CACI International Inc

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fourth Quarter Fiscal Year 2025 earnings conference call. Today's call is being recorded. At this time, all lines are in a listen-only mode, and later we will announce the opportunity for questions and instructions will be given at that time. If you need any assistance during this call, please press star zero and someone will assist you. At this time, I would like to turn the conference call over to George Price, Senior Vice President of Investor Relations for CACI International. Please go ahead, sir.

Thanks, Amy, 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 two. There will be statements in this call that do not address historical facts 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 St. Barbara statement is included on this exhibit and should be incorporated as any 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 Munguchi, President and Chief Executive Officer of CACI International. John. Thanks, George, and good morning, everyone.

Thank you for joining us to discuss our fourth quarter and fiscal year 25 results, as well as our fiscal 26 guidance. With me this morning is Jeff McLaughlin, our Chief Financial Officer. Slide four, please. Before we begin, I'd like to take a moment to acknowledge the recent passing of our Chairman, Mike Daniels. Mike was an exceptional leader, mentor, and friend. His vision, experience, and dedication greatly enriched CACI and the broader technology, government, and corporate communities. Mike's unique perspective in governance was based on many valuable lessons and experiences throughout his renowned professional career, his critical government advisory roles, and his humble life story. He contributed greatly to the growth and success of many organizations, including CACI, where he was a steadfast supporter of our strategy. We extend our deepest condolences to Mike's family and are grateful for his invaluable contributions to our company. Slide five, please. CACI's strong fourth quarter performance closes out another great year and underscores the strength, differentiation, and resilience of our business. For the full year of fiscal 25, we delivered revenue growth of 16% on an underlying basis, EBITDA margin 11.2%, free cash flow of $442 million, and free cash flow per share growth of over 16%. We deployed capital to acquire three strategic assets while also repurchasing $150 million of shares. We won 10 billion of contract awards, representing a book to bill of 1.1 times. As we've discussed many times, we undertook a strategy years ago to become a more focused and differentiated company that was positioned to drive long-term growth and shareholder value in any environment. Our exceptional results demonstrate the successful execution of that strategy. Slide six, please. The market trends you're increasingly seeing and hearing about today, speed, efficiency, lethality, software-based capabilities, modernization, these are all the result of the rapidly evolving environment around us. Government budgets and procurement actions are adapting to reflect this reality, but we anticipated these changes years ago and invested ahead of need accordingly. We are a leader in the use of software and investing ahead of customer need to develop and deliver high-value capabilities faster, more efficiently, and with greater flexibility. We are strategically positioned in enduring and well-funded areas that align with our nation's most important national security priorities. That is why CACI is so resilient, so well-positioned, and already able to deliver in accordance with buying methods the government has only recently started to more formally implement. Among the many examples I could share, here are four. First, the electromagnetic spectrum is a critical domain for national security and modern warfare. CACI today delivers differentiated software-defined, commercially developed, and commercially sold technology to multiple customers who demand -in-class capabilities. Our investments ahead of customer need led to the development of the TLS ManPak, which integrates signals intelligence and electronic warfare collection, processing, exploitation, and effects into a single software-defined system for the dismounted soldier. It is one of the first successful rapid-fielding mid-tier acquisitions for the Army because of CACI's ability to rapidly prototype and deliver a cutting-edge solution in record time. The recent ceiling increase to 500 million supports the Army's decision to deploy our technology as the primary SIGINT EW system for all brigade combat teams. Additionally, the Army announced plans to enhance our TLS ManPak to field a vehicle-mounted option demonstrating the versatility of our technology. Second, our software-defined Convry UAS technology is addressing the increased demand for protection against drones. We were recently awarded a contract by the Canadian government to deliver Convry UAS vehicle-mounted systems, which follows a previous award from Canada for our backpackable Convry UAS systems last year. We're also seeing an increase in demand for our technology in support of U.S. border protection, and it's a key component of Build and Don't. Our technology leverages decades of experience and actual mission results delivered by our sensors and operation globally. In addition, the significant reconciliation funding associated with this critical administration priority will enable procurements looking for proven, ready-now technology that can defend across the electromagnetic spectrum with no or low collateral defeats. CACI checks every box and more to defeat all levels of potentially threatening UASs. Next, enterprise software modernization is another area where CACI is both well aligned to administration's priorities and where we have demonstrated clear industry leadership. Recently, the Army issued a memo highlighting the imperative for significant system consolidation across the service to enhance security, reduce costs, and improve efficiency, as well as request enterprise systems to be commercial-based with limited enhancement and integrations to other systems as required. Our initial Ips Army implementation consolidated 50 legacy systems into one modern commercial-based enterprise system. Our performance on Ips Army puts CACI in a strong position to consolidate an additional 40 systems that the Army has identified. And it also positions CACI as the partner of choice for other DoD and intelligence community customers as they execute similar modernization and consolidation initiatives. Finally, in fiscal 25, we also began executing our NASA NCAPS program where we are deploying a commercial agile scale delivery model to standardize and centralize software development across NASA, enhancing efficiency, quality, and speed of delivery, a key customer and administration priority. Since November, our NCAPS team has met all key metrics related to system availability and is currently supporting nearly 900 applications and platforms. These examples of how CACI's software-based capabilities, commercial tools and processes, and investment ahead of customer need are enabling critical national security priorities to be addressed faster and more efficiently to drive reduced customer costs and propel the growth of CACI. In other words, we are extremely well aligned to the environment we see today. We don't need to transform, we're already here. Slide seven, please. Turning to the macro environment, we continue to see healthy customer demand and a strong pipeline of opportunities in our markets. Demand is being driven by today's global geopolitical realities as well as the administration's priorities, including peace through strength, securing our borders, and an increasing use of software to enhance efficiency, speed, and lethality. As I've discussed, these are all areas where CACI continues to be extremely well positioned. And this positive customer demand is now supported by the reconciliation funding contained in the One Big Beautiful Bill Act. Which provides over 150 billion for defense, of which 25 billion is to fund Golden Dome, and also provides approximately 170 billion for border security. This is a favorable development for our business which generates 90% of its revenue from national security customers, solving the toughest challenges of the DOD, the intelligence community, and the Department of Homeland Security. Looking forward, we are closely monitoring the government fiscal year 26 budget process. Should the new year start with a CR, as most years do, we are comfortable operating in that environment and typically do not see a material impact to our business. So it can sometimes influence the quarter to quarter timing of shorter cycle revenue like our software defined technology. But as you know, we are focused on the long term, we continue to see significant opportunities across our large and growing addressable market. Slide eight, please. Looking ahead, our proven strategy, differentiation, execution, and resilience set the foundation for CACI to deliver another strong year. With that in mind, in fiscal 26, we expect revenue growth of nearly 8% at the midpoint, EBITDA margin in the mid 11% range, and free cash flow per share growth of over 60%. Jeff will provide additional details on our guidance shortly. Our 26 guidance reflects our continued business momentum, our robust pipeline, and the constructive macro environment, including passage of the reconciliation fund. It is consistent with the three year financial targets we discussed at our investor day last November, which we remain highly confident in achieving. And it is aligned with our objectives of driving long term growth and free cash flow per share and shareholder value. With that, I'll turn the call over to Jeff.

