Caci International Inc Class A (CACI) Q4 2021 Earnings Call Transcript

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Caci International Inc Class A (CACI 0.43%)
Q4 2021 Earnings Call
Aug 13, 2021, 8:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Full Year '21 Results and Full Year '22 Guidance Conference Call. Today's call is being recorded.

[Operator Instructions] At this time, I would like to turn the conference call over to Dan Leckburg, Senior Vice President of Investor Relations for CACI International. Please go ahead, sir.

Daniel Leckburg -- Senior Vice President of Investor Relations

Well, thank you, Andrea, and good morning, everyone. I'm Dan Leckburg, Head of Investor Relations for CACI, and we thank you for joining us this morning. We are providing presentation slides, so let's move to Slide No. 2, please.

There will be statements in this call that do not address historical fact and as such, constitute forward-looking statements under current law. These statements reflect our views as of today and are subject to important factors that could cause our actual results to differ materially from anticipated. Those factors are listed at the bottom of last night's press release and are described in the company's SEC filings. Our safe harbor statement is included in this exhibit and should be incorporated as part of any transcript of this call.

I would also like to point out that our presentation will include discussion of non-GAAP financial measures. These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP.

Let's turn to Slide 3, please. To open our discussion this morning, here is John Mengucci, President and Chief Executive Officer of CACI International. John?

John S. Mengucci -- President and Chief Executive Officer

Thanks, Dan, and good morning, everyone. Thank you for joining us to discuss our fourth quarter and fiscal year 2021 results as well as our fiscal year 2022 guidance. With me this morning is Tom Mutryn, our Chief Financial Officer.

Slide 4, please. Last night, we released our fourth quarter and full year results for fiscal 2021 as well as our guidance for fiscal '22, and I'm very pleased with our performance. Our fourth quarter results were in line with our expectations and capped another strong year for CACI.

For fiscal year '21, we delivered revenue growth of 6%, adjusted EBITDA margin of 11.1% and robust cash flow. Our organic revenue growth of 5% was ahead of our underlying addressable market, and we delivered healthy margin expansion. We also won a total of $9.2 billion of contract awards with over 40% of that new business to CACI. That represents a 1.5 times book-to-bill for the year with a healthy mix of recompete wins to preserve our base and new awards to drive future growth. And we delivered those results while navigating the persistent challenges of COVID-19.

I could not be prouder of all of our employees who continue to support our customers while ensuring the health and safety of themselves and those around them.

Slide 5, please. Turning to the external environment. We are almost seven months into the new administration, and budget indications remain very constructive. The administration proposed an increase in overall defense spending of about 2%. And as the NDAA makes its way through Congress, their indications to fund spending could have further upside. Importantly, we continue to see bipartisan support to fund national security and IT modernization priorities, including offensive and defensive cyber, border security, C4ISR, electronic warfare and space.

As we think about cyber outside of DoD and the intelligence community, DHS' Cybersecurity and Infrastructure Security Agency, or CISA, will be a focal point for federal civilian cyber investment. CACI is well positioned at CISA and DHS more broadly with existing programs, customer relationships and contract vehicles to address additional cyber requirements. In addition, the administration is focused on enabling technologies and methodologies like artificial intelligence and Agile software development, areas where CACI is extremely well positioned.

It's all about an R&D-led agenda to develop capabilities and technology geared toward near-peer threats, great power competition and ongoing counterterrorism. All this aligns very well with our strategy and capabilities.

Slide 6, please. Looking forward, it remains clear that the future is software-based. Many of our customers' most pressing challenges have common underlying needs: new capabilities at the speed of technology, increased agility, flexibility, security and efficiency, all of which can be solved with software. CACI continues to address these needs and demonstrate industry leadership in software development with multiple pillars of success: Agile software development at scale, DevSecOps using tool-based automation and a focus on open software architectures.

Different programs may emphasize more -- one or more of these elements, but they are all present and key to our future growth. Our agile-at-scale capabilities enable the industrialization of software development, which customers are increasingly asking for: faster, more responsive to changing needs, more efficient with materially higher quality. CACI is a leader of agile-at-scale, delivering on the largest Agile programs in the federal government. This includes our BEAGLE program with over 100 applications. BEAGLE and other CACI Agile programs provide important past performance and credentials to address the government's growing demand for Agile. In fact, we recently won new business at a classified agency to apply an Agile software development to large-scale data analytics. This win also leveraged the capabilities and customer relationships of our Next Century acquisition.

In addition, you've heard us discuss our 100-plus projects focused on AI. AI is ubiquitous across our business, providing customers speed, efficiency and predictive analytics. AI was at the center of our recent $376 million NGA win, where CACI is building out the computer vision infrastructure, tool suites and analytic environments for NGA analysts, providing an open best-of-breed environment to users.

Lastly, a key element of our strategy is to look further downfield and invest in differentiated software-defined technology ahead of customer need. Photonics, or laser-based communications and remote sensing, is a great example, which came to us via our acquisition of LGS. It is a technology we continue to invest in today.

Notably, Aerospace and Defense primes recently purchased our photonics technologies to include on their platforms. And we have a nice pipeline of additional sales opportunities across the A&D primes. This is confirmation of well-placed investments in differentiated technology.

Slide 7, please. Turning to our FY '22 guidance. We expect another year of revenue growth above our addressable market, which we expect to grow at about 3% over the next five years. And we remain committed to ongoing margin expansion, consistent with our stated performance goals.

At the midpoint of our FY '22 guidance, we expect revenue growth of 4% and adjusted EBITDA margin of 10.9%, which represents continued expansion of our normalized FY '21 base of 10.7%. In addition, we expect to continue to generate robust cash flow, and Tom will provide additional details shortly.

We're seeing positive growth in technology and expected to continue to outpace expertise growth, collectively offsetting the impact of the Afghanistan drawdown. I want to emphasize that all areas of our business are important and can contribute to growth and margin expansion. And there is a great synergy between expertise and technology. Expertise informs the technological requirements of the daily mission. And our technology capabilities are fantastic enablers and differentiators of our expertise, allowing us to deliver efficient and effective results to our customers.

