CACI International Inc

Thank you for joining us this morning. We are providing presentation slides, so let's move to slide two. 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 their 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 violence. 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 three, please. To open our discussion this morning, here's John Mangucci, President and Chief Executive Officer of CECI International.

John. Thanks, George. Good morning, everyone. Thank you for joining us to discuss our third quarter fiscal year 25 results, as well as our updated fiscal 25 guidance. With me this morning is Jeff McLaughlin, our Chief Financial Officer. Slide four, please. CECI's third quarter results represent another strong quarter on our way to a great year. We delivered revenue growth of 12 percent, EBITDA margin 11.7 percent, and free cash flow of $188 million. In addition, we won $2.5 billion of awards, representing a book to build 1.2 times for the quarter and 1.5 times on a trailing 12-month basis. We've said it's not unreasonable to expect some slower decision-making in the current environment, but we continue to see our customers issuing RFPs and making awards. In fact, so far in the fourth quarter, we have won an additional $1.3 billion of awards. The business is performing well. Our strategy, differentiation, resilience, and superior execution are borne out by our results. We're in the right places doing the right things and controlling what we can control. Given our strong execution and healthy pipeline metrics, we are raising our fiscal year 25 guidance for revenue, adjusted EPS, and free cash flow. Jeff will discuss this in more detail shortly. And we remain confident in our ability to achieve our three-year financial targets and to continue driving long-term growth and free cash flow per share and shareholder value. Slide five, please. Turning to the macro environment, we continue to see good demand signals from customers in our key focus areas. The world is a dangerous place. and demand is being driven by geopolitical realities as well as the new administration. We see a constructive funding environment with healthy budgets and an upward bias in national security spending and investment. And our strategy and capabilities are extremely well aligned with the new administration's priorities. As an example, Secretary of Defense Hexeth recently issued a memo emphasizing the criticality of software-defined capabilities and mandating the use of the software acquisition pathway to pivot from a hardware-centric to a software-centric approach. We came to this same conclusion years ago, that software would be the enabler of greater speed, agility, efficiency, and even lethality. And we developed a strategy and invested ahead of need to position CACI for where we saw the market going. The SECDEF's directive is a clear validation of our strategy and the software-based approach we employ in everything we do. On the budget front, visibility is beginning to improve. For fiscal 25, we have a full year continuing resolution in place that includes increased flexibility for our customers, allowing new starts and greater discretion in allocating funds. While there may be a learning curve for the DoD, given this is the first full year CR for defense, we don't expect any material impact to our business. Additionally, both the House and Senate recently passed separate budget reconciliation bills which would provide additional funding for defense and border security. While these bills still have to go through the conference process, they represent significant incremental multi-year funding in key areas of our addressable market. Looking further out, government fiscal year 26 is still evolving. The president's budget request, or PBR, is not expected until next month, but early comments are positive, with the administration showing support for a $1 trillion defense budget. Both the reconciliation bills and the PBR comments are strong signals for our business. It generates 90% of its revenue from solving the toughest challenges of the DOD, the intelligence community, and the Department of Homeland Security. Finally, the Department of Government Efficiency, or DOGE, continues to conduct the reviews. We've seen minimal impacts thus far, but we continue to stay close to our customers to support whatever they need. While DOGE is not done with its work, We remain confident that our strategy, differentiated software-based capabilities, and superior program execution are extremely well aligned to the new administration and DOJA's objectives of peace through strength, secure borders, increased efficiency, and technology modernization. Slide six, please. With that in mind, I'd like to highlight some of our recent successes on key programs supporting enduring national security priorities. Our proven commercial agile software development capabilities and software-defined approach on these programs continue to accelerate speed, agility, efficiency, and lethality across the national security space, which is exactly what this administration is asking for. First, our TLS MANPAC technology is a perfect example of our strategy playing out in the electromagnetic spectrum. TLS MANPAC is a commercially developed software-defined system that allows dismounted soldiers to conduct signals detection, direction finding, and electronic attack while on the move. MANPAC's upgradable software and signal sets enable our warfighters to be more capable and more lethal, and demand for this technology continues to strengthen. Our program of record ceiling was increased this quarter, and the number of systems we have delivered has more than doubled and will continue to grow. GLS MANPAC was even featured on the cover of the April edition of the Journal of Electromagnetic Dominance. Next, our Navy spectral program continues to progress well as we enter the next phase of the program. We are beginning to upgrade existing systems as an interim step to deliver enhanced capability to the fleet faster and enable a more efficient transition to the full spectral system. Spectral software-defined capabilities and upgradable signal sets enhanced with AI to reduce the cognitive burden on the sailor will make our warfighters more capable and more lethal. The continued success of the program is not only a resounding endorsement of our investing ahead of customer need and our software-defined approach, but also a great example of the strategic value of the Azure Summit acquisition. Next is one of our seven large network modernization programs, Army SIPR Mod. Here we are modernizing the U.S. Army's secure internet protocol network, a highly complex network for transmitting classified information around the globe. The software-defined network technology we're deploying includes Archon, which is a CCI commercial technology that was developed ahead of customer need and proved to be a crucial differentiator in winning the program. We recently installed the first Archon Gateway, which represents an important program milestone. The Army SuperMod program highlights the significant opportunity for additional software-defined network modernization across the federal government increased security and delivery efficiency, and is another great example of CCI winning by investing ahead of customer need. Our support of DOD's push for financial accountability and transparency is yet another success story. Last quarter, we highlighted our work on the Defense Agencies Initiative, or DAI program, where we have developed and deployed commercial software to enable successful financial audits for DOD agencies. This quarter, I'm pleased to report another great milestone. The U.S. Marine Corps recently received their second clean financial audit. CACI is the only technology company that has helped a service-level agency in the DoD achieve a clean financial audit, now for the second year in a row. And we've done the same for many other DoD entities as well. With the software we have implemented for the DAI, CACI has provided the blueprint for DOD agencies to successfully pass audits and provide financial accountability and transparency. And we expect other DOD agencies to follow the Marine Corps' example. Finally, this past February, our Beagle program for DHS Customs and Border Protection saw the highest monthly volume of software releases ever. This significant increase in release demand was driven by the new administration's border security policy. Our agile software development capabilities are purpose-built for exactly this type of rapid changes and requirements. We are on track to deliver well over 1,000 software releases this year with greater than 99% defect-free quality. We are taking these same capabilities to NASA where our MCAPS program is increasing velocity and efficiency by consolidating software applications from 11 centers across NASA using the same proven commercial agile software development processes combined with our six decades of mission focus. These examples highlight how CACI's differentiated software-based capabilities, commercial processes, and exceptional execution are helping our customers address critical and enduring national security priorities, and they're helping CECI continue to win, grow, and deliver value to our shareholders. Slide seven, please. In summary, our strategy and business remain resilient, as underscored by our continued strong financial performance. It's the reason we are again able to increase our fiscal year 25 guidance and remain confident in achieving our three-year financial targets. We remain positive, given increasing budgets and bipartisan support to the national security priorities that we focus on. We are executing our strategy that purpose-built our business for this environment, and that continues to position us well to drive long-term growth, increasing free cash flow per share, and additional shareholder value. With that, I'll turn the call over to Jeff.

