CACI International Inc Class A Aktie

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fourth Quarter and Fiscal Year 2026 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] 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, Audra, 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're providing presentation slides, so let's move to Slide 2, please. 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 3, please. To open our discussion this morning, here's 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 fourth quarter and fiscal year 2026 results as well as our fiscal 2027 guidance. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Slide four, please. Before getting to our results, I want to start by reminding everyone of the technology-first national security company CACI has become and the key elements of the strategy that produce these results.

First, we utilize our deep mission knowledge in the markets we serve to truly understand what our customers need. We focus on enduring national security priorities with narrow deep funding streams. We deliver software-defined technology to address critical needs with the speed, agility and efficiency our customers demand, invest ahead of customer need, we deploy capital in a flexible and opportunistic manner to create value for our customers and our shareholders.

Our financial results in fiscal '26 are the latest evidence that our strategy is working. Slide five, please. Our strong fourth quarter performance capped another exceptional year in which we exceeded all of our expectations. For full year fiscal '26, we delivered revenue growth of 11%, EBITDA margin of 12.3% and free cash flow of $735 million. We also won more than $10 billion in contract awards, representing a book-to-bill of 1.1x. These results demonstrate the earnings power, cash generation potential and durability of the company we have built. Our focus on national security priorities, differentiated capabilities and long-duration work enables us to grow and execute even in slower war environments.

Slide six, please. Let me highlight several fiscal '26 accomplishments that demonstrate the successful execution of our strategy, many of which are drivers of growth in fiscal '27. First, our Electronic Warfare business is helping customers dominate the electromagnetic spectrum, a critical enabler of modern warfare. Our Spectral program achieved Milestone-C is moving into low rate initial production with deployment to begin in the second half of fiscal '27. This milestone also positions us for additional opportunities across the Department of War and internationally.

Our SkyValor counter-UAS system was selected by the Department of War to help strengthen homeland defense on the southern border. And just last week, we received a separate $500 million award for the Domestic Shield program. We invested ahead of need in SkyValor, moving from concept to deployment in 12 months, and we are seeing strong demand and expanding backlog for this and other counter-UAS offerings. And we expanded our tactical EW footprint with initial orders from the Air Force, which provides for future Department award growth. These fiscal '26 EW accomplishments are also great examples of the repeatable growth engine we've built. Mission knowledge informs investment, investment produces differentiated technology and disciplined delivery generates customer value and contributes to increasing financial returns. Next, our Space business is benefiting from surging customer demand in this critical and increasingly contested domain. We completed the integration of ARKA, combining its sensing and AI-enabled analytics with CACI's existing technology and customer presence to create a leader in delivering actionable multisource intelligence.

We were recently notified of an award to help the U.S. Space Force defend against adversarial threats, our first award leveraging the combined strengths of CACI and ARKA. We won a significant classified counter-space program that combines adaptable software with our purpose-built mission hardware. Like Spectral was in EW, this is a statement win for CACI and counter-space, winning against traditional large defense primes. Together with our Space Force RMT program, this new win positions us as a leader in next-generation counter-space technology, which is a significant opportunity for future growth.

We also advanced to Phase 3 of the Space Force's Enterprise Space Terminal program, reinforcing our leadership in delivering resilient mission-ready communications across all orbits. EST is the optical communications terminal expected to be proliferated across multiple orbits as part of the Space Force's Space Data Network. We provide a critical technology that supported NASA's historic Artemis II mission, positioning CACI for additional growth opportunities supporting both manned and unmanned space flight. In our digital and network technology business, we are delivering enterprise scale technology and network deployments to secure the digital backbone for national security. We are ramping up the Joint Transportation Management System modernization program for USTRANSCOM, replacing fragmented logistics and financial systems with an integrated solution in partnership with SAP and AWS. We are partnering with Oracle to deliver an integrated HR shared service solution to the Office of Personnel Management that will support 2 million users across 96 federal agencies. We are modernizing critical national security networks to improve cyber resiliency, efficiency and mission performance through our base infrastructure modernization awards with the Air Force and ongoing programs for the Army and DIA.

Our mission-aligned operational support business is also central to our technology-first model. More than 1,400 CACI employees are embedded across combatant commands globally, providing intelligence analysis, mission planning and operations support every day. They are involved in every operational headline you read as well as the many operations you will never read about. Their proximity to the mission gives us differentiated insight into customer needs, informs where we invest and helps us deliver relevant technology faster. Finally, across our entire business, we continue to advance the use of AI to deliver better outcomes to our customers faster. We are leveraging AI tools across our full software development life cycle to reduce development time, improve quality, increase the amount of capability we deliver and strengthen program profitability.

And importantly, where we deliver savings to our customers, we are consistently seeing them deploy these savings back to CACI to address additional mission priorities. We are also extending ARKA-developed Agentic AI solutions to additional national security missions with the speed of processing and analyzing massive amounts of sensitive data is critical. This approach using AI to enhance both how we work and the outcomes we deliver to our customers creates measurable value and competitive differentiation. These results prove that AI is a multiplier aligned with our strategy and is actively scaling our technology portfolio and growing our business. Slide seven, please. As we scale this technology-first business, we are also strengthening our leadership team in several areas that are central to our next phase of growth. During the past few months, we have added significant executive leadership in key areas of our business. First, Dr. Dave Young has joined CACI as our Chief Operating Officer. Dave has recently led a $7 billion national security space business at Lockheed Martin and will lead cross-business initiatives to drive engineering excellence, program performance and growth. Next, Tom Kirkland rejoined CACI to lead our Electronic Warfare business. Tom most recently served as President of Targeting and Sensor Systems at L3Harris and is also a combat veteran of the United States Army. Tom will be responsible for the growth and delivery of technology and support across all EW customers and programs. Next, Chris Monoski joined CACI as our EVP of Manufacturing, a critical function as we scale the production and delivery of technology across the company. Chris brings nearly 3 decades of experience in manufacturing and supply chain management, most recently as VP of Operations for L3Harris. We also combined our existing space capabilities with those of ARKA under Andreas

Nonnenmacher. Andreas is the former CEO of ARKA and a proven leader of technology businesses in the national security space domain. These executives add the operational experience that will enable CACI to convert growing customer demand into even stronger revenue growth, profitability and free cash flow.

Slide eight, please. We continue to see strong customer budgets and demand signals across our markets. Our total addressable market exceeds $300 billion, and our portfolio is concentrated on enduring well-funded national security priorities that give us significant room to grow without depending on top line budget expansion. Customers are also moving to acquire our technology faster through nontraditional procurement methods, including CSOs, OTAs and FAR Part 12 commercial acquisitions. This shift plays directly to CACI's model of investing ahead of need and delivering adaptable mission-focused technology quickly. We anticipated this change and have been executing our commercial delivery strategy for years, demonstrated by the fact that our OTA award value in fiscal '26 was more than double the values of fiscal '24 and fiscal '25 combined.

Our differentiated capabilities and strong past performance position us to win new business, expand existing programs and successfully defend recompetes. Award activity is beginning to improve, which is evident in our pipeline metrics and our consistent growth in funded backlog illustrates the importance of the mission outcomes we are delivering. Slide nine, please. Looking ahead, we are setting up to deliver another outstanding year in fiscal '27 based on our accomplishments in fiscal '26. We've developed the technology, won the programs and strengthened the leadership team needed to scale our business in several key areas.

With this in mind, in fiscal '27, we expect to deliver revenue growth of 12.4% at the midpoint, EBITDA margin in the high 12% range and free cash flow per share growth of approximately 22%. This outlook also puts us on track to meet or exceed the 3-year targets we established at our Investor Day in November 2024. Jeff will provide more detail on our guidance and our progress against our 3-year commitments.

With that, I'll turn the call over to Jeff.

Thank you, John. Good morning, everyone. Please turn to Slide 10. We are extremely pleased with our fourth quarter and fiscal '26 performance in which we delivered record levels of revenue, EBITDA margin and free cash flow. This exceptional performance underscores our portfolio evolution and the financial results of our strategy. In the fourth quarter, we delivered the double-digit year-over-year and sequential growth as we committed with revenue of $2.7 billion, representing 17.6% year-over-year growth, of which 11.6% was organic.

EBITDA margin in the quarter was 13%, 150 basis points higher than last year, driven by strong program performance, a greater mix of higher-margin technology and the gain on a minor divestiture in our U.K. business unit, which added approximately 30 basis points. Fourth quarter adjusted diluted earnings per share of $8.91 were 6.1% higher than a year ago, driven by excellent operating performance more than offsetting a much lower tax provision last year. Finally, free cash flow of $233 million for the quarter was driven by strong profitability and solid working capital management.

Slide 11, please. For the year, we generated $9.6 billion of revenue, representing 10.9% growth, of which 7.2% was organic. EBITDA margin of 12.3% for the year, which includes 10 basis points from the U.K. divestiture gain, represents a 110 basis point increase over the prior year. Notably, CACI is now delivering nearly $1.2 billion of EBITDA annually. Adjusted diluted earnings per share increased 12.7% to $29.83 despite $120 million in additional interest and tax expense, demonstrating our robust operational execution and the continued strength of the business.

Fiscal '26 free cash flow of $735 million reflects our strong profitability and working capital management and represents a 68% increase in free cash flow per share. We exceeded our initial guidance even after considering additional CapEx investment, ARKA-related costs and the delay in the $40 million tax refund into FY '27. These results show that our strategy is producing stronger growth, higher margins and increasing free cash flow per share. Slide 12, please. Turning our attention to the balance sheet and capital structure. We've also made rapid progress reducing leverage following the ARKA acquisition. Pro-forma leverage ended the quarter at 3.7x, representing a 0.5 turn reduction in just 1 quarter. This is consistent with our track record of successfully deleveraging after major acquisitions. We now expect to return to leverage in the low 3s by June of 2027, a quarter sooner than we had originally communicated.

Slide 13, please. For fiscal '27, we anticipate another year of strong financial performance. We expect revenue between $10.65 billion and $10.85 billion, representing growth of 11.3% to 13.4%, including approximately $500 million of acquired revenue. We expect EBITDA margins in the high 12% range, an increase of 50 basis points at the midpoint and about 250 basis points over the last 5 years. We expect adjusted net income to be between $735 million and $755 million, which translates into adjusted diluted earnings per share between $32.96 and $33.86. And finally, we expect fiscal '27 free cash flow of at least $900 million, representing free cash flow per share growth of approximately 22% and the second straight year where adjusted net income conversion would be at least 100%.

Fiscal '27 free cash flow includes the delayed $40 million tax refund as well as $115 million of cash benefit from the Section 174 R&D tax credit changes. The Section 174 benefit is larger than previously discussed as it has become more advantageous with the ARKA acquisition to utilize the accelerated tax deduction. We provided a table in the appendix outlining these details. As always, while we are focused on full year results rather than any particular quarter, we provided additional details on the slide to assist with modeling, including information regarding timing trends we expect in fiscal '27.