Thank you, John. Good morning, everyone. Please turn to slide nine. As John mentioned, we're very pleased with both our fourth quarter and fiscal year 25 performance. Not only does the continued strong performance underscore the deliberate positioning of the portfolio, it's also very much in line with what we communicated to you throughout the year. In the fourth quarter, we generated revenue of $2.3 billion, representing 13% year over year growth, with .3% of that being organic. Even thought margin was .5% in the quarter, slightly above our expectations and in line with last year. Fourth quarter adjusted diluted earnings per share of $8.40 were 27% higher than a year ago. Greater operating income, a lower tax provision, and a lower share count, more than offset higher interest expense. Notably, the effective tax rate in the quarter reflects a $28 million tax benefit resulting from the favorable resolution of an outstanding IRS R&D tax credit audit. This results in both a current period benefit for open tax years, but also gives us confidence to reduce our estimated tax liabilities prospectively. I would also note that even without this tax benefit, we exceeded consensus estimates for the quarter. Free cash flow of $139 million for the quarter represents strong profitability and reflects day sales outstanding or DSO of 56 days. As we've mentioned previously, Azure is currently a modest headwind to DSO due to the billing terms and milestones in legacy contracts. And it's currently impacting our DSO by about four days. We see an opportunity to lessen that impact over time as we migrate new business to our more standard terms. Slide 10, please. Turning to full year results, we delivered significant growth in revenue, EBITDA margin, and free cash flow, driven by strong customer demand for our differentiated technology and expertise and by the exceptional execution of our team. In fiscal year 25, we generated $8.6 billion of revenue representing just under 16% total growth and 10% organic growth, both on an underlying basis. You may recall that when we provided our initial FY25 guidance last year, we discussed a number of factors that could drive results toward the upper end of the range. Our outperformance of these factors, particularly in regard to the faster ramp up of our awards, stronger on contract growth, and successfully defending our recompete allowed us to finish the year well ahead of our initial expectations. EBITDA margin of .2% for the year was in line with our most recent guidance of low 11% range and represents an 80 basis point increase year over year. Fiscal 25 adjusted diluted earnings per share were $26.48, up 26% from the prior year, despite an increase of $54 million in interest expense, it was partially offset by lower tax provision. Delivering 26% year over year growth, despite this factor underscores our robust operating execution while positioning for future opportunities. Operating cashflow for fiscal 25 also reflects strong profitability in cash collections, driving free cashflow of $442 million, which represents a 16% increase in free cashflow per share. I'll note that we did not receive the $40 million tax refund related to prior year tax method changes, previously identified as a risk due to a delay associated with the extended negotiations on the IRS audit I mentioned. But I would point out that adjusting for the delayed refund, we delivered free cashflow ahead of our expectations. As is likely clear to you at this point, there are several moving pieces related to our tax position in both fiscal 25 results and fiscal 26 guidance. This is a result not only of the successful conclusion of our outstanding audit, but also the passage of the One Big Beautiful Bill Act. I'll note that we have included slide 16 in the appendix to provide greater specificity about the expense and cashflow impacts in both years to assist in your analysis. Slide 11, please. The healthy long-term cashflow characteristics of our business are modest leverage of 2.9 times net debt to trailing 12-month EBITDA, and our demonstrated access to capital provide us with significant optionality. During the year, not only did we complete three strategic acquisitions, we also opportunistically repurchased $150 million of shares at an average price of $344. We also took an important step in refreshing and diversifying our debt stack with a high-yield bond offering we executed during the quarter. CACI closed on a $1 billion offering of .38% senior unsecured notes and a transaction that was substantially oversubscribed, increasing our flexibility and underscoring our ready access to capital. We remain well-positioned to continue to deploy capital in a flexible and opportunistic manner to drive long-term growth in free cashflow per share and shareholder value. Slide 12, please. Now I'll provide some additional details on our fiscal year 26 guidance. We expect revenue between 9.2 billion and $9.4 billion, which represents growth between .6% and 8.9%. EBITDA margin is expected to be in the mid 11% range, representing a 30 basis point increase at the midpoint. Adjusted net income is expected to be between $605 million and $625 million, which translates into adjusted diluted earnings per share of between 2713 and 2803. We expect free cashflow of at least $710 million, which equates to free cashflow per share of $31.84 based on our full year diluted share count assumption of 22.3 million shares. This implies free cashflow per share growth of more than 60%. I'd also like to point out that our free cashflow guidance adjusted for the tax related cash benefits I mentioned earlier means that our expected FY26 free cashflow conversion is slightly above 100% of the adjusted net income midpoint. This implies accomplishing our goal of returning to a 100% free cashflow conversion rate by the end of our three year targets a year early. As we routinely say, we are focused on full year results rather than any particular quarter since a myriad of factors can skew quarterly trends. But to help you with your modeling, we provided additional details on the slide, including information regarding certain timing trends we expect in FY26. And finally, I'd point out that our guidance does not contemplate any acquisitions or share repurchases that might occur during the year. Slide 13, please. Turning to our forward indicators, our prospects continue to be strong. As John mentioned, fiscal year 25 awards were $10 billion with a healthy mix of new work and recompete. Our trailing 12 months book to bill ratio of 1.1 times reflects continued differentiation in the marketplace. And our backlog of more than $31 billion represents about three and a half years of annual revenue. The weighted average duration of awards that went into backlog in FY25 continues to exceed five years. Together, these metrics provide good visibility into the long-term strength and cash generation potential of our business. As we enter fiscal year 26, we expect approximately 84% of our revenue to come from existing programs, 11% from recompete and 5% from new business. We continue to have a healthy pipeline of new opportunities. We have $16 billion of bids under evaluation, 80% of which are for new business to see ACI. And we expect to submit another $11 billion in bids over the next two quarters, with about 75% of that for new business. In summary, we delivered strong fourth quarter and fiscal year 25 results during an uncertain environment, highlighting the resilience of our business and the effectiveness of our strategy. As we look to fiscal 26, we expect another year of strong performance. We are winning and executing high value enduring work that supports increased free cashflow per share, long-term growth and additional shareholder value. And with that, I'll turn the call back over to John. Thank you, Jeff. Let's go to slide 14,

