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CACI International (CACI): Company Profile, Stock Price, News, Rankings

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CACI International

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Ladies and gentlemen, thank you for standing by. Welcome to the CACI International third 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 assistance during this 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, Jeanine. Good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI International. Thank you for joining us this morning. We are providing presentation slides, so let's move to slide two. There will be statements in this call that do not address historical fact, and as such, constitute forward-looking statements under current law. These statements reflect our views as of today and are subject to important factors that could cause our actual results to differ materially from anticipated. Those factors are listed at the bottom of last night's press release and are described in the company's SEC filings. Our Safe Harbor statement is included on this exhibit and should be incorporated as part of any transcript of this call. I would also like to point out that our presentation will include discussion of non-GAAP financial measures.

These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Let's turn to slide three, please. To open our discussion this morning is John Mengucci, President and Chief Executive Officer of CACI International. John.

Thanks, George, and good morning, everyone. Thank you for joining us to discuss our third quarter fiscal year 2026 results, as well as our updated fiscal 2026 guidance. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Move to slide four, please. Before turning to our results, I want to start by reminding everyone that CACI is a fundamentally different company than it was 10 or even five years ago. This evolution is the result of a clear and consistent strategy, intentional leadership, and disciplined execution over many years. It did not happen by accident. The key elements of our strategy are, first, we operate in seven markets where we possess decades of deep mission knowledge. We know and understand what our customers need. Second, we focus on enduring priorities. We are a national security company that targets narrow, deep funding streams. Third, we're a software-defined technology leader.

We differentiate ourselves by using software, excuse me, to address critical needs with the speed, agility, and efficiency our customers demand. Fourth, we invest ahead of customer need to show the art of the possible. We're not waiting for requirements. Fifth, we deploy capital in a flexible and opportunistic manner to create value for our customers and our shareholders. Executing this strategy has enabled us to expand our portfolio, increase free cash flow per share, and generate additional shareholder value. Slide five, please. Turning to our third quarter results, we delivered another quarter of outstanding performance on our way to another exceptional year. Revenue for the quarter was $2.4 billion, up 8.5% year-over-year. We also generated a strong EBITDA margin of 12.3% and robust free cash flow of $221 million.

In addition, we won $2.2 billion of awards, which represents a book-to-bill of 0.9x for the quarter and 1.2x on a trailing 12-month basis. These awards were driven by our exceptionally strong recompete performance, an important indicator of customer confidence and a key enabler of long-term growth. While award activity improved in the quarter, it is not yet fully recovered from the multiple government shutdowns and acquisition organization changes. As we said before, quarterly awards can be lumpy, but we continue to have excellent visibility, a strong pipeline, and see a very constructive macro environment. Our results continue to reinforce that CACI is differentiated and well-positioned. With that said, we're raising our fiscal 2026 revenue and EBITDA margin guidance driven by the addition of ARKA and the strength of our organic margin performance. Slide six, please.

On that note, let's discuss our recent acquisition in a bit more detail. During the third quarter, we closed the acquisition of ARKA, a leading technology company focused on national security missions in the space domain. ARKA brings exquisite space-based imaging sensor technology with high technical barriers to entry, agentic AI-based ground processing software, and deep customer relationships built over decades of strong performance. ARKA is a powerful addition to CACI. We now have sensors deployed across all domains. We can provide multi-source, actionable intelligence and bring operationalized agentic AI capabilities to classified customers across the national security apparatus. In fact, we already have agentic AI efforts underway with our shared customer footprint, and we see significant additional cross-selling opportunities. ARKA positions us for opportunities including Golden Dome, INDOPACOM support, future ground architecture, and space superiority missions.

To fully leverage our combined capabilities, we have integrated ARKA and CACI's existing space portfolio under the leadership of ARKA's former CEO. ARKA exemplifies the type of acquisition that investors should want us to make. Wide competitive moat, unique capabilities and technology, exceptional execution history, and strong financial performance. All-in-one of the most strategically important domains in national security. It's our flexible and opportunistic capital deployment strategy in action, positioning CACI to drive long-term growth in free cash flow per share and additional shareholder value. Slide seven, please. CACI is a national security company. That focus continues to be a powerful differentiator in the marketplace. We have more than 1,400 people embedded in mission spaces across all combatant commands, performing planning, intelligence analysis, cyber, and operational support. We are involved in every operational headline you read, as well as the many operations you will never read about.

