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Get insights into CACI International including business profile, stock information, news, and rankings from Fortune.

CACI International (CACI): Company Profile, Stock Price, News, Rankings

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CACI International

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Ladies and gentlemen, thank you for standing by. Welcome to the CACI International First Quarter Fiscal Year 2027 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. If you should need any assistance during the call, please press star zero and someone will help you. At this time, I would like to turn the conference over to George Price, Senior Vice President of Investor Relations for CACI International. Please go ahead, sir.

Thanks, Morgan, and good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI International. 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 the company's SEC filings. Our Safe Harbor statement is included on 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's John Mengucci, President and Chief Executive Officer of CACI International. John.

Thanks, George, and good morning, everyone. Thank you for joining us to discuss our first-quarter fiscal year 2027 results. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Slide 4, please. Before turning to our results, I want to remind you that CACI is a technology-first national security company executing a clear and consistent strategy. The key elements of that strategy are, first, focus on enduring national security priorities with narrow, deep funding streams. Second, utilize our deep mission knowledge in the markets we serve to truly understand what our customers need. Third, invest ahead of customer need, informed by that deep mission knowledge. Fourth, deliver software-defined technology to address critical needs with the speed, agility, and efficiency our customers demand. Finally, deploy capital in a flexible and opportunistic manner to create value for our customers and our shareholders.

This strategy is the driving force behind our strong and consistent results. Slide 5, please. We had an excellent start to fiscal year 2027. First-quarter revenue grew 8%, EBITDA margin reached 13.3%, adjusted diluted EPS increased 12%, and we generated $133 million in free cash flow. We also won $4.8 billion in awards, producing a 2 times book to bill for the quarter. We have a large and growing backlog, and our funded backlog grew double digit year-over-year for the seventh time in the last eight quarters. Our margin performance stands out. It reflects superior execution and a higher mix of differentiated technology we delivered this quarter. We are raising our revenue and earnings guidance for the year, and Jeff MacLauchlan will share our additional details shortly. Our results, awards, backlog, and pipeline give us a strong foundation for the fiscal year and support our increased guidance. Slide 6, please.

Let me discuss some more details, some highlights from the quarter, and the demand that we are seeing that are driving our results and position us for continued success. I will start with two fantastic awards for technology-enabled operational support that exemplify our enduring commitment to national security. First, our Apollo award, where CACI will enable CENTCOM to carry out critical intelligence and information warfare missions. Our success in winning this new work for CACI stems from our deep mission knowledge, our exceptional business development, and our superior ability to utilize and combat AI in the information domain. The second award is SOFETOPS 2, a five-year follow-on contract supporting the Army's Special Operations Command. It reflects the trust we have built through years of work with this customer and extends our role helping special operators plan for and respond to evolving threats using our technology-first approach.

Our electronic warfare portfolio continues to see strong demand. That is certainly true in the counter-UAS market, a significant and growing opportunity for CACI. Beyond protecting our war fighters, the growing threat to military facilities and critical infrastructure is driving demand for precision non-kinetic counter-UAS capabilities like SkyValor. SkyValor leverages nearly two decades of proven counter-UAS deployments, industry-leading cellular detect and defeat capabilities, and enables detection up to 75 kilometers so operators have more time to make critical decisions. Our prospective counter-UAS customer base is expanding across the U.S. government and internationally. A great example is our $500 million domestic shield award from JIATF-401, which also included an initial funded task order. We are also seeing increased demand for our BEAM manpackable counter-UAS systems from U.S. customers and allies across Europe and the Pacific Theater.

BEAM is the most technically capable system of its kind on the market with over a decade of proven performance and important discriminator for prospective customers. In the critical space domain, we are capitalizing on increasing demand as a leading merchant supplier of optical imaging and optical communications payloads. CACI was recently selected by Vantor, a commercial provider of satellite-based intelligence, to supply advanced optical imaging payloads for their Pulse satellite fleet. That work is an example of taking ARKA's exquisite sensor capabilities developed for national security missions and applying them to a more proliferated commercial market, which is exactly what the U.S. National Security Strategy calls for. ARKA has a number of other sensitive opportunities in the national security space domain that are moving forward and are expected to contribute financially in fiscal year 2027. We are also making progress in optical communications.