Thank you, John. Good morning, everyone. Please turn to slide eight. In the third quarter, we generated revenue of $2.2 billion, representing 11.8% reported growth, of which 5.6% is organic. As John mentioned, our strategy that differentiates CACI from traditional competitors and our superior execution are evident in our strong results. Third quarter EBITDA margin of 11.7% represents a year-over-year increase of 40 basis points. Similar to last quarter, EBITDA margin is above our previously stated expectations, primarily due to the timing of certain software-defined technology deliveries occurring in the third quarter. Excluding these items, third quarter EBITDA margin would have been in line with our comments last quarter. Adjusted diluted earnings per share of $6.23 were 9% higher than a year ago. Greater operating income and our recent share repurchases more than offset higher interest expense and a higher income tax provision. Third quarter operating cash flow, excluding our accounts receivable purchase facility, was $204 million, reflecting strong profitability and effective management of working capital. Days sales outstanding, or GSO, were 55 days. Free cash flow for the third quarter was $188 million, representing strong sequential and year-over-year increases, Slide nine, please. During the quarter, we announced that we would be initiating an open market repurchase program utilizing our existing share repurchase authority. Through the end of the quarter, we bought 436,000 shares at an average price of about $344 per share. After completion of these latest repurchases, we have approximately $187 million remaining in our current authorization. Including this latest activity, we have repurchased approximately 15% of our outstanding shares since FY21, while also completing 12 acquisitions during the same time period. This track record is a testament to our flexible and opportunistic capital deployment approach. Third quarter net debt to trailing 12-month EBITDA was 2.9 times on a pro forma basis. following the acquisitions of Applied Insight and Azure Summit, and reflecting the capital used this quarter for the share repurchases. We remain well positioned to deploy capital in a flexible and opportunistic manner to drive long-term growth in free cash flow per share and shareholder value. Slide 10, please. We are pleased to again raise our FY25 guidance as a result of our strong business performance heading into the fourth quarter. We're raising the low end of our revenue guidance with a new range of $8.55 to $8.65 billion, driven by stronger organic growth. This represents total growth of 14.5% to 16% on an underlying basis, which includes about six points of growth from acquisitions. We continue to expect fiscal 25 EBITDA margin to be in the low 11% range. And in light of our Q3 margin overperformance that was driven by the acceleration of the software-defined technology deliveries from Q4, we now expect Q4 EBITDA margin to also be in the low 11% range. As a result of our higher revenue outlook, combined with a slightly lower effective tax rate and interest expense, we're also raising the low end of our adjusted net income guidance by with a new range of $543 million to $557 million. This, along with our reduced share count, yields an attendant increase in adjusted earnings per share to be between 2424 and 2487 per share, representing growth of 15% to 18% compared with last year. And finally, as we're always focused on the efficient use of our capital, we're increasing our free cash flow guidance to be at least $465 million, driven by a reduction in our CapEx forecast. About half of the CapEx reduction is related to capital efficiencies from using existing Azure capacity, with the balance coming from other program efficiencies and the timing of program ramp-ups. As we've said before, we see free cash flow per share as the ultimate value creation metric, and our FY25 guidance now implies 22% growth in free cash flow per share. Slide 11, please. Turning to forward indicators, our trailing 12-months book-to-bill ratio of 1.5 times reflects strong performance in the marketplace. Our backlog of $31 billion increased 10% from a year ago and continues to represent almost four years of annual revenue. These metrics provide good long-term visibility into the strength of our business. Entering the fourth quarter, more than 97% of our FY25 revenue is expected to come from existing programs, with about 2% coming from re-competes and less than 1% from new business. Progress on these metrics reflects our strong operational performance and underpins our confidence in our updated expectations for the year. In terms of our pipeline, we have $17 billion of bids under evaluation, nearly 80% of which are for new business to CACI. The significant sequential increase in bids under evaluation reflects our strong business development performance and the sometimes lumpy timing of RFP issuance, proposal submission, and award decisions. We expect to submit another $10 billion in bids over the next two quarters, with more than 75% of that being for new business. In summary, we continue to deliver successful results in an uncertain environment, underscoring the resilience and durability of our business. We are seeing healthy demand from our customers as we help them address critical national security priorities. And we continue to win and execute high-value, enduring work that supports long-term growth, increasing free cash flow per share, and additional shareholder value. And with that, I'll turn the call back over to John.