Slide 8, please. CACI's success, driving growth and margin expansion, continues to generate robust cash flow. Our cash flow and overall financial strength enable us to deploy capital to drive additional shareholder value through investments in growth, share repurchases, M&A and other capital deployment options. We will continue to invest ahead of customer need to drive future growth and differentiation. Our commitment is to utilize CACI's strong cash flow to deliver the greatest long-term shareholder value.

With that, I'll turn the call over to Tom.

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Thank you, John, and good morning, everyone. Please turn to Slide No. 9. Our fourth quarter results were a solid finish to another successful year of growth and margin expansion. We generated revenue of $1.6 billion in the quarter, representing 5% overall growth and 4.3% organic growth.

Adjusted EBITDA margin was 9.3% and net income was $137 million. We are also reporting adjusted net income, which we define as GAAP net income adjusted for the intangible amortization expense associated with acquisitions. Adjusted net income in the quarter was $149 million.

Let me remind you that the consecutive method tax change we discussed last quarter reduced fourth quarter revenue and adjusted EBITDA by $7 million and increased net income by $51 million.

Slide 10, please. For the full year, we generated just over $6 billion of revenue, representing 6% total growth and 5% organic growth despite COVID-19 impacts. We continue to expand margins with adjusted EBITDA margin of 11.1%, up from fiscal year '20's 10% margin. The underlying margin in FY '21, normalized for COVID-related head and tailwinds, the tax method change and the strong performance on a fixed-price program, which we noted on prior calls, was 10.7%, in line with our initial fiscal year expectations. This provides a base for an apples-to-apples comparison to our fiscal year '22 guidance.

GAAP net income of $457 million represents growth of 42%, benefiting from the tax method change and the strong fixed-price program performance as well as revenue growth, margin expansion and lower interest expense. Adjusted net income of $507 million represents growth of 39% from last year.

Slide 11, please. Fourth quarter operating cash flow was $100 million, excluding our accounts receivable purchase facility, reflecting continued healthy profitability and cash collections. DSO was at 54 days, and we generated operating cash flow of $610 million for the full year, both valued excluding our AR purchase facility. The 19% in operating cash flow was driven by overall growth, margin expansion and a three-day reduction in DSO. These items more than offset the $90 million of additional cash tax payments in the fourth quarter associated with the tax method change, allowing us to exceed our operating cash flow commitment. Recall, we also benefited from a $50 million deferral of payroll taxes during the fiscal year.

We ended the year with net debt to trailing 12-month adjusted EBITDA at 2.5 times, and this leverage reflects the $500 million outflow associated with the March accelerated share repurchase. Our strong cash flow and low leverage, the low interest rate environment and our equity valuation informed our decision to repurchase shares to drive additional shareholder value.

Slide 12, please. Now let's turn to our fiscal year 2022 guidance. As in prior years, our guidance is based on a program-by-program, bottoms-up planning activity. This process provides a significant visibility and confidence in our outlook. We expect revenue to be between $6.2 billion and $6.4 billion, implying organic revenue growth of 4% at the midpoint. This is despite a 2% headwind going into the year, driven by the withdrawal from Afghanistan, which we discussed last quarter.

We expected adjusted net income to be between $430 million and $450 million, with $50 million of after-tax intangible amortization expense. We expected adjusted EBITDA margin of 10.9% at the midpoint, up 20 basis points from last year on a normalized basis. Our organic growth and margin expansion expectations are driven by new business wins in high-value areas of our addressable market as well as on-contract growth, excellent program execution and overall business efficiencies. We expect free cash flow of at least $720 million -- $720 million in FY '22. Capital expenditures are expected to be approximately $90 million, higher than last year, driven by several discrete growth in investment projects. With this, operating cash flow is expected to be at least $810 million.

We will pay $45 million of the deferrals related to the employee portion of the payroll tax in December. And we expect second half tax refund of approximately $230 million associated with the tax method change. We are expecting incremental tax payments related to the method change of $40 million in both FY '23 and FY '24.

As discussed in last quarter's call, the tax method change is expected to provide $60 million of cash tax savings over the four-year period with the GAAP P&L benefited recognizing in FY '21.

Slide 13, please. To assist with modeling, here are some additional planning assumptions. Depreciation and amortization expense are expected to be approximately $135 million. Net interest expense should be around $42 million. We are expecting a full year effective GAAP tax rate of 23.5%, with a lower tax rate in the second quarter due to the impact of vesting of stock awards, which were granted in prior years.

FY '22 tax rate is a bit higher than last year's rate prior to the tax method change due to larger R&D tax credits in fiscal year '21. And I will note, we are using our full effective combined federal and state tax rate of 26.3% to tax effect intangible amortization to calculate adjusted net income. We expect a typical quarterly sequential increase in revenue and profitability but note that certain factors can skew quarterly trends, such as the timing of other direct costs and delivery of high-margin technology.

We also expect a sequential decline in revenue from fourth quarter FY '21 to the first quarter of FY '22 greater than the normal 1% to 3%, due to timing of material buys, drawdowns in Afghanistan and timing of some technology sales. And we are assuming there will be no material impacts related to COVID-19.

Slide 14. Turning to our forward indicators, prospects remain strong. For fiscal year '22, we expect 80% of our revenue to come from existing programs, 12% from recompetes and about 8% from new business. These metrics are in line with historical ranges and also reflect an increasing amount of technology deliveries in our new business content. And as you know, these quicker churn sales come with high margin contributions.

We have $7 billion of submitted bids under evaluation, with 85% is after new business to CACI. And we expect to submit another $12.4 billion through calendar year-end with over 70% of that for new business.

In summary, we are expecting another year of strong financial performance with healthy organic growth, continued margin expansion and robust cash flows.

With that, I'll turn the call back over to John.