We expect to complete SDA Tranche 1 deliveries later this calendar year and begin work on Tranche 2. CACI was also one of three companies selected to advance to phase III of the Space Force's Enterprise Space Terminal program, where we are developing the next generation optical communication terminal to support critical multi-orbit initiatives like the Space Data Network. Consistent with our merchant supplier strategy, multiple primes bidding on the SDN have selected our EST technology for their solution. We also continue to win and execute other classified optical communications programs, and our successful contribution to the Artemis II mission has helped demonstrate the capability of our technology for future human spaceflight. Finally, demand remains healthy for modernization of mission networks and digital applications. Many critical customer priorities, including AI adoption, border security, and financial accountability, are dependent on modern, secure, integrated networks and applications for success.

CACI is a leader in modernization because we do it differently, differentiating through speed of delivery, use of outcome-based models, and demonstrated success deploying AI-based software. Programs such as BEAGLE, ITAS, and NASA NCAPS are real-world examples of where we are applying AI and agile delivery methods to drive customer modernization faster and more efficiently. Leveraging AI translates into reduced costs for customers and better margins for us, and we consistently see customers reinvest cost savings and additional scope to CACI. Across all areas of our business, our technology-first approach is directly contributing to our financial performance by driving on-contract growth and new business wins from customers who are committed to transforming at the speed of mission. Slide seven, please. In order to meet strong demand we're seeing for our software-defined technology, we are actively investing to scale our production capacity.

Our first step was to open our manufacturing center of excellence for defense electronics in Rochester, New York. The additional 61,000 square foot facility significantly increases our manufacturing space and expands our capacity to develop, test, assemble, and deliver defense electronics such as TLS Manpack, BEAM, and others. We plan to open additional manufacturing centers of excellence for space and for integrated systems, and we'll share more about these initiatives in the coming months. These investments will enable us to deliver advanced technology faster, at greater scale, and more efficiently, supporting continued revenue growth and additional margin expansion. Slide eight, please. Turning to the macro environment, budgets and funding remain healthy in our key areas of focus. With 90% of our revenue coming from national security customers, the priorities we focus on are well-funded and continue to exhibit strong demand signals because they are needs that must be addressed.

A continuing resolution, or CR, is currently in place until December 11th. Regardless of how this dynamic plays out, it's an environment we've navigated successfully for many years. As we've demonstrated year in and year out, CRs do not have a material impact on our business, given our large backlog, longer duration awards, and the critical capabilities that our customers depend on us to deliver. From an awards perspective, our strong book to bill shows some improvement in award activity, though the pace of decision-making is not fully normalized and is still sluggish in some areas. As our customers continue to evolve their relationships with industry through non-traditional procurement methods, our key differentiators of investing ahead of customer need, software-defined capabilities, and outcome-based pricing are all resonating extremely well because they drive increased speed, efficiency, and lethality. Slide nine, please.

Before turning the call over to Jeff, I wanted to discuss a few other updates. First, we announced we will move to a calendar fiscal year beginning January 1, 2027. We believe this reporting cycle will enhance comparability for investors and better align our business with the government's fiscal year. We plan to provide guidance for our new fiscal year when we report December quarter results in February. Second, we plan to host an investor day in early 2027 at our Melbourne, Florida facilities.

At this event, we intend to provide additional information about the new fiscal year, other contemplated reporting changes, discuss our strategy and capabilities, provide an opportunity to meet with the CACI management team, including additional executive leadership we recently announced, and provide new three-year financial targets. We look forward to sharing more information with you in the near future. With that, I'll turn the call over to Jeff.

Thank you, John. Good morning, everyone. Please turn to slide 10. We're pleased with our first quarter performance, in which we delivered revenue growth in line with our expectations. Revenue was $2.5 billion for the first quarter, up 8.2% year-over-year, with organic growth of 2.1%, in line with our previously communicated low single-digit organic growth. EBITDA margin in the quarter was an impressive 13.3%, 160 basis points higher than the prior year's first quarter, driven by strong program execution and a more favorable mix of higher-margin work. First quarter adjusted diluted earnings per share of $7.66 were 11.8% higher than a year ago, driven by this excellent operational performance. Finally, free cash flow of $133 million for the quarter reflects higher cash outflows typical of the first quarter of the year. Slide 11, please.