Thank you, Jeff. Let's go to slide 12, please. In summary, we deliver double-digit revenue growth, increased profitability, strong cash flow, and solid awards. Our performance positions us to again raise our fiscal year 25 guidance. underscores our continued confidence in achieving our three-year financial targets. Additionally, we opportunistically repurchased $150 million of CACI shares to further enhance shareholder value. We continue to navigate a challenging and uncertain macro environment thanks to the successful execution of our strategy, a strategy where we utilize commercial sector development processes in everything we do, we invest ahead of customer need, and we provide differentiated expertise and technology. This strategy enables CACI to continue delivering increased speed, agility, efficiency, and lethality. And we see proof point after proof point that this is exceptionally well aligned to the administration's priorities. As is always the case, our success is driven by our employees' talent, their innovation, and their commitment. To everyone on the CACI team, I'm proud of what you do each and every day for our company and for our nation. Thank you. And to our shareholders, I want to thank you for your continued support of CACI. With that, Calvin, let's open the call up for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. As we enter the Q&A session, we ask that you please limit your input to one question and one follow-up. And at this time, I would like to remind everyone to ask a question. Please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, We've pressed star 1 again. One moment, please, for your first question. Your first question comes from the line of Scott Mikus of Milius Research. Please go ahead. Scott Mikus, Milius Research, Good morning, Scott.

Scott Mikus, Milius Research, Good morning, Scott. Scott Mikus, Milius Research, Good morning. Scott Mikus, Milius Research, Very nice numbers. Quick question on contract growth. Just wondering how that trended since the change in administration. Are you finding any changes in customer behavior? Are they maybe not spending? to the ceiling on some of their contracts or some of the task orders from IDIQs coming out more slowly than you would have anticipated?

Yes, Scott, thanks. So, if I look at our own contract growth, you know, that's just one element of how we grow this business and how we have grown it through fiscal year 2025. We haven't seen any slowdown on our on contract growth measures. We just talked about where our book to bill was in the third quarter. So really haven't seen a material slowdown in awards. And I think what else is telling as we look forward is the level of RFPs that we're responding to the fact that it's to be awarded and visit we're going to be submitting is up until I think about two or $3 billion. from the last period really gives us the confidence that we're going to continue to see awards and funding that will drive future growth.

Okay. And then I know that you're not guiding to FY26 now, but I was just curious how much revenue is already in that backlog, and are there any sort of major re-competes that we should be aware of over the next, say, 12 to 18 months?

Yeah, Scott, there's not one program that's more than 5% of our revenue. It's sort of a moderate re-compete year as we look forward to 26. Yeah, I most likely won't be sharing 26 guidance, the fact that we're still working through where we're going in fiscal year 2026. But yeah, it's actually building up very, very well. And Jeff, anything else you want to add?

Yeah, I would only add that while John alludes to the fact, obviously, that we're doing our detailed FY26 planning right now, the positioning of the portfolio, the pipeline that we see, and the pace and rhythm of the business is very much aligned with our three-year targets from last fall. So while we're not going to give you any details today on FY26, the medium-term horizon is very much consistent with what we saw then and see now. Thanks, Scott.

Your next question comes from the line of David Strauss of Barclays. Please go ahead.

Hi, good morning. This is Josh Korn on for David. Nice results. Wanted to ask sort of an industry question about the DOD memo about insourcing or updating acquisition for tech. You know, I guess You mentioned you haven't seen any major negative impacts from Doge, but just positively or negatively, how that could play out. Is that more of a short-term impact or a longer-term impact when those policies are put into practice? Thanks.

