CACI International Inc

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International First Quarter Fiscal Year 2026 Earnings Conference Call. Today's call is being recorded. At this time, all lines are in a listen-only mode. Later, we will announce the opportunity for questions and instructions will be given at that time. If you should need us during the call, please press star zero and someone will help 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, Tina, 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 fact and as such constitute forward-looking statements under current law. These statements reflect our views as of today and are subject to important factors that could cause our actual results to differ materially from anticipated. Those factors are listed at the bottom of last night's press release and are described in the company's SEC filings. Our safe harbor statement is included on this exhibit and should be incorporated as part of any transcript of this call. I would also like to point out that our presentation will include discussion of non-GAAP financial measures. These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Let's turn to slide three, please. To open our discussion this morning, here's John Mingucci, President and Chief Executive Officer of CECI International. John.

Thanks, Georgia. Good morning, everyone. Thank you for joining us to discuss our first quarter fiscal year 26 results. With me this morning is Jeff McLaughlin, our Chief Financial Officer. Slide four, please. CACI's strong first quarter results are a great start to our fiscal year 2026. We delivered free cash flow of $143 million, driven by revenue growth of 11%, an EBITDA margin of 11.7%. We also won $5 billion of contract awards, which represents a book-to-bill of 2.2 times for the quarter and 1.3 times on a trailing 12-month basis. Over half of our awards were for new business to CACI. We also continued our excellent track record of winning re-competes and securing sole source extensions. Our first quarter performance gives us increased confidence in achieving both our full-year guidance, which we are reaffirming, at our three-year financial targets. Jeff will provide additional details shortly. Slide five, please. Turning to the macro environment, the federal government continues limited operations under a shutdown. However, our business remains resilient given our national security focus with most of our work funded and deemed essential. Looking beyond the shutdown, we continue to see enduring needs, good demand signals from our customers, and prospects for a healthy funding environment for national security priorities. In addition, we are starting to see early indications of how reconciliation funds available to DOD and DHS may be used. For DHS, the focus is likely to include modernization and border security, which we expect will benefit programs like GIGL and drive demand for economy OAS technology. For DOD, in addition to areas we have previously discussed, We also expect reconciliation funds, including those for Golden Dome, will benefit some of our intelligence programs as we focus on left of launch situational awareness. Our ability to reaffirm our guidance and deliver on our commitments, even in the face of a government shutdown, demonstrates the resilience of our business and is a result of deliberate choices and investments we have made over many years. Our actions have positioned CACI for success in any environment, including this one. Slide six, please. Let me discuss some examples of awards, program performance, and investments that highlight our competitive differentiation in several areas. First, Encounter UAS, escalating drone threats and increasing incursions globally are driving strong demand for our capabilities, including from our international partners. In fact, during the first quarter, we received a follow-on order from the Canadian government for additional MANPAC software-defined counter UAS systems. This follows the initial order we received in fiscal 24, as well as an order for vehicle-mounted counter UAS systems we received from Canada last quarter. But the threat is no longer just abroad. It is here at home as well. And the administration has made it clear that the defense of the homeland is the top national security priority. That's why CACI has been investing ahead of need to develop Merlin, our latest counter UAS detected defeat system. Merlin's counter UAS capabilities are extremely differentiated and particularly well suited for defending the homeland for many reasons. It is based on technology that has been operationally proven across the globe for years, focused on real missions, real threats, and delivering real kills with non kinetic capabilities that include low to no collateral damage defeat modes with a detection range of up to 75 kilometers and providing industry-leading wireless capabilities that address counter-UAS threats utilizing cellular networks. Our MERLIN system has outperformed competitors in several government-sponsored demonstrations against a wide range of UAS systems utilizing our software-defined technology, tipping and cueing a third-party kinetic system to defeat a drone, and also integrated with ANVRL's LABS platform, which was recently selected as the Army's counter UAS fire control system. These results are what is driving strong customer interest both in the U.S. and abroad. A second area is counter space. Modernizing our nation's capabilities is crucial to address peer threats in the increasingly contested space domain. We are seeing increasing customer interest and demand for CACI's capabilities. This includes a $240 million award in the first quarter to sustain and modernize the Tactical Integrated Ground Suite, or TIGS, counter space program for the Army. Additionally, a few days after quarter end, we received an initial production order from the U.S. Space Force for a Remote Modular Terminal, or RMT. RMT is a broadband counter satellite electronic warfare system that leverages our existing counter UAS software to provide our customers with enhanced counter space capabilities. Both TIGS and RMT are great examples of how we can leverage our differentiated, software-defined technology and our strong past performance to help warfighters execute critical missions across the entire electromagnetic spectrum. Slide seven, please. Third is network modernization, a foundational dependency for many critical national security priorities. Without modernized networks, DoD priorities like NGC2 and JADC2 either won't be as effective or just won't be possible. Given this reality and the administration's focus on modernization across the government, we continue to see good demand and a strong pipeline of network modernization opportunities. For example, the Air Force recently awarded CECI task orders number two and number three on the Base Infrastructure Modernization Program, previously known as ITAS Wave 2. CECI will modernize networks for the U.S. Indo-Pacific Command and the U.S. Space Force, ensuring more efficient and more secure network operations. Together, these task orders represent approximately $400 million of awards this quarter. Additionally, we continue to execute our existing network modernization programs. On our SuperMod program, we received NSA authorization for use of our software-defined CSFC technology, allowing for the processing of classified data through our framework. This accelerates our ability to test and field devices on the network and positions us to make the network operational in 2026. The final area is digital application modernization. Our customers were seeking greater efficiency, effectiveness, and speed of delivery as they modernize software applications. CACI continues to lead the industry with our use of commercial Agile software development processes and DevSecOps. For example, our Beagle program for Customs and Border Protection is one of the largest Agile software development programs in the federal government. Our exceptional performance on this program recently yielded us our second one-year contract extension a strong indication of the value we deliver to CBP, and a further indication of how well positioned CACI is with our customer base. The combination of our leading agile development capabilities and strong past performance has enabled us to win the $1.6 billion JTMS award this quarter. The Joint Transportation Management System is Transcom's enterprise modernization initiative to unify end-to-end transportation and financial processes across the DoD on a commercial software platform. CACI will leverage our agile software development and AI capabilities combined with SAP's S4 HANA off-the-shelf commercial platform to significantly improve visibility, collaboration, and auditability for the command. It's yet another example of the federal government selecting CACI to modernize its scale to enable mission success while generating long-term value for the government and taxpayers. It is also important to note that as we continue to win in the marketplace, we also continue to invest ahead of customer need and our industry-leading Agile capabilities to ensure that CACI remains well positioned to win and execute these critical modernization initiatives. We are now expanding our use of AI tools to increase the speed, efficiency, and scalability of our Agile software development processes and continuing to innovate to stay at the forefront of utilizing commercial software development tools and processes to address critical national security priorities faster and more efficiently. These are just a few examples of the many successes we are seeing at CECI, thanks to our focus on critical national security priorities, software-defined technology, commitment to investing ahead of customer need, and unwavering focus on superior execution. With that, I'll turn the call over to Jeff. Thank you, John. Good morning, everyone. Please turn to slide eight.