please. In closing, I wanna emphasize that our strong performance is the result of intentional purposeful actions taken over many years through the successful implementation of our strategy. It's not by accident. A strategy we put in place years ago because we anticipated what we are seeing today. Our customers need to move faster and we're helping them do just that, the software-defined technology, investing ahead of needs and six decades of superior performance and mission insights. This is how we built CCI to be resilient. This is how we're able to deliver strong 25 results, issue robust fiscal 26 guidance, express confidence in achieving our three-year financial targets and continue to drive growth in free cashflow per share, issue of over value. As is always the case, our success is driven by our employees' talent, their innovation and their commitment. To everyone on the CCI team, I am proud of what you do each and every day for our company and for our nation. Thank you. And to our shareholders, I wanna thank you for your continued support of CCI. With that, Amy, let's open the call for questions.

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw a question, again, simply press star one. We do request for today's session that you please limit to one question and one followup. Again, star one to join the queue. We'll pause for just a moment to compile the Q&A roster. Your first call comes from the line of Scott Micus with Amelius Research. Your line is now open.

Morning, John and Jeff. Nice for you to be here. Nice for you to be here. Nice guidance. One of your peers this quarter mentioned they see a $70 billion pipeline over the next 12 months with about three quarters of that being takeaway work. And when I think of government services companies pursuing takeaway work, it kind of makes me nervous because to unseat the incumbent, you have to have a better solution or bid really aggressively on price. You highlighted a $16 billion pipeline of submitted bids and that 80% is for new business. But how much of that is new programs launched by your customers versus takeaways from an incumbent?