Turning our attention to the balance sheet and capital structure, we continue to make progress reducing our leverage following the ARKA acquisition. Pro forma leverage at the end of the first quarter was 3.5 times, and we now expect to return to leverage in the low threes in the March quarter of 2027, two quarters earlier than we had initially anticipated. As we have discussed, this is consistent with our track record of successfully de-leveraging after major acquisitions. Driven by our profitability and strong free cash flow generation, our moderating leverage is quickly putting us back in a posture of having increased optionality for additional flexible and opportunistic capital deployment. Slide 12, please. Turning to our outlook for FY 2027, we're raising guidance for revenue, adjusted net income, and adjusted EPS, and reaffirming guidance for other metrics.

I note that while we made a particularly strong initial guide to begin the year, a strong awards quarter and operational developments have retired additional risk relative to our expected range of outcomes. We are raising fiscal 2027 revenue guidance $50 million to between $10.7 billion and $10.9 billion. Our fiscal 2027 revenue now assumes approximately $450 million of acquired revenue. While ARKA continues to perform in line with our expectations for the full fiscal year, some space program activities are now expected to contribute to revenue beyond the first 12 months after closing the acquisition. We are reaffirming fiscal 2027 guidance for EBITDA margin in the high 12% range. This and higher revenue has a consequent impact to increase adjusted net income by $5 million to between $740 million and $760 million, which translates into increased adjusted diluted earnings per share guidance between $33.18 and $34.08.

We are reaffirming guidance for free cash flow of at least $900 million. Finally, to assist with your modeling, I would remind you of our prior comments that we expect stronger organic growth and EBITDA margin in the second half of the fiscal year versus the first half. Though I note the second half margin ramp is now more gradual given our strong Q1 performance. I would also note our view that second quarter consensus estimates for organic growth and EBITDA margin are reasonable. Slide 13, please. Turning to our forward indicators, we now expect 94% of our revenue to come from existing programs, with 3% coming from recompetes and 3% from new business. This significant increase in existing business content, which was 83% just last quarter, reflects our successful business development and operational performance and provides increased confidence in our updated guidance, as I mentioned earlier.

In fact, this is the highest level of existing business at this point in the year in the last seven years. First quarter awards were $4.8 billion, representing a healthy mix of new work and strong recompete performance. The weighted average duration of these awards was just under 4.5 years, which reflects the higher mix of sole source extensions we have seen recently, as well as normal variance in award duration. Our long award duration continues to provide good visibility into the strength and cash generation capacity of our business. Total backlog was $34 billion, and funded backlog increased by 15% year-over-year. This represents the seventh time in the last eight quarters we have delivered double-digit year-over-year growth in funded backlog, underscoring the critical national security priorities we address and the support of our customers.

We continue to see a healthy pipeline of new opportunities with $4.7 billion of bids under evaluation, about 85% of these being for new business. Bids under evaluation also reflect significant level of awards in the quarter. We expect to submit another $14.7 billion in bids over the next two quarters, with more than 60% coming from new business. In summary, our first quarter was a great start to the year. Our consistent performance, substantial backlog, and strong market position give us confidence in our increased guidance and our ability to drive growth in free cash flow per share and additional shareholder value. With that, I will turn the call back over to John.

Thank you, Jeff. Let's go to slide 14, please. In conclusion, we delivered strong first-quarter results and raised our revenue and earnings guidance for the year. Our large and growing backlog, strong customer demand signals, and ability to deliver give us confidence in our outlook. Regardless of CRs, elections, government shutdowns, or other dynamics, we have delivered consistent results. It's worth repeating. CACI has a clear, consistent strategy, and our financial results once again demonstrate that our strategy is working. You've heard us say consistently that we view free cash flow per share as the ultimate value creation metric. CACI has a long and consistent track record of generating strong cash flow. This level of cash generation enables us to continue investing ahead of customer need and deploying capital in a flexible and opportunistic manner, both of which then enable us to generate additional cash flow over time.

You've seen us do exactly that as we deploy new technology capabilities and make strategic acquisitions like Azure Summit and ARKA. These actions allow us to turn the strong demand we see into results for our customers and lasting value for our shareholders. As is always the case, our success is driven by our 27,000 employees who are ever vigilant in expanding the limits of national security. To everyone on the CACI team, I am proud of what you do every day for our company and for our nation. To our shareholders, I thank you for your continued support of CACI. With that, Morgan, let's open the call for questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, press star, then the number 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from Sheila Kahyaoglu with Jefferies. Your line is open.

Thanks so much. Good morning, John, Jeff, and George.