This proximity to mission gives us an advantage that is hard to replicate. We understand the mission and the threats because we see them every day. This creates a feedback loop that sharpens our business development, strengthens our reputation for execution, and informs our decision-making, allowing us to confidently invest ahead of customer need. These are meaningful discriminators that create competitive advantage and help drive our financial performance. For example, CACI recently received multi-year extensions on several contracts in critical mission-focused areas as a direct result of our exceptional delivery. Slide eight, please. Our strategic investments, informed by the mission proximity I just described, that position CACI as a leader in software-defined technology in key warfighting domains that are receiving significant attention and funding from our customers. These investments also demonstrate a repeatable strategy that will drive future growth and shareholder value.

A great example is our Spectral program, where we are developing the next generation of shipboard signals intelligence and electronic warfare capabilities for the Navy surface combatant ships. We initially invested ahead of customer need to show them the art of the possible and to demonstrate our differentiated solution during the bid phase. Now we are actively investing ahead of need during execution to accelerate delivery of capabilities to the field, a key ask of the current administration. During the quarter, the program continued to progress as we achieved Milestone C, marking the start of Spectral's low-rate initial production and deployment phase. This was a defining step towards ramping up the program and delivering this critical EW technology to the fleet. Because Spectral was built using software-defined technology with open architectures, another key administration priority, we see significant additional opportunities across the Department of War and internationally.

Another example is in Counter-UAS, where we are seeing accelerating demand, increasing orders, and a growing pipeline driven by Merlin, our commercially sold Counter-UAS system. Merlin leverages nearly two decades of our Counter-UAS investments and work across the Department of War to deliver a system that sees further, detects more, provides more critical decision-making time, and delivers more effective low to no collateral damage capabilities than any other available system. Merlin is a software-defined system that can be rapidly updated and provides a nearly unlimited magazine of economically sustainable non-kinetic effects, including unique cellular detection and defeat capabilities. From concept to deployment in under a year, we are not only providing the Department of War with the capabilities they are asking for, but we are also delivering them at the speed demanded.

We are proving this in real time with a Merlin system that our customers deployed on the southern border. A final example is our strong positioning for Golden Dome. CACI's have been investing in, developing, and building many of the capabilities this mission requires across many critical layers. First, our Counter-UAS systems. Defending the homeland is not just about ballistic or hypersonic threats. It's also increasingly about threats from unmanned aircraft systems. CACI's technology is ideally suited for this mission, where extended detection range provides critical time for decision-making, and low to no collateral damage effects are critically important for mission success. Second are our exquisite left-of-launch capabilities. These include sensitive cyber activities as well as our worldwide set of embedded sensors, which can detect and defeat threats before they are deployed. Third is our space-based sensing.

ARKA significantly expands our capabilities in the space domain, including technologies such as hyperspectral imaging for missile detection. Spectral, Merlin, and Golden Dome are three significant proof points of how CACI creates value for our customers and our shareholders. They demonstrate where we identified an enduring need early, invested well ahead of award, and have established differentiated positions through years of disciplined execution and continued innovation. Slide nine, please. Turning to the macro environment, we continue to see constructive budgets and demand signals. While the government fiscal year 2027 budget is still evolving, the proposed spending looks very positive in many key areas for CACI, including electronic warfare and Counter-UAS, space, especially classified space and counterspace programs, C5ISR, and IT modernization, including AI and the digital backbone.

We are in the right markets that are aligned to enduring, well-funded priorities, and we're providing the right capabilities to address our national security customers' most pressing needs. With that, I'll turn the call over to Jeff.

Thank you, John. Good morning, everyone. Please turn to slide 10. As John mentioned, we're very pleased with our third quarter performance, despite some modest disruption from the ongoing DHS shutdown. Our revenue and awards reflect our strong market position in a recovering but still sluggish award environment. While our strong margins and cash flow demonstrate the high-value differentiated characteristics of our offerings and our operational excellence. In the third quarter, we generated revenue of $2.4 billion, representing 8.5% year-over-year growth, of which 6.8% was organic. Despite the modest DHS impacts that I mentioned, we still saw the expected acceleration in organic growth moving into the second half of the year. EBITDA margin of 12.3% in the quarter represents a year-over-year increase of 60 basis points, even after absorbing $17 million of ARKA transaction costs.