As John mentioned, we're very pleased with our first quarter performance. The continued strong performance once again underscores the deliberate positioning of the portfolio and the differentiation of our business. In the first quarter, we generated revenue of nearly $2.3 billion, representing 11.2% year-over-year growth, of which 5.5% was organic. I'd also like to call your attention to the revenue by customer disclosure in our earnings release, where we're now breaking out revenue from intelligence community customers. This additional transparency aligns our revenue disclosure with the national security focus that is a foundational element of our strategy. EBITDA margin of 11.7% in the quarter represents a year over year increase of 120 basis points, driven primarily by strong program execution, timing of some higher margin software-defined technology deliveries, and overall mix. First quarter adjusted diluted earnings per share of $6.85 were 16% higher than a year ago. Greater operating income, along with a lower share count, more than offset higher interest expense and a higher income tax provision. Finally, free cash flow was $143 million for the quarter, driven by our strong profitability and increasing cash generation from working capital management. Day sales outstanding, or DSO, were 56 days. Slide nine, please. The healthy long-term cash flow characteristics of our business are modest leverage of 2.6 times net debt to trailing 12-month EBITDA, and our demonstrated access to capital continue to provide us with significant optionality. We remain well-positioned to continue 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're reaffirming our fiscal 26 guidance. We continue to expect revenue between $9.2 and $9.4 billion, EBITDA margin in the mid-11% range, adjusted net income between $605 and $625 million, and finally free cash flow of at least $710 million. One item I'll note is that our strong Q1 performance has helped us de-risk the EBITDA margin step-up from the first half to the second half that we discussed last quarter. To help with modeling, we expect EBITDA margin in the second quarter to be about 11%. Slide 11, please. Turning to forward indicators, all metrics provide good long-term visibility into the strength of our business. Our first quarter book to bill of 2.2 times and our trailing 12 months book to bill of 1.3 times reflect strong performance in the marketplace. The weighted average duration of our awards in Q1 was over six years. Our record backlog of $34 billion increased 4% from a year ago and represents nearly four years of annual revenue. And finally, our funded backlog grew nearly 26% year over year, some of which was likely driven by our customers preparing essential programs for the government shutdown. For fiscal year 26, we now expect more than 92% of our revenue to come from existing programs with less than 4% coming from re-competes and 4% from new business. Progress on these metrics, specifically on re-compete revenue, which was 11% just last quarter, reflects our successful business development and operational performance and yields increased confidence in our expectations for the year. In fact, I'd like to point out that in the past 10 years, this is the second highest amount of revenue from existing programs that we've had at this point in the year. In terms of our pipeline, we have $6 billion of bids under evaluation, around 80% of which are for new business to CACI. We expect to submit another $13 billion in bids over the next two quarters, with about 75% of that being for new business. In summary, we delivered outstanding first quarter results, de-risked fiscal year 26, and continued to demonstrate our differentiated position in the marketplace. We are winning and executing high-value, enduring work that supports long-term growth, increased free cash flow per share, and additional shareholder value. And with that, I'll turn the call back over to Jeff.