Yeah, Scott, thanks. I'll start on this one. I guess, first of all, I don't look at us here at CCI as being a traditional government services company. And that's why when I hear numbers of 80 billion or 90 billion, it's nothing that frightens us. It's nothing that we aspire to. Frankly, we've got over a $250 billion addressable market. We serve seven markets. We're very, very focused and we retool the entire company around understanding what is a value bid and what is not value bid. And the only way we deliver $1.6 billion of free cashflow over the next three years is that we're out there bidding things that matter in markets that matter, areas that we can differentiate in. We're gonna drive high single-digit top line growth and achieve mid to higher 11% margins. As for our pipeline, there is the majority of that would be new work to CA, CACI. And well over half of that is going to be new customer work as well. We are gonna talk about the level of the recompete we have, I think this year, I think Jeff shared, we're around 11% of this year's revenue plan at the midpoint. And we're very confident on that. I also would say that the recompete work that we have, because the government is going through a number of personnel reductions and the contract and offer service continue to shrink. We're looking at achieving additional follow on option year work with a customizable push rate. It competes down another one to two years. So, there's an awful lot there to unpack, but I would boil it back to absolute focus. Our pipeline supports the growth rates we have in our FY26 plan. And in our three year 25 through 27 plan. So, nothing in those comments give us pause.

I would add to that, we've talked to many of you about the fact that an important part of our strategy is the idea of bidding less and winning more. We are focused on areas where we can bring differentiated capabilities to a position to provide compelling value. And the size of the pipeline is important in as much as it supports our growth plans, but we're not on a path to sort of bid everything that we can get.

Okay, and then if I could ask a quick one on ITAS, there was news that the ceiling had been reduced, I think by about $770, but your book, the bill was really good. So, just wanna make sure there wasn't any sort of price reduction, no potential impact on margin booking rates or no B book backlog, any color on that?

Yeah, Scott, thanks. Look, ITAS is a 10 year program and the ceiling was reduced from 5.7 billion to $5 billion. It doesn't change a thing for this company. Our work is gonna continue on this program. We continue to execute it extremely well. You know, given the efficiencies that I have spoken about that we've already brought to this program, customers are most likely looking to bank those savings now and you also hear that as a positive thing. It's a ceiling reduction from an estimated cost of a 10 year program. But on a 10 year long program, the Air Force can always program additional ceiling during any of the next eight years of execution as requirements change, which in this world, they inevitably will change. I'd also like folks to recall that when we won the ITAS job, we announced it in January of 2023, we booked $2 billion of total contract value. We didn't book 5.7 billion. The remainder of the ceiling, $5 billion over our projection still allows us for additional 150% growth over the 10 year period if it's fully spent. So there's no backlog adjustments, there's no D-books, there's no impact to guidance, there's no reduction of revenue, there's no reduction in margin or any of our three year targets. So we have programs and task order cancellations where revenue is impacted from our current work and other moves that DOGE has driven, but that still stays at $1 million of reductions of revenue. So taking ceiling down has nothing to do with our growth rates that we have published in our outstanding fiscal year 26 plan that we're looking forward to achieving.

Yeah, I mean, you covered it. There is zero impact to anything.

Thank you. Your next question comes from the line of Colin Canfield with Cantor. Your line is now open.

Hey, good morning. Thank you for the question. Hey, good morning. The guidance out, well, it's probably like you're assuming VR in terms of the kind of mid part of the guide. So if we assume that the Senate moves quick like they are and we get a budget in place faster, is it fair to assume that you could hit the top end of that organic growth guidance? And then as we think about next year, what are the sort of milestones and timing of those milestones that you need to see to sign on for increased investor day growth targets? Thank you.

Okay, Colin, thanks. Let me cover our 26 guidance range. Look, we intentionally put out low end, high end guidance. And as we've discussed many, many times, we have quite a robust process, looking at how we would post this current guidance. But we strive to not be conservative and not be aggressive. We contemplate a multitude of different scenarios and we do try to account for many factors that can come up. And that's why we have this low end, high end. My first part of my answer to you is, I did the calculations last night. We actually have 92% of fiscal year 26 ahead of us. So, and we're already talking about bursting through the IED. If funding is slower and uneven and we have a full year CR, that mostly stakes us more towards the lower end. If the fiscal year 26 CR is shorter and the budget gets passed sooner and funding remains steady, then we can see us towards the higher end. Now, a multitude of things can come up and happen, as you all know, who followed us for an extremely long time. But we feel comfortable that we can support the current guidance that we have. At the end of the day, we're gonna focus on what we can control. But we're very confident in executing our strategy. We're gonna talk about Golden Dome and other things I would imagine. The only thing we don't have covered, frankly, is that the government shuts down for several months. But frankly, when the government shut down most recently, we had a negligible impact to our overall guide. Jeff, you wanna talk about the second part of that? Yeah,

I'd only comment that, as John described, there's 10 or so factors that go into the upper end of the range and a quicker budget and faster funding is certainly one of those. And we got a lot of, you know, we have a lot of the year ahead of us.

