Caci International Inc (CACI) Q1 2026 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International First Quarter Fiscal Year 2027 Earnings Conference Call. Today's call is being recorded. At this time, all lines are in a listen-only mode. Later, we will announce the opportunity for questions and instructions will be given at that time. If you should need any assistance during the call, please press star zero and someone will help you. At this time, I would like to turn the conference over to George Price, Senior Vice President of Investor Relations for CACI International. Please go ahead, sir.

Thanks, Morgan, and good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI International. Thank you for joining us this morning. We are providing presentation slides, so let's move to slide two. There will be, excuse me, 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 These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Let's turn to slide three, please. To open our discussion this morning, here's John Mangucci, President and Chief Executive Officer of CACI International.

Thanks, George, and good morning, everyone. Thank you for joining us to discuss our first quarter fiscal year 27 results. With me this morning is Jeff McLaughlin, our Chief Financial Officer. Slide four, please. Before turning to our results, I want to remind you the CECI is a technology-first national security company executing a clear and consistent strategy. The key elements of that strategy are, first, focused on enduring national security priorities with narrow deep funding streams. Second, utilize our deep mission knowledge in the markets we serve to truly understand what our customers need. Third, invest ahead of customer need informed by that deep mission knowledge. Fourth, deliver software-defined technology to address critical needs with the speed, agility, and efficiency our customers demand. And finally, deploy capital in a flexible and opportunistic manner to create value for our customers and our shareholders. This strategy is the driving force behind our strong and consistent results. Slide five, please. We had an excellent start to fiscal year 27. First quarter revenue grew 8%. EBITDA margin reached 13.3%. Adjusted diluted EPS increased 12%. we generated $133 million in free cash flow. We also won $4.8 billion in awards, producing a two times book-to-bill for the quarter. We have a large and growing backlog, and our funded backlog grew double-digit year-over-year for the seventh time in the last eight quarters. Our margin performance stands out. It reflects superior execution and a higher mix of differentiated technology we delivered this quarter. We're raising our revenue and earnings guidance for the year, and Jeff will share additional details shortly. Our results, awards, backlog, and pipeline give us a strong foundation for the fiscal year and support our increased guidance. Slide six, please. Let me discuss some more details, some highlights from the quarter, and the demand that we're seeing that are driving our results and position us for continued success. I'll start with two fantastic awards for technology-enabled operational support that exemplify our enduring commitment to national security. First, our Apollo Award, where CCI will enable CEMCOM to carry out critical intelligence and information warfare missions. Our success in winning this new work for CCI stems from our deep mission knowledge, our exceptional business development, and our superior ability to utilize and combat AI in the information domain. The second award is Soft Tops II, a five-year follow-on contract supporting the Army's Special Operations Command. It reflects the trust we've built through years of work with this customer and extends our role helping special operators plan for and respond to evolving threats using our technology-first approach. Our electronic warfare portfolio continues to see strong demand. That is certainly true in the counter-UAS market, a significant and growing opportunity for CACI. Beyond protecting our warfighters, the growing threat to military facilities and critical infrastructure is driving demand for precision, non-kinetic counter-UAS capabilities like SkyValor. SkyValor leverages nearly two decades of proven counter-UAS deployments, industry-leading cellular detect and defeat capabilities, and enables detection up to 75 kilometers so operators have more time to make critical decisions. Our prospective counter-UAS customer base is expanding across the U.S. government and internationally. A great example is our $500 million Domestic Shield Award from Giana 401, which also included an initial funded task order. We're also seeing increased demand for our Beam-impactable counter UAS systems from U.S. customers and allies across Europe and the Pacific Theater. Beam is the most technically capable system of its kind on the market, with over a decade of proven performance and important discriminator for prospective customers. In the critical space domain, we're capitalizing on increasing demand as a leading merchant supplier of optical imaging and optical communications payloads. DCI was recently selected by Vantor, a commercial provider of satellite-based intelligence, to supply advanced optical imaging payloads for their pulse satellite