In addition to our expectation of stronger organic growth in the second half versus the first half, we expect first quarter organic growth to be in the low single digits. Slide 14, please. Our fiscal '25 and '26 results and the fiscal '27 outlook put us on track to substantially beat our 3-year free cash flow target of $1.6 billion by 31%, generating free cash flow of at least $2.1 billion for the 3-year period. This performance is driven by exceeding our 3-year EBITDA margin target of mid-11%, now expected to be 11.9% to 12% and meeting or exceeding the high end of our 3-year revenue target of high single-digit compound annual growth rate. These 3-year performance estimates exclude the benefit from ARKA, which was the basis on which we provided the targets. Accordingly, when including the benefit of ARKA, our 3-year results on a reported basis will be even stronger. These financial results are particularly notable given the dynamic environment of the past few years. Our consistently strong performance is a testament to our strategy, differentiation and the evolution of our business as well as the superior execution of the entire CACI team. Slide 15, please. Turning to our forward indicators. As we enter fiscal '27, we expect approximately 83% of revenue to come from existing programs, 9% from recompetes and 8% from new business. Fiscal '26 awards were $10 billion, representing a healthy mix of new work and strong recompete performance. The weighted average duration of these awards was nearly 6 years, providing us with strong visibility into the long-term strength and cash generation capacity of our business. I'd also like to expand on John's comments about seeing an increase in customers using nontraditional acquisition methods. While these methods continue to be very beneficial to CACI, metrics like book-to-bill, contract duration and pipeline may need to be considered differently as these methods become more prevalent.

Total backlog of more than $32 billion grew 2% year-over-year, while funded backlog increased by 29%. This represents the sixth time in the last 7 quarters that we have delivered double-digit year-over-year growth in funded backlog. underscoring the critical national security priorities we address and the superior execution we deliver. We continue to see a healthy pipeline of new opportunities with nearly $11 billion of bids under evaluation, about 75% of these being for new business. We also expect to submit another $22 billion in bids over the next 2 quarters with about 80% of these being for new business.

The significant increase in bids under evaluation, while sustaining the level of expected submissions is another indicator that the acquisition process is returning to a more normalized cadence and demonstrates that CACI is positioned in the right markets, focused on enduring priorities with narrow deep funding streams. In summary, fiscal '26 was an outstanding year. We exceeded our commitments in a challenging environment, demonstrating the strength of our business and the effectiveness of our strategy. Our fiscal '27 outlook, substantial backlog and strong market position give us confidence in continued growth, increasing free cash flow per share and delivering additional shareholder value.

And with that, I'll turn the call back over to John.

Thank you, Jeff. Let's go to Slide 16, please. Before we open the call for questions, I want to take you back to November 8, 2024, when we held our Investor Day at the New York Stock Exchange and provided our 3-year financial targets. It was 3 days after the presidential election and 4 days before the incoming administration announced DOGE and an ambitious effort to reduce federal spending, regulations and bureaucracy. What followed was a period of significant change and uncertainty across the government market. Since then, we've seen multiple lengthy government shutdowns, a multitude of executive orders and changes to the government acquisition process and extended slower award environment and numerous other dynamics.

Against that backdrop, we remain focused on delivering the 3-year financial targets we presented at Investor Day. We did not build our commitments around the expectation of an easy operating environment. We built them based on our long-term strategy around serving enduring national security priorities, delivering differentiated technology, executing a disciplined and invest ahead of need model, consistently executing and all the while taking our customer where we knew they needed to go. Now over 2 years into our 3-year targets, our results speak for themselves. We have delivered on our commitments and our fiscal '27 guidance puts us on track to outperform the 3-year plan we established. This is the key takeaway from today's call.

Strategy has always been a place where we come from. Core principles of that strategy are resilient today. We've proven again and again that regardless of the larger macro environment changes we face, our strategy is working. Our business is stronger, our resolve unwavering. We are well positioned to continue delivering value for our customers and our shareholders. As is always the case, our success is driven by our 27,000 employees who are ever vigilant in expanding the limits of national security.

To everyone on our CACI team, I'm extremely proud of what you do every day for our company and our nation. And to our shareholders, I thank you for your continued support of CACI.

With that, Audra, let's open the call for questions.

[Operator Instructions] We'll take our first question from Gavin Parsons at UBS.

John, I mean, at risk of asking to sound a bit like a broken record. But if I go back 10 years, CACI organic growth has kind of more or less been in line with the industry average. But in 2024, it kind of really started to pick up steam. I mean, you grew even faster in '25. And I mean, in '26, you grew just that much faster than the industry. I mean, is there anything you can point to in the last few years that's allowed that really to accelerate or diverge?

Yes. And Gavin, look, thanks much for that question. Look, it all starts with a clear strategic plan, right? We put a very new road ahead in 2019. We spent a lot of time talking about the expertise in tech and the interplay between those two -- we did a complete business development reset. You all heard me talk about bid less and win more and bid longer in larger programs. We really doubled down on focusing on our customers' needs, really gaining unique mission understandings. We talked about the 1,400 people we have embedded. That didn't happen by accident. That was a well-orchestrated strategy for us to build those teams out. We invested ahead of need in markets that mattered.

And then most importantly, Gavin, if you look at the '19 to '23 time frame, we spent a lot of time and treasure creating a differentiated software-based tech portfolio that was really aimed at the real needs of the DoD and the intelligence community. We were able to take all the knowledge that we learned from our embedded workforce at all the COCOMs around the world and really build some world-class commercial priced and commercially deliverable products. So if you think about it, if I look back and I realize it was a good 10 years. In '19 through '23, I think we're a little bit ahead of our time, and we were sort of priming the pump. In '24, everything really came together. We've talked about the programs we put in backlog were 6 years of duration versus 3. We had a strong tech portfolio that was commercially available. We reshaped our workforce. We obtained a lot of talent.

And frankly, '27 is going to be the next year of exceptional growth. It's all around differentiating. It's all around, unfortunately, continually being compared against companies we have very little in common with. I've always said that when I hear somebody say, "Hey, we're going to move to technology from where we are today". I probably say you just had your best day because there's a long number of years and a large moat for you to go build what it means to deliver technology to this new age battles.

Again, pace of change in battle needs to equal pace of change in the tech. And I think where we've come and where we've been and connecting where customers are buying today, I think it's why you can focus on '25 -- '24, '25, '26, and you're all going to see exactly the same kind of performance in '27.

I think that's the real takeaway. You don't just say this and do it. I mean once you identify this path, it takes a couple of years of concerted focused energy for it to start to bear fruit.

We'll move next to Scott Mikus at Melius Research.

Very nice results. John, since you've been at CACI, you've really transformed the portfolio and made it much more of a defense tech hardware business. You talked about the executives that you recently brought on board. And I noticed a lot of them have backgrounds in hardware and also space. So should we take that as the company is going to increase its acceleration to becoming even more of a software-defined hardware company? And could that possibly lead towards deemphasizing the expertise side of the business?

Yes. Look, let me talk a little bit about the talent that we brought on board. Yes. I mean, look, Dave has a lot of space background. He has a lot of networks background. He's been in both PE held companies as well as publicly traded companies. Chris definitely -- you've heard me talk about what we've done on the manufacturing side. I mean, Chris is going to move us from good to awesome and just by bypassing great. Tom is back into CACI running our EW business. So there's no doubt that we brought tremendous talent in.

Look, we all set those terms expertise and technology out there really as markers. -- to really say, look, we're going to transform this company. And for those fortunate investors who up to this point have been by our side, who are buying our stock in 2015, '16, all the way through '19 and '23 when we were average growth and now where we're we are now, they've seen -- they've been able to bear the fruits. So where do we go next? We're always going to have expertise in this company, okay? We like to call it operational support. We like to call it deeply embedded with the mission because at the end of the day, folks, you want us to have the knowledge of where the mission is going long ahead of where everybody else does. And that's what it takes and that's what we get when we have 1,400 people forwardly deployed all around this globe. We know the issues that are out there. We understand uniquely how the mission has changed and how the battlefield tactics have changed.

And that's why it makes investing in our software-based tech that much more safe, safe, meaning that a lot of our investments and our bets do come in, and we're able to continue to grow. So I don't think you'll ever see a day that we don't have expertise within our business. What I think you're seeing is that whether it's digital and network tech or whether it's EW or cyber or space, we're that company that customers are now beginning to really come to, to have us build the software-based technology as well as the support that they need to fight an ever-changing battlefield. So thanks for the question.

We'll move to our next question from Colin Canfield at Cantor Fitzgerald.

Total book-to-bill is not the right metric. Maybe if you could talk about your funded booking expectations contemplated in the guide? And then if you're able to talk about funded bookings quarter to date.

Yes. Thanks for the question, Colin. I think there are a couple of related statistics that you have to think about to get a holistic view of this of the nature of the core of your question. The first one is the increase in funded backlog. And I commented in my prepared remarks about this being the sixth of the last 7 quarters that we've had double-digit increases. That, combined with the size of the overall backlog tells you that customers are laser-focused on what we do and the criticality of the positions, and they're doing what they need to do for us to grow and prosecute that part of the strategy.

The second factor that I would point to is the size of the bids under evaluation. So that's grown in a quarter from $4 billion to nearly $11 billion, 2.5x or so larger, while at the same time, the $22 billion pipeline of proposals we expect to submit over the next 6 months is relatively stable. So I think you get a sense of 2 things from those 2 statistics. One is the customer priority on the positions that we're holding and executing on. And the second is the continued opportunity-rich environment that we see for the things that we do. And I think the awards per se in any particular quarter have a lot of kind of administrative month-to-month kind of changes. But the durable statistics that I just referenced, I think, are at least as important to thinking about where we stand on that matter.

Colin, let me add one other piece of information as well. During my prepared remarks, I was talking about CSOs and OTAs. Look, strong OTA content will beginning now and in the future, that's going to influence award values like the actual dollars of awards that we book. So in the near term, these year-over-year comparisons, they're not going to work forever because the ground under us all is starting to move forward. It's moving at a pretty rapid pace. $500 million of OTA work last year alone, which is more than double what we did the prior 2 years.

That has a near-term impact on all of us watching numbers, but has an awesome maximum impact on company value as you go forward because those lower dollar OTAs turn into larger dollar production programs much, much faster. So we all have to watch that. We're watching that internally as well to make certain that we've got the right book of business to continue to grow the company. And frankly, this management team wouldn't put the guidance we have in '27 if we were sitting here [ nervous nelling ] dollars of business awarded in '26.

Got it. Got it. And then maybe if we can talk about remaining gaps in the CACI portfolio, specifically within electromagnetic superiority space and cyber. How does the team think about kind of I guess, expanding the manufacturing kind of acquiring more manufacturing work over time versus the profitability that you get from kind of, let's say, approaching or developing, investing in new phenomenology for intelligence, like notably like it's electro-optical imagery now, RF, which has already been a significant franchise. But assume there's other things that you want to chase over time that are part of the portfolio?

Yes, Colin, thanks. So let me take a part of that. I may hand part of that off to Jeff as well. Look, our M&A program has been quite discriminating within the sector, and I would say, within the broader industry at large. We're always looking for gaps. And admittedly, the number of gaps clearly over the last 15 or so years have gotten smaller over -- and I think our investors have been extremely well rewarded with the organic growth that we've built building on those acquisitions. But we're sort of doing both, right? First of all, we do have an all-inspiring technology portfolio. We're always looking to see how do we advance it, how do we add capabilities to it? And then how do we take AI and everything that AI gives us, right? And how do we push our software-based tech to do more so we can process more information and provide much more battlefield effects.