John S. Mengucci -- President and Chief Executive Officer

Thank you, Tom. Let's go to Slide 15, please. CACI performed exceptionally well in fiscal year 2021. Despite a challenging environment, we did what we said we would do. We grew faster than our addressable market and also expanded margins. We generated a robust cash flow and deployed that cash opportunistically to generate value for our shareholders. That capital deployment included a $500 million accelerated share repurchase, the acquisition of AVT and its exquisite ISR technology and continued internal investment ahead of customer need, and we continue to have ample capacity for additional value-creating deployments of capital.

We positioned CACI for growth in fiscal '22 and beyond with strong awards, record backlog and the capacity for ongoing margin expansion. With our continued investments, we are well aligned to budget priorities.

We achieved this tremendous success because of our employees' talent, innovation and commitment to customer missions, our company and each other. I say it often because it's true. I am proud of the CACI team, each and every one of you, for what you do. Critical national security and modernization challenges remain, and CACI employees will be there to help our country meet these challenges. I also want to thank our shareholders for their continued support of our team and our company.

With that, Andrea, let's open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question will come from Robert Spingarn of Credit Suisse. Please go ahead.

Robert Spingarn -- Credit Suisse -- Analyst

Good morning.

John S. Mengucci -- President and Chief Executive Officer

Good morning, Rob.

Robert Spingarn -- Credit Suisse -- Analyst

Thanks for the color before. Tom, when we think about '22, and we know there's no explicit COVID impact in the revenue and EBITDA guide, but if COVID were to impact, should we expect revenue to come into the lower end of the guidance range and maybe margins at the higher end? And what have you seen so far in this fiscal first quarter, July, August, given the Delta variant?

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. So Rob, I'll start off with that. It's such a hypothetical question. It's hard to speculate if COVID impact, what happens? A lot depends on the level of COVID impact, how it would affect customers buying behaviors, award activity, our ability of employees to perform. So given that it's so speculative, I'm going to defer trying to answer that.

John S. Mengucci -- President and Chief Executive Officer

Yes. Rob, this is John, let me add something else, three items. I guess, first of all is if we look at COVID today versus where we were 12 to 18 months back, it's our belief that both our customer set and CACI are much more prepared than we were a year ago to deal with this virus. So it's a known risk with a battle-hardened solution. Second, we took the action years ago to build a technology infrastructure, as I've talked about in the past, to support a dispersed workforce. We actually did that focused on being able to get cleared employees across the nation. And it actually did a great job of supporting us through the core COVID period. And then lastly, providing choices to our employees on remote versus in-building workload locations.

So it's those three factors, Rob, that going into the year, we really believe we're far better prepared to the extent that we can, can be, which is why we're issuing guidance without any additional COVID impact.

Robert Spingarn -- Credit Suisse -- Analyst

Okay. Okay. Fair enough. John, while I've got you, we're hearing a lot about Zero Trust cybersecurity. And there's these mandates out there that federal agencies should switch over to that security architecture. So I wanted to ask if that's an opportunity for the company. And do you have any commercial partners in Zero Trust?

John S. Mengucci -- President and Chief Executive Officer

Yes, Rob, thanks. We have a lot of many commercial partners. I mean, if you look at Zero Trust, we have a lot of tool partners that we use on our own network as well as customer networks to monitor a large number of varying cyber attacks. What we specialize in is as that information comes in, how do we better defend? We are moving all of our networks much, much closer to Zero Trust. And for those out on the line, you have to assume people are going to get in.

So how do you protect all of your information? And how do you put different defense mechanisms in place? We are -- as I mentioned, we are hardening our own networks here as well as networks across a number of federal civilian agencies, such as DHS and others as well as a number of independent defense networks.

So we are very much readying on it. We are following all of the new executive orders that are coming out from this administration. And we're also very happy with the work of this administration and the focus that they have on doing a much better job. Now that we've had COVID and the attack surface has expanded greatly and we have so many employees working in our buildings, in the government buildings and also from home, that it's the right answer, and we believe that we have the right amount of funding and there's more funding to be had with both the infrastructure bill and with others to come. So thanks very much for that question, Rob.

Robert Spingarn -- Credit Suisse -- Analyst

Is there any way to frame the size or the potential?

John S. Mengucci -- President and Chief Executive Officer

Rob, sizing the potential is more directly in line with what we'll track in the enterprise IT modernization. It's sort of an overlay to it. So we'll be -- we'll see -- we'll be able to provide more information when we start to see separate task orders come in on it, Rob. But every time we're out there selling enterprise value, it most likely will be CLIN or an additional subCLIN to all of the work that we currently provide.

Robert Spingarn -- Credit Suisse -- Analyst

Okay. Got it. Thank you.

John S. Mengucci -- President and Chief Executive Officer

Yes. Thanks, Rob.

Operator

The next question comes from Gavin Parsons of Goldman Sachs. Please go ahead.

Gavin Parsons -- Goldman Sachs -- Analyst

Hey, good morning.

John S. Mengucci -- President and Chief Executive Officer

Good morning, Gavin.

Gavin Parsons -- Goldman Sachs -- Analyst

Two-parter on the organic growth and maybe the 3% five-year target. The first part, you're targeting 4% at the midpoint, including a 2% headwind from Afghanistan. Does that mean you're growing 6%, so 3% ahead of the underlying? Or does that also have some COVID catch-up? And then the second part is, what's your framework for thinking about how much you can outgrow that 3% over the next two years? And what kind of book-to-bill you need to do that? Thank you.

John S. Mengucci -- President and Chief Executive Officer

Okay. Gavin, ready? All right. FY 2022 revenue growth, 4%, which is ahead of our addressable market of 3%. So we can check that box saying, "Look, we are that company, which is out there looking to grow better than our addressable market." And we're the company, frankly, that's focused on high-quality revenue. So we're going to grow nicely, but at the same time, we've got to be expanding margins.

As I look at this, Gavin, I'll share a few factors that are in play when we set this guidance out. Tom mentioned a very major one. It's a bottoms-up approach, which is why it gives us confidence at 4%. But there are a few factors which are behind the reason why we're saying 4% today versus 6% or even slightly higher: Afghanistan reduction, level of churn in FY 2022 and average award duration.