Yeah, Josh, thanks. Let me parse into a couple of pieces. Let's talk about the EOs first. Look, there's a lot of executive orders and memos. They're being released, and we are assessing all of them. A lot of the EOs related to our industries are really focused on greater spending efficiency for the U.S. government, especially in the national security space. There is a focus on streamlined decision-making so that we can get better capabilities to the warfighter faster and more efficiently, which clearly myself and certain others in the industry strongly support. But how we relate to us, these concepts are really central to the strategy that we've outlined for a number of years, which is why we embarked on a software-defined capabilities path. Okay, it's really in line where the world is going. So look, the details are going to be important. It's going to depend on how they're implemented. But we do continue to engage at the appropriate level, Josh, and we see it as a net positive for CCI over time. You asked something specifically around how the government may be looking to buy based on some of those EOs. I'll just focus on the software pathway. One, because I think that's really well aligned to where we have been. I've been talking about this for years. It really is a pivot from a long-term program hardware focus to a software-defined approach, and that's right in line with Agile software development. Literally today, we can overlay all the current metrics of the programs we've won the last six to eight years as it pertains to Agile and show our customers today how we can align that to this new EO. You also asked about Doge. You know, I think that they're still going through their reviews. Diminished impact so far. We do continue to support customers and Doge as questions are asked in whatever ways they need. But I have pretty strong confidence in the strategy of what we do, that we're really well aligned to those Doge objectives. And, you know, I guess from a roll-up, again, we've got seven contracts that we're aware of, including one that was already over when Doge singled that out. Potential annual revenue, $3 million, but for just about $2 million of that $3 million, we don't have any formal contractual notification. So a $1 million impact from where Doge is at now really is a testament to the strategy we have. And we're going to keep talking about that over and over again because the strategy is such that it doesn't mean we're going to be Doge immune. I think to a great extent, we've positioned this business long before these concepts have come out, which is why we're so strongly supportive of them. Thanks, Josh.

Great. Thank you. Very helpful. I'll stick to one. Okay. Thank you.

Your next question comes from the line of Colin Canfield of Cantor. Please go ahead.

Hey, good morning. Good morning. Maybe talk through the budget, Kate. It's contemplated in your investor day targets, not necessarily the top line DOD budgets or getting into FY26 guidance by any stretch, but maybe just how you think about kind of the outlay mechanics and where expertise and technology are kind of more sensitized to. Typically, we think of expertise as more O&M and technology as more R&D, but any color there would be super helpful.

Okay, Colin, thanks. Look, government fiscal year 25, full year CR, allows for new starts, gives agencies more discretion and flexibility to be able to move their funds. So that's a net positive. Provides really good visibility and really good certainty. National security spending, another thing you've heard me say a lot, remains bipartisan. And look, we're going to focus on the things that we can control. We're going to run the business. We're going to drive long-term growth and shareholder value. And on that front, we're doing very, very well. You talked about technology and expertise. Look, our strategy has always been to strongly align around key national security priorities and invest ahead of need. And that's why we've been bringing differentiated expertise and tech, which does position us extremely well. So if we look at the FY26 budget and we look at all the numbers we have now As Jeff and I and the rest of the company look forward to doing 26 and beyond planning, I just wanted to share a little bit about how we see our long-range plan because there's a lot of questions about budget and timing. So here's how I look at it. Book to build fiscal year 25 Q1 through Q3 strong and supportive awards. We've already booked $1.3 billion awards in Q4 with a large volume of to-be-awarded remains. We've got a number of large awards over the last two fiscal years that contribute to out-year growth as they continue to unpack. Jeff shared that during our investor day in the fall around how expertise and technology programs unpack. We haven't begun to see the unpacking of Spectral yet, as well as several other programs. We've got an enviable backlog with at least four to six quarters of clarity on where growth is going to come from. On the funding side, a favorable government fiscal year 25 CR. allowance for new starts, funding flex, flexibility. And then you talked about future budgets. Reconciliation bills, up to $150 billion of defense spending, up to $200 billion of DHS represents two-thirds of the business that CECI executes year over year. We're seeing signals to support a $1 trillion government fiscal year 26 budget. And we have a portfolio that is really much aligned with Peace Through Strength, China, Indopaycom, protecting the homeland. So when we look at those mileposts that we use to measure how our strategy is stacking up and we're looking at where this customer set's going, whether it's DOGE, whether it's GSA scrub list, whatever those are, those are quantitative measures that we need to support our three-year plan. So high single-digit revenue growth, mid-11% margins, $1.6 billion of free cash flow, the use of which is not contemplated in the revenue and margin growth rates. We have things to navigate without a doubt, but where we are, folks, is not by accident. It's by aligning a strategy ahead of customer needs that makes up with the customer at the right time. And it's the right time.

Got it. And then maybe on the supplemental, is there a way to think about kind of how fast you think those monies can get started and whether that supplemental is balanced more towards but I call it an O&M style cadence or more of an R&D style cadence on the outweighs.

Thanks.

Yeah, I think if we look at... I'm not sure we have that visibility. I mean, we have a fair amount of work that's funded with O&M, but it'll be across both areas, I'm sure. We'll get more details.

Thanks, Tom. Thanks.

Your next question comes from the line of Toby Sommer of Truva Securities. Please go ahead.

Thank you. You mentioned the $1 trillion, you know, DOD budget and border security. Are there specific areas of incremental funding that represent sort of the the biggest and best opportunities for the firm going forward that you could highlight for us?