Every time we do that, where we don't change the base unit, but we add new software to those units, we increase capabilities out there, and that makes us even more sticky. But if we look at the gaps, yes, we do have gaps, and we're always -- we have a live M&A pipeline always. But I think at the heart of your question is now it's not about trying to fill gaps. It's about enhancing everything that we have. And frankly, Chris Monoski on the manufacturing side, we build software-based tech and unique integrated solutions at 10 to 12 different places around the U.S. And we are deeply studying how do we build production centers of excellence, whether it's defense electronics, space-based solutions, integrated solutions, where does the best workforce live for that kind of work, then how do we bring solutions to our war fighters sooner?

Yes. And Colin, let me remind you that before we get to acquire, we run through the possibilities around investing and partnering first. So we don't have -- obviously, we're serial acquirers and M&A is an important part of our strategy, but that's not always the first place that we look when we identify a gap. So having said that, obviously, John's characterization of what we're doing is consistent with what we've said and aligned with the pipeline that we continue to manage and look for.

As we grow, the nature of some of the gaps is changing and it becomes less sometimes about specific little pockets of technology and sort of is morphing into being a little more maybe capability and market access. But nevertheless, still a gap-driven strategy. And we're not going to talk about that for obvious reasons with any real specificity, but we do -- we are always on the prowl.

We'll now take a question from Peter Arment at Baird.

Nice results. John, so fixed price revenue surge, and I'm sure some of that's tied to ARKA, but up to almost 35% of your mix. I was wondering if you expect that to kind of continue to climb going forward?

And then as a follow-up, Jeff, could you just talk a little bit about fiscal '27 kind of cadence, how you're expecting EBITDA? I know you guys have always been kind of a little second half weighted. Just if you could walk us through a little bit of that.

Yes. Thanks, Peter. So fixed price, right? -- hey, more sooner is better. Look, we've -- we're really comfortable with fixed price work, and we regularly advocate for it with our customers across the portfolio. It aligns really well with our invest ahead of customer need, right? It aligns with our agile software development work, where, frankly, customers procure software now in a fixed unit price manner based on the size of development and that deployment effort. So on the other side, we're really mindful of terms and when fixed price is used. And if there's a lot of scope that has to be defined or it's uncertain, there's probably areas where cost plus is more appropriate.

I mean, clearly, now we're a larger space business. If we need to bend the laws of physics, that probably isn't good work for the customer or us to want to do fixed price. But look, we built out a far part 12 commercial part of our business. We're already developing and selling commercially, which is code for firm fixed price. You can see the results and how quickly that moves EBITDA margins year-over-year growth. I think we're at -- if you look at the high 12s now versus where we were just last year, which was another remarkable movement in margin.

I honestly believe that firm fixed price works fantastically for our customer, and it works just as equally fantastic for us. So if you look at OTAs, that's what's going to continue to drive that work. So I don't think quarter 4 is an anomaly. I think we're just hitting our stride. I think back to Gavin's comment earlier. we're hitting our stride and then maybe the firm fixed price in the '27, '28, '29 window is going to be driving either even greater margins, better revenue growth, which to me is all about free cash flow growth. Jeff?

Yes. Related to the first half, second half part of your question, Peter, you obviously -- the answer to your question is in your question. We obviously have a pretty clear established cadence of having a heavier back half depending on whether you look at revenue or cash flow or margin progression, the patterns are slightly different. The ranges are slightly different, but the pattern is the same. And you ought to think about kind of a 45-55 first half, second half revenue distribution -- in terms of cash flow, that's kind of 1/3 in the first half, 2/3 in the back half, which again is -- if you look at the last several years, you'll see ample evidence of that pattern.

And probably the more pronounced progression, though, among those key metrics that we talk to you about regularly is margin. And the margin variability is an artifact of the portfolio. It's an artifact in the sense that it represents mix of different programs and contracts and customers and different buying patterns. And you'll see over time, it's not unusual for us to have 150, 200 bps of margin variability in the course of the year. And this year is not going to be any different we expect from the most recent couple of years. So we said mid-11s on our way to high 12s. And I think if you look at some of the recent patterns, you'll see those interior quarters kind of shape up separately. But I don't know if that answers all of your question, but clearly, the first half, second half pattern you note is an artifact of the portfolio and where we are.

We'll move next to Gautam Khanna at TD Cowen.

I was wondering if you could talk about your expectations for contract awards given you had a big uptick in bids awaiting decision and kept the to be submitted flat, which is pretty impressive. So I'm just curious, what are your expectations into the September quarter? And if we have an extended CR in the December quarter just based on your idiosyncratic submissions and pipeline?

Well, yes, that's a lovely question. Look, let me -- let's start off with where the budget is, right? And whether we're in a CR or not. I think the most helpful way to answer that is as follows. we've extended the duration of contracts we put in our backlog from 3 to 6 years over the last 8 to 10 years. We clearly, in the earlier question, talked through the fact that we're very comfortable with the guidance that we put out there based on the current awards environment. Jeff shared some metrics of things improving. We've talked about the impact of OTAs, which is a positive impact for us, should be seen as a negative one.

And then beyond that, we see the reconciliation funding starting to flow in areas like budget border security, our intelligence programs, space, absolutely, as you think through Golden Dome, modernization of a lot of different logistics systems out there. And then the entire counter-UAS market. So the other thing that I would share is if you look at the new business content, increasingly the new business content that we share in our metrics, a lot of that is by new software-based product sales.

And those sort of turn and burn in the same year and some even in the same quarter. So again, even those metrics are starting to be skewed as we're becoming more of a technology company and less of the traditional government services side, where a lot of that 8% or 9% of new business is going to be filled in with a uberly rich pipeline of high-margin software-based tech programs. So the dynamics are changing. What you should hear from Jeff and I is that we don't see any issues in achieving '27 guidance and future growth in '28 and the years out because we're in a small period of time where things are taking a little bit longer to award.

And you won't be surprised, Gautam, to know that kind of in line with our practice. Our development of the guidance range can accommodate some amount of variability around assumptions there. And we have opportunities for on contract growth and other things that factor into the range as well in addition to just the new business. It's not -- so it's not all new business. John mentioned a couple of things that could contribute to growth here that aren't necessarily ever visible in the awards number. I'd also point to our continued success in growth in the funded part of the backlog. So there's a lot of moving parts here that we're processing to come up with kind of a high confidence range to tell you where we're going to end up. There's a lot of knobs and levers here to manage.

And if I could follow up, I'm just curious if you're seeing customers move to procure things that licenses and other pass-throughs directly and if that's factored into the guidance as well.

Yes. I guess the most talked about part of that. So I guess, quickly, yes, it is factored into our guidance. If you look at some of the enterprise software platform providers, yes, we're seeing U.S. government customers go directly to those folks or known as OEMs. We overuse that term, but I'll stick with that one for now. Look, we're absolutely fine with that model. While that might mean revenue is reduced by the value of the licenses that at one time passed to our books, that revenue came with little to no margin. So actually, you should see this as margin accretive to us. So that's -- those are a couple of thumbs up, small revenue impact, more positive margins.

And on top of that, customers traditionally repurpose those savings right back to CACI that gives us an ability to deliver additional capabilities. We've had a couple of press announcements out there, whether it's with SAP or AWS or Oracle and others. What the OEMs don't want and generally aren't able to deliver is the full implementation. So the fact that the government is going to them for the licensing first and then we are partnering with those folks. They're phenomenal companies. We've built tremendous relationships. We've been in partnerships with them over the last 8 to 10 years for a lot of those large enterprise tech jobs that we've put out there.

So look, over time, maybe that pendulum swings back, maybe it doesn't. We're able to win either way. We've got a really strong track record of execution and past performance. And we frankly do this work very differently than others in the space. We're faster, we're more efficient. We're software-defined. We're bringing in AI, and that's why we win, and that's why our customers come back to us and recommend us to others. So a minor fact of who buys a license and who gets to be the prime is pretty much irrelevant to where we're going. But again, I'll say we've got all that factored in '27 guidance.

We'll move next to Jon Siegmann at Stifel.

I was excited to hear about that statement win counter-space program that you guys won. I understand you're not going to be able to say much, but we'll ask about it anyways. What does it leverage? Is it legacy ARKA? Is it -- or is it CACI coming together? Just any more details you can talk about that? And how many more opportunities are there in that domain that could be relevant to you?

Yes, Jon, thanks. So yes, we -- you're definitely right in your question. We probably can't talk a lot about it, but Yes, we were recently notified of an award to assist Space Force and in preparing to respond to adversaries threats to our national space capabilities. It is the first pursuit that leverage the combined capabilities of our legacy space business and ARKA. So if you remember, when we did the ARKA deal, Jeff mentioned that all of our financials and fiscal outlooks were not -- we didn't have any cost synergies or revenue synergies in our model. You can check the box that we're beginning the days of moving forward. There is a program out there that we are able to use the hardware and software solutions that we deliver across the space portfolio.

ARKA brought prior calls for space systems, which means vehicles, and payload development and integration. CACI brought the [ quals ] for a ground system software development and integration of on-orbit spacecraft and missions. As you put those 2 things together, it gave a great 1-2 punch to winning this NITE-STAR program. I'll also tell you, while I'm on this question, ARKA has also seen an uptick in activity and strong customer demand signals, which is going to be supported by increased classified space funding. So you can imagine as that relates to Golden Dome and all. So we've checked the box on winning a really nice program that allows both companies to work together. And then we've also done a lot more in the classified counter-space world, which is another win that really builds on our RMT program.

Next, we'll go to Seth Seifman at JPMorgan.

This is Rocco on for Seth. There have been a bunch of awards recently in the C-UAS business. Should we be thinking about it as being a primary driver of the strong growth that we saw last year and the strong growth that we expect to see again next year?

Yes, Rocco, you should see it as all of the above. As we've been talking about counter-UAS for quite a long time and doing it for a couple of decades. Look, we've now got 5 program awards, some with 6 systems, some with 4, some with 10, some with 12. So we're beginning to build this backlog out. This -- the most recent win was the $500 million Domestic Shield win. 50 competitors came out with a first task order for around 6 systems more than just SkyValor, those IDIQ vehicles, which are single award, by the way, will include some of our mobile systems like BEAM and other ground-based products that we build. Yes, you should definitely see where we're going in the counter-UAS area as just the very tip of a multiyear, decade-long franchise build-out of software-based mission tech.

A couple of things that I want to make sure I use this call to push out to our investors. What differentiates us and why have I been saying for the last 5 to 7 years that this is about to explode. We -- our systems that we deliver, it's a family trailer truck and tower fixed versions, exactly what the mission asked us for full range of threats, group 1 through 5 drones, not just 1 and 2s, exactly what the customers are asking for. Longest detection range versus the other systems that are out there. We provide 18 minutes of response time. Those 1 to 3 kilometer systems provide 6 seconds of response time. You tell me the system you want to be guarded by. We're going to see that over the next 3 to 4 quarters, the nation is going to decide that they're going to want to be covered by the longer range, more efficient system that can either non-kinetically defeat.