Thank you, Jeff. Let's go to slide 12, please. CCI delivers distinctive and differentiated expertise in technology to address our nation's critical national security priorities. We help customers address their biggest challenges and their most important priorities. We help them succeed in their missions, and because of that, our customers increasingly rely on us. We are the company that consistently gets the hardest things done, when our customers need it most. Because of this, our business continues to perform well when we continue to meet our financial commitments, even in this dynamic and somewhat uncertain near-term environment. The strength of our strategy, our differentiation, and our execution is borne out by our consistent performance. Our outstanding first quarter results represent a great start to fiscal year 26. We're successfully executing our strategy winning and ramping significant new work, capturing our re-competes, and driving additional on-contract growth from our large contract portfolio. As a result, we are pleased to reaffirm our fiscal 26 guidance, and we remain confident in achieving our three-year financial targets. We are well positioned in the right markets with the right capabilities. We are confident in our ability to drive long-term growth and free cash flow per share and shareholder value. As is always the case, our success is driven by our 25,000 employees who are ever vigilant in expanding the limits of national security. To everyone on the CACI team, I am proud of what you do each and every day for our company and our nation. And to our shareholders, I want to thank you for your continued support of CACI. With that, Tina, let's open the call for questions.

Thank you to ask a question simply press star one on your telephone keypad we do respectfully ask to limit your questions to one and one follow up our first question comes from the line. And filled with Cantor Fitzgerald please go ahead.

hey, thank you for the question good morning. morning perhaps we can shed some light on early expectations for the fyi 27 request, I think we have kind of two camps forming up. In terms of buy-side sentiment, one being that the step down from kind of reconciliation plus base implies or even implies a step down year on year. And then another camp is that it's pretty insane to think that Congress would kind of imply a cut on defense budgets into a rising national security environment. So if you can shed some light on kind of, you know, where you expect kind of high level budgets to go.

Yeah, Colin, thanks. That's a meaty first question. Look, we're very, very focused strategically on critical national security priorities. And we've always talked about those priorities have deep and enduring funding streams, and we have great bipartisan support. That bipartisan support is why we re-vectored this portfolio over the last decade to be 90% focused on national security. But we've also said before that we're really focused on the top line budget, budget growing. But at the end of the day, we're a $9.3 billion company in a $280 billion total addressable market. So we look at that telling us we have plenty of room to grow. And then where's the money going? So if you look across the areas like electromagnetic spectrum, software defined, tech, space, county OAS, border security. That's where current budget dollars and reconciliation dollars go. So I think we're in the right spot. We continue to have a great book to build, Greater Than One. And our software-defined tech continues to deliver growth for us. So, you know, there's a lot of what-ifs as we get into 26 and into 27. But the fact is, you know, we're winning a lot of long-term business that really draws across a number of year budgets. So with the level of backlog we have with the duration of contracts, we just put in the backlog of right around six years. It does allow our company to endure and allows us to continue to grow regardless of what some of those top line numbers are.

Got it. Thank you for the call. And then in terms of like cyber electronic warfare contracts, I think investors have traditionally been conditioned to kind of large multi-year vehicles, but it seems like contracting officers are taking a more agile approach. So maybe if you can kind of talk about how you expect those contracts to be awarded, as well as kind of the level of agility that it's rewarding within folks like yourselves, Epirus, Air Environment, folks that kind of have commercially developed solutions in that domain. Thanks.

Yeah, thanks. So look, I think it's safe to say that the U.S. government has been buying capabilities in very different ways as of late. You know, it was about three years back we started to hear about OTAs. It's within the last year we heard about how advantageous it is to be a commercial company. And look, we've doubled the amount of OTA work that we've done in the last two years from the last five. We're a company that is both CAASPP compliant, which means we have a rates-based business like traditional government vendors, but we also have a portion of our business that's truly commercial, as commercial accounting and commercial practices. So that sort of lays that groundwork that should tell everybody that CCI is a unique company within our space, and that we're very well positioned to address how the government buys. Most of our software-defined technology work has actually been purchased over the last few years in a very different manner. So it is true that some of our technology is funded by large multi-year programs, but it's also more the norm that we receive our awards on purchase orders in a very commercial-like manner. You can now buy from CCI just about anything across the electromagnetic spectrum whether it's SIGINT or it's EW, and it allows us to provide an item number, a part number, and a price. And so we're very used to supporting those types of ordering vehicles. At the end of the day, it's also what moves our financials around, right? I mean, if we're sitting here getting purchase orders that come in in quarter, quarter one, And we turn that around in the first quarter. That's going to move our financials around. So, true that the government's buying different. Love the fact that the government's buying different. Love the fact that we saw that coming seven to eight years back. We positioned this company very well. And then I'll sort of end, Colin, with... TLS MANPAC is a perfect example. That went from an OTA to a program of record where that customer continues to buy 250, 300, 500 units. So better for us to put a program in place and then allow our customer to buy an amount that supports their budgets.

Got it. Appreciate you, Colin. Thank you. Thanks, Colin.

And your next question comes from the line of Scott, mic us with Milius Research. Please go ahead.

Morning, John and Jeff. Very nice results. Morning. John, CACI was ahead of the game when it came to investing in counter UAS solutions, but we've seen in Ukraine both sides are using fiber optic cables to prevent their drones from being jammed. So how are you thinking about that challenge when it comes to developing more counter UAS offerings? Is it an opportunity for you? I wanted to get your thoughts on that.

