Sheila Kahyaoglu: Thank you. Good morning, Horacio and Matt. Thanks so much for that introduction and the Helix visit as well. When we think about your organic growth, just to start on that, organic growth, 15% in the first half, really great results, Defense, up 24%, another acceleration. How much of that is due to improving DoD outlays? And maybe if you could remind us your expectations across the different customer basis for the year in terms of the top-line?
Horacio Rozanski: Hi, Sheila, good morning. I’ll start, Matt might want to add. I’ll say the following. When you look across the entirety of our business, Defense, Civil and Intel, 24% and 17%, 4%-plus growth while absorbing changes in the contract portfolio, it’s really broad-based. We are hitting on all cylinders across all of these. It’s not one program, it’s not one piece, it’s not one dynamic. I think, in general, it’s attributable to VoLT. VoLT is giving us both momentum and resiliency. The momentum is evident in the numbers, and in the fact that we’re raising guidance while accounting for the potential for a government shutdown. And the resiliency is equally important, because to your point, I mean, we do see increased uncertainty in the funding picture.
At this point, we continue to see clients moving aggressively against our key priorities in other cycles like this. We have seen clients maybe pull back in anticipation. And perhaps it’s because of the missions we support, perhaps it’s because of the geopolitical dynamics and the uniqueness of our offerings that we’re still seeing that. But we are both growing fast and running tightly so that we can create the environment in which we can continue to both invest and protect our workforce if the budgets get tight or get interrupted for a period of time. So, we’re excited about where we are across all the markets, in Defense, in particular. Like I said, I mean, every part of our Defense business is growing nicely. It’s the only way to get to 24%, and it has really transformed to grow along the lines of bringing technology to mission.
Sheila Kahyaoglu: No, that’s super helpful color.
Matt Calderone: Yeah. Sheila…
Sheila Kahyaoglu: Sure, Matt.
Matt Calderone: Obviously, 10% to 15% organic growth for the year, we’re growing above market, clearly. But as Horacio said, it’s the quality of the underlying growth and the depths of that, that really has us excited, because it gives us not just momentum but the resiliency to write out potential dislocation from a budgetary environment.
Sheila Kahyaoglu: And Matt, just another follow-up for you, if I may. Can you talk about the accounts receivable balance in terms of the cash? How we should expect sort of working capital improvements from here on that balance? And also the impact revenues, how we should see that progression?
Matt Calderone: Sure. I’ll take that in a couple of parts. First, and we’ve talked about the puts and takes on cash for a couple of calls now. On the positive side, we’re certainly generating more profit, our CapEx has declined, and we’ve improved collections. But there are headwinds. The DoD settlement, obviously, higher cash taxes, driven by our growth in 174, higher interest expense. And as you mentioned, our outsized growth, we are consuming working capital to support it. I mean, just to give you one example, we’re required to pay small businesses within 30 days. And so, as we’re growing, we’re typically paying them faster than we’re collecting. With respect to our outstanding receivable balance, I think you’re getting at the question of some of the unbilled receivables on our balance sheet, because you’ve asked that previously.
We are working — a meaningful portion of that is tied up with — in past-year audits. We are working with DCAA, DCMA, both well and quickly to try to resolve that. It’s going to be likely a multi-year process, but things are going well. And at this time, we have no ability to project what’s — when and how that will be resolved.
Sheila Kahyaoglu: And just on the revenue line, I think that you called out $18 million from the reduction at the provision. So, those should be conceived as positive as you sort of retrieve those payments, is that how to think about it?
Matt Calderone: Yes. I mean, that, in particular, has to do with — it changed our reg reserve we made relative to our ’22 audit and the results of ’22 audit, but there are going to be puts and takes over the next couple of quarters, and a couple years as we work to resolve these. So, it was a positive this quarter, we’re not making any predictions about future quarters.
Sheila Kahyaoglu: Got it. Thank you.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Louie DiPalma from William Blair.
Louie DiPalma: Horacio, Matt and Nathan, good morning.
Horacio Rozanski: Good morning.
Matt Calderone: Hello, Louie.
Louie DiPalma: Horacio and Matt, you forecast lower capital deployment through fiscal ’25. Has your VoLT and your venture capital program been so successful and selling prices so high that you are no longer interested in another Liberty-sized acquisition? And are you signaling more stock buybacks with the extra capital now?
Matt Calderone: Yeah, Louie, thanks for the question. I’ll start, I’m sure, Horacio will want to comment. I mean obviously, when we put the investment thesis in place two years ago, the world was a different place. It was different an interest rate environment, M&A market was much more robust and less political and macroeconomic risk. Strategic M&A very much remains a priority for us. It’s an important tool in rounding out our ability to bring technology to mission at scale. To your question, we’re getting a lot of value out of our venture investments, but they don’t tend to not be at the kind of scale that you get from Liberty. So, explicitly, I would absolutely do the Liberty acquisition again. And we’re looking for the next one.
We’ve got a sizable pipeline of small- to mid-sized tuck-ins that we’re prosecuting. And the range of $2 billion to $3.5 billion can still accommodate a significant amount of M&A activity over the next 18 months. I think we’ve only deployed slightly over $1.2 billion in the first 18 months. We’re going to remain patient, disciplined as always in our approach, but that we can meet the adjusted EBITDA target in the investment thesis for deploying less capital than anticipated, really is a testament to our organic performance. And it just gives us a lot of flexibility to create additional value for shareholders. So, I would not read into this any change in our strategy, it’s just a reflection of where we are.
Louie DiPalma: Great. Thanks.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Cai von Rumohr from Cowen.
Cai von Rumohr: Thanks so much, and good quarter. So Matt, you mentioned that you booked $1.1 billion of the $1.8 billion on the Thunderdome. What did you guys book on the $630 million Space Force award and the $1.7 billion CDC award?
Matt Calderone: Yeah. So, Cai, I believe I said in our remarks, we booked all of the DMAC award, CDC, and I believe we booked all of the Space award as well. Thunderdome is going to be incrementally awarded. So, we only booked $1.1 billion out of the $1.85 billion there.