fleet. That work is an example of taking ARCA's exquisite sensor capabilities developed for national security missions and applying them to a more proliferated commercial market, which is exactly what the U.S. national security strategy calls for. ARCA has a number of other sensitive opportunities in the national security space domain that are moving forward and are expected to contribute financially in fiscal year 27. We're also making progress in optical communications. We expect to complete SDA tranche one deliveries later this calendar year and begin work on tranche two. CACI was also one of three company selected to advance to Phase III of the Space Force's Enterprise Space Terminal Program, where we are developing the next-generation optical communication terminal to support critical multi-orbit initiatives like the Space Data Network. Consistent with our merchant supplier strategy, multiple primes bidding on the SDN have selected our EST technology for their solution. We also continue to win and execute other classified optical communications programs, And our successful contribution to the Artemis II mission has helped demonstrate the capability of our technology for future human spaceflight. Finally, demand remains healthy for modernization of mission networks and digital applications. Many critical customer priorities, including AI adoption, border security, and financial accountability, are dependent on modern, secure, integrated networks and applications for success. GCI is a leader in modernization because we do it differently, differentiating through speed of delivery, use of outcome-based models, and demonstrated success deploying AI-based software. Programs such as Beagle, ITAS, and NASA NCAPS are real-world examples of where we are applying AI and agile delivery methods to drive customer modernization faster and more efficiently. Leveraging AI translates into reduced cost for customers and better margins for us, and we consistently see customers reinvest cost savings in additional scope to CACI. Across all areas of our business, our technology-first approach is directly contributing to our financial performance by driving on-contract growth and new business wins from customers who are committed to transforming at the speed of mission. Slide seven, please. In order to meet strong demand we're seeing for our structure-defined technology, we are actively investing to scale our production capacity. Our first step was to open our Manufacturing Center of Excellence for Defense Electronics in Rochester, New York. The additional 61,000-square-foot facility significantly increases our manufacturing space and expands our capacity to develop, test, assemble, and deliver defense electronics, such as TLS ManPak, Beam, and others. We plan to open additional manufacturing centers of excellence for space and for integrated systems, and we'll share more about these initiatives in the coming months. These investments will enable us to deliver advanced technology faster, at greater scale, and more efficiently, supporting continued revenue growth and additional margin expansion. Slide eight, please. Turning to the macro environment, budgets and funding remain healthy and our key areas of focus. With 90% of our revenue coming from national security customers, the priorities we focus on are well-funded and continue to exhibit strong demand signals because they are needs that must be addressed. And continuing resolution, or CR, is currently in place until December 11th. Regardless of how this dynamic plays out, it's an environment we've navigated successfully for many years. As we've demonstrated year in and year out, CRs do not have a material impact on our business given our large backlog, longer duration awards, and the critical capabilities that our customers depend on us to deliver. From an awards perspective, our strong book-to-bill shows some improvement in award activity, though the pace of decision-making is not fully normalized and is still sluggish in some areas. As our customers continue to involve their relationships with industry through non-traditional procurement methods, our key differentiators of investing ahead of customer need, software-defying capabilities, and outcome-based pricing are all resonating extremely well because they drive increased speed, efficiency, and lethality. Slide nine, please. Before turning the call over to Jeff, I wanted to discuss a few other updates. First, we announced we will move to a calendar fiscal year beginning January 1st, 2027. We believe this reporting cycle will enhance comparability for investors and better align our business with the government's fiscal year. We plan to provide guidance for our new fiscal year when we report December quarter results in February. Second, we plan to host an investor day in early 2027 at our Melbourne, Florida facilities. At this event, we intend to provide additional information about the new fiscal year, other contemplated reporting changes, discuss our strategy and capabilities, provide an opportunity to meet with the CACI management team, including additional executive leadership we recently announced, and provide new three-year financial targets. We look forward to sharing more information with you in the near future. With that, I'll turn the call over to Jeff.

