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 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 a presentation will include discussion of non-GAAP financial measures. These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Let's turn to slide three, please. To open our discussion this morning, here's John Mangucci, President and Chief Executive Officer of CECI International. John.

Thanks, 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, but 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 Beagle and drive demand for a county 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 as 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, in counter-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 were 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 feed 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 queuing a third-party kinetic system to defeat a drone, and also integrating with Androil's Lattice 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 US 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 CACI Task Orders No. 2 and No. 3 on the Base Infrastructure Modernization Program, previously known as ITAS Wave 2. CACI 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 billion of awards this quarter. Additionally, we continue to execute on 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 are 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 delivered 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 S4HANA 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 CACI, thanks to our focus on critical national security priorities, software-defying 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 dollars representing 11.2 percent year-over-year growth but which five and a half percent 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 percent 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 our modest leverage of 2.6 times net debt to trailing 12-month evita and our demonstrated access to capital continue to provide us with significant optionality we remain well positioned to continue deploying 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 percent range adjusted net income between 605 and 625 million dollars and finally free cash flow of at least 710 million dollars 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 percent 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 dollars increased four percent from a year ago and represents nearly four years of annual revenue and finally our funded backlog grew nearly 26 percent 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 percent of our revenue to come from existing programs with less than four percent coming from re-competes and four percent from new business progress on these metrics specifically on recompete revenue which was 11 percent 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 continue 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, and 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 are successfully executing our strategy, winning and ramping significant new work, capturing our recompets, 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, and we are confident in our ability to drive long-term growth and free cash flow per share in 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 of Colin Penfield with Cantor Fitzgerald. Please go ahead.

Hey, thank you for the question. Good morning. Morning, Colin. Perhaps we could shed some light on early expectations for the FY27 request. I think we have kind of two camps forming up. in terms of by-side sentiment, one being that the step down from kind of reconciliation plus base implies or it 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'd 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 uh on the top line budget budget growing but at the end of the day we're a 9.3 billion dollar company in a 280 billion dollar total addressable market so we we look at that telling us we have plenty of room to grow um and then where is the where's the money money going so if you look across the areas like electromagnetic spectrum uh software defined tech space country 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 Refined 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 It really draws across a number of your 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 color. And then in terms of, like, kind of, yes, 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 is rewarding within folks like yourselves, EPRS, Air Environment, folks that, you know, kind of have commercially developed solutions in that domain.

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 OOTAs. 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 cash 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 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 You can now buy from CACI just about anything across the electromagnetic spectrum. whether it's SIGIN 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, you know, 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, you know, 250, 300, 500 units. So better for us to put to put a program in place and then allow our customer to buy an amount that supports their budgets.

Got it. Appreciate the call. Thank you. Thanks, Tom.

And your next question comes from the line of Scott Micas with Malias Research. Please go ahead.

Morning, John and Jeff. Very nice result. Morning. John, CECI was ahead of the game when it came to investing in counter UAS solutions but we've seen in ukraine both sides are now 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 just wanted to get your thoughts on that yeah thanks a lot scott look um i'm going to sort of step back on this whole counter uas story i 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 in 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. um the um we're already in the u.s government inventory we're already boosting that scale already battle battle hardened with hundreds of confirmed kills so it's true that there are drones that are you know trailing fiber there are drones that are operating in the cellular infrastructure so if you look at what the homeland um 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 um 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 uas stock pop hype is if you have a Carnegie S 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 uh more than addict adequately not only defend this nation but other nations out there thanks okay and then i okay and then i had 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 uh i don't think there's there's no inorganic in there because i think about azure and applied insight none of those are going to be uh uh in feds 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 that gets a two-part question. The submitted pipeline is down, but obviously we're back with 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 that 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 what 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. 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 a 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 J.P. Morgan. Please go ahead.

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

Yeah, certainly it leaves us better positioned. 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. 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 goal post right goal post approach really encompasses sort of a range of outcomes and we really at this point don't see you know reasonable outcome that isn't encompassed in in the

guidance range we've given you not only is there minimal disruption the nature of much of the work is that you know we would expect to make it up within the year and we really don't see it as being a disruptive factor yes I could also just add to Jeff's comments you know given our significant intentional exposure to national security work and it's just said the level of technology work uh and a large level of funding backlog uh you know and 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 year? Could we have the full year to make 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 that. It's well covered within our guidance that we have out there today.

Great. And then, how has the hiring environment looked over 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 uh or volume sorry uh 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 um it does help that we're more a technology company uh 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 uh 40 of our hires are coming from referrals we've got about we have well over a 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.

And our next question comes in line of Toby Sommer with Truth Securities.

Hi. It's Henry on for Toby here. Thanks for taking the question. Maybe just to start, sort of 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-penshetic CEUAS side?

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 counter 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. So as we build systems, whether they're man-packed, whether they're handheld, hell, 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 base line. Our portfolio, VW Technology, generates about $2 billion of revenue each and everywhere. We expect with newer requirements and counter-UAS that we'll experience continued growth. Some of that growth you'll all 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. 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 Conellus opportunities, which do include Golden I appreciate the color there.