Adjusting for these expenses, our strong third quarter profitability was driven primarily by overall mix and strong program execution. Third quarter adjusted diluted earnings per share of $7.27 were 17% higher than a year ago. Greater operating income, along with a lower share count, more than offset higher interest expense, including $11 million related to ARKA, a higher income tax provision, and the transaction costs I mentioned earlier. Finally, we delivered healthy free cash flow of $221 million in the quarter, driven by strong profitability and good working capital management. Third quarter cash flow was reduced by approximately $20 million due to transaction costs and other acquisition-related financing fees. Days sales outstanding, or DSO, were 55 days, two days lower than the prior quarter. Slide 11, please.

Turning to our balance sheet and capital structure, our pro forma leverage at the end of Q3 was 4.2x net debt-to-trailing 12-month EBITDA, slightly better than the expectation we provided when we announced the ARKA acquisition. We continue to expect leverage to return to the low threes within six quarters based on the strong cash flow characteristics of our business. I'll remind you again that we have a strong track record of successfully and quickly de-leveraging after major acquisitions, which underscores our consistent financial performance, disciplined capital deployment, and demonstrated access to capital. As we have previously indicated, ARKA is accretive to both growth and margins. The acquisition of ARKA is just the latest example of our flexible and opportunistic capital deployment strategy and the evolution of our portfolio, which positions CACI to deliver long-term growth and free cash flow per share and additional shareholder value.

Slide 12, please. We're pleased to increase our fiscal 2026 revenue and EBITDA margin guidance driven by the addition of ARKA and the strength of our organic margin performance. You'll notice on the right-hand side of the chart, we've provided a breakdown of costs associated with the acquisition for transparency and your modeling purposes. We now expect revenue to be between $9.5 billion-$9.6 billion. This represents total growth of 10.1%-11.3%, which includes about 3.5 points of growth from acquisitions, including $150 million from ARKA. We're increasing our fiscal 2026 EBITDA margin to the 11.8%-11.9% range, underscoring our strong execution and evolving portfolio as well as contributions from ARKA. Our full year margin outlook includes the impact of approximately $22 million of transaction costs related to the acquisition. Our updated FY 2026 adjusted net income guidance is between $615 million-$630 million.

Adjusted net income reflects the after-tax impact of approximately $60 million of pre-tax transaction costs and higher interest expense, largely offset by stronger organic margin and ARKA's earnings contribution. This yields full year adjusted EPS guidance of between $27.70 and $28.38 per share, which represents growth of 5%-7% even as we absorb these costs. Finally, we are reaffirming our free cash flow guidance of at least $725 million, even after absorbing nearly $50 million of transaction costs, interest expense, and an increased investment in capital expenditures. As we consistently say, we see free cash flow per share as the ultimate value creation metric, and our FY 2026 guidance represents 65% growth in free cash flow per share over FY 2025. Slide 13, please. Turning to forward indicators, all metrics continue to provide good long-term visibility into the strength of our business.

Our third quarter book-to-bill of 0.9x and our trailing 12-month book-to-bill of 1.2x reflect good performance in the marketplace, even with the multiple shutdowns and slow rebound in award decisions. The trailing 12-month weighted average duration of our awards in Q3 continued to be just over six years. Our total backlog of $33.4 billion increased 6% year-over-year, while our funded backlog increased 19% over the same period. Both metrics reflect healthy organic growth. Even when normalizing for ARKA's contribution of $835 million to total backlog and $422 million to funded backlog. Additionally, ARKA has another $2 billion of non-competitive franchise programs from which we expect to recognize revenue over time, but that don't yet meet the regulatory criteria to be added to backlog. For fiscal year 2026, we now expect 98% of our revenue to come from existing programs, with 1% each from recompetes and new business.

Progress on these metrics reflects our continued strong operational performance and yields increased confidence in our outlook as we close out the year. In terms of our pipeline, we have more than $4 billion of bids under evaluation, over 80% of which are for new business to CACI. We expect to submit another $22 billion in bids over the next two quarters, with over 75% of those being for new business. We continue to have excellent visibility, are well-positioned in a very constructive macro environment, and remain very comfortable with our outlook, including our three-year targets. In summary, we delivered another quarter of strong results. Our performance continues to demonstrate our differentiated position in the marketplace, which is further enhanced by our acquisition of ARKA.