Thank you, John. Good morning, everyone. Please turn to slide 10. We're pleased with our first quarter performance in which we delivered revenue growth in line with our expectations. Revenue was $2.5 billion for the first quarter, up 8.2% year-over-year, with organic growth of 2.1%, in line with our previously communicated low-angle-digit organic growth. EBITDA margin in the quarter was an impressive 13.3%, 160 basis points higher than the prior year's first quarter, driven by strong program execution and a more favorable mix of higher margin work. First quarter adjusted diluted earnings per share of $7.66 were 11.8% higher than a year ago, driven by this excellent operational performance. Finally, free cash flow of $133 million for the quarter reflects higher cash outflows typical of the first quarter of the year. Slide 11, please. Turning our attention to the balance sheet and capital structure, we continue to make progress reducing our leverage following the ARCA acquisition. Pro forma leverage at the end of the first quarter was 3.5 times, and we now expect to return to leverage in the low threes in the March quarter of 2027, two quarters earlier than we had initially anticipated. As we have discussed, this is consistent with our track record of successfully deleveraging after major acquisitions. Driven by our profitability and strong free cash flow generation, our moderating leverage is quickly putting us back in a posture of having increased optionality for additional flexible and opportunistic capital deployment. Slide 12, please. Turning to our outlook for fiscal 27, we're raising guidance for revenue, adjusted net income, and adjusted EPS, and reaffirming guidance for other metrics. I note that while we made a particularly strong initial guide to begin the year, a strong awards quarter and operational developments have retired additional risk relative to our expected range of outcomes. We are raising fiscal 27 revenue guidance, $50 million, to between $10.7 and $10.9 billion. Our fiscal 27 revenue now assumes approximately $450 million of acquired revenue. While While ARCA continues to perform in line with our expectations for the full fiscal year, some space program activities are now expected to contribute to revenue beyond the first 12 months after closing the acquisition. We are reaffirming fiscal 27 guidance for EBITDA margin in the high 12% range. This and higher revenue has a consequent impact to increase adjusted net income by $5 million dollars to between 740 and 760 million, which translates into increased adjusted diluted earnings per share guidance between 3318 and 3408. And we are reaffirming guidance for free cash flow of at least $900 million. Finally, to assist with your modeling, I'd remind you of our prior comments that we expect stronger organic growth and EBITDA margin in the second half of the fiscal year versus the first half. Though I note the second half margin ramp is now more gradual given our strong Q1 performance. I would also note our view that second quarter consensus estimates for organic growth and EBITDA margin are reasonable. Slide 13, please. Turning to our forward indicators, we now expect 94% of our revenue to come from existing programs, with 3% coming from recompese and 3% from new business. This significant increase in existing business content, which was 83% just last quarter, reflects our successful business development and operational performance and provides increased confidence in our updated guidance, as I mentioned earlier. In fact, this is the highest level of existing business at this point in the year in the last seven years. First quarter awards were $4.8 billion, representing a healthy mix of new work and strong recompete performance. The weighted average duration of these awards was just under four and a half years, which reflects the higher mix of sole source extensions we've seen recently, as well as normal variance in award duration. Our long award duration continues to provide good visibility into the strength and cash generation capacity of our business. Total backlog was $34 billion, and funded backlog increased by 15% year-over-year. This represents the seventh time in the last eight quarters we have delivered double-digit year-over-year growth in funded backlog, underscoring the critical national security priorities we address and the support of our customers. We continue to see a healthy pipeline of new opportunities, with $4.7 billion of bids under evaluation, about 85% of these being for new business. Bids under evaluation also reflect significant level of awards in the quarter. We expect to submit another $14.7 billion in bids over the next two quarters, with more than 60% coming from new business. In summary, our first quarter was a great start to the year. Our consistent performance, substantial backlog, and strong market position give us confidence in our increased guidance and our ability to drive growth in free cash flow per share and additional shareholder value. And with that, I'll turn the call back over to John.