Got it. And then as we think about the implied margin progression to the investor-based targets, I think folks are probably assuming 10 to 20 BIPs a year of expansion onwards to that mid 11%. But obviously the Delta this year is probably more like 30-ish BIPs. So not to stretch out the whole history, but as we think about kind of the pathway of this company to mid-teens margins, how do we think about kind of the long-term potential there and where do you think about the levers between expertise and technology to get to those types of longer-term margins?

Yeah, let's unpack that a little. There's two or three questions I heard in there. The first one is I'd refer you to the guidance slide in the deck where we talk about the progression in the year. Over time, over the last several years, several of our more impactful customers and programs have fallen into a rhythm that gives us slightly attenuated margins in the first half of the year, and then they move up through the year. You'll notice though that the revenue is a little bit more evenly distributed, meaning of course then that you have lower margins in the first half, higher in the second. So we see in our current view of the year a very similar distribution to that. And you see a similar distribution in cash flow as well, where it's very back-end loaded. We have a disproportionate amount of our outflows in the early part of the year, compensation expense, prepaid expenses associated with certain programs, a number of things that just sort of structurally give us heavier second half cash flow. So I think, did I cover your whole question? Did I miss anything?

I think you're smart. You're probably gonna wait till later in the year to follow up on kind of the algorithm on longer term, mid-teens potential. But appreciate the color as always, and thank you for your question. Thanks, Colin. Thanks.

Thank you. Your next question comes from the line of Gavin Parsons with UBS. Your line is now open.

Thanks, guys. Good morning. Morning. Morning. John, I think you mentioned maybe fewer contracting officers. I was hoping you'd just talk a bit more about the award environment and if things are generally still moving more slowly than usual.

Yeah, Gavin, thanks. Look, we've talked about this the last couple of quarters. My comment was really around the fact that we've seen some modest impacts, but nothing major. We have talked about some award decisions that are taking a little bit longer. Jeff mentioned that things that used to take one to two days are taking three to four days around slower invoice payment and processing. But I'd also couch that with, remember that awards are lumpy in any environment. We're not a business that I like to say we don't live hand to mouth. We don't have to book an award by a certain day to batch flip 200 people to meet next quarter's revenue numbers. We know how to operate in this environment and we've seen it in the past. But as I mentioned earlier, I think as the procurement bandwidth gets a little tighter, we believe that could result in a few other outcomes. One being that the current work we have gets extended. So there's folks out there with an $80 billion pipeline that are looking for our work to come up and we're gonna recompete soon. I think the odds of that are more in us holding on to that work longer. And then second, what I talked about in my prepared remarks around systems consolidation, you can look at that as also being code for contract consolidation as well, right? If we're able to take 40 systems offline in the United States Army, one at the enterprise level, that's going to save them hundreds of millions of dollars. Two, it brings additional work in scope here, which would mean less contracts to keep those 40 or so systems up. So all in all, we're very much prepared for fiscal year 26 and should that workforce continue to shrink, I believe that we had that covered within our current current guidance.

Appreciate the color. And obviously, you pointed out it's lumpy, but given you had two quarters now of a record pipeline, any thoughts on what you could do for a book to bill for the year?

Well, we always strive to finish the year at something greater than one. I like what history tells us. And I'll actually sort of tag back to one of the earlier questions. We are very judicious before we talk to a customer, one or two or three years before they're looking to get a system online as to whether we're going to bid that job or not, do we have a differentiated solution? And then do we have the right business model, which is going to involve period point investments? And then the types of margins that we would expect for doing that type of work. So, I honestly believe that we're in the right place and we put so much time left of the RFP coming out that we have a pretty good idea as to how this work will unfold. So, I hate to be predictive, but my expectation of our entire team here is that we continue to grow backlog. And especially as Jeff's comments mentioned, 11% growth of funded backlog is really, really crucial for us to achieve in our 26 plan.

Thanks. Thank you. Your next question comes from the line of Peter Armint with Baird. Your line is down.

Yeah, thanks. Good morning, John, Jeff, George. Nice results. Hey, John, you've always talked to us about investing ahead of needs. Can you maybe give us a little update on what's going on in space, optical terminals? There's just been so much talk around Golden Dome and other areas with FDA and you guys have been investing there a lot. Maybe if you could just give us an update there, thanks. Yeah, thanks. Thanks, Peter. Look, we're having great success with the technology. As you mentioned, there's a lot of strong demand from across governments. Our technology is the most mature. We are, through the design and the producibility items, we've had to work through a supply chain and manufacturing issues that led to slower production that we would have anticipated, but it's not an underlying technology issue. We know we have -in-class terminals. We know we are US-designed, developed, and manufactured. We have a full US bill of material. So there's a lot of positive things there. We've also announced that we're on Tron 0, 1, and 2. We have a lot of terminals that are on Tron 3, but part of our overall photonics model is to really grow beyond that as well. You may have read that we were selected as one of the few vendors to move on to phase two for the Enterprise Space Terminal. This is an addressable market for up to three vendors where the customer's looking to spend about $200, $300 million per year, which also, to your reference, does not include any of the projected increase to United States Space Force in the constellations that they'll have to launch due to the Golden Dome Initiative. So I like what we're doing there. I like what we're doing at the LEO layer. And then we've got a lot of programs we're looking at beyond LEO as we continue to work with the Space Force. So I like where we are today. I would clearly wish that we are producing more terminals in volume, but we are moving up that curve well. And the investments that we're making in that part of our business are on track. We are now investing