As you mentioned very accurately, we have about a 2% headwind coming into FY '22 because of Afghanistan. We shared that over the last two quarters of FY '21. So though it's no surprise, when we take a look at that for, be it not for the administration policy change there, we would be soundly at 6%.

Typical churn that happens every year, each year, we would show that step-up, step-down chart. And when we define churn, it's really work that comes to a natural conclusion or revenue from recompete losses that aren't going to show up in the following year. Churn is usually about 10% of our revenue, plus or plus or minus, but the churn this year is larger than the last couple of years because we did suffer one recompete loss.

As we said in the past, in the expertise portion of our portfolio, and it seems like every year, we're reminded of this, we're very careful to ensure we bid the work, we do at a fair price, with an assurance that we can deliver successfully with an eye toward driving bottom line growth. And on one of those bids, we just were not successful. So we will say goodbye to some enterprise expertise work, and we'll move forward on that.

The last part of it, Gavin, if you look at our backlog, our average award duration has grown by about a year over the last three to four years. What that does for us on a positive gives us a really desirable backlog. Longer-term duration work gives all of us much better visibility of revenue levels and for a much longer period of time. The downside is, is this going to drive lesser revenue growth per year. But considering all those factors, I feel really good about our FY '22 revenue growth.

Net-net, without those couple of things, would be a 6% to 7%. You also mentioned, is there any COVID catch up? No. That COVID impact we had, if you remember, was from the folks we were trying to additionally deploy to overseas locations, predominantly in the Afghanistan area. Now with the administration change, that has cleared that slate clean. So we were never going to make up COVID work going forward, but we were looking for that work obviously to have continued, and it didn't.

So Gavin, awful lot of words there. Did I catch the majority of your questions or anything else that we can answer?

Gavin Parsons -- Goldman Sachs -- Analyst

That's perfect. I appreciate all that detail. Maybe just following up on the technology and expertise mix. I think it's 50% tech for the year, maybe a little higher coming out in 4Q. Where do you see that going over time? And what portion of the backlog is technology versus expertise?

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Gavin, we've stated that all four quadrants of our framework are important to us. We have kind of resources. There's opportunities to kind of drive value, and one quadrant informs other quadrants. So there is a synergistic aspect to that. For this past year, technology grew about 12%, expertise was essentially flat.

As we move into next year, we expect to see both parts of that hemispheres, if you will, to grow with technology, growing faster than expertise. And that is supported by both our backlog and the bids to be submitted in the spending where we're going after some kind of expertise work associated with that. So again, growth in both hemispheres.

John S. Mengucci -- President and Chief Executive Officer

Yes. Gavin, I'd also add on the technology front, we are going to continue to invest ahead of customer need, either in the enterprise tech area or in the mission tech area. We know we have what the customers are out there looking for. I spent a little bit of time in my prepared remarks talking about Agile. Agile is a great buzz word. It's really hard to do. It's really hard to do repeatedly. It's really hard to do at scale. And we have future bids that are submitted in other bids coming up that are going to play exactly on top of that same past performance credential that our enterprise team has spent an awful lot of time on. So I would look for us to continue to drive tech higher than expertise.

Now having said that, if they all grew at 10% each year, I would be even happier. So thanks so much, Gavin.

Gavin Parsons -- Goldman Sachs -- Analyst

Thank you, both, for all the details.

Operator

The next question comes from Mariana Perez Mora of Bank of America. Please go ahead.

Mariana Perez Mora -- Bank of America -- Analyst

Good morning, everyone.

John S. Mengucci -- President and Chief Executive Officer

Good morning.

Mariana Perez Mora -- Bank of America -- Analyst

So your outlook implied share count remains flattish. Could you please describe and give us some color on how you're thinking about capital deployment? How is the M&A pipeline? And what's your appetite for more share repurchases in the future?

John S. Mengucci -- President and Chief Executive Officer

Okay. Thanks, Mariana. So capital deployment, I'm going to call on Tom to add some comments to this as well. Look, you all have heard us both talk a little differently about capital deployment when we announced our ASR back in March. Look, that was purposeful and a commitment to a continuous evaluation of all deployment options. We've always talked about those deployments. What you're seeing is potentially a different level of execution that we may have had in the past. So additional repurchases, M&A, internal investments, debt reduction and other potential uses. And that order, just to be clear, is in no way intended to prioritize options.

I'd like to say that they're all on the table and considered when we leverage our robust cash, cash flow. M&A remains an important use of capital for us, but it's not the only one. And as a larger company going forward, with greater profitability, greater cash flow, we can do multiple things. And you've heard me say in the past, I wanted our capital deployment strategy to be opportunistic and flexible. And I use that word, and, as a very key word, M&A and repurchase and internal investments and debt reductions and whatever else and wherever ideas we have going forward.

So from the vision and the strategy of where we're going, that's where my head is at. Tom, can you add some more color?

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. So again, a couple of factors. The current ASR, accelerated share repurchase, was executed at the beginning of March, is still ongoing. So we're -- the counter partner is still in the market of completing the share repurchase associated with that. Once that is completed, we expect to have delivery of another 300,000 to 400,000 shares, which reduces our share count going into FY '22. That being said, there was some equity-based compensation, which would offset that, hence, the flattish share count for FY '22.

So once the ASR is done, we will evaluate the situation, as John said. The good news is we have low leverage, financial strength, access to the capital markets, so a lot of flexibility. Right now, we estimate that we have well in excess of $1.5 billion of capital to deploy for whatever in keeping leverage at kind of reasonable levels. This would be all cash. And as most people on the call recognize, access to capital today is kind of very broad and interest rates are at historically low levels. Right now, we're spending LIBOR plus 125 basis points on our incremental revolver borrowing, with LIBOR being 10 basis points and spending kind of 1.35% kind of incremental interest expense.

So until we determine what the best strategy is, we will kind of repay debt. The intent is to try to maintain zero cash balances and reduce debt for obvious reasons to reduce kind of interest expense. And as we go forward, we will continue to look at that question, both in terms of our borrowing capacity, plus our very, very strong free cash flow this year.

Mariana Perez Mora -- Bank of America -- Analyst

Perfect. Thank you very much.

