Prabu Natarajan: Yes. Great question, Bert. Look, I think — in terms of the share repurchases, we’re guiding between $600 and $650 million over the next couple of years. And I think relative to kind of the multiyear view that we provided maybe a year ago, the stock price has moved up considerably. And therefore, the math ultimately just reflects that we are buying fewer shares than we had contemplated, but not materially. So to me, I think that’s the really big picture on share repurchases. No real change to the strategy, but — and this is a really good problem to have, but the fact that the stock price has reacted as well as it has, I think just means we’re buying fewer shares. In terms of the dry powder, I think we’ve always thought about this as what’s the target leverage to run this business at?
And we’ve always signaled it’s about 3 times, and we said there will be points in time where we’re just below and points at — points of time where we’re just above 3 times. And I think what we are right now assuming is that just given the potential for EBITDA improvement in the business, and just the cash generation capacity of the business, there is a natural deleveraging mechanism happening inside of the portfolio. And that’s why the charts reflect levers coming down to, let’s call it, mid-2s. Now that simply means that there is extra capacity for us to either use the proceeds to buy more shares if we see major dislocations in the valuation of our company or continue to focus on where the tech-enabled differentiators are in the M&A market to ensure that we are appropriately bringing capability.
One of the things that we’re laser-focused on inside of the innovation factory is the make-buy decision. That we don’t believe for a second that we have to make the investments to create the innovation inside the company, if that effectively is available at a lower cost and a different color of money externally. So to me, the real focus is acutely staying calibrated on make-buy decisions so that we can decide where the best ROI is. But I think fundamentally, no real big change in the M&A strategy. Toni?
Toni Townes-Whitley: Correct. No, I think you nailed it there, Prabu.
Bert Subin: Yes, that was great. Just a follow-up on Toni, last quarter, asked about the NCAP contract, and you gave some really good color there. I think that’s expected to be finalized here in the coming months. I’m just curious, as we think about your guide that now goes through FY ’26, how are you factoring in NCAPs and Vanguard? And those just sort of probability weighted at your percentage view of a win. And so if you do weight NCAPs and Vanguard turning to evolve, is a better outcome than you anticipate, those just drive upside to the way you’re looking at here guide?
Prabu Natarajan: Yes. Bert, I’ll take that one first, and I’ll add — so a really big picture, NCAPs, we’re waiting. As folks know, we did file a pre-award protest on NCAPs and waiting for feedback on that process. Clearly, our guide for this year at the midpoint of 2.5% assumes some disruption from NCAPs, but not a significant amount of disruption. NCAPS is likely to be more of an FY ‘26 disruptor than not. And candidly, the way we provided the 2% to 4% guide for FY ‘26 right now stays calibrated on a potential negative outcome on NCAP. So we think of that as by and large, derisked as we head into FY ’26. But the other thing I would point, Bert, is that we are just beginning ramp on T-Cloud. That program considered very little revenue last year.
And this is probably the first year of significant revenue uptick on T-Cloud picking up to about 1% of total growth rates inside the company. Obviously, GMS, which began in the Q3 time frame of last year, will continue to ramp through the first two, maybe three quarters of this fiscal year, we’ve got some ramp left on AOC as well as DCSA One IT and of course, the most recent DTAM win that we announced a couple of days ago that will certainly start to ramp over the course of the year. So to me, as I think about the tos and fros here, we are comfortable that the 2.5% that we’re guiding to for this year reflects all of the headwinds and the tailwinds and that the 2% to 4% appropriately reflects potential outcomes and range of outcomes I might add on Vanguard evolve and as well as potential negative outcomes on NCAPS.
So that — hopefully, that adds a little more color here.
Toni Townes-Whitley: And I think that’s great. And Bert, I think the only thing I would add to that is understanding that as we are ramping on new, we are acknowledging and derisking any challenges or headwinds relative to recompete losses. We also have in the strategy that we are trying to implement here and we start talking about differentiating our portfolio, the benefit of — for new bids, you’re absolutely right on a 24-month expectation, absolutely correct in terms of the way the government procurement cycle works. But on existing work, we have the opportunity for on-contract growth and to shore up recompetes. And so when you think about implementing the strategy and what underpins our growth expectation, it is the belief that on contract growth we can improve upon with value creation with our customers and that our recompetes, our existing programs that will come up for recompete that we can get back to our traditional win rates by adding more value in the existing contract delivery.
So new business absolutely 24-month turn, but we have the opportunity, we do have levers with our current program.
Bert Subin: Thank you.
Toni Townes-Whitley: Thank you.
Operator: Your next question comes from the line of Cai von Rumohr with TD Cowen. Your line is open.