less

and we are delivering more. Appreciate that, Colin. And then just as a quick follow on, we see some changes with some of the government-wide IP acquisition contracts, transitioning to individual agencies from to the GSA. Just any impact to you guys, I know that you're certainly more in the higher end of things in IT, and maybe that doesn't impact you, but just any call there would be helpful, thanks. Yeah, Peter, if you look at our large IT programs, things that are bringing on network modernization and better efficiencies, what would transfer to GSA are more on the catalog pricing IT services, but major Defense Department and Intelligence Community IT programs are going to stay exactly where those are. We're already delivering great efficiencies there. So there's a lot of language and there's a lot of nuanced reports. At the end of the day, our large enterprise IT programs are here to stay, and we spent a lot of time looking at different variations of that across the DOD and our Intel community. And we are delivering at a very high op tempo. We are delivering savings to customers in the United States Army, the United States Air Force, and other areas. So I don't see any impact, small to no impact to some of that press around IT going to GSA. Thanks, Peter.

Thank you. Thank you. Your next question comes from the line of Seth Seekman with JPMorgan. Your line is now open.

Okay, thanks very

much.

And good morning. Morning, Seth. Morning. First, wanted to ask just about the cadence of revenue and growth through the year. It looks like the organic growth will start out kind of low and then move to above the midpoint in the second half of the year. Are there particular items that you're looking at that will accelerate the organic growth in the second half?

No, I think you're connecting the dots, Seth, the right way. We continue to have accelerating growth on the major programs that we've been talking about, both technology and expertise. But Focus Fox, Beagle, ITAS are all continuing to ramp. And you'll see that in the condition that you identify and as Azure and Applied Insight anniversary here in the first half of the year also.

Okay, okay, excellent. And then maybe, John, you talked a little bit earlier about work with the Army and NC2, the NGC2 initiative that's underway. Do you see that as providing any specific opportunities for the companies or any risks?

Yeah, so if you're talking about the next generation C2 program, we have a number of programs across the United States Army. We've worked on command and control. We're still looking through what type of strategy we want there. It's gonna be highly competitive, so I'm probably not gonna share too much as to what our plans are there, but we expect it just like anything else across the Army, looking to do things faster, better, cheaper, and drive reuse. We are fully supportive of what the Army's doing there and I'm sure we'll have more to share as we move forward. Thanks for the question.

Thank you. Your next question comes from the line of David Charles with Barclays. Your line is now open.

Thanks, good morning. Morning. Good morning. John, the 20% or so of your business that's fed CIV, can you just remind us your exposure there and what you're seeing in terms of the budget outlook?

Yeah, thanks. So how we look at our business is, we look at it from DOD, Intel, and DHS, and that's about 90%. So the residual in the federal civilian area is 6%, with a full 1% coming from our NASA NCAPS program, and you all heard during my prepared remarks, teams doing an outstanding job, we're off to a very strong start. That leaves about 5% of our overall revenue within the federal civilian space, and that is very specific and very tight to the flag, whole work. There are background investigations, there's work we do with Department of Justice and the like. So it really doesn't leave us a lot to have to watch in the entire federal civilian space. That was an intentional strategic change that we embarked on in 2019, to really get our portfolio more driven towards defense and Intel, and slightly away from federal civilian. There's nothing wrong with the federal civilian work, but when we sat down and looked over the last 30 to 40 years of budgets, the Defense Department and folks who are engaged in national security, their budgets are unblemished by bipartisan support, and I can't say the same in the federal civilian area. I think you've seen a lot of the cost efficiency, those GSA actions, really hitting the federal civilian area hard, but as the CEO of a publicly traded company who moved away from that market a number of years back, really doesn't have any impact. So it doesn't really keep us up at night, the kind of changes that are happening in that part of our business.

Okay, that's great, Collin, thanks for that. And in terms of the cashflow outlook, when does the tax benefit that you're calling out, the 40 million, when do you expect that to hit in the year? And then the section 174 benefit, does that stay with you beyond fiscal 26, thanks?

It does, let me start first with the 40 million tax benefit refund. You ought to think about that in the second half of the year, I think probably our third quarter, but it could be the fourth, but certainly the second half. Administratively, at this point, all the issues are resolved. This is just now sort of working its way through the bureaucracy, but that takes a little bit of time, and there are a couple of wickets for a refund of that size, as you would imagine. For the second part of your question related to section 174, there is a continuing benefit. We identified 50 million this year, it's a similar amount next year, and then it starts to drop off a little bit. It's about 200 million, a little over $200 million in total. Many of you will be aware of the fact that there are a couple of options on ways to treat this. For us, relative to the effect it has on the deductibility of other expenses, in particular interest, this was the more advantageous way for us to treat it, but it's very much an artifact of each company's sort of personal tax situation. So others might very reasonably reach a conclusion that it makes sense to take it all at once. For us, looking across the whole tax strategy, it made sense to do it the way we're doing it. But you ought to think about 50 million this year, which we put in the guide, and it's essentially the same amount next year, and then it starts to step down a little bit over the next, it's suing three or so years.