Thank you, Jeff. Let's go to slide 14, please. In conclusion, we delivered strong first quarter results and raised our revenue and earnings guidance for the year. Our large and growing backlog, strong customer demand signals, and ability to deliver give us confidence in our outlook. Regardless of CRs, elections, government shutdowns, or other dynamics, we have delivered consistent results. It's worth repeating. CECI has a clear, consistent strategy, and our financial results once again demonstrate that our strategy is working. You've heard us say consistently that we view free cash flow per share as the ultimate value creation metric. CACI has a long and consistent track record of generating strong cash flow. This level of cash generation enables us to continue investing and have a customer need, deploying capital in a flexible and opportunistic manner, both of which then enable us to generate additional cash flow over time. You've seen us do exactly that as we've deployed new technology capabilities and made strategic acquisitions like Azure Summit and ARCA. These actions allow us to turn the strong demand we see into results for our customers and lasting value for our shareholders. As is always the case, our success is driven by our 27,000 employees who were ever vigilant in expanding the limits of national security. To everyone on the CACI team, I am proud of what you do every day for our company and for our nation. And to our shareholders, I thank you for your continued support of CACI. With that, Morgan, let's open the call for questions.

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

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

Yeah, Sheila, thanks, and I really appreciate the question. Look, I think simply, first off, it's because we're a very different company than others in our current sector. We've been doing our best to outperform others in the larger spaces as well. It's really down to something that we've shared over probably the last decade, is just having a clear strategy, intentional leadership, and disciplined execution over many, many years. We've invested ahead of need and have decades of deep mission knowledge. You know, we're in areas of enduring need. We like to talk about neural funding streams, but the way we look at it internally, these are all things that are not the first, the 10th, or the 100th thing that customers are going to want to turn off. We take a lot of purposeful, discriminating actions. I can tell you internally that we measure the time between vision or strategy and action in weeks. And we've been very honest up front, very transparent, and very thoughtful around capital deployment that truly builds shareholder value. So a lot of transparency, a lot of results that lead to a lot of credibility, frankly. The other thing that I would mention is something that we don't talk a lot about, but it's very important, is that we truly did recreate this company 10, 12 years back to be a far part 15 and a far part 12, truly commercial. We didn't get lucky. We actually did study where the market was going to go and where the customer sets were, how the customers were going to be changing how they buy. I think it's true as today that half a billion dollars of our bookings last year were done through OTAs and CSOs. That's something that we called very, very right many, many years back. And you don't just turn that thing on overnight. So strategy is a place where we come from, have an outstanding leadership team that actually drives the strategy forward, and a whole slew of PMs and finance leads and the like that are making sure that we, frankly, deliver excellence because customers buy from people that they trust and customers buy from people who always deliver. And I think our results show that.

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

Yeah, I mean, it really points ourselves towards, you know, how do we get through a, you know, back half risk model. And, you know, we've been getting that question a lot. I think we navigate our way not only through the questions but through the performance last year. But, you know, look, risk is something that we work through all the time. It's just the nature of our business. You know, when our revenue starts from a new win, it's really based on timing the award, the program start date, funding type of contract, et cetera. This year, it's true, we have a number of late last year and early this year awards to hit their first notch in their growth stride after the second quarter. And I'm very much aware that that's the same exact time that the current CR ends. So, you know, what gives us confidence? We've taken a long look at the growth of our backlog. I think you should all look at the level of funded backlog growth. The fact that we've got a lot of non-protested recent large award. We have a customer base that, frankly, really needs to move forward quickly. And that just happens to align with our current Q3. I guess in other quarter will be our newest Q1. And so we've won those jobs, and that's sort of how their revenue profiles stack on top of each other. We've always talked about long-duration awards, right? So what else gives us a lot of confidence, whether the first or second ramp or the third and fourth quarter ramp, is that we've stacked a number of awards with longer durations over a long period of time. So we see the awards. Our front and back backlog is there. Our technology deliveries will also be there. and I think everything is greatly aligned, that on top of that reduces the risk of a high second quarter profile, CRs, shutdowns, budget woes, midterms, anything else you could throw in there. So Jeff, anything you want to add?

Yeah, I think there are two things, Sheila, that are a little bit different about our portfolio from some others. One is that we have a great number of small programs, smaller programs. So we're managing, you know, kind of 1,900 or so active pieces of the portfolio and managing that for the year. The other thing that's different, I think, about our portfolio is that we have a great deal of margin volatility, not volatility, variability. And because of that, you know, we have programs with single digit EBIT margins and we have programs with, you know, EBIT margins in the low 30s. And so managing that mix, and we do manage for the year, which I'm sure you're tired of hearing us say, but managing across that mix is a constant challenge, as you would imagine. It's a very different management experience, in my experience, from working in an enterprise that has 15 or 20 large programs?

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

Awesome. Thank you.

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

Thank you. Morning.

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

Yeah, sure. Look, we've invested in a lot of software-based tech over the last decade, and I truly believe that our shareholders have been greatly rewarded, and they will continue to be rewarded for the results. And we can talk about Congress, we can talk about ARCA, we can talk about space, we can talk about OC and UT. There's a lot of examples here. um but you know at the end of the end of the day strategy is a place where we come from so these are not um these are not high risk invest ahead of customer need operations i mean we run this company as a full-throated company and it's why we always talk to talk about we're not going to invest for the next quarter we're going to invest for the next decade um so as hard as some of this stuff is that we do. We've never come back to our investors and said, because we had to invest more, these financials are not going to look the way they look. We are a consistent free cash flow compounder and a consistent company that's out there buying the right capabilities to go ahead and continue to drive this company forward. So whether it's counter counter UAS where we've been investing for well over a couple of decades. We've invested and we sort of moved from a fixed site solution to a mobile solution. You know, things like Beam are not in high demand because we got lucky. They're in high demand because we're good and it's good. So whether it's SkyValor giving commanders larger range, you know, we understand how to do all of that because we have 1,400 people forwardly deployed and a lot of people embedded. And that kind of operational support gives us just absolute better data than everybody else gets. Back to Sheila's earlier question. It allows us to invest in the right manner, in the right levels, in a manner that we're not coming to our shareholders after the quarter's done saying, I wish we hadn't invested in all that because now we can't make revenue or we can't make earnings. We're doing it all.