John, maybe just on your closing remarks. You've consistently been in the right place at the right time in terms of future funding needs. I guess, what's the secret, and how do you think about where the growth goes from here? I know you'll have a March analyst day or a first half analyst day where you'll talk about that, but how have you been able to outperform your peers here?

Sheila, thanks, and really appreciate the question. Look, I think simply, first off, it's because we're a very different company than others in our current sector. We've been doing our best to outperform others in the larger spaces well. It's really down to something that we've shared over probably the last decade, is just having a clear strategy, intentional leadership, and disciplined execution over many, many years. We've invested ahead of need, and have decades of deep mission knowledge. We're in areas of enduring need. We like to talk about narrow funding streams, but the way we look at it internally, these are all things that are not the first, the 10th, or the 100th thing that customers are going to want to turn off. We take a lot of purposeful discriminating actions.

I can tell you internally that we measure the time between vision or strategy and action in weeks. We've been very honest upfront, very transparent, and very thoughtful around capital deployment that truly builds shareholder value. So a lot of transparency, a lot of results, that lead to a lot of credibility, frankly. The other thing that I would mention is something that we don't talk a lot about, but it's very important, is that we truly did recreate this company 10, 12 years back to be a FAR Part 15 and a FAR Part 12 truly commercial company. We didn't get lucky. We actually did study where the market was going to go and how the customers were going to be changing how they buy. I think it's true as today that $500 million of our bookings last year were done through OTAs and CSOs.

That's something that we called very right many years back. You don't just turn that thing on overnight. Strategy is a place where we come from, have an outstanding leadership team that actually drives the strategy forward, and a whole slew of PMs and finance leads and the like that are making sure that we frankly deliver excellence because customers buy from people that they trust, and customers buy from people who always deliver, and I think our results show that.

No, that's great. Thank you. Maybe just to follow up on that. As we look at the organic growth for Q1 up 2%, Q2 up 7% implies second half grows low double digits in the base of pretty tough comps. Can you give us some color on what's driving your organic growth visibility and your confidence guide there?

Yeah. It really points ourselves towards how do we get through a back half risk model, and we've been getting that question a lot, and I think we navigate our way not only through the questions, but through the performance last year. Look, risk is something that we work through all the time. It's just the nature of our business. When our revenue starts from a new win, it's really based on timing of the award, the program start date, funding, type of contract, et cetera. This year, it's true, we have a number of late last year and early this year awards. They hit their first notch in their growth stride after the second quarter. I'm very much aware that that's at the same exact time that the current CR ends.

So what gives us confidence? We've taken a long look at the growth of our backlog. I think you should all look at the level of funded backlog growth. The fact that we've got a lot of non-protested recent large award. We have a customer base that frankly really needs to move forward quickly, and that just happens to align with our current Q3. I guess another quarter will be our newest Q, Q1.

We won those jobs, and that's sort of how their revenue profiles stack on top of each other. We've always talked about long-duration awards, right? So what also gives us a lot of confidence, whether the first or second ramp or the third and fourth quarter ramp, is that we've stacked a number of awards with longer durations over a long period of time. So we see the awards are funded, our funded backlog is there. Our technology deliveries will also be there, and I think everything is greatly aligned. On top of that, reduces the risk of a high second quarter profile, CRs, shutdowns, budget woes, midterms, anything else you can throw in there. Jeff, anything you want to add?

Yeah, I think there are two things, Sheila, that are a little bit different about our portfolio from some others. One is that we have a great number of small programs, smaller programs. So we are managing kind of 1,900 or so active pieces of the portfolio and managing that for the year. The other thing that is different, I think, about our portfolio is that we have a great deal of margin volatility. Not volatility, variability.

Because of that, we have programs with single-digit EBIT margins, and we have programs with EBIT margins in the low 30s. So managing that mix, and we do manage for the year, which I am sure you are tired of hearing us say, but managing across that mix is a constant challenge, as you would imagine. It is a very different management experience, in my experience, from working in an enterprise that has 15 or 20 large programs.

The last thing I am going to add is the metrics that we shared. The fact that we are at the end of the first quarter, we are looking at 94% of our revenue already announced and only 3% re-compete left. That is an outstanding position for us to be in, even better than where we were last year, and you all know how last year turned out. Record revenue, record earnings, record free cash flow. Thanks, Sheila.

Your next question comes from Gavin Parsons with UBS Financial. Your line is open.