Thank you. Your next question comes from the line of Jonathan Siegman with Stifle. Your line is now open.

Good morning, John, Jeff, and George. Thanks for taking my question.

Yeah, good morning,

John. You bet. Welcome. You bet, good morning.

So it's been a few months since the DOD's directive on software acquisition, which you highlighted really as a positive development during your last call. And now the Army consolidation demonstrates a specific action at one military branch, which you're clear today on as an opportunity for the company. So just wondering, is this potentially benefiting this year? Because the question we get a lot is just how meaningful is these changes that are occurring at the government and the timing of these things? And do you anticipate similar types of consolidation at other military branches? Thank you.

Yeah, John, thanks. Look, every time I hear the word software, it puts a smile on my face, frankly. Look, threats are changing continuously. And there's a lot of things that platform hardware can absolutely do. But we've been focused for a number of years, almost a decade now, on what software can do. And whether it's enterprise systems or it's mission systems, software has been very, very crucial to the growth model of this company. So I'm very much supportive of anything that the Army and other services do around software, software modernization and the like. Even our network business is all software defined. How do you bring devices on and off of networks? How do you collapse networks so they can handle unclassified and TS and secret and top secret data? That's all gonna be driven by software. We don't put new fiber in the ground. We actually find more creative ways to push protective bits and bytes over those strands of fiber or over space. So I think the drive will be to consolidate software in a more rapid manner. But I also tell you the other side, because there have been some announcements out there around consolidating contracts to be able to get enterprise level agreements and the like, I think there was some of that ink out in the press earlier this week. The purpose of those type of agreements are really to consolidate contracts to get volume discounts. So licensed products, we're not so much on the license side, John. We actually believe that we should be developing software to support the mission, not have the mission conform to the software that I'm actually trying to deliver. So anywhere where the government's looking to do more with less on the enterprise side, on the mission side, I think the government should continue to look for more software solutions. They are faster, they are better, they are cheaper, and they're also able to be modified and changed much more quickly and lethally as the threats change.

Thank you, good luck for the new year. Thank you.

Thank you, your next question comes from the line of Toby Sommer with Truist, your line is now open.

Thanks, I wanted to get your perspective on your pipeline and in backlog from, through a prism in which maybe you could characterize how much of it is new work to the market as opposed to new work to CACI only. And also the extent to which your initiative can move towards outcome-based pricing where you're sort of spearheading something is represented within both of those buckets, thank you.

Yeah, Toby, thanks, I'll try to provide some color at a macro level and I hate to guess on an open line call, but I'll at least give you some level of guidance. Look, new work or somebody else's work, right? That's come up a couple of times here. If CACI is bidding it, it is work that maybe someone else has and we believe we can do faster, better and cheaper and we've worked with that customer ahead of time while somebody else is supporting that customer to make sure that we're setting the table in a much more cost-effective manner and we're delivering much better solutions to that customer that may be being delivered to them today. Look, as we look at things as ConvUAS building out, we look at Golden Dome, we look at other things, that percentage of new, new work is gonna continue to decline. Do we track that internally? No, because to us, we're either bringing new, new solutions to a customer or we're bringing new solutions to our customer that's better than what they're currently struggling through today. So there's plenty of examples in the agile software development area where as customers take work they're doing with others and they want to modernize that and they wanna move to an agile software development model, yeah, that's gonna be work taken from others, but it's a brand new experience for our customer and those are both getting equal funding. So we're all about taking software and actually moving our customers forward, whether it's contractually brand new work that the customer thought of or it's concepts that we've worked them through by investing in customer need. Because every time we see a customer who's buying quote unquote the old way, we get to walk in there and show them the art of the possible. So the fact that comes out as new work to us, it's the same, having said that. And today it's probably Toby 60, 40, 70, 30 around new, new work and then the 30, 40% is on the quote unquote the old style takeaway work. But I think those terms, the fact that we're not a traditional government services company, we don't talk about direct labor and takeaways from others, this market has completely changed and if the market hasn't, we sure as hell have because we're out there looking at ways that we're closer to the mission side.

And that actually dovetails nicely into the second part of your question about outcome based because generally in the opportunities that John's referring to, we have an opportunity to work with a customer to design a successor program that fills a particular need in a different way, which lets us work through increasing the amount of outcome based content and focusing less on the traditional contracts as John described them. So those things actually kind of go together pretty nicely in our view.

Thank

you. Thank you. Your next question comes from the line of Louis DePalma with William Blair. Your line is now open.

John, Jeff and George, good morning.

Morning Louis, morning Louis.

John, you discussed how the army plans to deploy a mounted variant of TLS Manpack as opposed to the current dismounted version that's being fielded to the brigades. Is the mounted development and rollout included in the recent $400 million contract modification that you announced and should we be on the lookout for another upsizing beyond the current $500 million contract and related to this, how many vehicles is Manpack applicable for?