John S. Mengucci -- President and Chief Executive Officer

Thanks, Mariana.

Operator

Next question comes from Seth Seifman of JPMorgan. Please go ahead.

Seth Seifman -- JPMorgan -- Analyst

Hey. Thanks very much and good morning, everyone. I was noting the head count numbers are reduced, and I think it was 22,000 at year-end, and that was down a bit from the last year-end. Obviously, the company is growing, the backlog is growing. Is the profile of the business and the increased growth in technology, does that mean -- does that kind of change the link a little bit between head count and revenue, and we should think about a company with maybe higher sales per employee going forward?

John S. Mengucci -- President and Chief Executive Officer

Seth, thanks. This is John. That's a better answer than I was actually planning on giving, but let me share some -- a couple of things here. Look, it's been a long time, frankly, that we've looked at our business in terms of head count, people.

Tactically to answer the move from 23,000 to 22,000, that small change in total head count, frankly, was due to the exit in Afghanistan as well as some rounding. So tactically, that's what happened. But you're absolutely right, Seth. With technology growing faster, our growth is not as correlated to head count as it was maybe five to seven years back. It's been a conscious road and conscious decisions that we have been making to make certain that our growth was not predominantly based on our head count. That's -- that does show its hand in our expertise type of work. You all have heard us talk over the last five, six, seven years about how we wanted to rightsize that type of work for a number of reasons: shareholder value, profitability, some of the lower margins that were going to be coming out of that work and the like.

And we're just at a point where we are large enough and capable enough for us to go win work, which we can differentiate on technology and our past performance, how we deliver, not on whether we were able to hire Susie, Julie or Johnny. So yes, so this 23,000, 22,000, it's no leading indicator.

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Yes, and I'll also add that throughout the organization, we're driving efficiencies. And even in the expertise area, to the extent that we can develop better tools to help people perform their jobs, we can get the work done with fewer people. You've had Agile software development is another great example where prior to that, it would take an x number of people to develop software. Now we can do it at materially lower head count. And as a result of that, we're less concerned with kind of wage inflation. Let's hire the right people to do the job, drive efficiencies, and we can deliver attractive cost to the government customer in getting the work done very effectively.

Seth Seifman -- JPMorgan -- Analyst

Great. Thanks very much. And just as a quick follow-up. As technology becomes a bigger part of the mix, how should we think about the trajectory of capex here? We saw the guidance for fiscal '22. Is that kind of a steady state number, continue to grow?

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. Thank you. So last year, capital spending was approximately $73 million. This year, we're guiding to $90 million. There was one sizable expenditure that we're planning on this year, which is a facility to do some manufacturing type of work which is secured, which makes the facility expensive. This supports a program which has a eight- to 10-year life to it. And the way the program is priced, the government ultimately will pay for that in capital spending, will it be recovered in our -- in pricing. So that has driven a step-up function in capital spending. Hard to predict what's going to happen next year. But I would say that we're going to move more toward that $70 million, $75 million level kind of with that 1.2% of revenue somewhere around in that particular range.

Seth Seifman -- JPMorgan -- Analyst

Okay. Thanks very much.

John S. Mengucci -- President and Chief Executive Officer

Thanks.

Operator

Next question comes from Matt Akers of Wells Fargo. Please go ahead.

Matt Akers -- Wells Fargo -- Analyst

Hi. Thanks, guys. Good morning.

John S. Mengucci -- President and Chief Executive Officer

Good morning, Matt.

Matt Akers -- Wells Fargo -- Analyst

I guess the fixed-price contract that was sort of driving margins higher last year, has that kind of reverted to normal? And I guess as we think of like for modeling the quarterly margins through this year, is there anything else sort of unusual that we should kind of keep in mind?

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. So the program that we spoke about had some material benefit for the first, second, third and fourth quarter of FY '21. From what we see, we expect similar benefits going into the first quarter of this year, and that is built into the kind of guidance number. So that will help in the first quarter kind of margin performance. Consistent with my prepared remarks, we do expect revenue in the first quarter to be down sequentially from the fourth quarter revenue, greater than historic trends. And margins should -- have increasing margins throughout the year despite the fact that, that fixed-price program has contributed to the first quarter margin.

So for modeling purposes, I would have an increasing EBITDA margin quarters one, two, three, four and five. Full stop, recognize that there are fluctuations in both revenue and margin due to higher-margin technology deliveries and the like. We guide to the full year, we're committed to the full year numbers, and there are going to be fluctuations among quarters.

Matt Akers -- Wells Fargo -- Analyst

Got it. Okay. Thank you. That's helpful. And I guess one more. Do you have any thoughts on kind of vaccinations? And I've heard some talk from DoD and Biden on maybe mandating that for government employees, their contractors, their -- and I guess do you see any potential risks that employees maybe -- may not be able to access facility or do work if they haven't been vaccinated?

John S. Mengucci -- President and Chief Executive Officer

Yes, Matt. What I can share is what we know as of now, right? The administration recently announced, right, that everyone working in a federal facility will need to attest to their vaccination status. We're doing the same thing inside of our company. We're actually requiring folks to attest the same information, not so we can track individuals, but so that we can look at facilities and make certain we put the right protective measures in place. People in government facilities and as well as ours, any county that has one of our facilities in it, using the CDC's measurement of severe and high or whatever those terms at, when it goes orange and red, they have to wear a mask. But in the government side, if they don't want to get the vaccine, they're going to have to comply with COVID testing requirement.

What we've learned so far, potentially two times a week and also be subject to travel restrictions. So what we're going to watch, Matt, as it impacts us, and we have employees going overseas who are not vaccinated to perform work on behalf of the government. There are countries they will have to be in quarantine anywhere between five to 10 days, and we'll have to figure out how we're going to work through that. So -- but having the vaccine out there is a positive thing for all of us, but we also respect the fact that every individual has different beliefs. And we'll make different decisions, and what we're just asking people to do is be smart. And if you're not willing to get vaccinated, please make sure that we're being respectful of other folks in the business, and let's just make sure that we're doing the right thing.