I mean, clearly seeing the investments you've made in technology already reflected in the margins, but I want to ask how you think about payback period, and obviously without asking about any specific programs, but maybe if you could use SkyValor as a frame of reference.

Yeah, sure. Look, we've invested in a lot of software-based tech over the last decade. I truly believe that our shareholders have been greatly rewarded, and they will continue to be rewarded for the results. We can talk about counter-UAS, we can talk about ARKA, we can talk about space, talk about OCTs. There's a lot of examples here. But at the end of the day, strategy is a place where we come from. These are not high-risk, invest ahead of customer need operations. I mean, we run this company as a full-throated company, and it's why we always talk about we're not going to invest for the next quarter. We're going to invest for the next decade.

As hard as some of this stuff is that we do, we've never come back to our investors and said, "Because we had to invest more, these financials are not going to look the way they look." Okay? We are a consistent free cash flow compounder and a consistent company that's out there buying the right capabilities to go ahead and continue to drive this company forward. So whether it's counter-UAS, where we've been investing for well over a couple of decades. We've invested, and we sort of moved from a fixed site solution to a mobile solution. Things like BEAM are not in high demand because we got lucky. They're in high demand because we're good, and it's good. So whether it's SkyValor giving commanders larger range, we understand how to do all of that because we have 1,400 people formerly deployed and a lot of people embedded.

That kind of operational support gives us just absolute better data than everybody else gets, back to Sheila's earlier question, and allows us to invest in the right manner, in the right levels, in a manner that we're not coming to our shareholders after the quarter's done saying, "I wish we hadn't invested in all that because now we can't make revenue, or we can't make earnings." We're doing it all.

Got it. Thanks for that. Then maybe just a quick clarifier on ARKA to make sure I heard. No change to the expected ARKA revenue for the full fiscal year. It's just timing?

Yeah. Let me talk a little bit about ARKA because I think it's been probably, at least here, 2024 is probably one of the greatest acquisitions that we've done because it sets us up for so many things. It's great business. It's performing as expected. They're a leading provider of sensing and sense-making capabilities. I like to say they've been doing large aperture solutions since Moby-Dick was a minnow. They're one of one and a half companies that do what they do, so it's a very strong barrier to entry. Now, as you heard from the Vantor award, we're now moving to smaller form factors without sacrificing purity, and we're also building those in higher quantities. So specific to your question, yes, the $50 million moves a quarter to the right. But we didn't take the full year or their guidance down.

We actually raised full year and shifted theirs. So at the end of the day, this $50 million, different than the $50 million raise guide. This is really about moving it from next 12 months based on a March closure date to the current first fiscal year. So all of this attention is really moving revenue to after March 9th, but before June 30th. So it's not about missed numbers, it's just timing, like the majority of the rest of our business. Jeff, anything else you want to add?

Yeah, no, I think you covered it, but I would say maybe slightly different way that might land with some people differently. The two $50 million numbers you're hearing are unrelated, completely independent. There's a $50 million growth in the total revenue, and there is $50 million of movement in the ARKA revenue from inorganic to organic based on being after the anniversary date. So they're different 50s.

Your next question comes from John Godyn with Citi. Your line is open.

Hey, guys. Thanks for taking my question.

I wanted to just hopefully unpack margins a little bit. If I rewind to maybe a year or so ago, there was sort of a conversation about the growth versus margin trade-off and how margins might be topping out. The margin performance and execution has been great. We also have ARKA in there, so it is kind of hard to unpack that perfectly. But maybe you could just talk about growth versus margins in the core business versus ARKA, and are we at a point where we are finding a new sort of lever to get margins higher?

Look, we have said a couple things pretty consistently, and I am going to come back and answer your question more directly. We have said a couple things pretty consistently. One is that we manage the business for free cash flow, and so we are continually making decisions balancing investment and growth. The other thing that may be clouding this up a little bit is a condition I mentioned earlier, which is the margin variability, and what we see as we manage our way through this, particularly in the internal quarters of the year, as we manage across the 1,900 programs that I mentioned earlier.

So those conditions are both what they are, and no one should be surprised. We have talked about these in multiple forums for a long time. To get to your more specific question, I think, we do continue to see opportunities for continued modest margin improvement. That is taking into account the two conditions I just mentioned. It is an extremely opportunity-rich environment, and we see plenty of opportunities to invest and plenty of opportunities for growth, which really put us in the posture, I think, in some ways, of being able to kind of have our cake and eat it, too. So, I think we do see continued modest margin improvement even while we are maintaining the growth vector.