Thanks for that. And then maybe just a quick clarifier on ARCA to make sure I heard no change to the expected ARCA revenue for the full fiscal year. It's just timing.

Yeah. Let me talk a little bit about ARCA because I think it's been probably at least a year or two for it's probably one of the greatest acquisitions that we've done because it sets us up for so many things. It's a great business that's performing as their leading provider. sensing and sense-making capabilities. I like to say they've been doing large aperture solutions since Moby Dick was a minnow. They're one of one and a half companies that do what they do, so it's a very strong barrier to entry. And now, as you heard from the Manitore Award, we're now moving to smaller form factors without sacrificing purity, and we're also building those in higher quantities. So specific to your question, yes, the $50 million moves a quarter to the right, but we didn't take the full year or their guidance down. We actually raised full year and shifted theirs. So at the end of the day, this $50 million is different than the $50 million raise guide. This is really about moving it from next 12 months based on a March closure date to the current first fiscal year. So all of this attention is really moving revenue to after March 9th, but before June 30th. So we don't see, it's not about missed numbers, it's just timing, like the majority of the rest of our business. Jeff, anything else you want to add?

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

Thank you. 51. Yeah.

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

Hey, guys. Thanks for taking my question. I wanted to just hopefully unpack margins a little bit. If I rewind to maybe a year or so ago, there was sort of a conversation about the growth versus margin tradeoff and how margins might be topping out. the margin performance and execution has been great. We also have ARCA in there, so it's kind of hard to unpack that perfectly, but maybe you could just talk about growth versus margins in the core business versus ARCA, and are we at a point where we're finding a new sort of lever to get margins higher?

Look, we have said a couple things pretty consistently, and I'm going to come back and answer your question more directly, but we've said a couple things pretty consistently. One is that we manage the business for free cash flow. And so we're continually making decisions, balancing investment and growth. The other thing that may be clouding this up a little bit is a condition I mentioned earlier, which is the margin variability. And what we see as we manage our way through this, particularly in the internal quarters of the year, as we manage across the 1900 programs that I mentioned earlier. So those conditions are both what they are, and no one should be surprised. We've talked about these in multiple forums for a long time. To get to your more specific question, I think, we do continue to see opportunities for continued modest margin improvement. And that's taking into account the two conditions I just mentioned. But it is an extremely opportunity-rich environment. And we see plenty of opportunities to invest and plenty of opportunities for growth, which really put us in the posture, I think, in some ways of being able to kind of have our cake and eat it too. So, I think we do see continued modest margin improvement, even while we're maintaining the growth vector.

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

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

Okay. Fair enough, guys. Thanks a lot.

Thank you.

Your next question comes from Scott Mikas with Mellius Research. Your line is open.

Hi. Good morning. This is Matt Meritola on for Scott. Good morning. We've heard from aerospace companies that memory, semiconductors, rare earths are seeing very high levels of inflation and elongated lead times. How are you managing around those constraints?

Are there any other pinch points? you would call out in the supply chain yeah look uh thanks okay yeah we've we are seeing some of that as well and we're you know managing it according accordingly um that's a key focus why we brought chris monoski in who's our new evp of man and manufacturing um you know and it's as as we really scale uh to combat things like that um i can tell you that those types of items are reflected in our guidance it's really one one of the factors that create the low end of our range and then our high end of our range making the right kinds of investments which we fully support um you know the other thing that we're we're pretty good at is making certain that we're eyeballing those types of shortages before they present themselves and really work designs around some of those items. The last thing from a shareholder margin cash flow point of view is really getting our hands around what are those long lead high risk items that we have to invest in, meaning do we spend some of our cash flow earlier than we would like, but it actually supports much longer term. Spend $30 million of cash in the second quarter to end up picking up $60 million more over the entire year, the answer is going to be yes. That's why we talk about being a full-year company versus a...

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

Thanks for taking the question, guys. I'll stick with one. You bet. Thank you.

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

Hey, thanks. Good morning, John and Jeff. Nice results. Morning, Peter. Thanks. Thanks, Peter. Hey, John, you know, you mentioned OTA kind of contract structures early on in your kind of opening comments. You know, and you guys have some, I guess, through TLS, ManPak, and maybe Arca has a little, but could you kind of describe kind of the exposure or, I guess, risks around OTAs? We've seen some other competitors where OTAs, you know, are easy to cancel or easier to cancel and just how you're thinking about the exposure with CCI and, you know, the use of those contract structures when you think about your business.