So as you're all hearing about reconciliation and protection of the homeland, I don't care if it's infrastructure protection, base defense, border surveillance, border protection, a system that sees all the threats all the time in a non-kinetic manner. And every time we learn something new in the RF spectrum, we push updates just like your iPhone gets for every single thing that is different to every single deployed system that are out there. So we sort of mass connect all these systems together to make certain they all have the latest detection software and latest set of non-kinetic defeat. So yes, I think this is just the beginning. Again, it takes some time to prime the pump, but very happy with what the team has done, and there is nobody better in this nation than CACI when it comes to protecting the nation against drone threats.

Right. Then as a quick follow-up, have you received export approval for the majority or all of the systems?

We have export approval for the majority and all of our systems. We've already delivered different variations to 17 different countries. I shared with you all last quarter, we were looking at getting into the Middle East and putting [ BAR ] agreements in place and expanding our sales sales teams reach into areas like Kuwait and Qatar and other areas. We have -- you can check all those boxes. We've done all of that. We're having really good discussions there.

And as part of what JIATF-401 has put in, also with that $500 million win comes the opportunity to get -- to be a part of the Secretary of the Army's sort of expedited export for us to be able to sell this system globally. So we're part of that Fast path program as well. So yes, yes and yes, and we're looking for that to grow 2027 over the next decade.

Our next question comes from Tobey Sommer at Truist.

Thank you for the quarterly update. I wanted to ask a multiyear question. As we look at your EW and space businesses collectively, and you can add any others you think are sort of in that high-margin rapid growth bucket. Is it fair to assume a mix shift in that direction as they grow more quickly organically such that they'll represent low to mid-single digits more of revenue and profit annually over the next handful of years?

Yes. Tobey, I'm not sure we're ready to quantify that, but the condition you identify is true. I mean the things that we're talking about that are growing more quickly are generally strong demand areas and generally better margin positions. So that makes us -- that gives us some confidence in continued modest margin expansion. I would encourage you to think about modulating that expectation relative to investment to kind of grow more quickly.

And I would remind you that we run the enterprise here looking at free cash flow. So if we can modulate investment with growth and solve for cash, that's the decision-making framework that we use.

And that concludes our Q&A session. I will now turn the conference back over to John Mengucci for closing remarks.

Thanks, Audra, 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 have follow-up questions. So Jeff MacLauchlan, George Price, Jim Sullivan, and we've added Lisa Parkinson to that team as well are available after today's call. Stay healthy.

All my best to you and your families. Operator, this concludes our call. Everyone, thank you, and have an outstanding day.

And again, this does conclude today's conference call. Thank you for your participation. You may now disconnect.

All right. Good afternoon, everyone. Thanks for sitting in. Pleased to have CACI with us. John Mengucci, CEO; Jeff MacLauchlan, CFO. I don't know you guys need this forward-looking statements.

We may make a forward-looking statement. I'd ask you to review our risk factors as outlined in our SEC filings.

Thank you. I got that out of the way. All right. John, I'm going to start you with the Zinger, not really Zinger, but I think what's kind of top of mind for me. What do you think the investment community might be missing about your portfolio is kind of not appreciated? And who do you -- as you look at your business today and kind of what it's become, what do you see as the right comparables for CACI?

Yes. Thanks. So that is the zinger right off the top. But it's a very fair question. Look, we've been a government services company for quite a long time. The folks who have been following us for a long time, they'd probably say since 2019, we stopped being a government services company. We're continually getting compared against companies we have very little in common with. And we can go down the multitude of different paths of how you make that change.

This sector has gone through COVID and then doge and government shutdowns and the like. In the last 7 years, while all that was going on, we were beating and raising. We continue to grow the business. It's grown in a very different manner. We made a decision a number of years ago that when LPTA and sequestration, those kinds of things came out, it was clear the government had a bend towards buying services, buying labor hours at the cheapest cost price possible.

And all of us have gone to business school in one shape, way or form, and that's called a commodity, if you only differentiate on price. And so beginning in 2019 time frame, we started to exit all that type of business. We're still in the government services GICS code, and that might be pertinent to this discussion. But what is not easily picked up on is the portfolio work that we do 90% of our revenue are with national security parts of the federal government. Less than 10% is done with the federal civilian space. We like to talk about 60% of our deliveries are in the technology space and 40% are in expertise. We defined technology and expertise in 2018 to actually be how the customer purchased.

If we now talk about what it is we deliver, 80% of our revenue is in the area that would be considered an aerospace and defense company. So what you're seeing is this disconnect between having an aerospace and defense/defense tech company in a government services area. So we continue to get hit with macro sector issues. I'm sure we talk about AI. We can't talk about impact to the sector without talking about AI.

So how we see all the factors impacting government services are actually positives for our business. That's why we continue to lead the entire sector in free cash flow generation, revenue growth, margin expansion and the like. So it's -- we are continually being called in and averaged in with companies that don't have very much in common with us. So defense tech, delivering things at the pace of the mission, all software-based technology.

Last thing I'll say is we built 8 years ago, we repositioned this company to be Far Part 12 and Far Part 15, which means we can respond to classic cost-plus programs through the cost accounting standard. We also have half of our business that is commercial based, Far Part 12, where we invest ahead of customer need. We build the technology. We believe that the customer needs next. We work with them. We sign OTAs. We get sole-source production contracts, and we go out and buy manufacturing services and the like. So all of that, what I just said does not happen in a traditional government services company. So I'll pause there.

Great. So you mentioned defense tech. I mean, you're doing a lot of things at this point. A large part of your portfolio is kind of defense tech like. I mean, I'd highlight space, [ EW ], [ C3 ] and go on, UAS, counter UAS, which Jeff made me aware that you guys -- I wasn't even aware you were encountering UAS. So I mean that's part of the problem. Talk about like those different buckets, how big they are, how you participate in those different areas that are viewed by the market as defense tech, but most people don't realize that you guys do.

Yes. So when you talk about electronic warfare, we define that as anything in the RF spectrum that you can sense and you can take action on. So if I can find a light switch going on and off and there are 0s and 1s coming out of that device all over the globe, our company is probably collected at one time for one need or another. And then what's -- where the magic happens is how do you classify every one of those signals so you know exactly what it was printed to. And then in times of conflict, how do you make determination to non kinetically know that source, whether it's a good source or it's a bad source. So electronic warfare, we can throw cyber payloads at a number of different devices.

A large part of our EW is in Counter UAS. You're all just starting to hear about that marketplace. We've been in it for 2.5 decades. We understand how to provide low, no collateral counters to things that are flying overhead that don't have a human pilot in them. because they all run in the RF spectrum. They all have electronic signals coming off of them. And yes, even though you've all probably heard about dark drones at one part in their life, one point in their life, they were not dark, they were light and then they went dark after that. So it's our exquisite technology that allows us to build counter UAS systems. We've got hundreds of systems and thousands of sensors deployed all over the world.

They've been in operation for 2.5 decades now, providing non-kinetic protection against drones. So if you think about golden, golden dome, you think about what DHS is going to spend $350 billion of reconciliation funds to protect the border from drones, to protect all critical infrastructure from drones, Department of War protecting every base that they have in the U.S. from drones and then building a counter UAS layer that also finds everything from the small quad copper that was called Group 1 drones all through Group in every way, shape and form, that's what we do. That's a $2 billion part of our business.

We do between $1 billion and $1.5 billion worth of space. We're a merchant supplier for optical communication terminals and for large-scale, very exquisite geo sensors that ride on satellites. Stop me when it sounds like a government services company. We have -- we do well right around $1 billion worth of various network modernization work, really delivering software-defined networks across Department of War. And I'll say, again, 90% of our revenue is with the intelligence community, the Department of War and the Department of Homeland Security. We put DHS in that, not in federal civilian because they're a pure military-like organization. They traditionally have bipartisan support for their budgets. And that's the other first scan that we did when we made this company back in the early 2010s.

If you bucket all I mean you threw out some numbers there, but if you bucket that whole defense tech-like portfolio, I mean, how big of a piece of the business is it?

I mean total, it's probably -- right now, it's around 60%, 70% of roughly a $10 billion company, so $6 billion to $7 billion.

Okay. So I remember what you just said about -- stop me when it sounds like a government services coming in. I also remember from your Investor Day, you talked about software as a superpower. I think we were starting to talk about AI then, but not that much. So have to bring up AI, how you guys are using? I mean, clearly, AI doesn't seem to be a threat to the business, but maybe debunk that view of things and how you guys are using AI.

Yes. So I did make that term, that comment that software is our superpower. And what we meant by that, we've been driving home for a number of years is that as the pace of missions quicken in every conflict that our forces have to go fight, the only way to stay ahead of the threats are to have software-based systems out there. It's really tough to bring a ship or a plane or a satellite into port and put a hardware-based solution and upgrade on it and then send it back out there.

Today's war fighters need systems that can over very dirty comms, which means not highly protected comms, you can send software updates like you send to your phone in a real-time wartime manner. to get those upgrades to the systems that we have put on ships and planes and ground sensors all over the globe. So software-defined technology when we moved towards investing in that type of tech, it was the demand of me that everything needs to be software-defined, everything. You can ride on hardware, obviously, but it has to be software-defined so where you're going to make changes quickly. So if you pull that string, we never said that software coding is our superpower. We said it is software-defined.

So we understand the mission, 40% of our workforce are veterans. We understand the mission better than most customers do because we're that continuous force out there at the pointy end of spear. 1,400 people deployed at the majority of the commands out there. So we know every conflict there is before the conflict starts. We know every conflict and everything that the nation has seen during that time. So software defined, yes, do we have to write all the software for it? No. In fact, AI is a perfect tool to take what I would say, some of the grunt work out of delivering software-based solutions.

So if you have a workforce understands the mission, you have software architects understand how to architect software in an open architecture manner that allows other people to bring their software and their solutions to build it into ours, that's what the customer set needs. We don't sell in a license model. I don't honestly believe for 43 years in this marketplace that a customer like the Department of War, the intelligence community really at the end of the day, desires a licensed product. because he who owns the license owns what goes into the next version of that software. How many of you use Windows?

Anybody from Windows ever call you and ask you what feature you'd like? But if you owned the source code and you had someone like us continually modify that, now the customer gets to make that call. And believe me, if you're in a joint targeting center, the customer is never going to turn your next build over just to you because they know what features they need next. So we are very much focused on software-based. AI allows us to build software in a much more cost-effective manner. If it's firm fixed price, we can build it faster and it's better margins for us.

If it's cost plus, we get the work done sooner, the customers come back. and buy even more functionality, so the customer wins as well as us win. At the end of the day, software, when we used it was about delivering the ability to make changes quickly. And the fact that AI can do a lot of the cogeneration, that's a win-win for us. That is a way for us to deliver even more capability faster. It's not revenue dilutive, okay?

Government services comment, if you are selling software developers by the labor hour to the federal government and AI comes out and says I can write the code for you, that would be a perfect example of revenue dilutive. But oddly enough, as long as AI has been around, we've been on a continued tear of beating and raising guidance even on top of AI, on top of Doge, on top of a number of other things that came at the work. Anything else?

I think you got it.

I think you hammered it. you've lived through a lot of budget cycles, what we're going through right now with reconciliation and I think something that still DHS are still shut down or not funded. So what are your -- any thoughts on how kind of this year's budget process between big base increase, reconciliation, -- any thoughts how this might actually play out?