Yeah, thanks a lot, Scott. Look, I want to sort of step back on this whole counter UAS story. I guess first of all, we've been doing it for a really long time, a couple of decades. And I've covered a lot of the basis of some of my prepared remarks with the creation of Merlin that frankly allows us to quickly bring different phenomenology in so we can better find drones. The drone threat is really unique in some ways, but very much the same in other ways. You know, time is going to be the differentiator for this threat. Most other solutions that are out there look at simple drones within a one to three kilometer range. Merlin and other of our systems detect out to 75 kilometers away. And what that does is it gives the operator time. So in some instances, up to 15 minutes of time. versus about eight seconds of time by those who were looking at group one or maybe group two drones within a one to three kilometer space. We're already in the U.S. government inventory. We're already boosting that scale, already battle hardened with hundreds of confirmed kills. So it's true that there are drones that are trailing fiber. There are drones that are operating in the cellular infrastructure. So if you look at what the homeland a fight is going to be. We may have drones from people who are not our friends flying their drones on our networks. So at the end of the day, I think we have an outstanding solution. I know we have an outstanding solution. But I'm also going to end with, you know, to most companies, counter UAS is like the new AI, right? Everybody does it now that it's popular. And the difference between the AI stock pop hype and the counter UIS stock pop hype is if you have a counter UIS solution, you say it does and it does so much and it doesn't, at the end of the day, somebody dies. If you've only deployed your kit at demos around the AUSA floor, it's very telling. We've been on this market for a couple of decades with a great installed base. hundreds of systems, thousands of sensors. I would expect this threat to continually change, and that's why our solutions are software-based. That's why our Merlin system brings different phenomenology in. So we're able to more than adequately not only defend this nation, but other nations out there.

Thanks. Okay, and then I have one for Jeff. I mean, Jeff, what really surprised me was your Fed civilian agency sales were up 17% year over year. So just wondering if you could maybe parse it out between organic versus inorganic and then perhaps what was DHS up versus non DHS?

Yeah, so about 10 points of that percentage basis of content is DHS. So the growth there Scott is in DHS and it's in the ramping on NASA end caps, which is which is ramping up nicely and you know, moving with our plan. It's really all organic. I don't think there's no inorganic in there. Because I think about Azure and Applied Insight, none of those are going to be offensive.

All right, thank you. Great.

Our next question comes from the line of Gavin Carson with UBS. Please go ahead.

Thank you. Morning.

Morning, Gavin. Hi, Gavin. John, I know you always remind us bookings are super lumpy, but obviously a pretty strong booking quarter here. So I guess the two-part question, the submitted pipeline is down, but obviously the back of those strong bookings. So first part of the question, does the simple math imply a very strong win rate on that conversion? And then second question, should we expect bookings to maybe take a breather over the next few quarters given the submitted pipeline is down a bit? Yes, and potentially.

Look, I'm actually quite happy that the transparent information that we share is exactly what should lead to questions like this. Look, we really pride ourselves in giving you all the information we have as we run this company. We do our best to talk about bids that are going to be awarded at some time. We look at... what our pipeline of submittals are, and we talk about what we end up winning. So, yeah, there's going to be different movement of numbers out there. Very proud of our first quarter end rate. Of course, you know, I look at where we are at the end of the year, but winning $5 billion in the first quarter, which is half of the total we won last year, it really does position us well.

I think you also have to look, Gavin, at the whole data set because we obviously had a really good awards quarter. You would expect that to probably result in a dip in the awaiting decisions number, but you also have to look at the expected to submit piece, which is up. So, you know, the adequacy of the pipeline is really a little bit like a balloon. I mean, any one time One piece of it may dip down and another piece, you know, dips up. I mean, that's inherent in the lumpiness, right?

And I think your second question was around with everything going on, how could it potentially impact second quarter? Look, I think it's unrealistic to believe that the pace of awards, given we're in a shutdown mode, is going to continue to the level that we have. What that number ends up being is whatever that number ends up being, and I'm sure we'll talk about what the book-to-bill was at the end of the second quarter. I'm more excited about what the book-to-bill is at the end of the year, and even more excited by having a trailing 12-month book-to-bill of 1.3 times. So we put a lot of awards in our $34 billion backlog. Funded backlog is up 26%. I think it really bodes well regardless of what gets thrown at us.

Great. Thank you. Definitely appreciate the transparency. Thanks Kevin.

Our next question comes from the line of Seth Simon with JP Morgan. Please go ahead.

To the government shutdown, it appears some awards, especially funded or accelerated ahead of the shutdown. So should that mitigate some of the near term impact? And is there some sort of length of the shutdown that presents a risk to guidance?

Yeah, certainly um certainly it leaves us better positioned um i think it's important in the sense that it leaves us better positioned in terms of programs being funded obviously but i think it also is sort of an expression of confidence and support by customers to position us to have minimal disruption from this uh so that you know certainly that's true you know one of the reasons that we affirmed our guidance despite the fact that you can kind of see some growing momentum in the business, is our approach to the guidance, which we've talked about with you before, and this left goalpost, right goalpost approach really encompasses sort of a range of outcomes. And we really, at this point, don't see a reasonable outcome that isn't encompassed in the guidance range we've given you. Not only is there minimal disruption, the nature of much of the work is that we would expect to make it up within the year, and we really don't see it as being a disruptive factor. I don't know, John, I'm sorry.