Yeah, thank you. Yeah, look, you've got to know what you're getting into when you're getting into them. And this really ties back to our invest ahead of customer need thesis that we've been on for just short of a decade. The reason why our OTAs and our CSOs are successful is because it starts months and years ahead of when that OTA is actually signed. It's really about understanding the areas that we as a company believe we have unique skill sets in, that we've proven we have the unique skill sets in, and the fact that our 1,400 people who were co-located in combat commands tell us that those are dire technology needs that our customer requires. So we are not putting hundreds of millions of dollars down. We're actually putting hundreds of person years of knowledge into an OTA where we're working with folks on the bleeding edge of the mission on the customer side. And places where the customers have nothing today, a 50 or 60 percent solution looks awesome. So we're also not making the mistake of trying to develop the 100% pure solution under an OTA, because that means that there's far more risk on us. And the risk equation between us and customer gets on unbalanced. So what makes ours successful far more times than not is a willing customer, a common understanding of what the mission needs, software-based tech, so that we can make really quick changes during that OTA cycle. And our window between the design development, which is the phase one of the OTA in reproduction, is most likely industry leading. That's what drove TLS Manback. That's what's driven a lot of the other half a billion dollars of different OTAs that we're involved in today. So understanding the threat, understanding what the investment needs to be, getting involved in low-risk areas. and then when we get to the production side, building these centers of excellence so we don't let that customer down, even though we may be building a 60% solution, and then also being able to modify that solution because it's software-based. Got it.

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

Got it. I appreciate that color. And just a quick follow-up on ARCA. You know, the Space Force budget is, the majority of it is in the base budget. It's only $12 billion tied up in the original $350 billion reconciliation bill. So is that giving you the confidence around that the majority of the Space Force budget is in base and that the booking visibility for ARCA continues to be robust is just some additional color, just given all the budget dynamics.

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

I'd also add, in terms of timing, I think we were also pretty opportunistic in terms of the time that we were able to enter the debt market.

Times would look pretty good a year later. Yeah, thanks again, guys.

Appreciate the color.

Thanks, Peter. Your next question comes from Toby Sommer with Truist. Your line is open.

Yes, I am. I wanted to ask you a medium to long term project question about your product portfolio.

You know, in three or five years of what you have currently, what do you think is going to be generating the most revenue and profit for the firm? yeah i uh if i had opened my crystal ball up on an open investor line i would probably say it's a good mix between what we do in the ew area uh and then uh supported by what we're doing in space you know we're we're just so early we're in the infancy stage of both of these markets You know, if you think about EW, we've got things across the entire spectrum that will help the customer, you know, drive their mission forward. The fact that they're all software-based means that we can continually make changes. So if you look at the potential margins going out, not as a future guide, but, you know, the fact things are software-based, We're going to the production bench much less times than others are because we're able to provide additional features like the phone you all carry in your jackets. So it has the right mix of commerciality to it, both the solutions and how we drive investments. And frankly, that's what's going to continue to drive larger and larger free cash flow as we go forward.

I appreciate that, John. Thank you.

Thanks, Toby.

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

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

Yeah, so John will probably want to add to this, and he'll have some insight on some of the specific programs and places that you mentioned. But basically, Colin, I mean, you know, the cash – I'm going to come back to cash flow. I mean, we apply the same tools in the context of your question that we do others. You know, if we see an opportunity to invest in a way that grows free cash flow dollars, you know, that's the decision that we make. I would also point out, because we've had a little bit of noise in our free cash flow forecast over the last couple of years, I'd also call attention to a slide that we provide from time to time that sort of lays out some of the unusual items that are in free cash flow so that you can sort of do your analysis and kind of tease out what is sort of recurring free cash flow, I'll call it, versus what are some unusual cash items. And that chart is in the appendix here, but you'll see in there a nice progression in free cash flow as we make those investment decisions and trade-offs that you asked about.

Yeah, Colin, and I was writing as frantically as I could, but on some of the different programs that you mentioned, I'll start by answering all of the above is what's going to continue to drive free cash. cash flow um but look let's let's talk about you know vantor and what what arca has uh done in that area look they've uh they have uh found a way to to put uh exquisite into a smaller payload and you know wide advantage like this frankly i mean without bragging we were the best solution It went to a competitive evaluation. We had high TRL. We took the family assistance approach, a really strong design and history of supporting, you know, cutting-edge capabilities in space. So for them, that was a value-added proposition as well as it is for us. So there's a case where we balanced investment, and a lot of that investment happened before we took over owners. because we've got a group of folks in Danbury, Connecticut who have been doing this for, you know, almost seven, seven decades. They understand the investments they need to make, and they're all very much pre-cash flow and cost-conscious. If you look at OCTs, that's going to be another area that's going to continue to grow. We put the right investment dollars into Tronch One. um we openly shared we were we were going to struggle through the producibility side of that you know enter arca that that understands how to build in that uh environment really well so you know from from the current cci work in into the new arca work they brought some uh great helping hands to make sure we could get through tranche one and then we've got est terminals everything else later so you know in both of those examples the the ones that i can talk talk to and talk to on this line. If we look at space-based EOIR as well as OCTs, both of those are really good, strong business cases. And as Jeff mentioned, as we go in EW, as well as in our digital network tech era, all with an absolute first eye on generating more free cash flow.