Our ongoing investment ahead of customer need enables us to win and execute high value, enduring work that drives long-term growth, increased free cash flow per share, and additional shareholder value. With that, I'll turn the call back over to John.

Thank you, Jeff. Let's go to slide 14, please. In closing, I want to emphasize what truly differentiates CACI. While others talk about adjusting to the changing market, we're already delivering. We anticipated years ago that speed, software-defined solutions, and mission proximity would define success for the long term in national security. We positioned the company accordingly through deliberate investments and disciplined execution of our strategy. This is all about expanding the limits of national security. It isn't about chasing trends, understanding where threats are evolving, where our customers' hardest problems will be, and building the capabilities to address them before they ask. That's what's allowed us to compete and win against a broader set of competitors. Our third quarter and fiscal 2026 results to-date demonstrate this differentiation in action.

Strong organic growth, expanding margins, robust cash generation, and the strategic addition of ARKA to further strengthen our position in the space domain. We're executing our strategy, delivering for our customers, and driving long-term shareholder value. Before I turn the call over for questions, I want to congratulate NASA and the Artemis II crew on their historic achievement. I also want to recognize that both CACI and ARKA contributed critical technology that exemplifies the caliber and mission impact of our offerings. CACI's optical communications technology enabled high-definition video and data transmission throughout the entire mission, while ARKA provided essential sensing technology on the SLS rocket to ensure a safe crew ascent. To both teams, thank you for your exceptional work on this landmark achievement for our nation's space program.

As is always the case, our success is driven by our now 27,000 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 every day for our company and for our nation. To our shareholders, I thank you for your continued support of CACI. With that, Jeannie, let's open the call for questions.

At this time, in order to ask a question, press star then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. For today's call, we do ask you to limit yourself to one question and one follow-up. Thank you. Your first question comes from the line of John Siegmann with Stifel. Please go ahead.

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

Congratulations on closing the transaction. Just a real quick one. Just with ARKA, and now that it's all integrated under one leadership, can you scale how big your space exposure is today?

Yeah. John, It's John, thanks. Well, it's definitely gotten larger. Not just in size, but frankly in scale and just the absolute eye-watering capabilities that that national asset brings in. Look, we don't just use that national asset term loosely. They're a 62-year-old company. They've been at the forefront of technology developments since the Cold War, an outstanding track record of execution. We've talked to the majority of the satellite primes that utilize what ARKA provides in space, and just outstanding feedback. A consistent partner, consistently delivering on schedule and within cost. What drives the growth of space business further? Definitely Golden Dome. Some of the backlog numbers that Jeff mentioned earlier. Just to have an asset that has another $2 billion of non-competitive sole source franchise programs from which we're going to continue to expect revenue from, really does drive future growth.

All-in-all. Today, looking at space, you're looking at greater than $1 billion worth of total business with future growth that we see coming forward when we get talking about fiscal year 2027.

Appreciate that. Maybe I'll just ask one, Jeff, on margins, because that was pretty impressive for the quarter. Previously, you made statements quantifying the difference between tech and expertise, which was helpful for us. Now that you've added the C-UAS, ARKA, and A-ISR, is there any framework that we can think about of the relative margin differences between those two segments, and any lumpiness or seasonality to keep in mind? Thank you very much.

Yeah. Thanks, John. Look, you hit at an item that we're probably not going to provide a lot more specificity about around, at least at this point. Clearly the addition of these significant technology franchises is important in the evolution of the portfolio we've been talking about for some time, and the attendant margin expansion that comes with that. You put your finger on something that we're not quite ready to quantify, but the condition that you observe is clearly the case. I would add, relative to the second part of your question, that that does come with a certain amount of lumpiness in terms of margin. You can see that a little bit when you do the algebra around the fourth quarter margin, where we have particularly strong margins this year or this quarter.

We're increasing our margin performance for the year, and you will quickly figure out that probably means some lumpiness in the fourth quarter that goes the other way, the way this quarter went the right way. There is some variability around that you've noted. Overall, however, we clearly have embarked on this strategy with the expectation that margin continues to go up and to the right, despite an occasional quarterly bounce.

Yeah. John, let me also add on the revenue side. The expected financial contribution over the next 12 months that we shared with you all in December is still accretive to revenue growth and margin. On the revenue side, revenue's not going to be linear, folks. It's a technology business. You make deliveries, you book revenue, and you book profit. Unfortunately or fortunately, program schedules are really not congruent with quarter endpoints. We can't apologize for that. It's very much like the rest of our technology business. We'll do our best to estimate quarter to quarter, but this is a full-year business. We've said that a lot. ARKA is a fantastic growth addition for us as we move forward.

