbers, it's the quality of things that we're out there chasing. We're not giving really nice strong win rates by accident. It actually is a function of a great line and this how the team working together with our client-focused folks, making certain that what we're bidding on is a quality bit. So look, I like the odds of us winning more than not. What's feel confident about is we did some prudent work on what our potential win rates are in that went into our current rent guide. And again, if win rates improve as they did in 2024, from where we see their potential now we'll be at the upper end of the guide, if they're not there or they get delayed, then we can be slightly towards the left hand. But nice quality, similar type mix more technology, the expertise space and all focused on at or above the current margins that we produce today.
Jeff MacLauchlan: The second part of that question about the new content, the $9 billion under evaluation, about 90% of that is due to us. The $14 billion we expect to bid in the first half of FY 2025, 80% of that is due to us.
Unidentified Analyst: And then for those new contracts, what kind of gives you the confidence that CACI can win market share for any of those that are maybe a takeaway contract where there's a different incumbent now? Kind of what gives you that confidence?
John Mengucci: Yes, it back to the recipe we put in place a number of years ago, and we continue to build on we're going to be involved in programs where we've spent a number of years shaping what we believe are the possible is for a customer. So a typical capture for us starts two to three years prior when the RFP comes out. A great example is our NCAP job, right? So we're very, very well steeped in agile software development and how we deliver and how we can rapidly update what our customer needs. So that was foundational on the MPF job. The second piece was spending three years with the customer. How do you like the value that's being delivered to you today by whoever your current delivery is, if they say they're not extremely happy and that they like to take this somewhere else. And we sit with them and show them are the possible and then based on that, we'll invest ahead of customer need and we'll put investments in place to make certain that, that customer gets a comfort with working with us. That's over 1,000 days before the RFP comes out. And if we're to that point that we pretty have a pretty good idea of how the customer operates, the type of contract vehicle that works for them and us, the level of budget that they have to plan for and then if you wrap that the sort of frosting is putting the right key personnel in place, that is recipe for a spectrum win and a large intel customer enterprise expertise. And it was the recipe that brought $2 billion multiyear and capital work to us. So we have some history here that doesn't always, always work, but it gives us the confidence that we're spending pressure has been in proposal dollars on growing the business versus playing a lot of time rewinning stuff that's already in our revenue. Thanks for the question.
Operator: Your next question comes from the line of Robert Spingarn with Melius Research. Your line is now open
Q – Scott Mikus: This is Scott Mikus on for Rob Spingarn.
John Mengucci: Hi, Scott.
Q – Scott Mikus: John, I wanted to ask you a question. So Spectral was a big award for you guys that we normally would have expected to get to the large traditional defense primes, but you leverage software to deliver a solution there. And Northrop (NYSE:NOC) and RTX actually joined your team on that. So I was just wondering if you could elaborate on other opportunities where you think your software capabilities can be a differentiator to win larger programs that typically would go to the prime?
John Mengucci: Yes. Look, one thing speaking of the primes, they're phenomenal companies. They all build eye-watering platforms, and we should be proud of everything that those companies do. We just believe here that there's a level of mission that we can deliver more agilely and in a manner that allows customers to address threats at the speed of the fight. And I actually believe, wholeheartedly, that's a better value proposition to our customers, who are facing our pricing all around the scope. So when we looked at software and the teaming look, we partnered with Northrop and [indiscernible] an outstanding team, they sweetly augment our spectral delivery. okay? Because they have expertise in areas, that we don't. And that's what our customers want us to go to go do, lead with software, lead with agility, connect with partners who can provide the other pieces that we don't provide and then give them an experience and a set of outcomes that are absolutely eye watering. I shared an caps, that's a customer that has 200 or so different systems and apps that need to be continuously update dated in a agile manner across all of NASA. You can look at the counter UAS threats. It's the same step and repeat, okay? What we do on spectral, all software processing below the deck plate taking threats and signals and what is that, how do I find it? And how do I read that up my world is similar to what the kind of UAS threat is. And frankly, there's a lot of companies that are looking at these level 1 and 2 drones that are not what we can have it across the world, okay? These are -- these are large country state actors, Level 3, 4 and 5 drones that are very complex. They change their tactics and their TTPs every other hour. So there's a large amount of work in the counter UAS world. There is also where do we take things like Spectral, where do we take things like ITAs? Where do we take things like Ipsarmy? It's a step and repeat model. And once customers feel comfortable that a software-based solution is actually better and quite more in the current decade of what this customer base needs. Frankly, the opportunities is not our worry, the opportunities basis for us to select the right ones. And those are going to be with customers who are willing to change. And it's going to be changing how they buy. Having the Army moved to a program of record to buy exquisite electromenetic spectrum technology is a major step forward as investors and sell-side analysts don't pass that because that is extremely important. That is called acceptance. And to wrap up a customer like the United States Navy picking CACI, a software powerhouse, bringing all their traditional vendors along is also another marker that says that, that part of the market is ready to buy.