Yeah, Seth, I'd also just add to Jeff's comments. Given our significant intentional exposure to national security work, and as Jeff said, the level of technology work and the large level of funding backlog, uh you know in fact a lot of our work is essential and that which is not there says that we're able to uh make that work work up you may not see that null any q2 impact in quarter two so you'll definitely see that that uh null any short short-term impact over the full the full year because we have the full year to make that um those times up so i think we're in a really good position you know clearly if it continues to linger for months and months i think jeff already covered covered that it's it's it's well well covered within our uh guidance that we have out there today great and then how is the hiring environment look of the last few months and do shutdowns tend to impact the like full of applicants whether there's more people coming from say like a federal agency that are applying or people are kind of scared off from the industry yeah rocco look we're uh we're actually seeing um applicant value or volume, sorry, at an all time high. Believe it or not, we had a half a million applicants in fiscal year 2025. And we have quite a large number of folks applying for jobs today. It does help that we're more a technology company. You know, if we were purely a, you know, pure play government services company, when you see shutdowns that go on for 15, 20, 25, 30, 30 days, that gives folks pause if they want to go do national security work on the expertise side. But, you know, we've got we're still running 40 percent of our hires are coming from referrals. We've got about, we have well over 300 person intern program that will be kicking off here shortly. So, you know, we haven't seen any slowdown in number of applicants, and we sure haven't stopped hiring given the level of wins we had in the first quarter. Great. Thanks, guys.

Yep. And our next question comes in line of Toby Summer with Truist Securities.

Hi, Henry on for Toby here. Thanks for taking the time. Maybe just to start, go back to counter UAS for a second, but I'm just curious if you could, you know, roughly quantify the full opportunity set for that space over the next, you know, 12 months, let's say, and how much of that could be related to Golden Dome on the non-ethnic CEUAS side? Thanks.

Yeah, Henry, thanks. Look, you know, I think that the government, given the different funding buckets, is still sorting through that. I'm not going to give you a direct answer on amount of counter UAS sales we expect in the next 12 months. But I will share that our portfolio of VW technologies, it includes Conner UAS, it includes a number of systems. Because if you remember, the hardware form factor is different for us, but the software baseline is the same. Okay, so as we build systems, whether they're man-packed, whether they're handheld, whether they're mobile, whether they're fixed, The beauty, not by accident, of our solution is that software-based allows us to continually modify these with a common software baseline. Our portfolio, VW Technology, generates about $2 billion of revenue. each and every where we expect with newer requirements and counter UAS that will experience continued growth. Some of that growth you'll see on a quarterly basis when we talk about where our technology portfolio is growing in relationship to our expertise one. But administration priorities are very much focused on defense of the homeland, border security, world events, use of drones in modern warfare, European and allies are all up. And, you know, we're going to have additional funding through reconciliation. You know, some of that growth is planned in our current FY26 plan. And we gave you a low and a high end to our guidance range. We are very well positioned for other upcoming continuous opportunities, which do include Golden Dome.

I appreciate the color there. And maybe just to follow up, you know, the contract awarded in this past quarter, how much, if any of those were due to reconciliation bill funding at this point? And I've got a question looking ahead, you know, is reconciliation bill funding kind of one of the key difference makers that you're seeing in terms of funding priorities, you know, as the shutdown moves along that differentiates you all from competitors? Thank you.

Yeah, I'll try to take the last question. here as well. The Golden Dome funding and the reconciliation funding, we haven't seen that begin to be spent. So that sort of gives us a backstop to what we're going through and we're experiencing now, perhaps. Yeah, that's right.

We're seeing it in a planning sense. We're starting to see opportunities meetings about developing alternatives, things like that. So we're starting to be able to see a little bit of where it's going to land, we believe. And of course, the heavy DHS content, along with the portions of the DOD reconciliation funding that are focused on the areas that are in our sweet spot, give us some confidence about that. But none of the performance in the first quarter or the funded backlog that we talked about, we'd identify directly to reconciliation funding.

Thanks, Allie.

Our next question comes from the line of John Siegmund with Staple. Please go ahead.

The margins were really impressive. especially in the context of your earlier outlook of lower margins to start the year. The incremental sales year over year were all technology, which implies the incremental margin year over year was over 20%. Can you comment a bit about the mix or any one-time benefits this quarter? It suggests the margins and technology maybe are trending higher than at least we were modeling. Thank you.

Yeah, thank you. John, yeah, I mean, I'm not going to quibble with your math. The technology margins were strong in the quarter. I would remind you that the segment is not monolithic. There are pieces of the technology portfolio that have margins north of what you mentioned, and there obviously are some that are obviously less. So when we talk about mix, it's both mix of technology and expertise, but it's also mixed within the technology segment sector. So I would also note that it did not change our view of the year. So I would encourage you to think about that as sort of de-risking what you see, what you've seen historically is our customary first half, second half margin step up we now see that increase in the second half as being a little smaller than it has been in some recent years. But you've done the math the right way.

That's great. And maybe just to follow up on what John said about loving the fact the government is buying differently, is it more the impact of these changes the more customers are embracing some of these more progressive ways to buy software and add the software, or is it the same customers just buying more? Thank you very much.