Yes. What is particularly important to us, which we talk about routinely is not necessarily the headline budget as much as the segments of the budget. And if you think about the places that we work and you think about our TAM of about $300 million and our revenue this year will be about $9.5 billion. That's the middle of our -- or at our guidance range. We have a lot of headroom which is important. But what's also important is the headline budget usually ends up moving by big ticket platform kind of items rather than the places where we have deliberately positioned ourselves.

So if you think about electromagnetic warfare, you think about space, think about the things we've been talking about, the places of the budget where we've positioned ourselves are those that have durable sustained demand impulse and support. So no one is saying that we don't need a counter UAS strategy. So the important factor for us about the budget is where that -- where those resources are being applied and both in the base budget and the Golden Dome, where Secretary Hegseth recently acknowledged the Congress that I think you said less than 20%, high teens percentage of the Big Beautiful Bill Act had been appropriated and that they expected to shortly be freeing up the balance of it. So those are really the budget areas that are consequential for us.

Okay. So in relation, maybe talk about your pipeline, your bid pipeline. And then, yes, it seems like there's kind of a bit of a disconnect between the bid pipeline and what's actually coming through and actually getting spent. I mean I would assume at some point, we start to see a large pickup in kind of the outlays, right? Because it seems like the budget is way, way kind of where we are in terms of what's actually getting spent.

Yes, David, I think that's right. I think if you look at what we said in our last quarterly earnings call, I'm going to kind of go in time here from right to left. So we routinely shared the statistic about what we expect to submit in the next 180 days. That's grown now to $22 billion, which is larger than our average for that window. The amount that we have submitted and awaiting decision is about $4 billion, which is unusually small as much as the $22 billion is unusually large. And then, of course, once the decision is made, then it moves all the way to the award point.

So I think you could reasonably expect at this point in the quarter that we've seen that '22 sort of some of that sort of be a bow wave into the amount that's awaiting decision. and that ought to drive some awards tailwind here as well in the future. But that's really an artifact of the thing we've also talked about quite a bit, which is that the acquisition mechanism in the government is sort of returning to normal after the shutdown activities, but is not completely there yet. It's improving, but it's not really back to sort of pre-shutdown levels. And I think the pipeline and award decision metrics I was just sharing are evidence of that.

I'd also put in there, too, back to your earlier question, David, if you take the dynamics that Jeff mentioned, if you look at the last 3 quarters of the company's book-to-bill numbers, they've been below 1, okay? At the same time, we're beating and raising guidance. we're crushing the free cash flow estimate we had for over a 3-year period. We're hitting the -- already at the end of year 2, hitting the revenue growth numbers and the margin growth numbers that we believe it would take us 3 years to go hit. So it's another indicator that regardless of awards are coming out in a regular manner, awards are lumpy.

And a lot of our awards, the average duration of a contract we put in the backlog over the last few quarters has been 6 years. So that is not the makeup of a traditional government services company who's selling labor in a 3-year at best period of performance because right now, those companies are starting to talk about if the turnaround in awards don't happen, here's the bad things that are going to happen going forward. We've lived through 3 quarters of beat and raise. Eventually, awards are lumpy, awards catch up. So we're not living hand to mouth. We have much larger production type programs that are out there delivering on today.

And multiple billion-dollar jobs we won 2 years ago, they're just starting to ramp up now because we're getting through Milestone C, and we're getting to low rate initial production. So it's a very different build-out model as to how you look at our backlog and what revenue growth that can throw off versus other more traditional government services companies.

And that backlog dynamic that John just expanded on really gives us a great deal of high confidence sort of 4- to 6-quarter horizon visibility into what the near and medium term looks like.

So in keeping with that, you've won a number of multibillion-dollar programs over the last several years. Maybe refresh us on what those are and where they are kind of in their -- in terms of the ramp-up period for those various different programs?

Yes. So there are several. [ EITaaS ] is probably one of the earlier ones, where the first phase of the program involved designing the balance of the program. So we're actually in the beginning of that second acceleration period. Spectral, which was a really important win for us for the SIGINT collection suite on the Navy's surface combatants, recently achieved their milestone C, which let us move out of development into low-rate initial production. And as we've defined the ship classes and the areas that it's been ready to be deployed, we can now start that deployment.

NASA NCAPS, which I think we won 4 or 5 quarters ago, is in a situation similar to EITaaS, where we're consolidating all the application systems for NASA's 11 centers, and we're through the design phase now of that program and beginning to deploy it as well. JTMS is another significant [ TRANSCOM ] logistics system where we recently emerged from protest. That's also ramping up and accelerating into the year-end. So for those of you that are sort of doing the algebra on what our fourth quarter must look like to make the annual guidance makes sense. A lot of that growth is in those areas that I just mentioned as we move into the fourth quarter or complete the fourth quarter at this point.

Yes. I wanted to pivot to margins. John, I think you said relative to your Investor Day, I think you're kind of already there, maybe even past at this point in terms of the margin progression you had talked about. I think some of it's driven by -- been driven by just the change in the portfolio towards more tech, more fixed price, but also layered in some acquisitions that came kind of accretive margins. So just talk about the margin improvement you've seen and kind of the road map from here because, I mean, you're obviously generating margins well above your government service, I won't say peers, government services. In a lot of cases, you're ahead of your defense peers.

Yes. I'll talk a little bit about margin, and then I'm going to ask Jeff to sort of talk about how we look at margin and revenue growth because to us, we're a free cash flow growth company, period. That's how we manage the company. That's how we bonus all the leadership in our company. It's all around free cash flow. And there's a number of altitude of knobs there.

As David mentioned, we're also a highly acquisitive company. So we're in 7 markets. We do market strategies. We're myopically focused on doing market strategies or doing them twice a year, looking for gaps to where we think the future of the markets are going to go. And if there's a capability we need and we don't have the time to create it ourselves, we're pretty darn good at doing small to midsized acquisitions, and we just did a rather large one. So we proved to everybody we know how to do a large one, so we can probably check that box with a green check mark. We figured out how to take 1,100 people and $700 million of revenue annually and 20-or-so percent margins and actually fold them into the company. But the message and how we've been doing our M&A program is around the kind of companies we've been looking for.

For 9 straight years, we've looked at technology-based companies that could drive national security features in a more agile manner because I firmly believe that at some point, the aerospace and defense and GICS code or the companies within there are going to eventually bifurcate. There's going to be primes who do eye-watering phenomenal things at a mission platform layer. I used to work at one, they are phenomenal companies. They provide a plethora of national security assets for this country, period, excavation park, point, bar none. But where the mission gets trickier and it's going to change every 4 hours, you're not going to change the outer mode line of the seventh generation fighter in 4 hours. What you will change our mission packages that are on all of those assets.

So we and our company, when we put the next course forward, looked at our acquisitions are going to be very much technology-based. It's always going to be software-defined tech. We're not going to make any exceptions to that rule whatsoever. And we're going to go fill gaps in the markets that we're in. That alone says for a long number of years, we've been buying the technology side of what national security needs and less about the labor hour support of that. Operational support, 1,400 people out across the 5 or 6 combatant commands, that's rich for us. That is rich. You can call the ever you want. You can call that labor hour work, but that is rich because we're one of the only companies that are sitting in every single combatant command.

So the investments that we make ahead of customer need by spending our own money, our own R&D to deliver products that we can commercially sell from a price list -- we have the best class seat there is in watching every conflict around the globe because we're right there. The glass is right here. We're looking at dots and triangles moving all over the place. So we know better just about every other company out there. It's unfair advantage, but it's legal. You just have to win that business to make sure you know where we're going to invest. So from an M&A program, that's where we've done.

And a lot of those have been the technology areas. A lot of those have been Far Part 12, where we can put price list out to the government. And we don't have this debate back and forth, should I give you 8% fee or 10%? It's here's an item that does 90% of what you need today, not 3 years from now, and that should come at a premium, and the government is more than willing to go buy that. And that's what has been really responsible for driving a lot of the margin.

So let me talk a little bit about margin and expand on John's comment. Let me first say John was not updating our ARKA annual revenue guidance of $650 million when he said $700 million. Look, we -- margin is an artifact for us of solving for free cash flow. That's the way we run the business. That's the way we make decisions. So we're modulating each time we have one of these strategy reviews that John talked about or we go through and decide where we're going to apply resources and where we're going to divert them from one place to another, all those are free cash flow decisions. So we're modulating investment driving top line growth and margin to solve for cash flow.

So if we can hold the margins and grow a little bit more quickly, generate more cash that way, that's the choice. In periods where we have circumstances where we may not have the investment opportunities that we want for the next quarter or 2, we'll let the margin drift up. So free cash flow is the buy word. That's the way we decide. Now having said that, we've also talked about the fact that in our current situation, our current view of the environment and our opportunities and circumstances give us some confidence to say that it's reasonable to expect some continued modest margin improvement in all that as we go through the process that I just described.

I think, John, you made a comment that 50% of your business is eligible for Far 12, so commercial-based terms. Is that right? And how much of your business today is on commercial-based terms?

Yes. So I would say probably half of our technology business is based on Far Part 12 terms. And that ebbs and flows in sort of the mix. It's not every exact quarter, but over a 3-year period. We continue to grow that part of our business clearly because what else has helped us is the customer has changed their buying manner, right? Our customer is saying, why is it that we -- the government can't buy with commercial-like terms.

By the way, they never said, can they buy just commercial goods. that's sort of been an extrapolation beyond how they actually think about it. But buying more commercially, what they mean by that is do we really need to take 7 years to write the requirements, 3 years to get the bids, the next 3 years to change the requirements because the world changed and never really get something out there that we can use in a quick kind of turn manner. The government sees commercial as being able to deliver things on a very quick cycle.

Like I'm sure all of you in the last 18 months have spent $1,499 for the latest iPhone, not because you need it because you wanted it because the next version was out there, right? I don't think we'll get to that kind of speed across all of the defense items, but the customers have this insatiable need to say, when are you going to invest, right? Why is every dollar of [ IRAD ], you companies want to do business with the government, you bill us for it. It's built into your rates. And I would contend it's built in your rates no matter what. whether it's in your billing rate or whether it's in your cost of goods sold, you're going to recoup that cost. But they want to buy in a more commercial-like manner, and that's when we put this type of business in place.

I think in many ways, the circumstance that John outlines is a really important proof point around this industry segmentation also because one of the reasons that the traditional primes have done that work the way they've done it is that the government actually ends up deciding very precisely what they want. So if you're buying an early Burke-class destroyer or you're buying the next lot of F-35s, you don't necessarily want the contractors to be -- you've got to well -- to be deciding what that looks like.

You got a well-established requirements process. It's clumsy and cumbersome. It's not very fast, but it gets a reasonable outcome, and it's a proven one. The issue is that this next strata of the industrial base that we're starting to see separate can't work at that pace. And so to be able to participate constructively in the business at that level, we have to be doing this in parallel, which is one of the reasons that the market has sort of surfaced OTAs as such a great way to do this because it gives us an opportunity to work shoulder to shoulder and sort of solve these problems with a speed and a cost benefit analysis that the traditional process would not permit.