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

Yeah, I'll try to take the last comment first, and I'm sure Jeff have some comments here here as well the 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 it's it's we're seeing it in a planning sense we're starting to see opportunities uh meetings about uh you know 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 uh and

of course the heavy dhs content along with the portions of the dod reconciliation funding that are focused on the areas uh that are in our sweet spot uh you know give us some confidence about that but none of the none of the performance in the first quarter uh or the or the funded backlog that we talked about we'd identified directly to reconciliation funding our next question comes from the line of john sigman with stifle please go ahead uh the margins were were

really impressive especially in the context of your earlier outlook of lower margins to start the year uh the incremental sales year over year were all technology which implies incremental margin year over year was over 20 percent uh can you comment a bit about the mix or any one-time benefits this quarter uh it suggests the margins and technology maybe are trending higher than at least we were modeling thank you yeah thank you um john the yeah i mean i i'm not going to quibble with your math the technology margins were strong in the quarter I would remind

you that 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 being more customers are embracing some of these more progressive ways to buy software and agile software or 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 So 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 uh i i think i think that can't be overemphasized yeah john i'll uh 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 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 handheld uh ew gadget then give me the part number and let me start buying 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 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. As Jeff said, we can support either and both in, you know, any other ways. Thanks, John. Thank you.

Our next question comes from the line of Guadamacana with KB Cohen. please go ahead and great results guys thank you wanted to ask two questions uh to follow up on some earlier ones first has there been any impact uh 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 i can start with some of that uh John will want to add to this I'm certain but you know there's been a slight

amount 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 um it's not uh it's not tremendous you know it's it's you know collections may be you know 10 or 15 off um but but you know it's it's it's small but noticeable uh and similarly i would say in terms of revenue we have pockets of places uh where we have attenuated levels of activity It's really de minimis. You know, 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. Okay. And just wanted to ask, given the environment may be tougher for some of the, quote, peers in the space relative to Kaki, 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, Guadam, 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 in a price shootout because we gave up that part of 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 defend this nation in a better, better manner. We would expect to see higher margins. And thus far, that plan and that mode of running this business has served us very, very well.

Thank you.

Next question comes from the line of Connor Walters with Jeffries. Please go ahead.

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, you know, 7% to 9%, but 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, you know, 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. um but but no the the uh they're very definitely meeting expectations and we remain uh convinced of their strategic and financial value um we're uh they're terrific fits both of them i don't have anything else that's helpful and then maybe just want to follow up you guys discuss you know the upside you're seeing from reconciliation funding for golden dome you mentioned the ew potential there uh curious any 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 control, you know, but it's not just a ballistic threat. It's also threats from unmanned systems as 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, knowing far in advance when a threat is imminent and then given folks who have to defend against those um you know minutes and hours of uh time we've actually coined that as left of launch uh it's sort of our contribution to the entire golden dome effort there has not been money spent on this yet uh general good line is taking um our tv 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. And we're very excited to be looking at that $150 billion digital spend, you know, purely focused on defending this. 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.

Yes. Can you hear me? There you go. We hear you now. Good morning. Good morning. Following the positive TLS MANPAC developments, is Kaki also well-positioned for the U.S. Army's modular mission payload plan for small drones with your spectral sieve and kickflip. And 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 Well, 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 module remission payloads to commu-AS 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. 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 the 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 positioned this company to be able to deliver either under a FAR Part 12 or FAR Part 15, and allows not only the U.S. 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.

And how has the Navy Spectral Program been progressing?

Navy Spectral Program is going very well. Jeff talked about Azure. You know, Azure has the precursor program, and 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 spectral 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. Thanks, everyone.

Our next question comes from the line of Jen Engelbert with Baird. Please go ahead.

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, John and Franz, 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 who 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 demand signal in seven other countries, Eastern Europe. Allies are increasingly interested in our SIG and our EW and our Qatar 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 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, you know, 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.

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 Franz, 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 into our sweet spot so we are seeing a little bit of life in the pipeline and we're you know we look forward to developing a few of these ideas very early stage at this point but you know we'll uh it's an active area of interest for us

operator we have time for one more question yes our final question comes from the line of noah popinock with goldman sachs please go ahead no are you there no your line is open hey can you hear me now yes we can no 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 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-drone?

Yeah, I'm going to stick with about $2 billion of our entire portfolio is in the EW place, which does include counter-drone. And we deliver it to both DOD and the intelligence community, and as I shared, a large number of NATO countries. back to the back to the first first part yes I think it's a burgeoning market I think you have to look at two different streams of funding Noah right one is the 150 billion dollars on golden dome some portion of that and I would tell you it's it's 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 okay so it takes new technology and then on top of that we're not in a in a wartime in somebody else's zone where the u.s is assisting we'll be defending this nation all right 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 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, that's going to work 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 of you know 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 by the fact that they want one of what we have uh 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 verging 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. And 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 very hard. 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 caller interesting i thought it would have been more you know 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 um you know with the 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 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 step up will not be as pronounced as it has been in the past you know I'll also throw in there if you look at the last shut down right was 1819 I remember right some of that was December to January right so you had a lower level of folks because you're 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 to customer need and we're putting enhancements into that software baseline. We're selling them on a purchase order, so that has a very different buying schedule to it. It doesn't take folks to sit around and do a down so 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 too, right, whether we have defense of the homeland different than other things that are out there going. But all in all, really good book of business right now is Jeff. And Jeff and I look at the impacts now, 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. 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, so Jeff McLaughlin, George Price, and Jim Sullivan 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.