It's a little bit of both. John will want to add to this, but certainly there's been a tremendous increase in OTAs, both in their use by people that have been using them, but also customers that haven't used them before. I think also I would go back and underscore the answer to one of the first or second questions where John talked about the fact that we really are positioned deliberately by design to be able to sell commercially, to be able to sell in a traditional far cast disclosed environment. I mean, we literally, there is no way that customers buy that we don't sell. So I think that can't be overemphasized.

Yeah, John, I'll also add. Look, what customers want is FAR Part 12, FAR Part 15. They want to be able to use those when they believe that one of those supports their needs over the other. The days of large development programs where you write your requirements in 2025 and you get your first taste of the system in 2035 are not going to support how fast the threats are moving. So as Jeff mentioned, about a decade ago, we positioned this company to be very agile in both, right? So, and it's why when we invest ahead of customer need, what the government's asking everybody to do is, hey, how about invest ahead of need more on your dollar than on ours, okay? Explain to us how that fits into part of our solve, and then allow us to buy that, as I answered earlier, from a commercial price sheet that says if you want a mobile kind of UAS system or a handheld EW gadget, then give me the part number and let me start buying that. Our software... wrapper around these things is that when you buy that you're going to find different uses for it so there should be a quick upgrade path either from a look from a licensing yearly fee that gets that customer additional upgrades and updates to it again at the end of the day i've been saying this for a decade this is not the old way where if you want a new capability buy the new device So you're continuously throwing devices away. So they're looking for agility. And what they're saying is they want to be able to buy the way commercial companies buy and not be locked to long-term development contracts. And as Jeff said, we can support either and both and, you know, any other ways. Thanks, John.

Thank you.

Our next question comes from the line of Guadalcanal with Katie Cohen. Please go ahead.

Great results, guys.

Thank you.

I wanted to ask two questions to follow up on some earlier ones. First, has there been any impact to the business from the shutdown with respect to either revenue, cash, or, you know, unusually soft awards in the first month of the quarter? And then I have a follow-up.

Yeah, I can start with some of that. Joan will want to add to this, I'm certain. You know there's been a slight amount of of cash collections disruption that's primarily related to staff that's available for invoice approval and things like that so we're feeling a little bit of administrative. You know sluggishness i'll call it related to that. it's not it's not tremendous you know it's it's. collections may be 10 or 15% off, but it's small but noticeable. And similarly, I would say in terms of revenue, we have pockets of places where we have attenuated levels of activity. It's really de minimis. I'm going to say it's kind of single digit millions. Revenue, it's activities that we expect to recover during the year, so it doesn't really affect our view of the year. But yeah, it's detectable, but small and manageable.

Okay. And just wanted to ask, given the environment may be tougher for some of the, quote, peers in the space, relative to khaki, have you seen any intensifying price competition, you know, maybe talk about the bids that you didn't prevail on. Is that typically a price shootout or anything you've changed that you've seen in terms of competitor behavior, if any?

Yeah, go on. Thanks, John. I can't answer for everybody else out there. I can tell you that if we've ever lost on price, it's not because we're on a price shootout because we gave up that part of the the ecosystem about seven to eight years back. But I would imagine, you know, people are going to do whatever they need to do to continue to win business. I mean, we've seen a little uptick in the number of protests which are out there. You know, that to me, being in this marketplace for a few decades is usually that early sign is, you know, if you win, you win. If you don't, you protest. So I think we'll continue to watch the level of protests which are out there. But for us, I haven't seen pricing be an issue. We believe that we are fairly priced and where we invest ahead of customer need, where we've gone out on risk to spend the company's money to help uh defend this nation in a better better manner we would expect to see higher margins and thus thus far that um that plan and uh that mode of running this business uh has served us very very well thanks thank you next question comes from the line of connor walters with jeffries please go ahead good morning guys congrats on a great start to the year thanks for taking my question

Maybe just to start, it seems like the unchanged top line growth of 7% to 9% is stronger organic and perhaps around $40 million in lower acquired revenue. So curious first if I'm reading that correctly, but also if you could provide an update on the acquisition integration process.

Yeah, the acquisitions of Azure and AI are largely complete. And in fact, We're finding what we've always found, which is when it's done well, it's increasingly difficult to tell them apart. You know, there is some Azure timing. John may want to comment some more on this related to some of the activities between the Azure legacy programs and spectral. But but the the they're very definitely meeting expectations and We remain convinced of their strategic and financial value. They're terrific fits, both of them.