So I'm not going to update my model for [indiscernible] today. But I guess maybe, Jeff, if you could review kind of the expectations around a couple of things, accretion. I guess you had some transaction costs that you threw that was kind of in the cake that I don't think people fully kind of realized or because you took down your EPS guide partially on that. And I think people kind of didn't quite understand all that. But Yes, those couple of things and there's something else on that. synergies. Synergies and then I think you got a tax benefit that came along.

We did the deal. Yes, we did. Let me first, if I can, in the time we have left, let me start with the accretion dilution.

I've got a more so.

Okay. I'll be as fast as I can be. First of all, we did -- when we made the announcement, we said, look, in the first full year, which would be our FY '27, this will be neutral to earnings, neither accretive nor dilutive. In the second full year, it will be solidly accretive. And we'll have more to say about that as we get to our FY '27 guidance and our new 3-year targets and beyond. What I think in retrospect, we were not as clear about as I wish we had been was the impact on the remaining 4 months or so of FY '26. Clearly, you can't acquire a business of this size and scale with $2.6 billion and all the associated financing costs and have that be anything but dilutive in the first 4 months.

So in retrospect, we may not have been quite as clear about that. We didn't say anything about it, but we probably should -- in retrospect, probably should have said something about it. The other thing that I think got lost in the call, and we say this from time to time, but I'm not sure it completely sinks in. We don't use adjusted EBITDA. Our EBITDA is our EBITDA. And as a result of that, we absorbed about $22 million of transaction costs this year, $17 million of it, I think, was the number in the quarter, which we talked about and we disclosed, but we actually delivered the strongest margins that we have in quite a while after absorbing those transaction costs.

And in fact, the business was running at about 13% without those. We also absorbed $40 million of cash flow impacts related to the transaction and didn't change our cash flow forecast, which is tantamount to saying that the core business was actually operating actually $50 million better, $40 million for transaction costs and $10 million for increased CapEx investment. So I could say more, but I'll stop in the spirit of you having one more.

Because I caught of one more, too. So we'll tag team. So one, you mentioned the 3-year targets where they seem pretty stale even though we're in year 2. So do you revise those targets early? Or you wait until -- you wait to revise this until we get to the end of the 3-year period, even though you're kind of there? I guess that's question one. And then sorry to do this to you. The second question, obviously, you've levered up the balance sheet to do this deal. You've -- in the past, you've gone to the same kind of leverage levels and you've pretty quickly -- you focus on delevering and delever quickly. But how do you think about delevering -- the decision to delever today versus share repo, given what seems like a disconnect in your stock price relative to the numbers that you guys are putting up?

Yes. So let me first talk about the 3-year targets. We did not -- and we were clear about this, I think, never undertook to maintain or update the 3-year target the way we would a guidance number. We said, here's our view of what the next 3 years look like. We'll keep you posted. When we give our FY '27 guidance here on August 6, it will be pretty clear to everyone where we ended up or where we expect to end up relative to those targets. We will likely have another Investor Day sometime late this year or early next. And I would expect at that time when we announce that and the format for it, we'll have -- I would expect at that point, we'd have a new set of targets. I'm sorry, what was the second part of...

Second one is share repo.

Share repurchase.

Given where the stock.

So I think given where we are, as you said, our focus is on delevering interest rates probably have some upward pressure. We remain flexible and opportunistic. And I think if we saw a really compelling opportunity, we would consider share repurchases sooner rather than later. I'd really like us to get back down into the low 3s again. I would remind everyone that we bought $150 million worth of shares at $344 a share average over 10 days or so in the middle of the DOGE storm. So I think it depends a little bit on how volatile we see the market reaction being. And at some point, the shares are they're a compelling value now. But at some point, it becomes so obvious that you can't ignore it. You have to make a leverage trade that you might not otherwise like to.

All right. So we're definitely out of time, John. Jeff, thank you very much.

Thank you.

Thanks, everybody.

[Audio Gap] the EVP, CFO and Treasurer. So thank you so much for being here.

You bet. My pleasure.

So to kick off, it's a mix of investors with the industrial conference. Could you just go through an overview of who CACI is, its key markets?

Yes. So we are -- we are a national security contractor. About 90% of our revenue focused on national security between the Department of War, the various intelligence agencies in the Department of Homeland Security. We are about 60% technology, about 40% expertise. That's a result of a portfolio evolution that we've had underway for the better part of a decade, where we have moved from being a predominantly government IT services type provider to being a supplier of technology and outcomes and driving that portfolio evolution through both turning and managing the portfolio organically and also through a series of acquisitions, where over the last decade, we've done a number of transactions and have used the balance sheet strategically to reposition the company along the lines I just described.

And on that strategic shift to having a bigger technology piece, even though CACI is still in this IT services bucket, could you talk through where those tech pieces are now, what end markets you guys serve there?

So the areas where we participate in technology are focused really on a couple of key areas of interest to us. Space is one where we recently completed the acquisition of ARKA from Blackstone, which some of you -- many of you will probably be aware of. We completed that in early March. We announced at the end of December. That brings some really exquisite electro-optical and infrared imaging with particular space capabilities to the portfolio.

We have recently disclosed their space businesses over $1 billion a year in revenue. About 2/3 of that now will be ARKA. The other keen area of interest to us and one where we have several decades of experience is electromagnetic warfare, where we use the electromagnetic spectrum, primarily for signals intelligence collection and characterization and as well as a few other areas optical communication terminals and a number of other areas. But counter UAS is a particularly important part, these days, of our business.

And with that shift, having EW, EO/IR and C-UAS, how do you guys look at the synergies between the tech portfolio, having software-defined applications and the services piece that still need that expertise.

Yes. We undertook describing the portfolio in terms of technology and expertise a number of years ago, better part of a decade ago as a way that we could articulate the portfolio evolution that we were undertaking. And so basically, it is grounded in the fact that we had a number as a long-term company at the time, 50 or so years old. We had a variety of really deep mission-focused customer relationships. And the strategy was to use those relationships and leverage them into higher margin, higher value contributed technology positions, which is what we've done significantly to a significant degree over the last decade or so.

In those success stories, is there 1 that you point to where this is a contract that we were able to compete for that we wouldn't have been able to previously or new program that we won from having this mindset strategy.

Yes. There are a handful, Jordan. And one, I think, of particular note would be our TLS Manpack, where we have a brigade combat team SIGINT suite man-packable wearable, where we had $1 million OTA, other transaction agreement for those of you that are familiar with the government's sort of ongoing and evolving procurement philosophy, where we were able with a $1 million OTA to invest with a customer and a relatively short order, turn that into a $500 million program of record, which we're performing on now and successfully delivering.

And on the contract changes since you brought it up, what are you seeing that's different now in the new DoW cadence types of contracts, how has it impacted CACI and how you guys are thinking about pursuing new opportunities?

Yes. That's a really interesting thing to stop and talk about a little bit for us. we undertook in this portfolio evolution that I referred to earlier in our remarks here today. We undertook a number of changes based on things that we were seeing and things that we thought deserve specific strategic responses on our part. One of them was to focus on outcome-based technology differentiated solutions. One was recognizing that the speed of conflict in the future could only really be adequately addressed by software-centric systems.

The speed of the fight was increasing at a rate that really couldn't be addressed by hardware changes. The other thing was for us to bid fewer and larger opportunities, which gave us more of an opportunity to shape and position ourselves in a good place competitively and also to invest ahead of need, which is an important part of our strategy. That is to selectively use our own resources in many cases, to be able to sell commercially.

But even in those cases where we're not selling commercially, we're working in preprogram award phases with customers to develop approaches that will later be manifested in the contract. It turns out that those are very, very much aligned with the current administration's procurement strategies. So we find ourselves in a happy spot of having identified and deliberately positioned ourselves nearly a decade ago to a place that is turning out in the current marketplace to be exactly where we would like to be, which has given us a real head start in the current environment.

And on that for new opportunities that are coming, the presidential budget request for '27, it's in the areas you guys are focused on for the last 10 years and now more recently with ARKA, so where do you look at the budget to say this is a great windfall for us or a big opportunity?

Well, look, the areas in which we're focused are areas of really current interest that all of us see every day in the news. I mean the current geopolitical environment and the current obvious defense technology shifts are exactly, again, exactly aligned with things that are important to us and our priorities.

And they're really reflected in the budget areas that you mentioned. So things like intelligence, sensing and collection, things like counter UAS and use of the electromagnetic spectrum generally for a variety of offensive and defensive offerings are really well aligned with exactly where things are going today.

One of the things, I think, Jordan, that we don't probably talk about enough or isn't necessarily widely understood is that there's a lot of discussion about the top line budget, and we all know the President's budget request is $1.5 trillion. There's a variety of views on how much of that will actually end up being appropriated. It may be that it's something less than that. It may be the whole $1.5 billion. But that's relatively not particularly relevant to us.

And the reason for that is the areas of focus that I talked about before and the fact that really there is strong bipartisan support for the parts of the budget that are particularly important to us. And so to the extent the budget ends up a little less than perhaps what was asked, those problems get solved in large platform programs and production rates and things of that sort. No one is suggesting that we don't need a counter US strategy, stance. So we feel, again, 1 more way in which we feel particularly well positioned.

And on that, too, with midterms coming up potential for a CR, how do you plan the business around uncertainty of what the funding will look like? And then even if we have flat or no new programs?

So we -- as you might imagine, we spent a fair amount of time managing that and monitoring it. It's notable that it has not affected us in the past, continuing resolutions have sort of come to be a way of life. We can each have our own personal political views on whether that's a good thing or a bad thing, but CRs are with us to stay. It's also worth observing though, related to your CR question, that much of our portfolio has proven to be, again, as a matter of strategy and design to be particularly resilient and durable in the face of budget uncertainty.

So just even in the last year or a handful of quarters, we had a huge hue and cry about those. We spent a lot of time talking externally about why we didn't expect those to be an issue, and we were going to be relatively impervious to any effects from it. That turned out to be true. It came up again in the context of the budget last year, where we said, look, the things we're doing are deemed critical, overwhelmingly, it's not going to be a big deal, that proved to be true.

We heard it even though the DHS is a big customer. We heard it again related to the extended DHS shutdown. We said it's not a big deal turned out to be true. So a really important part of this strategy is that we have put ourselves in places where we really see very limited opportunity to not do these things. The things that we do are among the most important and among the most resilient in terms of budgeting and political support. Strong bipartisan support for many, many of the things that we do.

And on that, even in uncertainty of funding, pursuing less contracts that are larger, have more endurance. Where else in the portfolio would you guys like to start bidding? And is there anything that defines the contracts that you would pursue?

Well, the -- our revenue this year, we're approaching a $10 billion revenue enterprise, the midpoint of our guidance range for our fiscal year this year is $9.5 billion. We have about a $300 billion TAM. So we have lots of wood to cut in the part of the forest that we already live in, and we expect to be -- we see a lot of opportunities to do that in places where we are.

ARKA has -- gives us a particularly good example there where we have the ability to use some of the tools that the ARKA team has developed for imagery processing analysis and apply those to signals intelligence analysis. We also have the opportunity now to pursue a number of multi-intelligent source opportunities by putting imagery in signals intelligence together into single intelligence projects, products that can provide a more holistic view of situations and circumstances in particular places.

So there's -- there are a number of areas where we see lots of opportunity in places where we already are with customers with whom we already have strong relationships, and we see excellent growth prospects here in the near term right there.