Q – Scott Mikus: Thanks. I’ll stick with one question.
John Mengucci: All right. Thanks so much.
Operator: Your next question comes from the line of Matthew Akers with Wells Fargo. Your line is open.
Matthew Akers: Hey guys, good morning. Thanks for the question. I wanted to ask about free cash flow conversion. I think in the past, CACI has been kind of well-above 100%. So you guys a little bit this year makes sense to some of the working capital. But I guess do we get back to that 100%? Or is there something different about some of this technology work that maybe a little bit more working capital intensive?
John Mengucci: Thanks for the question, Matt. You should continue in the longer term or even medium-term to think about us as a 100% net income conversion. We happen to have an influence of factors here in the ramp of new programs as well as finishing up a couple of years of nonrecurring items that are kind of anomalous. And we're working through of phase of our cash profile. But steady state over time here over the next year or two, we fully expect to be back in that sort of range, and that's the way you ought to model us in the longer term.
Matthew Akers: Got it. Thanks. That's helpful. And then I guess one more, just the O&M outlays data, I think a lot of us look at every month, be pretty weak lately. Is there any kind of signs you're seeing from your customer that would explain it? Or any way you can help us understand the difference between that data and what seems to be a pretty good growth for you guys.
Jeff MacLauchlan: Yeah. Look, a couple of things there. One is when we have an extended CR as we had while we're income with fiscal year 2024, what traditionally happens, is that, that spend at no greater than last year's spending rate. That really bottles up O&M spending early in the year. So you're going to see customers in more O&M towards the end of the year as they get to the end of September, and that's something that we're watching. We're a big modernization through sustainment companies as well in those O&M dollars that could bring some additional growth. So it's both of those things. It's nothing that's extraordinary. But what you'll see is that O&M dollars to be placed is going to be larger, the longer you see ACR go forward. So similar to other CR years, but a nice trend, also allows customers to allocate funds to go after more urgent needs. And I would put out there that in my lifetime, I've never seen a time when there's so many urgent needs across numerous Quebec Commander theaters, where some of that end of the year all want may make it place towards defending some of those threats. Thanks, Matt.
Operator: Your next question comes from the line of Tobey Sommer with Truist Securities. Please ask your question.
Jack Wilson: Yes. Hi. Good morning. This is Jack Wilson on for Tobey. If we could maybe just double click on sort of what you're seeing in terms of recruiting for top tech and expertise talent? And if you've seen any sort of change in your retention or attrition in the past couple of months?
John Mengucci: Yes. Thanks. Sure. I made some reference to our senior leadership offsite earlier in our fiscal year, second week July and really talked about how the workforce is changing. It's nothing that's going to happen tomorrow afternoon at 3:00, but it's to be something that is starting to show its and -- and a company like ours is very strategically based. We talk a lot about markets we serve and investing ahead of customer need. We also invest ahead of talent needed as well, right? You don't generate revenue with great awards if we don't have talent. Look, we're very focused on how do we as a company look at taking people into the company with a skill set that, frankly, across the majority of things that we do within five years, that skill set is going to be not fulsome enough to do the work we need to do. So how do we internally, how do build a program, it's not just about leadership training and some additional training. It really is about core skills upgrading. We get folks in this company as Zoomers and 20 years from now, everything that they came to the company with is going to be completely different, right? So good news is we are a strategic company. Strategies in place where we come from and our HR department got all of us on board saying, here so we're going to have to hire differently. Here's the kind of skill set programs. Here’s the changes in our internship program to make certain that even while folks get to us as a stop for in college. Frankly, it will be three years if they're part of our company, their skill sets going to need to be online. How are we doing? About 50% of our world-class force comes from referrals. About 25% of all the openings in our company are filled by someone else within the company. So I'm doing this today. I want to go do that tomorrow, maybe need a skill set upgrade, pull into the ramp and get your skill set trading and then go back out on the track doing different work for us. So look, I'm really happy and really confident. Retention is up, attrition is down. Again, something else it doesn't happen by accident, great first-line leaders making certain that we're keeping folks here with us. And frankly, you win $14 billion of awards or last year double-digit awards on the things that matter in markets that matter that are well funded, you're a younger employer due to the work workforce. I'm going to pick a company that's software-minded because that implies change and that change implies or opportunities, and we're going to invest in that. Thanks.
Jack Wilson: Yes. Thanks, guys. I will turn it over.
John Mengucci: Thanks.
Operator: Your next question comes from the line of David Strauss with Barclays. Your line is open.
David Strauss: Thanks. Good morning.
John Mengucci: Hey, David.