Got it. And as you think about M&A strategy, maybe if you could talk about kind of the balance of cash flow growth versus price that you're seeing out of VC-backed assets versus sponsor-backed assets? And maybe just talk about kind of which buckets of assets are you seeing as more attractive at the moment?

Yeah, Colin, it's hard to make a general comment about that. You won't be surprised to learn that, you know, every one of those sort of has its own story. The length of the hold, the prospects, the market position. You know, we continue to curate our pipeline pretty carefully. You know that we focus on gaps. We're not buying volume or bulk. We continue to look. You know, there is some price valuation. I'll call it correction or adjustment kind of in the air. We're mindful of that and watching it. Personally, I don't think it's done, but that's certainly part of how we think about and evaluate opportunities. And again, it's very hard to generalize every story. Every opportunity sort of has its own set of facts and circumstances.

Fair enough.

Thank you. Yeah, thanks, Colin. Your next question comes from Guatam Khanna with T.D. Cowan. Your line is open.

Yeah, thanks. Good morning, guys.

Good morning.

I was wondering if you could maybe just calibrate us on re-competes this year, you know, have any been extended. So if you could just talk about the exposure there. And then also, given the outstanding bids and the submissions to come, if you could characterize what you expect in terms of bookings in the December quarter, which normally is soft, but it seems like you might be able to do better than what is typical seasonality. If you could just talk about cadence of bookings through the fiscal year as well.

John will certainly want to add to this, but we have had a number of sole source extensions, which sort of short circuit or delay, I'll say, they don't do away with it, but delay recompete processes. We've seen that on Beagle in a number of classified areas. we've seen areas where, you know, we've got year or two kind of extensions, which is also, although you didn't ask, it is also part of the award duration statistic that you saw, because obviously you put those in at one or two years, it lowers the average, but is also a significant risk mitigator beyond the statistic. So those are areas where obviously we have satisfied customers that are in a position that they can justify an extension. We're obviously always happy for that to happen. So the recompetes, you saw a step down in this quarter. Beagle was a big part of that, and a couple of other classified things, as I said. And there aren't any single large, meaningful, significant re-competes. There are a handful of smaller things for the balance of the year, but that 3% of remaining re-compete content is, you know, probably six or eight smaller programs.

Yeah, and I think the other half of your question, Jeff talked about the duration of contracts put into our backlog this quarter. Hey, look, I'm always happy to take the millions of dollars I have to spend today on an A-compete and add all those millions up and go after it there and start bidding even more new work. So it's a real positive measure for us. On the booking side, I think in my prepared remarks I talked about, you know, we're very, very pleased, and we start to see some positive signs of the award announcement rate picked up, but it's also still sluggish. So, you know, what I, what Jeff, what the rest of the company focuses on is that's why you focus on your backlog and your funded backlog and why program performance is so important. Because when the customers have a discretionary dollar at the end of a fiscal year, and as they have done seven of our last eight quarters, they put the additional funding to be really sure the contracts that we're delivering are funded. So will it still be sluggish? Yes, I think it's going to still be sluggish over the next couple of quarters. But, you know, we're not winning work in the first quarter to support our financials of the second quarter. We actually win work in the first quarter to, you know, continue to grow this business over the next seven to eight to nine quarters. So at the end of the day, we're winning the business at the right rate to continue to grow this business. And we've also proven the last couple of years with Sluggish Rewards that we continually come back to you all and our shareholders and talk about, you know, another full year of fantastic growth and great free cash flow.

Thank you.

Your next question comes from Seth Seifman with Jim Morgan. Your line is open.

Hi, good morning. This is Rocco on for Seth.

Hey, Rocco.

Looking at the contract mix type, fixed price work has increased to the low to mid-30s as a percentage of revenue over the last few quarters. How much of that was driven by ARCA versus the overall government push towards fixed price work? And where should we think about that percentage going in the future?