Okay. That is good to know. If I could just ask kind of a related follow-up on margins this year. In the prepared remarks, you mentioned that margins in the back half would step up, but perhaps less so now that you had good early year margin performance. I just wanted to revisit that. It sounds like the margin improvement engine is firing on all cylinders. As you said, you have kind of a target-rich backdrop. Is there some conservatism in that view? Could we maybe see even a higher step up in the back half?

Well, that is a loaded question. Look, we continue to do what I have been describing that we do. If it shakes out that way, it is impossible for me, at this point, to necessarily predict an investment decision that we might make or not make next April. But we have tried to be pretty open with you, sharing the levers and the knobs that we are managing and how we solve for them. I think I probably should leave it at that.

Your next question comes from Scott Mikus with Melius Research. Your line is open.

Hi. Good morning. This is Matt Marottolo on for Scott.

We've heard from aerospace companies that memory semiconductors, rare earths are seeing very high levels of inflation and elongated lead times. How are you managing around those constraints? Are there any other pinch points you would call out in the supply chain?

Yeah. Look, thanks. We are seeing some of that as well, and we're managing it accordingly. That's a key focus, why we brought Chris Monoski in, who's our new EVP of Manufacturing. As we really scale to combat things like that, I can tell you that those types of items are reflected in our guidance. It's really one of the factors that create the low end of our range and then our high end of our range. The administration is aware of this as well, and they're making the right kinds of investments, which we fully support. The other thing that we're pretty good at is making certain that we're eyeballing those types of shortages before they present themselves and really work designs around some of those items.

The last thing from a shareholder margin cash flow point of view is really getting our hands around what are those long lead, high-risk items that we have to invest in. Meaning, do we spend some of our cash flow earlier than we would like, but it actually supports much longer term growth. Do we spend $30 million of cash in the second quarter to end up picking up $60 million more over the entire year? The answer is going to be yes. That's why we talk about being a full year company versus a quarterly company. Jeff, anything you want to add?

Yeah, I'd only add, you didn't explicitly ask this, but I think it was sort of in the tone of your question. We also have a business model, where we have more pricing opportunity frequency. The nature of much of what we sell, it gets repriced each time there's an order. Unlike a large six or eight-year platform program where the pricing is committed far in advance, we rarely are more than a year or 18 months or so from being able to price the next increment. That's also, I think, a risk mitigator that may not be fully appreciated compared to some of the others in your question.

Great. Thanks for taking the question, guys. I'll stick with one.

Your next question comes from Peter Arment with Baird. Your line is open.

Hey, thanks. Good morning, John and Jeff. Nice results.

Hey, John. You mentioned OTA kind of contract structures early on in your kind of opening comments. You guys have some, I guess, through TLS Manpack, and maybe ARKA has a little, but could you kind of describe the exposure or, I guess, risks around OTAs? We have seen some other competitors where OTAs are easy to cancel or easier to cancel. Just how you are thinking about the exposure with CACI and the use of those contract structures when you think about your business.

Yeah, thank you. Look, you kind of know what you are getting into when you are getting into them. This really ties back to our invest ahead of customer need thesis that we have been on for just short of a decade. The reason why our OTAs and our CSOs are successful is because it starts months and years ahead of when that OTA is actually signed. It is really about understanding the areas that we, as a company, believe we have unique skill sets in, that we have proven we have the unique skill sets in, and the fact that our 1,400 people who are co-located in combatant commands tell us that those are dire technology needs that our customer requires. We are not putting hundreds of millions of dollars down.

We are actually putting hundreds of person years of knowledge into an OTA where we are working with folks on the bleeding edge of the mission on the customer side. In places where the customers have nothing today, a 50% or 60% solution looks awesome. We are also not making the mistake of trying to develop the 100% pure solution under an OTA, because that means that there is far more risk on us, and the risk equation between us and customer gets unbalanced. What makes ours successful, far more times than not, is a willing customer, a common understanding of what the mission needs, software-based tech so that we can make really quick changes during that OTA cycle, and our window between the design development, which is the phase one of the OTA and reproduction, is most likely industry-leading. That is what drove TLS Manpack.

That is what has driven a lot of the other half a billion dollars of different OTAs that we are involved in today. Understanding the threat, understanding what the investment needs to be, getting involved in low risk areas, and then when we get to the production side, building these centers of excellence so we do not let that customer down, even though we may be building a 60% solution, and then also being able to modify that solution because it is software based.