David Strauss: Just on the margin profile throughout the year. So last year, without the material purchases, you were around the 10% level in the first half and 11% plus in second half. It sounds like you're implying a similar profile this year. What explains that? Is that just volume? Or is there something else that explains that first half versus second half difference in margins?
John Mengucci: Yes. Thanks, David, for the question. We have -- as you know, we have over the last couple of years, developed a pattern of having higher volume and higher margins in the back half of the year over the first half. And it really relates to customer buying patterns. It's not a -- it's not a mysterious thing, but there are certain customers and certain particularly technology solutions that seem to -- that fall into those periods in the year. It's just -- it's customer buying behavior.
David Strauss: And on -- to put a finer point on cash flow. So Jeff, it looks like maybe you're assuming about $100 million of working capital usage for the year, is that right? And then I guess, a couple -- and then Section 174, is this the last year of that impact? And I guess the last question I had was your book tax rate you're implying a bit higher this year, what's driving that change. Thanks.
John Mengucci: Thank you. So the working capital, I'm probably not going to get into the specific amounts, but it's sort of on that order. And it split across the three things that I have mentioned in my prepared remarks. The -- let's see, what was the other one, the tax rate. The tax rate from the midpoint of our guidance range is about 160 basis points up, it's driven by several things, but the two real drivers in it are a higher blended effective state tax rate, which is just the distribution of the income that we generate by state moving around a little bit to higher rate jurisdictions. And then the second thing is last year's increase in the UK statutory rate, we have now for a full year. And I think we had it like seven months last year. So we now -- we have it for a full year. And then the Section 174, no, it continues, although it's declining, in accordance with the guidance we've given you before. I think about $20 million a year, but there are two more years of that to go.
George Price: Thanks, David. Thank you.
Operator: Your next question comes from the line of Seth Seifman with JPMorgan. Your line is open.
John Mengucci: Good morning, Seth.
Rocco Barbero: Good morning. This is Rocco on for Seth. Does CACI have any work directly or like second order related to Ukraine that could be at risk if the US cuts off funding? And if so, would you guys be able to size it?
John Mengucci: Yes, thanks. We have a non-material amount of work in the terms of revenue that we're doing there. I really can't size it beyond that, and I probably can't say much more than that other than -- you all know the kind of technology that we deliver and what we do, and I'll leave you to your assumptions there, but it's not from a revenue side, Rocco. It's not the -- there are other international customers that are looking at what it is we deliver. And in future quarters, we'll be talking about how we're building out, what our international strategy is there. But I think that's probably all I can talk about.
Rocco Barbero: Okay. Thank you. That's helpful. And then how is CACI progressing on integrating AI into the contract award and execution processes?
John Mengucci: Yes. We've got about 200 programs that have some version of AI it. So as I mentioned asked. Look, we are on the mission side of many of our customers. Since we're on the mission side, we're on the data side of many of our customers. We're well versed everything from visualization to computer vision to machine learning and all the other elemental partners around AI. It's sufficient to say that the fact we're software-based and on the highly technical side, and we actually deliver things that we like to call AI today versus advice on it. We've been pretty steep in it. A lot of it is in the intelligence community, so we don't talk about a lot. But you can only imagine, given where the world threats are today, the fact that we are present in every combat and command, the fact that we're responsible for protecting troops in defending this nation. This is a company that actually uses deliver AI, to the folks who are building and looking for mission technology to store and give an informational advantage. So we've been in AI for a really long time. We continue to manage it for an extremely long time, because everything we do at the mission level with our software-based technologies have demanded for decades that we understand how to do more with less and how to process more of our data faster.
Rocco Barbero: Okay. Thanks. Very clear.
John Mengucci: Sure.
Operator: We'll take the final question from line of Sheila Kahyaoglu from Jefferies. Your line is open.
Sheila Kahyaoglu: Thank you guys and great quarter. So, Jeff, maybe two questions for you guys. First on top line if that's, okay. So John, on top line, you talked about the technology ramps as being a reason. The revenue growth is maybe slower and expertise ramps faster than the book-to-bill might suggest. Why is that? Can you just distinguish that is it constrained by the customer or just timing of that hiring, onboarding or material overseas, if you could just talk about that a little bit, please?