I don't have anything else to add. That's good, Jeff. Thanks. Perfect. That's helpful. And then maybe just want to follow up. You guys discussed the upside you're seeing from reconciliation funding for Golden Dome. You mentioned the EW potential there.

curious on the other areas you would call out as considerable opportunities in your portfolio tied to that and then how you're thinking about you know the bid process and timeline now that you're starting to see that money actually being spent yeah um talk a little bit about golden golden dome uh you know out in the public uh dome domain you're going to hear a lot about sensors and effectors and command and command and control um you know but it's not just a ballistic well so you know we're making it very clear that the Golden Dome concept is going to be completely reliant on early indications and warnings meaning as I mentioned earlier no knowing far in advance when a threat is imminent and then given folks who have to defend against those you know minutes and hours of time we've actually coined that as left of launch it's sort of our to the entire Golden Dome effort. There has not been money spent on this yet. General Gutlein is taking our responses. We've submitted our credentials on a few related proposals, but we're really looking at taking all of our sensitive activities work and all of our worldwide set of embedded sensors, which are in the thousands, to give a common operating picture And from there, let's go work on that non-kinetic low collateral defeat of those threats. Because clearly, taking a hypersonic missile and using that to knock down a drone or other missiles over the continental U.S. has a high collateral issue. So we're looking at non-kinetic low ones. So we would expect funding to begin to ramp up. I think we'll know better as we get to the end of the second quarter, early third. um and uh we're very excited uh to be looking at that 150 billion dollars digital spend you know purely focused on defending this um country that's perfect thanks so much guys yeah thank you yeah our next question comes from the line of louis de palma with william blair please go ahead

Louis, are you there?

Yes. Can you hear me? We hear you now. Good morning. Good morning. Following the positive TLS MANPAC developments, is CACI also well positioned for the U.S. Army's modular mission payload plan for small drones with your spectral SID and kickflip? Related to this, how does the modular mission payload differ from how the Army is currently using spectral sieve on Puma or C-100 drones? Thanks.

Yeah, Louie, thanks. So, look, our entire – I shouldn't say our entire – a large portion of our EW portfolio really is modular mission payloads, right, and for the rest of the audience. That's really taking common software – capabilities and putting that on different form factors. It could be looking for wireless signals. It could be looking for land-based signals. It could be looking at missile signals. There's a plethora of RF out there around the globe. The program that Louie mentions is we already deliver a number of modular mission payloads to county OAS vendors, folks who build drones, and they're looking for an overall package. You know, they have a drone that's size X that can carry weight. Why? What kind of features do we have? What type of devices can we put into those unmanned systems? So we have delivered those. We have delivered to the Puma and a number of other ones, either directly to United States Army and other DOD agencies, or we've gone directly to a drone builder. So I believe that market will only continue to grow. It's the reason why we got into this market a number of years back. It's the reason why we've for either under a FAR part 12 or FAR part 15 and allows not only the US government, but OEMs of drones and the like to easily be able to buy our systems and have them ready and also allow us to modify those as the threat changes. So that's what we've been up to.

Thanks. And how has the Navy spectral program been progressing?

Navy Spectra program is going very well. Jeff talked about Azure. You know, Azure has the precursor program. We worked very closely with the Navy to make certain that we could time some of the Azure deliveries in a manner that then support the Spectra delivery. So on the Azure front, You know, there were some deliveries that have been pushed out so that can be more closely integrated with the Spectral ones. The next phase for Spectral is a January, February timeframe where that program will get through its milestone C, and that will freeze the design. We'll be able to begin deliveries, as we've always mentioned, during calendar year 2026. Thanks, Louie. All right.

Thanks, everyone.

Hey, our next question comes from the line of Jan Engelbert with Baird. Please go ahead.

Good morning, John, Jeff, and George. Congrats on a strong set of results. I wanted to talk a little bit about just the international opportunity. I think it's not something that you maybe highlight a lot, but just given where NATO budgets are going, you know, we know about the 3.5% of GDP, and then there's the additional 1.5% bonus on top of that. Just sort of, there's clearly capability gaps, you know, in the EU and in Europe and NATO as a whole. And is there anything you can highlight where maybe areas you guys are targeting in the next couple of years?

Yeah. Thanks. Look, I've said many times that the world is a dangerous, dangerous place. And I think that the Ukraine was a real wake up call. It definitely raised the urgency level around defense and national security globally. And I would say mostly in the electronic warfare area. It weren't in the market, not by accident, but by a very, very, very solid planning. So as you mentioned, there's many allies are going to be expanding their defense budgets. We deliver technology to a number of five countries today. And I've been on this slow reveal of what we're doing in the international front. solely because we want to be very cautious and very, very careful. You can spend a lot of money on the international front very, very quickly. Since we last talked, we've expanded our sales to 15 NATO countries, and we continue to assess the manned signal in seven other countries, Eastern Europe. Allies are increasingly interested in our SIG and our EW and our cadre UAS tech. I will tell you that our initial focus was on technologies with existing U.S. government and DOD sales following the FMS path. The number of countries that we have added have now gone to direct commercial sales. And I'm only tempering that, I should say, I'm tempering that only by the fact that It's true a lot of European nations are going to be spending far more money, but those same European nations are going to look to spend that money within their borders. So our next step is to understand what relationships do we need So we either license or we co-produce some of our tech here and then add the applicable software baseline to those products. So still a long way to go there, but it's a market that, you know, over the last 90 days since we've last spoken, it has truly opened up to us.

Well, thanks, John. Let me take a quick follow-up. If you could just comment on, you know, the slide deck talks about the M&A pipeline expanding. Just any areas that you think that would sort of be a niche capability that you could fill? Just any comments on M&A, just on the environment?

Yeah, Jan Frans, as you know, we've talked many times before and there's no departure from this. Our process and approach is very much gap driven. The opportunities that we see in the pipeline are generally a little bit more technology than they are expertise. a little bit more focused on sensors as well as, not surprisingly, software applications that go around those sensors and things that kind of fit nicely into our sweet spot. So we are seeing a little bit of life in the pipeline, and we look forward to developing a few of these ideas, very early stage at this point. You know we'll it's an active area of interest for us.