Yeah, Toby, I don't think a lot of us have the details behind the 150 and the 200, but I can share a little bit about where we've positioned within those areas. Electronic warfare is going to continue to be an issue that, as recently as last week, there were senior government officials talking about how woefully underinvested we have been in electronic warfare. You probably can't talk about things like Golden Dome, and I'd like to just say airborne base defense in the U.S. without believing that that's going to cost additional funding. I think you've got combatant commanders out there. We're all focused sort of in the UCOM area, but we have to build up into OPACOM. for the China fight Taiwan defense. We've got a lot of bad actors still in CENTCOM today. So I think you're gonna see a lot of capabilities so that we can build out what those command commanders need So there's a large number of areas on the defense side. On the DADHS side, protecting borders, that's going to be everything from Customs and Border Agents. I shared a lot of fantastic news and support that we have given to that agency thus far under our Beagle contract. I truly believe that something that's going to hit defense of the homeland as well as border security is going to be how do we track and find drones that are bringing a lot of nefarious things, not only across the border, but are also used by folks south of the border to traffic individuals. So I think that's another area. And then last, I tell you that on the DOD or DIT side and network modernization side, DOJA, some of their very initial comments were, once the savings pieces are done, where do we have to place more investments versus cuts? And I tell you, we are well-aligned. as a publicly traded company, as a 60-some-year-old company, to bring our expertise and our technology to both network modernization and the number of the improvements that the government would like to make in enterprise IT.

Thanks, Tony. Thank you. For my follow-up, I was hoping you could update us on the development and ramp of production in your optical communications business. and maybe remind us of the leverage in that unit as you start to ramp production?

Thanks. Yeah, thanks. Look, we are coming up upon making certain that we'll be delivering at least six times greater than our FY24 OCT delivery volume during 2025. You know, I'll first start off that SDA acquisitions are really large and very complicated programs in a lot of areas, both in optical terminals as well as spacecraft and bus design. Look, we're all pushing the edges of technology at every turn, but it's extremely relevant and time-sensitive to the future of space dominance. So we have delivered 25 OCTs that are operating in space, which includes 10 SDA Tron Zero tracking those entities. Those have already been used to approve out space-to-face, space-to-ground, and space-to-air connections. We are right in the middle of production now. We're looking at deliveries by the end of this month, by the end of May, and by the end of June. But I am very confident that we will hit our goal for SA Photonics and our OGS Photonics business of delivering six made last year. So while on our way, we've solved an awful lot of very difficult production problems, but you would expect that because no one's ever put tightly wound fiber in an optical terminal and pushed information through it. So I'm really pleased with where we're at. We'll start to see some of the investments in that area start to come down as we get through 2025 and go into 2026. which is directly in line with what we told folks when we did the SA Photonics acquisition. We'd have investments through 2025. We would be giving, we would be getting, we would be delivering terminals in more volume by the end of 2025. When we get to our 526 timeframe, we'll be able to talk about what the backlog looks like and how we're going to achieve more deliveries. Thanks for the question, Toby.

Your next question comes from the line of Sheila Kahialu of Jefferies. Please go ahead.

Good morning, guys, and thank you for the time. Good morning. I appreciate the Doge comments, but maybe one big-picture question, and it's clear that CACI's portfolio is positioned well with only 1 million impact. Another competitor yesterday made some comments about the perils of just you know, divesting government employees and how that potentially could impact contracts or the pipeline conversion. John, how are you thinking about that and how are you working with the government to maybe better educate them on the process?

Yeah, so Jeff, I'll start and I'll ask Jeff. Actually, go ahead.

Yeah, so, you know, we have been saying for some time, Sheila, that We sort of anecdotally are seeing some slight slowdowns in the sort of administrative pace of the business. So things like invoice approval, things like funding mods, the kind of day-to-day business of the business, things that used to take, you know, two or three days, you know, are taking four or five days. We're still feeling and seeing a little bit of that distraction, but it's been, you know, only only mildly disruptive and relatively short-lived. And I think that's what really translates into us seeing really relatively little disruption to the business. Things are a little bit slower than they are in more normal times, but it's been very manageable disruption from our view.

I'll add something else too, maybe at a and even larger level how it pertains to this company, maybe why we're different. We built resilience into our strategy. You all have heard me come up with this term lumpy. You know, for at least the 12 years I have been here and the four years I've been in this industry, I don't think there's ever been a customer who's awarded exactly on the day that they believed they were going to deliver. And now that's not a slight of our customer. But what it is is for us to have built this portfolio and strategy going forward, we had to make certain we're more resilient than a, than a, you know, end of the quarter book to bill number, because we're living hand to mouth between awards and then revenue growth. And we're sitting here, we've got a quarter left. We've got maybe 1% now that we're in the fourth quarter worth of awards. We have to win to hit the end of the year revenue. So that, that's, that's one marker. Uh, you know, the second marker is that, um, we, we've talked a lot about, you know, that, um, April 20th looks the same as March 30th to me. And that's why we shared the $1.3 billion awards, which is something we haven't done in the past, but really to try to show that this strategy and how we grow can expand and contract based on when the majority of these awards are you know, let out. So that $1.3 billion could have easily been March 29th if we were in different times. And instead it didn't come out until the middle of April. So I do feel that a lot of government employees are under an awful lot of stress and that is going to just naturally the human element. But I don't know if I have to advise or coach Doge or coach the government as to how they put awards out there. They've been pretty much in our portfolio, been pretty much on track. as well as issuing RFPs in areas that are really, really struggling because of layoffs and the like. So I like where we are today, but to your point, we've got a long way to go.