Your next question comes from the line of John Godin with Citigroup. Please go ahead.

John? John, you there? Operator, let's move on to the next question.

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

John, you talked about this a bit, but maybe it's kind of a two-part question on the booking environment. It seems like the submits are building really nicely, but that's not converting to the pipeline. I guess, what are you seeing there? Then second on kind of funding, I think if I exclude ARKA, your funded backlog was up high single digits. Is the funding environment still behaving better even if the award environment maybe isn't? Thanks.

Yeah. Gavin, thanks. Let's unpack that. Look, we continue to see excellent visibility, a strong pipeline. We see a really constructive macro forecast as we look forward. Let me just start with, we're in the right places. We're investing ahead of need in the right capabilities. We're able to deliver them faster and more efficiently. That's exactly what the administration wants. It's safe to say we're not a short-term hand-to-mouth business. We've got a large and growing backlog, as you mentioned, nearly $34 billion, which I'll add is up 7% year-over-year. Funded backlog up 19% year-over-year, and a healthy trailing 12-month book-to-bill of 2.2x. The last thing I'd like to share is, because I enjoy this statistic, a weighted average duration of backlogs on a rolling basis of greater than six years as we get through Q3.

Funding trends, customer demand and a potential $1.5 trillion GFY 2027 budget, which includes reconciliation funding, that definitely continues to support what we're looking at going forward. We've talked about the fact that there's a number of short-term factors behind the slower award decision-making, and we could spend the rest of the day and probably be 50/50 on reasons why. There's a lot of money in budget. That does mean there's an awful lot of planning. Reconciliation funds are multi-year money. At the end of the day, I can sum all that up by saying awards are lumpy. I like what our plan is. I like the pipeline. I like the bids submitted. Over the next couple of quarters, I fully believe that the government will go back to the days of awarding most programs within 100 or 300 days of when they plan to.

We'll continue to move forward. At the end of the day, we're not a hand-to-mouth business. We are growing just fine, and we will continue to grow, and we'll get through this awards trough, and we'll continue to deliver. Jeff?

Gavin, I would add to that. You noted the funded backlog increase. The organic piece of that is 10%. I would also note that the sluggishness that we've seen in the acquisition and award structure, and this is underscored by the backlog statistic we just used, we have not experienced any administrative part of the contract administration. The government is, by and large, funding programs. They're paying bills. They're processing invoices. Payment offices are working. The sluggishness in the awards mechanism has not translated into that side of the government.

Okay. Thanks, guys. A long shot here, but guidance implies growth accelerates in 4Q. You've got some pretty easy comps this year, so any early thoughts on if the exit growth rate can continue into next year?

Yeah. We do see growth accelerating in the fourth quarter, which has always been the plan. When I referred to the fact that we were seeing the growth acceleration we expected in the third, that was part of that. I would also encourage you to keep John's comments in mind relative to the fact that the business is managed, really, to the year. We have customers that have rhythmic buying patterns. Different times a year, they buy differently. We typically have strong second half and particularly fourth quarter, which we see again this year. I would encourage you to not think about that as an exit rate for the year. If you look over time at the distribution of our margin and revenue growth, you'll see that back-end-weighted trend, and I'd encourage you to not extend that into 2027 as we close out 2026.

What if I added a comment about 2027? I would encourage you to look forward to us continuing to deliver growth, driving revenue, driving margins, driving free cash flow. Again, we wouldn't say that if we weren't very comfortable with our three-year targets.

Yeah. The momentum in the business that you see is real.

Your next question comes from the line of Gautam Khanna with TD Cowen. Please go ahead.

Good. I just wanted to follow up on that last question. I remember last quarter you kind of explained the Q4 sequential ramp that's expected, JTMS and some other programs. I'm curious, though, why wouldn't those continue to be at a very high rate exiting the June quarter into the September quarter? Is there anything one-time with those specific contracts that are driving so much of the sequential growth that tapers off? I just wanted to get your broad perspectives on the fiscal 2027 budget request and how that might benefit CACI, and what parts of the business.