John Mengucci: Yeah. Sure. So let's take the expertise side first, right? And I'll talk it at an Uber (NYSE:UBER) high level. When we win a large program that's on the expertise side, it's traditionally work which is out there today that a customer may be adding some additional Scope 2. But at the end of the day, when we talk about an expertise, the customer is procuring talent, I used to call that labor hours. So you sort of get a leg up with the fact that you're going to look at folks who were currently on that previously held contract. So you can immediately move people to start to build to that contract and address that that customers need. It's also their expectation, right? There's many contracts we signed could be an 8-year expertise contract for $1 billion with a 60-day startup window. So within 60 days, 90% of the job has to be staffed. And that's just the nature of how that works. When we look at a program like -- let's use Spectral, that is our design and development program, DevOn Technology, DevOn Software Creation, first our vertical testing then building kits beyond that, just by its nature, you're not looking at labor on our buildup, you're actually looking at outcome and units of outcome. So those programs, even at your major primes are going to start up slower and when you see a major fighter jet program, there's eight to 10 years of design work before you get to the larger revenue build. So at a high-level, that's how we see it. So when we announce more technology wins on an expertise jobs, that should be a huge clue that, okay, this is longer duration is going to ramp up more overtime, which really gets to some of my introductory remarks we have a number of programs that that are technology wins are going to ramp up with the same revenue delta that a single large expertise [indiscernible]. But hopefully, that's helpful.
Sheila Kahyaoglu: No, that really is. And then maybe just kind of adjacent to that and a bigger picture question on profitability for the industry. Obviously, you guys are demonstrating growth. The customer is changing the example with the Army buying software acceptance of what they buy, why isn't profitability for the industry better given the software offering? How come the -- how could you change how customer buys from you?
John Mengucci: Yes. Well, look, I think we've done a material job of giving the customer to buy it differently. Let me split here that may help. When we talk about software based, there's still a hardware element to it, but it's software based. So, when customers buy technology from us, they're looking at the ability to say, okay, so I bought the phone but I wanted to put different apps on it for a really long time. I'll use a commercial reference there. When we hear about the government have trying to buy software today, they buy licensed products, think commercial shrink-wrap software. It is a licensed model we frankly don't believe in the license model because that puts our customers in a really rough spot. And it make juice margins for a couple of quarters. But we're serving a mission that is how do I buy something that's going to be enduring that we continue to modify. So, our software delivery and the fact that we've had a customer need, we deliver on a purchase order, those for all sort of three elements that allow us to drive margin. Look, we moved from an 8%-ish margin to the high 10%. We're still consistently focused on how do we drive both top and bottom-line growth, clearly free cash flow per share benefits from either and/or both of those. And that's what we're looking towards. So, look, I have to give our customers chops that they are working through how do they address today's threats more rapidly. And frankly, that gets yourself to an agile software model. And the fact that there's very few people who do it well, right, differentiation drives margin, right? It makes the ask heavier and then some of the terms that we're willing to accept. And the last lever is are we doing some of our software at a express manner? The answer is yes. We understand how to do it well. we're able to sell it in a study of different manners. So, I like how this company is set up for us to continue to drive bottom-line growth. Thanks Sheila.
Operator: Thank you. One more question came in from the line of Louie DiPalma with William Blair. Please ask your question.
Louie DiPalma: John, Jeff, and George, good morning.
John Mengucci: Good morning.
Louie DiPalma: And this is rehashing several bit earlier questions, but the awards in the book-to-bill this quarter were superlative and 70% of the awards were for new work. Are you assuming a slow ramp for the new work in terms of it taking several years to reach peak run rate? And also for the first year of the new work is the margin initially dilutive. And so should we expect for these sets of contracts, the revenue run rate will increase in year to two and so will the margin?
John Mengucci: Yes, Louise. So let's see on the 70% new work, how does that ramp? As I mentioned earlier, the expertise work is going to ramp up quicker. There's a higher percentage of technology in our fourth quarter awards and our full year awards, as you mentioned. So that is going to ramp up slower. Based on the contract type, really tells you how the bottom line ramps, how offerability and EBIT is generated. On the technology programs that have firm fixed price elements to it, will be in an EAC model. And yes, we will hold back some of that profit dollars based on risk, and it's a well-defined process that's got back up as to which risk we still have to burn off. But on the other technology work that we have, I'll let Jeff make any of your comments. Profit is going to follow revenue, because it is cost plus, right, Jeff?
Jeff MacLauchlan: Yes, I would also Louise start by noting that was 60% new not 70%. And I would just echo John's margin comments. I mean the ramp is, as you would expect, we are slower to -- we protected our early booking decisions, some development work and the cost type work generally, the margin is what it is right now indicating.
Louie Dipalma: Great. That’s it for me. Thanks everyone.
John Mengucci: Thanks, Louise.
Jeff MacLauchlan: Thank you.
Operator: Thank you. That concludes our Q&A session. I will now turn conference back over to John Mengucci for the closing remarks.
John Mengucci: Thanks, Rachel, and thank you, everyone, for your help on today's call. We'd really like to thank everyone who dialed in or listened to the webcast for their participation. Many of you are going to have follow-up questions. So Jeff McLaughlin, George Price and Jim Sullivan are available after today's call. Please stay healthy, and all my best to you and your families. Operator, this concludes our call. Thank you all, and have a fantastic day.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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