Matt Akers -- Wells Fargo -- Analyst

Understood. Okay. Thank you.

John S. Mengucci -- President and Chief Executive Officer

Yes. Thanks, Matt.

Operator

The next question comes from Tobey Sommer of Truist Securities. Please go ahead.

Jasper Bibb -- Truist Securities -- Analyst

Hey, good morning, everyone.

John S. Mengucci -- President and Chief Executive Officer

Good morning, Tobey.

Jasper Bibb -- Truist Securities -- Analyst

This is Jasper Bibb.

John S. Mengucci -- President and Chief Executive Officer

Oh, Jasper.

Jasper Bibb -- Truist Securities -- Analyst

Yes. No problem. So just some of your competitors cited some issues with passing the delays in the Intel community. Just hoping you could comment on your experience there and how did that impact your thinking around guidance?

John S. Mengucci -- President and Chief Executive Officer

Yes. I guess I'd answer that in a couple of ways. $3.6 billion of fourth quarter awards, $9.2 billion during a [Technical Issues] COVID year and trailing 12-month book-to-bill of 1.5. So the simple answer is no. We continue to see really good demand, a heavy pipeline of opportunities and award flow consistent with normal customer behavior. Now keep in mind, there are some customer behaviors that are typically slow. And in some customers, we see a higher level of awards slipping to the right. With every customer set we have, we actually measure RFP day, proposals due date, job award date. And there are some agencies that at times or and historically, make award decisions later than what we planned. In the old days, we used to put a 90-day window into our plan. If some of you remember, that would make up for delays in awards.

What we've seen over the last year that we've talked about was slower. So we're tasking, which we really attributed to COVID and people being out and the like. But again, this is something we've been discussing for a very long time. So I'll amble my simple answer, which is no.

Jasper Bibb -- Truist Securities -- Analyst

Thanks. That makes sense. So then are you seeing any impact on at least timing from the chip shortage related to some of the product deliveries in your mission technology business?

John S. Mengucci -- President and Chief Executive Officer

I think we discussed with you all during fiscal year '21 in -- throughout COVID that where we saw that where it's had the most is in our AVT business. We're pleased with that acquisition. They bring a lot of great, high value, differentiated technology. And they also have been working with our Next Century folks. But we have had supply chain issues. We have had customer delivery delays, but we've had delays on both ends. One is on -- as you mentioned, on bill of material items that have gone from a 12-week delivery to 24- to 26-week delivery. We're working with our teams to make sure that we do some bulk buys of some of our previous long lead items that are actually going to long, long lead items. But at the end of the day, we also have customer delivery delays because throughout COVID, our customers weren't there to receive those items, right? We have to usually do final article testing with them. And throughout COVID, they were in every other week or every third, third week ranges had much less time.

So there's a few factors there, but we will -- we are continuing to work that issue. It's a global issue today. We have a modest amount of predictive actions that will happen during the year. But all in all, we're doing quite well, navigating our way through it.

Jasper Bibb -- Truist Securities -- Analyst

Okay. Appreciate the color. Thanks, guys.

John S. Mengucci -- President and Chief Executive Officer

Yes. You bet. Thank you.

Operator

The next question comes from David Strauss of Barclays. Please go ahead.

David Strauss -- Barclays -- Analyst

Thanks. Good morning.

John S. Mengucci -- President and Chief Executive Officer

Good morning, David.

David Strauss -- Barclays -- Analyst

Tom, I just wanted to clarify on capital deployment, have you assumed anything in the guide for capital deployment? Are you assuming you'll stay in excess your free cash flow generation, using it to pay down debt?

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. That is what we have assumed. There is no assumption with regards acquisitions and/or other kind of share repurchases. Obviously, the normal capex and internal R&D investments are there, but that is what we assume.

David Strauss -- Barclays -- Analyst

Okay. And then working capital looks like it was a slight tailwind in '21. What are you expecting for working capital movement in '22?

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. So as you point out, we started the year with DSO at 57 days, ended at 54 days. That three-day reduction in DSO was worth around $45 million in increased operating cash flow. We are getting close to an asymptotic kind of level in terms of kind of DSO improvement. For the year, we're expecting a relatively modest improvement in working capital around $10 million. Typically growing companies need more working capital. We think we can offset that and maybe get another day out of DSO somewhere around those particular levels. But essentially flattish is probably a good way to look at it.

David Strauss -- Barclays -- Analyst

Okay. And do you have any exposure to this R&D amortization issue?

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

No. It's not the type of work that we do. So that is not going to be material to us.

David Strauss -- Barclays -- Analyst

All right. Thanks very much.

John S. Mengucci -- President and Chief Executive Officer

Thanks, David.

Operator

The next question comes from Scott Forbes of Jefferies. Please go ahead.

Scott Forbes -- Jefferies -- Analyst

Hi. The normalized margin in '21 were 10.7%. You have 20 bps of expansion in '22. I guess what are the major hit, and is there moving pieces there around cost recurring, maybe anything with COVID and then just generally technology expertise?

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. So the major driver of the kind of margin expansion is kind of the mix of our business. We're expecting gross margins to improve, kind of which flow we found the -- kind of gross margins being revenue less direct cost, cash flow is down in the P&L. And some of that is driven by efficiencies on programs, which I mentioned earlier in the call, and a richer technology mix. Technology will be growing faster than expertise in technologies at higher margins. That's helpful.

At the same time, we should be driving some efficiencies in terms of kind of indirect costs. Our indirect costs, excluding fringe of kind of medical expense and also additional fringe on increased direct labor, is growing around 1.5%. So we're doing a good job of maintaining efficiencies within the infrastructure. The shared service center in Oklahoma City, which we spoke about in the past, is helping to drive efficiencies. We've been employing RPA technology internally to focus on kind of improvements in other such initiatives.

Scott Forbes -- Jefferies -- Analyst

Thank you.

John S. Mengucci -- President and Chief Executive Officer

You're welcome.

Operator

The next question comes from Josh Sullivan of Benchmark Company. Please go ahead.