Why don't I take the first part of that. Thanks, Gautam, and let John take the second part, the broader budget question. I would refer you back to the discussions that we've had about the different ramp profiles, and there are a couple things that are happening in the fourth quarter and the sequence from third to fourth. One is that we have a number of programs that have a bimodal growth rate. One of the patterns that I talked about is a lot of these large agile software programs have an initial phase that is planning the second phase. There's acceleration and then a leveling off and then a re-acceleration. We're working through those phases right now on ITAS and to a lesser extent, NCAPS. We very much are in that mode for JTMS.

The other thing I would point out is that we do have, in a number of the technology areas, customer communities that are particularly heavier buyers at different times of year, often with increased activity in the fourth quarter of our fiscal year. The final variable is that we have a number of items where we're in the early stages of activities that are driving investment for future growth. That is another variable in that mix. The real answer is it's a portfolio, and while mix sometimes feels like a handy explanation, there really are three or four substantive conditions that are at play here, and they come together from time to time with the outcomes that we try to suggest to you to expect.

The second part of your question around the 2027 budget. Look, larger budgets never hurt. We would rather have larger budgets than shrinking ones. As I've said many times, we're going to pay much more attention to where the funds are flowing under the surface. What we see in the President's budgetary request looks very positive. The J-Books, I think, came out earlier this week, so we'll be able to garner much more details from those as we build our fiscal 2027, 2028, and 2029 plans. We're a $300 billion TAM, and we're roughly a $10 billion company, so there's plenty of room for us to go grow. We firmly believe that the electronic warfare in the Counter-UAS areas, both in Department of War and in the DHS, show great promise.

We're having all the right meetings and planning sessions, and doing the right things we need to do, and making the right investments internally so that we can meet those market needs. Space, really good on both the classified space programs. We are very strong in those future budgets, especially those that are in the FY 2027 plan. C5ISR and then IT modernization, both bringing in AI and doing network modernization. Very supportive of where we're going ahead. As I always say, more importantly is where the money's going, and we believe it's going in the right spots that will drive future growth for the company in 2027 and beyond. Thanks so much, Gautam

Your next question comes from the line of Scott Mikus with Melius Research. Please go ahead.

Good morning. This is [Matt Martolohon] on for Scott Mikus.

Congrats on Milestone C on Spectral. As that program moves into LRIP and eventually into full rate production, are there any challenges that you foresee or investments that need to be made to support the production ramp? How should we think about the margin benefit as it moves into production? Thank you.

Yeah, thanks. Look, we're extremely proud about where the Spectral program is. That was a long road for us to achieve victory there, and we've done an outstanding job with it. We did receive Milestone C. We are just beginning the LRIP portion. In the October-November timeframe, we'll be looking at sort of delivery zero, which is what we'll begin delivering some of the systems. On the investment side, as my prepared remarks stated, we invested long ahead of the award of that program to make certain that the brains of that system, which is looking at multiple antenna feeds and looking at all of the known threats, and really providing a great AI baseline for naval combatant ships. We've performed those investments. We've also continued CapEx investments at our production facility in Melbourne, where we are rolling out both [C8F] and the Spectral program.

We've continued to invest in this program, driving frankly long lead item purchases slightly ahead of Milestone C, so that we could take that timeline in between C and when we can deliver the first system down. It is an absolute proof point for us on our focus on excellence and execution. It's a new large type program for us, but a great partnership with the Navy coupled with the right funding timing allows us to deliver to well over 100 ships that are in the U.S. Navy fleet today.

Perfect. Thank you, guys. I'll stick to one question.

Your next question comes from the line of Seth Seifman with JPMorgan. Please go ahead.

Good morning, guys. This is Rocco on for Seth.

How should we think about ARKA impacting margins moving forward? You mentioned that quarter-to-quarter margins can be lumpy from the technology side of the business, but is the 11.6% that's implied for next quarter the right way to think about the lower end of the new company margins post these deals?

Yeah. The ARKA contribution in the fourth quarter is pretty consistent with our expectations. John mentioned the fact that this is a delivery and mixed business, and very much not linear. We gave some indication of margin in the December 22nd call, but I'd point out that within any particular quarter around that average, we may see three or four point swings in any particular quarter. I don't know if I'm getting exactly to the question that you asked. The ARKA expectation for the fourth quarter is well-aligned with our expectation when we made that announcement. The organic business mix will be a softer quarter when you do that math.

Right. That makes sense. What type of directed energy capability does ARKA bring to CACI, and have they been fielded at this point?