And just on ARKA, too, could you talk about for your '26 guide, how it impacted, did you guys bring up revenue, EBITDA margins increased?

Yes. We increased the revenue guidance for FY '26 for ARKA by $150 million -- that's a little bit over a quarter into quarter and a couple of days. I would hasten to point out not being a service business. This is not a linear enterprise. The business is growing, but there's also some natural lumpiness in hardware businesses and whatnot. But we increased the guidance for the year by the $150 million of revenue for ARKA. Was that you, did I get your question.

Yes, just the impact. And then to -- you talked about the new capabilities with ARKA. Longer term, how are you guys thinking about synergies that can be unlocked with it? And anything else that can change go to market? Does it increase your international presence?

There are a number of areas where we see opportunities to develop synergies. When we made the acquisition decision, there were no cost synergies or revenue synergies contemplated. We expect to enjoy both of those. We've already, in the course of the integration moved much of the overhead functions to our shared service center in Oklahoma City and have realized some indirect savings.

I mentioned earlier the opportunity to apply their tools, the IMINT tools to the SIGINT intelligence data as well as the opportunity to provide multi-end data. That's an area where we see some opportunity for revenue synergy that we've not done in the past, gives us the ability to do some exciting new things where we already have customers expressing interest and eager to engage in those discussions.

And then just back on the award environment. Now that DHS is funded, are you starting to see things there pick up or other areas that have changed.

Yes, it's a little bit soon to know that. I would say that the DHS restart is relatively new, and I'm not sure we're -- I'm not sure I can make a definitive statement about that yet. I would notice though I would note that even in the case of the broader government shutdown, which, of course, has been over now for some time, we have not seen a full return to pre-shutdown activity levels, particularly as it relates to awards.

The administrative work of the government bounced back relatively quickly, and we saw a really minimal disruption in invoicing and billing, funding, normal funding obligation those things kind of came back to normal very quickly. But the awards and acquisition progress has been a little bit slower, which I think you've probably seen across the industry, really.

On DHS, too, and with CACI's Counter-UAS systems, what opportunities are you seeing there where we start to see new grants and funding coming through, specifically for the World Cup, the Olympics and trying to harden critical infrastructure.

Yes, there are a number of opportunities. And this actually is a great place to talk about Merlin, our commercially developed Counter-UAS system where we've very strong demand impulses related to sporting events and World Cup in particular. But also, as you mentioned, critical infrastructure, it's an important part of the Counter-UAS layer of Golden Dome. We have a unit on the southern border that's been there for, I think, a month or 6 weeks in a demonstration kind of phase where it's met with great success and is proving its utility and sort of monitoring the border broadly.

We've also tested Merlin, demoed Merlin in a number of DoW Department of War events over the last quarter or so where it has also done well and been well received, and I think as the whole Counter-UAS acquisition process gathers momentum, I expect we'll see much more activity and much more demand, but again, that's a commercially developed system we invested, developed ourselves and are offering for sale commercially, again, very much aligned with the administration's acquisition priorities.

We're seeing so much competition for C-UAS and just UAS systems themselves. Could you just talk about what makes Merlin different and how you are able to apply technology from something like the southern border all the way up to Golden Dome?

Yes. There are a number of things about Merlin, I think, that differentiate and make it particularly interesting. One is the detection range. We -- many of the competing systems have 2, 3, 4-kilometer sort of detection ranges. We talk about 75 kilometers, and we've actually, in several cases, overachieved on that.

That's important for a couple of reasons. It's important because it gives you, obviously much more reaction time. Depending on the target, these can vary a little bit, but at some of the shorter ranges, there may be 15, 20 seconds of reaction time versus 15 or 18 minutes at the detection range that we've achieved.

So that gives you 2 things. It gives you, obviously, more chance to more opportunities to select a defeat mode, non-kinetic, which we have a number of solutions or if the operator were to decide to use a kinetic solution, you have time to do that as well. Obviously, if you have 15 or 20 seconds, you don't have much time to do much at all.

The other thing that's important about that detection range is the -- well, there are 2 things, 2 economic advantages to that. One is that because we have a number of non-kinetic solutions to defeat incoming threats, you can avoid using a $3 million or $4 million missile to shoot down a $25,000 drone. It also affords low or no collateral sort of solutions. So you don't have to have a debris field over St. Louis or somewhere, wherever the threat is.

The other thing that's important about the economics, in addition to the non-kinetic solution being obviously economically preferable is the number of systems you need. If you think about the concentric circle that you draw around a system with a 75-kilometer detection range and compare it to the concentric circle you draw around some of the other competing systems, you quickly see that you need many, many more dozens often to afford a similar range of protection.

In addition to that, and finally, Merlin is 1 of the very few systems that handles a full range of UAS threats, meaning Class 1 to Class 5. So if you think about Class 1 and 2 as being the sort of readily available hobbyist type threat drone which can obviously be outfitted with weapons and different things that could make it very lethal.

But it's a smaller, generally available device up to Class 5, which are the nation state sort of small aircraft size drones, we can address that entire range and most of the other systems do not focusing only on the smaller ones. So there's a number of points of differentiation that we think make Merlin a pretty exciting alternative in the scenarios that you mentioned.

And if you could -- how does C-UAS fit into Golden Dome to the extent you're allowed to talk about Golden Dome?

Well, we can talk about it a little bit, but the threats in Golden Dome, there are 2 ways to play here. One is in the sense and detect dimension. And the other is in the actual Counter-UAS. So to the extent that the threat is an incoming missile that's going to be another part of the capability. To the extent the incoming threat, the drone, obviously, the counter drone activity is helpful.

The other thing that we do and have the capability to do and look forward to applying here is being able to defeat some of these threats in what we call left of launch. So if you think about the time line, we have the ability to detect RF activity that's associated with pending launches, so we probably can't talk about this in great detail.

But if you think about the fact that you have a threat somewhere and you're getting ready to attack with it, -- there are a number of things that start to happen, right? Systems get turned on, sensors get turned on, there are signatures associated with the fact that you're getting ready to use something offensively.

And the fact that there may be an opportunity to defeat the threat before it's even in the air obviously is the best answer of all. So that could be any 1 of a number of ways with a cyber payload or disabling the system in some way, turning it off -- there are a number of ways to do that. But the sooner you can detect the threat, the sooner you can start to apply some defensive measures to it.

For a program like Golden Dome where it's layer defense, there are a lot of components. The DoW wants to have as many participants as reasonable. How do you decide when you go to market with somebody else and what makes them a good partner?

Well, we collaborate already with other parts of the systems and other providers. Look, if you think a little bit about Golden Dome on some level, some aspect of the program is a giant system engineering job, right? I mean, the government has been very clear about the fact that we want to use the things we have. We want to reuse and modify things that are available to us now, both for economic efficiency and also for timing. And then certain things will have to be built or designed for new and hopefully, that's a minimal part of it.

But to the extent we're reusing or incorporating existing capabilities, that will require collaboration among all of the participants. I mean the systems engineering part of this is an interesting part of the puzzle. And the detection and the left of launch capabilities, for instance, that I was talking about a few minutes ago are important areas where that utility might apply.

I would also point out that we have the ability now to do what we call tipping and cueing, which is take an incoming threat that we've identified, characterized and if it's determined by the operator that the best solution to defeat that is a kinetic solution.

We have the ability to tipping and cueing that, we call it, to the -- to a battlefield management, antimissile system of a different someone else's. So I mean the systems all have to interact and work together to provide the layered defense that will be necessary to make Golden Dome successful.

So interoperability is important for partnerships, what makes a company a good acquisition target for CACI?

So our acquisition program is very much focused on gaps. We don't buy revenue. We don't -- we're not buying for bulk. We're buying to fill technology needs, customer needs, very specific targeted areas of interest. So it's really about expanding our capability and getting wider not just bigger and bulkier. And that really changes. The answer to your question is going to be that really changes all the time. It changes almost as fast as technology does, right?

So we will continue to see areas, I think, where we can supplement existing SIGINT and IMiD collection and processing capabilities, new ways to apply AI, any 1 of a number of things. All those dimensions are important to our ongoing gap analysis, which we're doing more or less continuously.

And I guess, to post-ARKA, where would you need to see leverage to do another big deal? And what gaps are you guys looking at now?

Well, the keystone of our capital allocation strategy is flexible and opportunistic. So when the right things present themselves, we're positioned to act. I have talked about the fact recently with our leverage at about 4x now trailing 12 months EBITDA that we sort of like to be 2.5 to 3x. That's sort of our comfort range where we think in the current rate environment is the right balance between having the cost of capital benefit of leverage, but still having the flexibility to pop up when something is interesting.

So does that mean if some really eye-watering opportunity presented itself and we were 3.5x levered that we wouldn't do it? I mean, probably not. I wouldn't rule anything out. But I mean, in general, we'd like to be 2.5 to 3x. And I think in the near term, we're going to be focused on that. Probably we'll talk specifically about gaps of current interest other than to say, as I alluded a few minutes ago that, that gap analysis is ongoing, and it's more or less continuous.

We do also maintain a pipeline of potential targets and we meet regularly with those potential targets. And they often sort of ripen at whatever the sellers pace will be. So we're patient and disciplined acquirers.

And then, there are a few minutes left. Since you talked about AI, how are you guys using AI internally just to be more efficient in developing it for customers? And I think it's always interesting, and you guys were probably one of the first actual LLM makers before the broader market was interested and knew about them?

Well, look, AI has been an important part of many things we do for a long time for decades. And it's become a little bit more of an item lately. Obviously, we're talking about it more, which is good. But we use AI for a number of things. We use it for everything from matching cash receipts to receivables. It's freed up a weekend of quarter for Jim and doing the first draft of our earnings call script.

So we use it for a number of things. So those are internal uses. Obviously, in terms of our business, it's been a big factor in intelligence analysis, again, for decades. And we've used it for a number of things. The applications are becoming a little bit more sophisticated, and it gives us a really interesting productivity and efficiency benefits.

It's a really interesting tool. We're excited to embrace it and use it. I would point out just because it's often discussed in terms of being a threat that we actually see it exactly the opposite as being a great opportunity.

Some of you will be aware of the fact that we generate and collect as a nation, a prodigious amount of intelligence information. And a big part of the challenge is being able to prioritize and characterize the places to spend actual human time on particular data and information that's collected.

So the ability to apply some of these tools to that data is a tremendous advantage, both in terms of being able to look eventually at more data and also to make sure we're looking at the right data. We're looking at the most productive and the highest opportunity of finding something of interest and neutralizing threats.

Great. Awesome. 20 seconds left. Thank you so much. I appreciate that.

Thank you, Jordan. I appreciate it. Thanks.

Thank you guys.

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. [Operator Instructions] 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, Gene, 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 2. 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 3, 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 Jeffrey MacLauchlan, our Chief Financial Officer.

Move to Slide 4, 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 5 years ago. This evolution is a result of a clear and consistent strategy, intentional leadership and disciplined execution over many years and did not happen by accident. The key elements of our strategy are; first, we operate in 7 markets where we possess decades of deep mission knowledge. Second, we understand what our customers need; second, we focus on or during priorities. We are a national security company that targets neuro deep funding streams. Third, we're a software-defined technology leader. We differentiate ourselves by using software 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. And 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 5, 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 has 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 '26 revenue and EBITDA margin guidance driven by the addition of ARKA and the strength of our organic margin performance.