And maybe if I could just ask one on program specifics with Spectral, can you maybe just give us an update on Azure and how the integration process is going? I know you discussed some capability enhancements, but if you could just provide an update there in the next milestone.

Yeah, sure. Look, the integration is going very, very well. The folks from Azure Summit are very much contributing to Spectral. Timeline, we're about six months into the integration. I could not be more pleased. They have brought incredible talent, technology, and integration capabilities. We're a highly acquisitive company, and you'll always hear us say what a phenomenal group of folks, whoever it is that we're bringing in. They have proven it from day one, and they've helped us collectively better address the challenges that we're going to be able to see in the Indo-PACOM area. Cultural match, fantastic. Ongoing technical exchanges and their commitment to the mission could not be better. From a program side, you know, based on that, we've aligned both programs under a blended leadership team where we can provide the best concepts to our customers on getting capability to the field quickly. We are moving even faster in developing and deploying next-generation shipboard signals. What makes the combination, to me, Sheila, a real win is the win for our U.S. Navy customer is the fact that both companies have a similar view to open architecture, agile software development, and we know how to be flexible and deliver a world-class system. So we're accelerating the use of open systems now We've got C Inc F program and spectral running side by side yet staggered. We're going to bring plug and play capabilities. And what's most important in a non proprietary non licensed model, which was to us as far superior to a licensing model where updates are based on the vendors business case, we actually believe our national security customers should own the software and layout when they want those requirements. That's what agile gives and both teams are doing extremely fantastic job.

Yeah, Sheila, I would also add, you will have noted, I'm sure, that our free cash flow increase for the year is related to, as we get through the details of the integration, being able to optimize the capacity utilization of the Azure facilities. And we've actually been able to reduce some of our spectral production CapEx spent plans.

Your next question comes from the line of Gavin Parsons of UBS. Please go ahead.

Hey, thanks. Morning, guys.

Morning, Gavin.

John, just wanted to follow through on what we were just talking about on the slowdown. Is there a common theme? I mean, is that the department level, the contracting officer level? Is there turnover at your customer? Is there any common theme in that slowdown?

Yeah, I mean, I guess one is we're not seeing a material slowdown. I think we're seeing some of the normal slowdowns. actions that have happened during other times, Gavin. I mean, I do believe that if you lay the human element on what the government's asking contracting officers, funding orders have not slowed down. If you look at our funded backlog, that portion is very, very strong. But if you look at the award side, I do believe that people are going to, one, make sure they have the funds. Even though we're in a more open CR, it's still a year that we have a CR going on. I also believe that they're making sure that all I's are dotted and all T's are crossed. I don't think any acquisition official can have a slip-up. And I don't have an opinion on that. That's their role. Our job is to put winning proposals out there, and their job is to select us individually. So I just don't see a pronounced slowdown, and that's what's been driving, you know, really strong year-long bills for us.

And I'd add, Gavin, if you think about my earlier comments about the sort of day-to-day business of the business, it's not isolated in any particular customer set or any particular activity. It's more of just a general, you know, things take a day or two longer than they used to.

I guess if you have executive orders every other day, you probably want to double cross your T's and double dot your I's. I think there's some of that going around. Okay. That's helpful. The $17 billion pipeline, I think that's a record. Is there a mathematical way to extrapolate that to a book to bill? Because you guys have done it better than a 1.2 book to bill on a smaller pipeline in the past, or is that not a great comparison?

Yeah, I think that's probably going to be a hard thing to do. There's a lot of variability in there across customer sets, across timing, periods of performance. It's hard to, I think, translate it quite that precisely, other than the fact that I would just reiterate that it's a positive development relative to the broader environmental view that we have of sort of our near and medium-term prospects.

Yeah, Gavin, we also looked at, you know, to your question, is there something we can learn from being news versus where it competes? And oddly enough, both of them are pretty much on the same timeline, the same percentage of jobs do award on time and some deliver late. On-contract growth clearly is much more predictable. We already have all the means. We have the contractual language in place. The customer's timeline is really just finding additional funding and putting that on contract. But, you know, there's nothing there that we, you know, we like to call it lumpy because we don't have a better forecasting metric, frankly, as to how these things get awarded. What is important, though, as I shared earlier, is that we're not living hand to mouth. We don't need to win a $200 million job before April 30th to meet the end of the year revenue numbers. And that's really a function of a, you know, multi-year strategic move for GCI. Thanks, Gavin.

Your next question comes from the line of Jan Engelbrecht of Baird. Please go ahead.

Good morning, John, Jeff, and George. Congrats on another positive result. Sure. So I think we've talked about this topic today, but it might be a bit more specific question. Just tied to the ongoing GSA review and as it relates to the cost savings initiative. And we know that CSI has obviously been excluded from this top 10 list of contractors that's been making the headlines since sort of late February. But are you informally sort of part of that process with the GSA in terms of that review, and can you just share anything that you've learned, I guess, over the past two months as part of that review, what they're looking at, and then just obviously contrast that with your strong positioning that you're seeing on your contract.