Josh Sullivan -- Benchmark Company -- Analyst

Hey, good morning.

John S. Mengucci -- President and Chief Executive Officer

Good morning.

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Good morning, Josh.

Josh Sullivan -- Benchmark Company -- Analyst

How did the Agile focus from customers change the traditional contracting cycle? You've got record backlog here. But just by the nature of Agile posturing, the environment continuously changes. Does that make IDIQs more competitive, recompetes easier or harder? Just curious how the Agile focus and increasingly software-defined world just changes the historical dynamics on that backlog conversion or cycles.

John S. Mengucci -- President and Chief Executive Officer

Yes, Josh, thanks. So when you think about Agile in the -- before Agile, the government would contract to have a system built, and it would be more of a cost-plus or firm fixed price, and it would come in as a single award, right? It's a number of dollars, and we would book that upfront. We're all still working through the challenges of contracting for Agile. By a simple nature of the word, right, it's agile, which means it's fluid, it's going to change. And that's tough in coming from the contracting world.

What we have done, and we'll use BEAGLE as the example, BEAGLE was a onetime award. It's a single-award, IDIQ, where taskings get put on to that vehicle. And there's parts of it that are also cost plus. It is we want to make sure we have access to N number of people because we're going to have a Y number of apps that need to be modded and pushed out to the field.

So Agile does a couple of things for us. One, it allows us to ebb and flow people on that program. What that means is it allows us to do a much better job of managing costs. It also helps us do a much better cooperative job of managing costs not only on our side, but for our customer side. Tom made mention of during the earlier question about 23,000 people to 20,000, 22,000 people. What things like Agile does is -- the numbers I want to give you are illustrative, but do provide you a real perspective. We're delivering an Agile software development with about 300 people with incredibly low defect rates on a program that, under the last provider, used to employ over 500 people with far greater defect rate. So what it does is it allows us to deliver programs and agile applications at a lower price to our customer and a lower cost. And if we do that right, the margins will be higher for us because we're taking on some of that risk.

So all in all, I don't see Agile going to multiple-award IDIQs. I see them staying as either single award or as program items, but they want to buy what we're building in spirals. They want to build a little bit, test a little bit, try. And you've got to have the right methodologies in place because at any time, you could be deploying to the field.

So every one of those spirals, you have to have a complete solution you can put out there, then you enhance that along the way. So it is very -- it's very material to how we are driving margin growth. It's very big and very prevalent in both our enterprise and our mission tech work. And I think we'll all get better, both government and us, as we can try -- continue to try to make software development be as agile as we absolutely can.

Josh Sullivan -- Benchmark Company -- Analyst

Thank you for all that detail. And then just a question on your rack exposure. You've detailed the Afghanistan exposure here. But just given some commentary out of the Biden administration, how should we be thinking about your exposure to that environment?

John S. Mengucci -- President and Chief Executive Officer

Yes, Josh. At least as of today, we've watched the administration make a decision to completely exit Afghanistan by 9/11. And I can -- all I can say is they're executing on that decision. I'm not willing to share which areas are still have folks and which are not, for everybody's safety. But if we were to broaden that, we have a lot of OCONUS presence outside of Afghanistan throughout the Middle East, Africa and Korea. Those missions are standing firm, Josh. There's no reductions in any other areas. Some of those folks that were exiting Afghanistan were brought into other missions in other parts of the globe. And that is fully, fully baked in our FY '20, '22 plan. And specifically, the Afghanistan withdrawal does not impact Iraq or other locations. So there's a lot of focus on the missions in those locations, is much broader than counterterrorism. We're talking about near-peer threats and the like.

And the analytical services that we provide are actually provided with a much broader focus in some of those other areas. So we're going to continue to leverage customer relationships. We are very much embedded with customers, doing some incredibly hard work around the globe. And where we can broaden our footprint and win new work, we absolutely will.

Josh Sullivan -- Benchmark Company -- Analyst

Got it. Thank you for the time.

John S. Mengucci -- President and Chief Executive Officer

Yes. Thanks, Josh.

Operator

The next question comes from Louie DiPalma of William Blair. Please go ahead.

Louie DiPalma -- William Blair -- Analyst

John, Tom and Dan, good morning.

John S. Mengucci -- President and Chief Executive Officer

Good morning

Louie DiPalma -- William Blair -- Analyst

John, can you provide more detail on the contract wins that you highlighted with the LGS Innovations photonics portfolio? And does CACI have -- CACI have exposure to both laser communications and laser products for directed energy/counter-drone effects?

John S. Mengucci -- President and Chief Executive Officer

Yes. Louie, thanks. So a little bit about photonics. Look, we've got a nice portfolio, differentiated tech and intellectual property. And as you correctly mentioned, LGS didn't create that, but they certainly supersized how we go about doing that and where we go about putting investments in place. We have Todd Probert who has the combination of a lot of our mission tech work. He do an outstanding job. He and his team understand what we want to invest in next.

Look, in space-based photonics, it's all about size, weight and power. And what discriminates our solution, frankly, is the combination of laser modem technology that we've developed, that's ours, and then on top of that, sophisticated software to control and point that tiny little laser at extreme distances so that we can enable assured digital communications.

As I said in my initial remarks, we've had sales to aerospace and defense primes. We're looking to expand that. But what that tells me is that these are large platform providers, and that illustrates our differentiated offerings. It also demonstrates their trust in us to deliver. So this is not drawings we have of some of the smallest lasers and gimbals. This is actually products that you can touch.

As far as the size of it and where we go next, frankly, it's not large yet, but it's got those four things I'm looking for. It's growing, it's profitable, it's differentiated, and it's highly relevant to where this nation, both commercial satcom providers and our intelligence and our Air Force satellite folks. It's got about $1 billion pipeline, Louie. We're very confident that we're on our way to grow that even further.

And I think your last question was around is it non-kinetic or is it kinetic? We're very focused on laser comms in our laser-based photonics work. But our counter UAS and our SkyTracker and our CORIAN systems have all been modified and are all set up to actually tip and queue different kinetic laser solutions. So if we're not able to take a storm or drones down, let's say, using RF and other means, we do have partners that we're integrating our CORIAN solution with that also provide kinetic effect. So hopefully, that provides some -- the right kind of color for you.