Okay, let me unpack that. Easy answer first, it is not part of the $500 million TLS Manpack program today. Just as the Canadians took delivery of a handheld solution last year as it pertains to counter UAS and now they're looking at a mobile variant, the army's doing that same as you look across the EW SIG and space. So this is based on a lot of the CCI commercial companies that we have and that we've purchased over the past number of years. It's software defined capabilities that needed to be there to grow as the U.S. military requirements evolve. So it's a $500 million program but actually started from a $1 million OTA and I'll relate back to Toby's question. If you really wanna talk about quick reaction, performance based, that OTA was a $1 million OTA within the time of a year. We put the prototype in place, took it out to the field, worked with the users, made all the software modifications and then began delivering that. So the TLS Manpack program is a standalone program. It is there purely to deliver Manpack solutions. Now the fact that we talk about that we're software based, this is a perfect real life example of why solutions that are software based can be moved to other areas. There are current providers today looking at how do they provide SIG and EW at the platform level. So think tanks, think Apaches, think every other mobile asset that a customer has. We've been doing ride along, invest ahead of customer need to show if I can put this software on a smaller form factor, I could probably put it in a rack mounted version or a single chassis version and have that sit inside of an Apache, sit inside of a tank, sit inside of any other moving vehicle there. And I have to tell you the minute that some of our early deliveries make it out to the field, everybody gets to the dismounted position by riding on something which is mounted. Okay, so it's a pretty simple step and repeat to where we're going. And that would be brand brand new work. So yes, we're all be on the lookout for something that may come along in 26, maybe it's in the next budget cycle, but that is definitely a drive to the United States Army today. And I would be remiss if I didn't say that it's other services will look at the same type of step and repeat.

Thank you. Thanks for your time. Operator,

I think we have time for one more question.

All right, great. Your final question comes from Mariana Perez-Mora with Bank of America. Your line is now open.

Morning, Mariana. Thank you so

much for squeezing

me

in.

Good morning. So my question is gonna be about, and I know it's probably too early, but your fiscal 27 outlook that you gave, well, like nine months ago. If I look at EBITDA margin, you are at the mid 11% a year earlier. You do have some tax benefits, both from like section 174, but also from these like new ongoing benefit that you're gonna have from like the taxes. And the revenue growth is quite in line or even like exceeding your expectations. If I do that math, free cash flow should be like, the cumulative free cash flow for the three years should be more like 1.8 versus the 1.6 break level that you gave us not so long ago. How are you thinking about that?

Yeah, I'll start and John may wanna put a finishing flourish on this, but first of all, I'd point out that we gave three-year targets. We didn't give FY27 specifically. It was a three-year number. And you correctly note that there are several positive developments that we weren't aware of when we developed the three-year targets. We are specifically not undertaking to update them. We're happy to talk about it, but you mentioned several points that are positive developments since we developed them. And you would reasonably expect them to improve for things like the section 174. So, we said that we're increasingly confident in our ability to deliver on the three-year targets and you're seeing some of that performance now. And I would encourage you to not infer from that that there's some slowing in 27. We feel increasingly good about the targets and expect to deliver them.

Hey, look, I'll also add, I think it's absolutely refreshing that on this call in 2025, we're talking about generating over a three-year period, $1.6 billion of free cash flow is not greater with high single digit top line growth and driving our margins to where they are today, if not higher. That has been the absolute focus of the leadership team in this company for a number of years, is to make certain we're getting involved in markets that matter, not only to our nation, but to our shareholders. And I could not be happier that we're sort of talking this 1.6, really 1.8, or is it two or is it 2.2. I put those three-year targets out there as a marker to make absolutely certain that as we continue to explain the fact that the government services company, the CACI was for the first 50 years, is not the kind of services company we are for the next 50 years. In fact, we talk about us, we can use mission tech, we can talk about defense tech, wherever you want to go with that, but all of that drives better solutions for this nation. And at the same time, because we invest ahead of customer need and the contracting vehicles are changing, OTAs, CSOs, FFP, that we believe and we are well positioned to do much more bottom line generating work. It gives us just outstanding free cash flow. And the optionality that comes with delivering more free cash flow is we return capital to our shareholders and we also return it to our customers in ways that invest ahead of customer need. So really appreciate that question.

Thank you. And one final question coming from the line of Sheila with Jefferies.

Your line is now open. We are one of the top three offensive cyber providers.

Yeah, operator, I think we're ready to, I don't hear anyone, I think we're ready to call.

Yes, that's the final question. So yes, I would like to turn the call back over to Mr. Manguchi, please go ahead.

Thanks, Amy, and thank you for your help on today's call. We'd like to thank everyone who dialed in to listen to the webcast for their participation. We know that many of you will have follow up questions. Jeff McLaughlin towards Price and Jim Sullivan are available after today's call. Stay healthy and all my best to you and your families. This concludes our call. Thank you and have a great day.

Thank you. That does conclude today's conference call. You may now disconnect.