Yeah, thank you. So it's true we're not in the top ten list. Everybody out there knows that. We don't consult. We do. We deliver outcomes. We have not been contacted, so I don't know the details of what they're all looking for. But as we said before, we have about 80 GSA programs. We've taken a stab at what codes they could be potentially pulling together. We have about a half a dozen of those in total across the entire $8.5 billion portfolio. It adds to about $158 million total contract value, and you can hear total contract value mean over a number of years. And as I shared earlier prior to this call, two of those programs are in extremely mission-critical areas and very highly aligned and have full customer support on those. You know, I think the other question also in this I'd like to share a little bit is There's a lot of discussions on cost savings ideas with GSAs. We're seeing a lot of reports. You know, we haven't been in those meetings, but I think it's fair to say that, frankly, we have been having those customer meetings over the last eight years. It really began when we began bringing commercial agile software development to the federal government, utilizing DevSecOps. And already beginning, without DOGE, without GSA contract scrubs, moving customers from purchasing labor hours to developing digital applications. This is a strategy we've been explaining for quite a long time. It is one of the material differentiators in the market. And simply stated, the value proposition has always been between CACI and our customers that by moving to a commercial-like model, customers are going to inherently spend less You're going to receive better outcomes that they can fully control without costly labor hour contracts. And the customer can then use those savings from their appropriated budgets and go buy even more. And at the end of the day, I think a customer who owns the software, which is critical national security, is more important than one that has bought multiple licenses. So to me, we're having a lot of talk about moving the federal government to a new place. And maybe one way to do that is to go through all these GSA contracts. I don't know. I'm not involved in that. But from what we understand, all the discussions around how do you save the government costs, we believe we've been having those discussions. The most recent one was with NASA, where it drove a multi-billion dollar award to consolidate 11 centers. So this is not new news for us. It is a clear differentiator. I don't know where the outcome of GSA contracts and NAICS and NICS and Elemental PX codes are going to be, but I'm rather confident that what we're doing is on the right side of right, and we've had a lot of these discussions, and it's why we open any other discussions, any other customers out there about how to get more from us.

Great, John. Thanks for the detail there. Just a quick follow-up. Just within counter-unmanned, it seems like you're well-positioned, and that's going to be a focus area under this administration. So could you just talk about Kaki's positioning within the counter-unmanned market today, and then just some potential near-term opportunities? We've seen about the Army's TIC 2.0 contract. I think that's about $1 billion of funding through 2017. And there's some counter unmanned systems in there. There's some EW systems. I think there's 250 that they're looking for. Is that anything that you're aligned with? Or could you just talk about the counter unmanned market for CSER?

Yeah, I'll start with a strong fact that we've got over 5,000 EW counter UAF systems deployed all over the world today. We've got a lot to bring to the table. It's proven, it's deployed, it's operational, including both sensors and condor ES capabilities. They're both coming from current program records, and everything we deliver has confirmed kills, and they're in theater. So they're not at a range, they're not in an exercise, they're not on a PowerPoint site. They actually are out there driving confirmed kills for combat commanders. If we look at two areas going forward, Golden Dome will have some layer, I would imagine, of air defense to it. We've been in the same meetings everybody else has been. They're looking for sensors, effectors, and command and control. We can talk about currently deployed systems, as some companies have already talked about. There's a lot of capabilities out there. This has always been about getting them together in a more cost-efficient manner, and we believe that we have the right kind of solutions that combat not only the simple drones you can see fast-by, but everything, everything from a level 1 to a level 5 class drone. So I think we'll see more specifics around Golden Dome. I think we'll see some discussions from the combat commands from NORTHCOM and the like around how they plan to defend the U.S. in a broader manner. And then we can also talk about the authorizations that are already out there for base commanders for us to be able to string some counter-react systems along the southern border to at least get a jump start on providing So thanks very much for those questions.

Your next question comes from the line of Seth Seifman of J.P. Morgan. Please go ahead.

Hey, thanks very much, and good morning.

Good morning, Seth.

So for the first question I wanted to ask, and I apologize, I might be betraying my my lack of technical expertise when I asked this question. When you talk about the software memo and ways that the government is buying software, and I think that memo has come up a lot in the trade press, when you think about how you go to market and how it changes your relationship, if it does at all, with hardware providers, does it? Does that create more opportunities for partnerships it doesn't mean you have to spend less time thinking about what you're going to do with hardware providers because software will be more at the center or is it just kind of not not really relevant yes that's so let me take in two different pieces so there's there's large hardware and then there's um i'd say component hardware similar to what um