Louie DiPalma -- William Blair -- Analyst

Excellent. That was perfect. Thanks, John.

John S. Mengucci -- President and Chief Executive Officer

You bet. Thanks.

Operator

The next question comes from Cai von Rumohr of Cowen. Please go ahead.

Cai von Rumohr -- Cowen -- Analyst

Yes. Thanks so much, and good results.

John S. Mengucci -- President and Chief Executive Officer

Thank, Cai.

Cai von Rumohr -- Cowen -- Analyst

So John, your book-to-bill of 2.2 is the best you've done in 20 years. So it's a huge number. In a quarter where other people, as was noted, saw delays in Intel and sort of administration changeover issues. Was any of that a pull-forward? Because normally, your big book -- booking quarter, as you know, is the first quarter. So should we see a good but not a great first quarter? Or could the first quarter be in line with your -- I think, your 17-year record something like 1.8 or 1.9.

John S. Mengucci -- President and Chief Executive Officer

Yes. Cai, thanks. Okay. A couple of things. I always start off questions on awards by saying awards are lumpy, right? It's -- yes, the team did an outstanding job. How these awards come in is so much more of a factor of things we've done in the last one or two years. It actually positioned us better. Our processes under Mike Gaffney and his great BD team, making certain we're not getting involved in bids that will do a great job of finishing second. Because as I've checked, they don't generate $1 revenue when I finish second. So one, it's about shot selection.

Two, the fourth quarter full disclosure had our FSDE ditro [phonetic] work recompete in it. We're probably -- off the top of my head, Cai, 80%, 85% of that was a recompete work, but there was a nice $300 million to $400 million worth of additional work because the mission continues to change. So there was no pull forward. There was no push late. It sort of gets back to that fundamental question of, we have not seen material onetime because of COVID or people being out, massive delays in these awards. We have customers who have different award personalities for lack of a better term. And they've kept those same personalities up.

Would I love some customers to deliver closer to the RFP expected date? Absolutely so. But we've got -- as you mentioned, we've got 60 years of information on how customers buy. And I can't point to something that says they're that far off. There have been years that they have been, and we've disclosed that, but we just have not seen that practice.

Cai von Rumohr -- Cowen -- Analyst

Thank you. And then, Tom, you mentioned that the first quarter probably would be down sequentially a little bit more than the average of 1% to 3%. And you mentioned four kind of relative baddies for the quarter. Is this quarter likely -- I mean, is there a chance this quarter could be down year-over-year? And secondly, can you put that in the context of 4% growth for the year? I mean, is this quarter like 1% or 2%, and then each quarter has better growth as we go through the year? How should we think about that?

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. So it's unlikely that our first quarter will be down year-over-year. We're expecting modest organic growth in the first quarter. We've completed the month of July. We have two months kind of left for kind of mid-August. So if we have kind of modest organic growth in quarter one, in order to hit the 4% number, kind of mathematically, we'll need some higher growth in the subsequent quarters.

John S. Mengucci -- President and Chief Executive Officer

Yes, Cai, I would also -- go ahead, Kai. Finish up.

Cai von Rumohr -- Cowen -- Analyst

I was going to say, is that lumpy because you mentioned Afghanistan, so the $120 million or so hit from Afghanistan, all is in the first and second quarter. So we get kind of a hockey stick in the second half?

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Yes, good observation. The Afghanistan kind of the Southwest Asia work is disproportionate in the first quarter of the year.

John S. Mengucci -- President and Chief Executive Officer

Kai, I would also provide some additional color, too. When we have these start-off-lower grow, I want to make certain that we're very, very clear. That pattern is not due to difficulty in hiring. We've been watching that. Demand for talent remains high, and the talent environment remains competitive and challenging. But again, it's no different than it has been in past years. We've continued to try to strive to be the employer of choice. We put different programs in place, allow people to move around the company, and we've enhanced our referral program. We've got a great class of interns even throughout COVID, just over 300 folks in our last class. We continually have worked on this over the years to make certain that we always had the right kind of talent that we could source from. And that's coupled with the fact you go after more technology work where we get to decide the kind of talent that we need and when we want to bring those on. So I don't want to tie hiring issues that, boy, we had a hard back end because you have to find all these folks. That's just not it. We've done all the right things. And so I just want to make certain that, that wasn't in anybody's calculus around can we get the 4% growth? And is there going to be hiring issues?

Cai von Rumohr -- Cowen -- Analyst

Terrific. Thanks and great job.

John S. Mengucci -- President and Chief Executive Officer

Thanks so much, Cai.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to John Mengucci for any closing remarks.

John S. Mengucci -- President and Chief Executive Officer

Well, thanks, Andrea, and thank you for your help on today's call. We'd like to thank everyone who dialed in or listened to the webcast for their participation. We know that many of you will have follow-on questions. Tom Mutryn, Dan Leckburg and George Price are available after today's call. Please stay healthy, and all our best to you and your families.

This concludes our call. Thank you, and have a very good day.

Operator

[Operator Closing Remarks]

Duration: 67 minutes

Call participants:

Daniel Leckburg -- Senior Vice President of Investor Relations

John S. Mengucci -- President and Chief Executive Officer

Thomas A. Mutryn -- Executive Vice President, Chief Financial Officer and Treasurer

Robert Spingarn -- Credit Suisse -- Analyst

Gavin Parsons -- Goldman Sachs -- Analyst

Mariana Perez Mora -- Bank of America -- Analyst

Seth Seifman -- JPMorgan -- Analyst

Matt Akers -- Wells Fargo -- Analyst

Jasper Bibb -- Truist Securities -- Analyst

David Strauss -- Barclays -- Analyst

Scott Forbes -- Jefferies -- Analyst

Josh Sullivan -- Benchmark Company -- Analyst

Louie DiPalma -- William Blair -- Analyst

Cai von Rumohr -- Cowen -- Analyst

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