Thanks for taking the question. Operator, we have a time for one more question.

Yes, our final question comes from the line of Noah Popinac with Goldman Sachs. Please go ahead.

No, are you there?

Noah, your line is open.

Hey, can you hear me now?

Yes, we can, Noah. Thanks.

Got to check the headset. John, you spoke about or you alluded to kind of everyone at AUSA having counter UAS. And it was like if you did 15 meetings, you know, 12 had it and 10 led with it, which is pretty unusual. Is the funding coming down the pipeline that fast? significant and can it move the needle for companies much larger than yours? And I know that you didn't want to quantify the forward on that, but can you give us the baseline of how much of the current revenue base is counter-drawn?

Yeah, I'm going to stick with about $2 billion of our entire portfolio is in the W place which does include counter counter drone, and we deliver it to both DoD and the intelligence community and as I shared a large number of NATO countries. I think it's a burgeoning market. I think you have to look at two different streams of funding, Noah. One is the $150 billion on Golden Dome, some portion of that, and I would tell you it's multiples of billions that will be spent on a layered defense that's going to have to defend against unmanned systems. And frankly, uncrewed systems are a very different beast. Traditional radar is not going to find that. It's going to look like a bird. So it takes new technology. And then on top of that, we're not in a wartime in somebody else's zone where the U.S. is assisting. We'll be defending this nation. We're also going to have events like the World Cup. We're going to have the Olympics. We're going to have so many more things. And that threat vector, Noah, is up materially. And you can look at common news sources that the threat vector for other countries, potentially drug cartels and others, using drones. So, you know, I think there's a market growth that we're all watching. It will be billions of dollars worth of Golden Dome funding. And then if you look at the DHS additional funding, on the border security side. And today, there's one kilometer systems that find group one drones, you know, tomorrow's threats are going to be, we need 75 or 100 kilometers to give us minutes of time to go defeat against that. That's going to be class one through class five drones. So yes, I think that the rest of the industry is waking up to this market. My only earlier comment around this hype is, you know, we went through a year and a half period of of AI hype, and I feel as though we're going to go through another year and a half of counter UAS hype. So at the end of the day, the government's going to go with systems that have been deployed, where combatant commanders swear by the fact that they want one of what we have. And it's just really allowing funding to catch up to that. And then, of course, you do well know, Noah, government shutdown is going to sort of slow that down as well. So I think it's a burgeoning market. We've been in it for a couple of decades. I think we understand it very, very well. We have the right partnerships. We're always looking for additional capabilities that we can add to our system. I'll end with, and we built our latest system on our own nickel, right? So we're not dependent on U.S. government, you know, IRAD dollars to advance what we have, because I do think that the threat is that real. And the government's asking us to, you know, look at this as harder, so.

I appreciate the detail there. If I could just ask one more question, just hoping to better understand a little bit shutdown impact and shape of the year. Can you shed a little more light on how the government goes through deeming what is essential? The comments you made there at the beginning of the call are interesting. I thought it would have been more missed work in your 2Q that's just made up before the end of the year, but it sounds like that's not the case. And I think historically you've had a 2Q that's pretty often flat sequentially versus 1Q, and then a back half that's up, you know, mid to high single versus the first half. Is that still the shape of your 26?

Yeah, broadly, this is Jeff. No, broadly it is, you know, with the caveat that I mentioned earlier about that step-up will be between first half and second half, we expect to be less pronounced, this year than it has been in prior years, given the strong first quarter, uh, which largely was comprised of items that, that, uh, that did not change our view of the year. So, you know, that's kind of a qualitative way to say quantitatively the first half, second half, uh, step up will not be as pronounced as it has been in the past.

Yeah, no, I'll also throw in there. If you look at the last shutdown, right. It was 1819. If I remember right, some of that was December to January, right? So you had a lower level of folks because you were around Christmas time. What's different for our company between the 18-19 shutdown and where we are now is we've got far more long-term tech programs that are being developed. We have far more programs that we're investing in how the customer needs and we're putting enhancements into that software baseline. We're selling them on a purchase order. to sit around and do a down select. They can buy these things off of a GSA-approved price list. So there are a lot of differences that leads to this sort of de minimis impact. And then you also closed up with, you know, we can make a lot of these hours up. If we're at a help desk and nobody needs help now, they're not going to need more help later. So clearly that doesn't get made up. That's your traditional government services work. But the vast amount of this are, you know, work that will have to be done. And every agency, back to your initial comment, every agency is going through their own process. You know, I wish I had that rubric that told us what was mission essential and not. But frankly, if I'm sitting on the government side, that sort of changes. different than other things that are out there going. But all in all, really good book of business. Right now it's Jeff, and Jeff and I look at the impacts and how we can get those covered, and we believe we're right at quarter one point to having an outstanding year.

And at this time, I will turn the call back over to John Mangucci for closing remarks.

Well, thanks, Tina, and thank you for your help on today's call. I'd 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, and Jim Sullivan are available after today's call. Please stay healthy, and all my best to you and your families. This concludes our call. Thank you, and have a great day.