Yeah, look, it's far beyond ARCA. I don't remember what the actual metric was between first or second quarter. I'm sure Jeff's going to add to this. But I'm just sort of focused on fixed price. And look, we're very comfortable with it. They are improving margins. where a technical risk is understood. I think I might have shared last couple quarters that we've had some good, deep discussions inside this company around if we're going to be asked to bend the laws of physics, we probably won't take that fixed price. But if it's software-based, we understand what it is we're out there delivering. There's no reason why we shouldn't. We've got a great track record of strong performance over time. And customers are increasingly asking us for the task orders under different fixed price arrangements It's, you know, whatever money we're saving them, they come back to us with additional work. So we're very disciplined in the kind of fixed price work that we take. And it absolutely has contributed to margins far beyond the book of business that ARCA breaks.

Yeah, and maybe a little more specifically, if you look at that increase from 27% to 33%, about half of that six points is attributable to the inclusion of ARCA. So the other half of it, you ought to think about in the latter category John mentioned, where we just have sort of native, organic, increased fixed-price activity.

Right, that makes sense. And then last quarter, CACI announced the hiring of several different tech hardware activities. How have they kind of integrated into the firm as a whole, and how should we think about these individuals kind of helping to drive growth in technology?

Yeah, so Dave, Chris, and Tom. You know, I'll start with Tom. Tom's a prior CCI alumni. He's running our electronic warfare business, doing an outstanding job, creating a lot of great new creative ideas to us and things that are going to continually grow that business area. Dave has come in as our COO. You know, really, really focused on cross-company initiatives, everything from being able to drive better, more predictable producibility between engineering, design, and production, as well as, you know, Dave's got a lot of experience in the space realm, and he's been running different sized businesses, latest business, about $7 billion, which is, you know, only a few or four, three or four billion dollars short of our company. So I like what he's been able to bring. And then Chris, clearly, you know, Chris has got all of our focus as well as all of our support to really building out these centers of excellence. You know, and this is another example of investing ahead of need. Okay. We know what our next few years will look like. We talked about giving you a new three-year guide. I don't think that's going to disappoint anybody out there. But for us to be able to achieve that continued growth, we need to make certain that we put a longer-term look at how we're doing the production items within this company. So Chris is going to bring a lot of expertise there. The fact that we are a growing company and we're a different kind of company and one that's very well-respected in a very different part of the market, that makes it easier and easier for us to find world-class talent that is more than happy to come here to continue what it is we built and to push us even further. So I appreciate the question.

Great. Thank you.

Our last question comes from David Strauss with Wells Fargo. Your line is open.

Hi, good morning. This is Josh Korn on for David. Hi, Josh. Good morning. I just wanted to follow up on the organic growth outlook. You had a strong bookings quarter, almost $5 billion in awards. I guess, how should we think about the way those bookings in the quarter convert to revenue this year and beyond? And then if there's any specific programs you would want to highlight, you know, driving growth now in the next couple quarters? Thanks.

It's really, Josh, pretty broad-based across the portfolio. I wouldn't call out any one specific program. A couple of the bigger awards that we talked about, you'll notice, are five-year programs. And we will, you know, we'll see those ramp up in sort of the normal way. And there'll be a little bit of contribution this year. But it's really pretty broad-based. Really, there is no part of the portfolio where, happily, where we're seeing any kind of contraction. I mean, the business is hitting on all cylinders.

Yeah, Josh, I'd also add a little bit about the Apollo win, because it really is a unique, It's the latest example of using technology-first solutions for us to win more and more work. And as Jeff mentioned, that's going to drive a lot of top-line growth over the next couple of years before that levels off. It's a five-year program. We're really using bleeding-edge AI to analyze and create inputs in the area of information warfare, something we can't dig into on this. kind of a call, but just recognize it's usually important and really, really hard. We sort of have a habit of doing hard. But it's expected to be in its higher ramp in Q3. So back to the very first questions, it's one of those drivers for us to go drive growth. And then we've got things like JATMS and other programs out there that are going to continue to make sure we're set up for another really successful year.

Okay, thanks. I'll stick to one.

Thank you. Thanks. That concludes our Q&A session. I will now turn the conference back over to John Mangucci for any closing remarks.

Well, thanks, Morgan, and thank you for your help on today's call. We'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, and Jeff McLaughlin, George Price, and Lisa Parkinson are available after today's call. Please stay healthy.

All my best to you and your families. this concludes our call thank you and have a great day this concludes today's call thank you for attending you may now disconnect and have a wonderful rest of