You could add the commercial tools that we apply to those problems as well. The mission familiarity is important, but our partnership with GitLab and some other commercial entities lets us react in a way that is a discriminator.

Got it. I appreciate that color. Just a quick follow-up on ARKA. The Space Force budget, the majority of it is in the base budget. It's only $ 12 billion tied up in the original $250 billion reconciliation bill. Is that giving you the confidence around that the majority of the Space Force budget is in base, and that the booking visibility for ARKA continues to be robust? Just some additional color, just given all the budget dynamics.

Yeah, Peter, absolutely right. I'd also tell you that ARKA also brings about $2 billion worth of work that's over the next three to five years, whose future is in space-based payloads that are in the base budget, but they haven't been put into our backlog yet, as Jeff explained. So yeah, it's comforting that it's there. It is comforting that we did the acquisition when we did. It was very intentional and make certain we can get our hands on things that are in the base budget. I'd also say the reconciliation side, as you look at Golden Dome, what ARKA delivers is extremely crucial to that mission, and we all know that the reconciliation funding is not just single-year funding. Some areas it's four to five years, other areas two to three years. All of that helps support the ARKA business case.

I would also add in terms of timing, I think we were also pretty opportunistic in terms of the time that we were able to enter the debt market. Times have looked pretty good a year later.

Yeah. Thanks again, guys. Appreciate the color.

Your next question comes from Tobey Sommer with Truist. Your line is open.

Yes, I am. I wanted to ask you a medium to long-term project, question about your product portfolio. In three or five years of what you have currently, what do you think is going to be generating the most revenue and profit for the firm?

Yeah. If I had opened my crystal ball up on an open investor line, I would probably say it's a good mix between what we do in the EW area, and then supported by what we're doing in space. We're just so early. We're in the infancy stage of both of these markets. If you think about EW, we've got things across the entire spectrum that will help the customer drive their mission forward. The fact that they're all software-based means that we can continually make changes.

So if you look at the potential margins going out, not as a future guide, but the fact things are software-based, we're going to the production bench much less times than others are because we're able to provide additional features like the phone you all carry in your jackets. So it has the right mix of commerciality to it, both the solutions and how we drive investments. Frankly, that's what's going to continue to drive larger and larger free cash flow as we go forward.

Your next question comes from Colin Canfield with Cantor. Your line is open.

Hey, thanks for the question. Maybe if we could talk about cash flow progression. If you could talk about how you think about essentially the combined base space capability portfolio, so ARKA, OCT, and then space-based EW. How do you think about the investment requirements relative to the scale of opportunities? Then maybe if you could parse that out on how you view the fastest-growing swim lanes between commercial EO providers and what you've won with Vantor, space-based situational constellations like what we're seeing with True Anomaly, and then participation in SpaceX's Starshield program. So those three particular programs, and if there's a fourth lane of really fast-growing prime classified work as well, just how you think about the investment requirement versus those program growth or that program growth.

Yeah. So, John will probably want to add to this, and he'll have some insight on some of the specific programs and places that you mentioned. But basically, Colin, I'm going to come back to cash flow. We apply the same tools in the context of your question that we do others. If we see an opportunity to invest in a way that grows free cash flow dollars, that's the decision that we make.

I would also point out, because we've had a little bit of noise in our free cash flow forecast over the last couple of years, I'd also call attention to a slide that we provide from time to time that sort of lays out some of the unusual items that are in free cash flow so that you can do your analysis and tease out what is recurring free cash flow, I'll call it, versus what are some unusual cash items. That chart is in the appendix here. But you'll see in there a nice progression in free cash flow as we make those investment decisions and trade-offs that you asked about.

Yeah, Colin, and I was writing as frantically as I could, but on some of the different programs that you mentioned. I'll start by answering all of the above is what's going to continue to drive free cash flow. But look, let's talk about Vantor and what ARKA has done in that area. Look, they have found a way to put exquisite results into a smaller payload. Why did Vantor like us? Frankly, without bragging, we were the best solution. It went to a competitive evaluation. We had high TRL. We took the family of systems approach, a really strong design and history of supporting cutting-edge capabilities in space. So for them, that was a value-added proposition as well as it is for us.

CACI International (CACI) Q1 2027 Earnings Call Transcript

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