They bring a portion of directed energy, things we can't talk about on the line. Yes, it's a new capability for us. We're not in the directed energy business prior. I think we'll be able to talk more on that in the quarters to come. I do want to touch back on your earlier question. Look, ARKA is a long-term play for us. It's probably one of the strongest acquisitions that we've done in terms of both doubling down on capabilities and customer relationships. Frankly, us owning and growing a price-based business in a market that's going to see valuations of those with such a strong space portfolio grow in the years to come. We've been able to do that all inside of a company that covered down on our transition and our interest costs, and still delivering $725 million free cash flow.

We're in the very early innings. We just got through integration on April 1st. I think we're still in the month of April. In the first 20 or so days, we've gotten a lot done. Andreas, who is running the combination of ARKA's business and our space business, is already making a major impact as to how we can continue to grow in the space.

Your next question comes from the line of Tobey Sommer with Truist Securities. Please go ahead.

Thank you. If I think about the business from a really high level, mission tech expertise, et cetera, is it fair to think of mission tech in a mix shift of 2-3 points per year because of faster growth, as well as, generally speaking, applying more capital on acquisitions in that direction?

Yeah. I think, Tobey, that's broadly right. It's a hard thing to generalize, but the condition you observe is certainly true, and you're on the right vector, to be sure.

With respect to Counter-UAS, I was wondering if you could characterize what the experience in the war so far has meant to the opportunities that you see in front of you, and maybe how that has impacted customer conversations and decision-making?

Yeah. Tobey, thanks. Let's start off with where we are in the Counter-UAS market. We're already in government inventory. We've been doing this for a couple of decades. Merlin is our family of Counter-UAS systems. It is part of our broader $2 billion EW portfolio. We do continue to expect growth from Counter-UAS. The foundational part of this is that we are able to sell it under two different vectors, under FAR Part 12, FAR Part 15. We can meet the administration's priorities. We're in place for world events, and the like. We are currently providing Counter- UAS to all four of the armed services. We're in active discussions or negotiations with 16 other agencies and organizations across the federal government.

We already have, as I talked about in my prepared remarks, a system that's already been fully deployed on the southern border. As you all know, it's our practice on anything competitive, we're not going to provide details, but we will absolutely be more than willing to share those details on the next quarterly call and in incremental press releases as we go forward. On the international front, as an update, since our last call, we are now very active working sales in theater through the U.S. Army, Task Force 59, JIATF 401, and CENTCOM for mobile Counter-UAS units. We're getting kits prepared to support testing against one-way attack drones, and those are all the ones that have been in the news over the recent quarter.

We have built established relationships with resellers to give us access into the Saudi, the Kuwaiti, and the Qatari markets through their Ministries of Defense. They're all in various stages of the process. You should expect those folks to be on board within 45 days, then we have to work through the exportability issues. We are very strong in this market. We've talked about this for quite a long time. Current events are driving stronger demand as well as the 17 countries we've already delivered EW to. Strong market, well-funded in the U.S. through both the reconciliation bills, adding billions to our TAM, which is what moved us to the $300 billion level, and really strong interest both domestically as you look at Counter-UAS for Golden Dome, as well as other initiatives like the Eastern flying drone wall. A lot of positive work here.

Putting the right dollars of investments in. You saw the CapEx is up slightly. Half of that was to ARKA. Half of that goes to our EW portfolio. We are full speed ahead in how we want to grow this market.

Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead, Sheila.

Hi, good morning, guys. Just one question from me. Great stuff on the funded backlog growing, John, despite the environment. Maybe just honing in on your civil business, still solid growth there, up 7%. What are you seeing and how do we think about major program drivers within civil into fiscal 2027?

Yeah, there are a couple things going on in civil, Sheila. You can see the modest DHS headwinds, but you can also see the NASA NCAPS ramp. Those would be the principal drivers of the change that you see.

Your next question comes from the line of David Strauss with Wells Fargo. Please go ahead.

Hi, good morning. This is Josh on for David.

Oh, hi. I wanted to follow up on the broader defense budget question. I saw a note in the slides that the reconciliation funding is starting to flow through. I was wondering if there's any way you could quantify, I guess, to what extent your programs benefit from the base budget versus the reconciliation benefit from last year, and then any thoughts on what that might look like for 2027. Thanks.

CACI International (CACI) Q3 2026 Earnings Call Transcript

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