Cai von Rumohr: Yes, thanks so much for taking the question. So your — could you give us where your bids awaiting decision are because they gone down sequentially the last two quarters? And then maybe some color on kind of what sort of book-to-bill or sort of the bookings environment you see in the next couple of quarters? And lastly, maybe an update on where we are with NCAP and Vanguard in terms of when you expect decisions to come down?
Prabu Natarajan: Right. a, that’s a multipart, let me make sure I get them all. And if I don’t, please remind me and I’ll certainly go back. On the submission rates, I think, as Toni mentioned, we are submitting less in the last couple of years have been lower. And I think the expectation is that submit rates will be higher over the course of FY ’25, and that should reflect in a higher level of bids waiting final adjudication, if you will. So we do expect that trend to flip this year. Really big picture on book-to-bill. As you probably observed, our book-to-bill was under 1.0 last year. Trailing 12 months is under 1.0. We would expect book-to-bill for a business that’s aspiring to grow in that 2% to 4% range to be above 1.0. So think of the objective for FY ’25 is sort of in that 1.0 versus 1.1 range.
So that to me is the expectation for book-to-bill for FY ’25. And then finally, on NCAPs, we’re going to see how this process plays out over the course of the next several quarters. But I suspect it probably will not have a significant revenue impact in FY ’25 and evolve the customers in the middle of an active procurement cycle and just given how complicated that procurement process is, we would expect minimal disruption to our FY ’25 revenues and as I responded to the previous question, I think we’ve calibrated our position relative to Vanguard as an incumbent on the program astutely as we can as we’re providing guidance here. So hopefully, I captured the three-parter.
Cai Von Rumohr: Actually, there were one, what were the bids awaiting decision at year-end? And then what are the milestones? I guess I missed represented the question. What are the milestones? When should we expect, I guess, it’s a multipart decision, but when should we expect decisions to be forthcoming on Vanguard? Thank you.
Prabu Natarajan: Yes. And on the first part, Cai, I mean we typically don’t call out individual programs that are awaiting adjudication suffice…
Cai Von Rumohr: Just the total dollar…
Prabu Natarajan: And we can certainly try and find the number, Cai, but it’s probably right in line with where the historical numbers have been in terms of just waiting adjudication that at any point in time, we have a pretty healthy amount of awards that are pending adjudication. So we’ll get you a more precise number, if necessary. And in terms of the timing question, I would say we would expect to hear on some of these in the Q1, Q2, Q3 time frame. Q4 is not where we’re expecting most of it. Obviously, some of this will depend on the government funding environment, but I would say, biased to the Q2, Q3 time frame for this year. Hope that’s helpful.
Cai von Rumohr: Thank you very much.
Prabu Natarajan: Sure.
Operator: Your next question comes from the line of Tobey Sommer with Truist Securities. Your line is open.
Tobey Sommer: Thank you. What’s the most important financial outcome that you expect to derive from the new organizational structure with more business units?
Prabu Natarajan: Tobey, let me take the first part of that and then Toni, please chime in. So really big picture, Tobey, I think part of what animated the reorg was the desire to eliminate a layer to simplify the org structure so that we could have a direct perspective on what’s going on inside of the business groups. And so to me, that was probably the most important reason part of what was animating that was to get closer to the customer, closer to where the rubber hits the road, if you will. And that was really the reason we announced the reorganization in Q4 of last year. In terms of the single most important financial metric, I would say, look, our incentive comp metrics are always reflecting what we want to deliver over long periods of time.
And that is EBITDA dollar growth, free cash flow and total shareholder return. As I think about really important long term, what is the objective of driving additional organic growth? It is to drive higher EBITDA growth from the business and then converting cash out of that EBITDA and delivering TSR. To me, I think I’ve not given a single financial metric, but I think those are really what we’re hoping to get.
Toni Townes-Whitley: This is Toni. Let me just — Tobey, just give you an operational view for a moment. So long term, I’m completely consistent with what Prabu just shared. The one perspective, and there were two moves on the organization that are to be collective and there — supposed to compound quite frankly, to the right outcome. The centralizing of the BD function and the flattening of the organization. both of those moves are towards ensuring that we derisk ourselves on organic growth by addressing our recompete rate. A recompete win rate that is not at our traditional 90% becomes a drag on the business as we have spoken to before. And so the way to derisk that was to address the recompete issue in two organizational ways: one, to make sure that we have standardized process with a single point of accountability in the BD and capture function; and second, to flatten the organization so that we were closer to the customer and driving so each one of those business groups is direct, those leaders are directly reporting to me and are part of this executive team to drive the value creation that has to happen during program delivery and ensure the systematic deployment of our differentiators across that portfolio and to bring that accountability to bright light in a flatter organization with direct reporting responsibility.
The two ways to address a recompete issue are standardized bid capture capabilities and value creation on the ground and program delivery. And those are the two that are reflected in the organizational changes that I’ve made.