The Azure Switchblade product does, right? You've got to have memory and processing power to put the software on if you look in the DW kind of UAS world. But, no, I don't think it fractures anything. I think it's built some great relationships, right? I think in the optical communications terminal area, right, a lot of that is software-based. There's some hardware in there. But at the end of the day, we're a merciless supplier to a lot of fantastic companies that are doing the actual larger platform-based work, and they do it extremely well. We've got current large-scale hardware providers on our spectral team, right? So we build some antennas. They don't build them all. So we have their expertise. We're working below the deck plate on the ships, the surface ships for the United States Navy, and they work a lot of the topside work. So I don't think it's not a one versus the other, but I do strongly believe, as we've been stating, that we don't get to make that vote, right? The enemy gets to vote as well. And the vote the enemy's making is quick changes on their TTPs, their tactics and their procedures, which just because the nature of hardware and software, you can call it physical and digital, whatever those terms are, but the software side can be modified quickly and provided new updates globally in a very cost-efficient and very secure manner. So it's not that we all enjoy or we're willing to pick one over the other. We just believe because we're in the electronic warfare world where you meet the enemies first, okay? It's just that software is the only thing out there that can change. So if software is going to be there to change, and we need software engineers, 3,000, 4,000, 5,000, 6,000 of them that are trained in being able to move the customer towards an agile model, then that works. So at times we're going to be delivering software solutions over hardware ones, and other times we're going to be delivering software that are in concert with, right? No great software system can live out there alone without riding on somebody's platform if you're looking at DoD or some of the national Intel areas. So I think it's very... It's a very supportive ecosystem there, but customers are going to continue to pick software over the earlier ones. Nine out of ten times were actually convinced.

Great. That's very helpful. Just as a follow-up, just a little more detailed question. In terms of the difference this quarter between gross and net bookings, If you could address kind of what that difference was. It's obviously a little bit of a sensitive environment out there with regard to, you know, changes in bookings.

Yes. We had a good-sized program end in early January without using the full expected amount of the ceiling value that we had earlier anticipated. It was actually before the inauguration, so unrelated information. to kind of the current activities, but it's a program that ended sort of naturally, and it happens from time to time. This quarter is a little bit larger than usual, but that's the whole story.

Okay, very good. Thanks very much. Thanks, Sam.

Thank you.

Your next question comes from the line of Mariana Perez Morrow, Bank of America. Please go ahead.

Thank you so much. Good morning, everyone.

Morning.

So my question is about M&A. On this more uncertain environment, how strong is the pipeline of opportunities? Number one, are these like target companies willing to sell or they want to wait until they have a little bit of more clarity or where things are going? And the second one is, Has software and agility become more apparent for sound players that were not focusing on that over the last couple of years? Have you seen an increased appetite for beaters on those targets?

Sure. Mariana, on the first one around M&A, look, it's an important use of capital. But it's not the only one, and everybody out there knows that we make those decisions by evaluating the dynamics at any given time. Look, we always are continuing to pursue our preemptive M&A strategy. We continue to touch a number of those on our next up list. But I think you have to admit that valuations and expectations are not favorable on the seller's end. So actionability matters. Many of our target kind of list is going to be low. It's why we're very focused on flexible and opportunistic. I think we'll be there for some time.

Jeff? Yeah, John's just right. I won't recover a lot of the same ground, but I've talked before about the fact that we maintain a list and we stay in regular contact with a great number of people in a great number of places and situations. And it's certainly true that when you go through a period like we're in now where valuations are a little unclear, obviously sellers are, you know, disinclined to act in the absence of some other reason. And so generally you see just what we see and are expected to see, which is a slightly lower level of activity and interest in transacting. The other side of that is when things start to clarify, sometimes that volume will pick up. And so we remain sort of attentive and poised to take advantage of things as they present themselves. And both we and sellers have more clarity on what things are worth and where priorities may be manifesting themselves in actions.

And on the second item around software agility and its importance and, you know, who do we see in some of those different markets? I think when you look at a customer, we've had eight years of experience on this now. If a customer is going to move to a new world of moving into agile where they can spiral and continue to create new requirements and see capability deliver out to that field, and their hands are highly off of the actual software development. They're more on the actual order of requirements. That's a new world, and that requires customers to want to push that button that they've always been afraid to push. And when they push it, they want to do it with people who don't say they can do it, but they prove that you can do it. And the beauty of agile software development over the last eight years, we have almost a decade of metrics that show how quickly we can release these. And also, how can we prevent new errors from getting into the system because of changes by putting new capabilities in? That's not an easy thing. People talk about agile software development like it's a phrase. It's a whole ecosystem. It's millions and millions of dollars of CapEx investments. It's millions and millions of dollars of training software engineering folks to make certain that they can not only deliver, but they can also talk to the customers about how they would move them down there. So are there other folks submitting bids in these areas? Yes. Do we like our last eight-year win rate? Yes. So I think there's a large market out there for us to continue to grow in these types of programs. Every market always has competitors coming into it. There's probably 35,000 competitors delivered to DOD today. So I'm not sure that adding six or seven more really make that different. because I think the issue is around how can we get our customers more lethal and get upgrades to them in a more faster manner.

Operator, I think that's all the time we have.

There are no further questions at this time. With that, I will turn the call back to John Mingucci for final closing remarks.

Okay, well, thanks, Calvin, and thank you for all of your help on today's call. Before we go, I did want to just recognize Rob Spengar, who covered this company, many of us, within the sector for a number of decades, a fantastic analyst, always fair. He may not have always agreed, but he always had the investor view in mind. I just want to wish his family well. We would like to thank everyone who dialed in or listened to the webcast for their participation. We know that many of you will have follow-up questions, so Jeff McLaughlin, George Price, Jim Sullivan are going to be available after today's call. Please stay healthy and all my best to you and your families. Operators, this concludes our call. Everyone, thank you and have a great day.

Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask that you please connect your lines.