Slide 6, please. [indiscernible] 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 exclusive face-based imaging sensor technology with high technical barriers to entry, agentic AI-based ground processing software and deep customer relationships built over decades 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 operational lines 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, IndoPaycom 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 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 and 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 7, 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, this sharpens our business development, strengthens our reputation for execution and informs on decision-making, allowing us to confidently invest ahead of customer need. These are meaningful discriminators to create competitive advantage and help drive our financial performance. For example, CACI recently received multiyear extensions on several contracts in critical mission focused areas as a direct result of our exceptional delivery.

Slide 8, please. Our strategic investments, informed by the mission proximity I just described, had positioned CACI as a leader in software-defined technology and key warfighting domains that are receiving significant attention and funding from our customers. And 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 out 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 achieve Milestone C marking the start of Spectrum's low rate initial production and deployment phase. This is a defining step towards ramping up the program and delivering this critical EW technology to the fleet. And because Spectrum is built using doctor 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 [indiscernible] system. Merlin leverages nearly 2 decades of our Counter-UAS investments and work across the Department of War to deliver a system that sees seize 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 nonkinetic 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, we are also delivering them at the speed demanded. We are improving this in real time with the Merlin system that our customers deploying on the southern border.

A final example is our strong positioning for Golden Dale. CACI has 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, our exquisite left-of-launch capabilities. These include sensitive cyber activities as well as our worldwide set of embedded sensors, which could detect into feed threats before they are deployed. And 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 3 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 9, please. Turning to the macro environment. We continue to see constructive budgets and demand signals. While the government fiscal year '27 budget is still evolving, the proposed spending looks very positive in many key areas for CACI, including electronic warfare and Counter-UAS, space, specialty classified space and counter space 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. And with that, I'll turn the call over to Jeff.

Thank you, John, and 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, 2 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 3s within 6 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 deleveraging 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 in free cash flow per share and additional shareholder value.

Slide 12, please. We're pleased to increase our fiscal '26 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 and $9.6 billion. This represents total growth of 10.1% to 11.3%, which includes about 3.5 points of growth from acquisitions, including $150 million from ARKA. We're increasing our fiscal '26 EBITDA margin to the 11.8% to 11.9% range, underscoring our strong execution and evolving portfolio as well as contribution from ARKA. Our full year margin outlook includes the impact of approximately $22 million of transaction costs related to the acquisition.

Our updated FY '26 adjusted net income guidance is between $615 million and $630 million. Adjusted net income reflects the after-tax impact of approximately $60 million of pretax 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% to 7% even as we absorb these costs.

And 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 '26 guidance represents 65% growth in free cash flow per share over FY '25.

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 6 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 noncompetitive franchise programs from which we expect to recognize revenue over time, but they don't yet meet the regulatory criteria to be added to backlog.

For fiscal year '26, 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 million in bids over the next 2 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 3-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 needs 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.

And with that, I'll turn the call back over to John.

Thank you, Jeff. Let's go to Slide 14, please. In closing, I want to emphasize what truly differentially CACI. While let us talk about adjusting to the changing market, are already delivering, that anticipated years ago in speed, software-defined solutions and mission proximity with defined success for the long term in national security. And 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 '26 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 Artimes 2 crew on their historic achievement. I also want to recognize that both CACI to contribute to critical technology that exemplifies the caliber emission impact of our offerings. CACI's optical communications technology enabled high-definition video and data transmission throughout the entire mission, while ARKA provided the essential sensing technology on the SLS rocket to ensure a safe [indiscernible] decent. To both teams, thank you for your exceptional work on this landmark achievement for our nation space program. As is always the case, our success is driven by our now 27,000 employees who are ever vigilant and expanding the elements of national security. To everyone on the CACI team, I am proud of what you do every day for our company and for our nation. And to our shareholders, I thank you for your continued support of CACI.

With that, Gene, let's open the call for questions.

[Operator Instructions] Your first question comes from the line of Jon Siegmann with Stifel.

Congratulations on closing the transaction. Just a real quick one. Just with ARKA, maybe can you -- and now that it's all integrated under 1 leadership, can you scale how big your space exposure is today?

Yes, Jon. It's John, thanks. Well, it's definitely gotten larger. And it's not just in size, but frankly, in scale and just the absolute eye-watering capabilities that, that national asset brings in. Look, the -- 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 and outstanding track record of execution. We've talked to the majority of the satellite primes that utilize what ARKA provides in the space and just outstanding feedback, a consistent partner, consistently delivering on schedule and within cost.

So what drives the growth to 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 noncompetitive 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 the space, you're looking at greater than $1 billion worth was of total business, with future growth that we see coming forward when we get talking about fiscal year '27.

Appreciate that. And 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 [indiscernible] ARKA and Azure, or is there any framework that we can think about the relative margin differences between those 2 segments? And any lumpiness or seasonality to keep in mind?

Yes. Thanks, Jon. Look, you -- I mean you hit at an item that we're probably not going to provide a lot more specificity about around, at least at this point, but 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. So I mean, 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. And 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, that probably means some lumpiness in the fourth quarter that goes the other way, the way this quarter went the right way.

So this is a little bit of a -- there is some variability around that, that you've noted. Overall, however, we clearly are embarked -- have embarked on this strategy with the expectation that margin continues to go up and to the right despite an occasional quarterly bounce.

Yes. And Jon, 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. But on the revenue side, revenue is not going to be linear, folks. It's a technology business. You make deliveries, you book revenue and you book it for profit. So unfortunately or fortunately, program schedules are really not congruent with quarter end points. And so we can't apologize for that. It's very much like the rest of our technology business. So we'll do our best to estimate quarter-to-quarter, but this is a full year business. We said that a lot. And ARKA is a fantastic growth addition for us as we move forward.

Your next question comes from the line of John Godyn with Citigroup.

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

John, you talked about this a bit, but maybe 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. So I guess, what are you seeing there? And then second, on kind of funding, I think if I exclude ARKA, your funded backlog was up high single digits. So is the funding environment still behaving better even if the award environment maybe isn't?

Yes. Gavin, thanks. So 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. But it's safe to say, we're not a short-term [indiscernible] 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 only [ 0.2 ]. So -- and the last thing I'd like to share is because I enjoy this statistic, our weighted average duration of backlogs on a rolling basis are greater than 6 years as we get through Q3. So funding trends, customer demand and a potential $1.5 trillion GFY '27 budget, which includes reconciliation funding, that definitely continues to support what we're looking at going forward.

So we've talked about the fact that there's a number of short-term factors behind the slower award decision-making and then we can 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 multiyear money. But at the end of the day, I can sum all that up by saying the words are lumpy. I like what our plan is, I like the pipeline, I like the bids submitted. And 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, and we'll continue to move forward. But at the end of the day, we're not a hand them out 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%. And 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 in the administrative part of the contract administration. So 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. And a long shot here, but guidance implies growth accelerates in 4Q, and you've got some pretty easy comps this year. So any early thoughts on kind of if the exit growth rate can continue into next year?

Yes. We do see growth accelerating in the fourth quarter, which has always been the plan. And when I referred to the fact that we were seeing the growth acceleration we expected in the third, that was part of that. But 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. And we have customers that have rhythmic buying patterns, different times of year they buy differently. And we typically have strong fourth quarter -- strong second half and particularly fourth quarter, which we see again this year. But 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 that don't -- I'd encourage you to not extend that into '27 as we close out '26.

What if I added a comment about '27, I would encourage you to look forward to us continuing to deliver growth, driving revenue, driving margins, driving free cash flow. And again, we wouldn't say that, but we're -- if we weren't very comfortable with our 3-year targets.

Yes, the momentum in the business that you see is real.

Your next question comes from the line of Gautam Khanna TD Cowen.

Just wanted to follow up on that last question. So I remember last quarter, you kind of explained the Q4 sequential ramp that's expected JPMS 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 onetime with those specific contracts that are driving so much of the sequential growth that tapers off?

And then I just wanted to get your broad perspectives on the fiscal '27 budget request and how that might benefit CACI in what part of the business?

So 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 of things that are happening in the fourth quarter and the sequence from third and fourth. One is that we have a number of programs that ramp in sort of a -- have sort of a bimodal growth rate. And 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. And so there's acceleration and then a leveling off and then a reacceleration. We're working through those phases right now on EITaaS and to a lesser extent, NCAPS, we very much are in that mode for TMS.

And the other thing I would point out is that we do have -- in a number of the technology areas, we do have customer communities that are particularly heavier buyers at different times a year often with increased activity in the fourth quarter of our fiscal year. And then 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. So the real answer is it's a portfolio. And while mix sometimes feels like a handy explanation, there really are 3 or 4 substantive conditions that are in play here and they come together from time to time with the outcomes that we try to suggest to you to expect.

And the second part of your question around the '27 budget, look, larger budgets never hurt. We would rather have larger budgets than shrinking ones. But as I've said many, many times, we're going to pay much more attention to where the funds are flowing under the surface. But what we see in the present budgetary requests 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 '27, '28 and '29 plants. 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 and the Counter-UAS areas, both in Department of War and in 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 really -- we are very strong in those future budgets, especially those who are in the FY 2027 plan. C5ISR and then IT modernization, both bringing in AI and doing network modernization, so very supportive of where we're going ahead.

As I always say, more importantly is where the money is going, and we believe it's all going in the right spots that will drive future growth for the company in '27 and beyond.

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

This is Matt Matola on for Scott Mikus. Congrats on [indiscernible] On spectral. So as that program moves into [indiscernible] and eventually [indiscernible] full production, are there any challenges that you foresee or investments that need to be made to support the production ramp? And then how should we talk about the market benefit as it moves into production?

Yes. Thanks. So look, we're extremely proud about the spectral program is. That was a long road for us to achieve victory there. and done an outstanding setting job with it. So we did achieve and -- I'm sorry, we did receive milestones. We are just beginning the outlet portion in the October, November time frame. We'll be looking at sort of delivery zero, which is what will 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 combat ships, so we performed those investments. We have also continued CapEx investments in our production facility in Melbourne where we are rolling out both sea -- sorry, CAF and the Spectral program. We've -- and we've continued to invest in this program, driving, frankly, long lead item purchases slightly ahead of Milestones C that we could take that time line in between C and when we can deliver the first system down.

It is an absolute proof point for us on our focus on execution. It's a new large type program for us with a great partnership with the Navy coupled with the right funding timing allows us to deliver to the well over 100 ships that're in the U.S. Navy fleet today.

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

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 kind of the lower end of the new company margins post these deals?

Yes. The ARKA contribution in the fourth quarter is pretty consistent with our expectations. John mentioned the fact that this is a delivery and mix business and very much not linear. We gave some indication of margin in the December 22 call. But I'd point out that within any particular quarter, around that average, you may see -- we may see 3 or 4-point swings in any particular quarter. So I wouldn't -- 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. And then what type of directed energy capability does Arco bring to CACI? And have they been field at this point?

They bring a portion of directed energy, things we can't talk about on the line. I guess it's a new capability for us. We're not in the directed energy business prior. And 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. And frankly, us only been 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 cost is still delivering $725 million of free cash flow. So we're in the very early innings. We just got to integration on April 1.

I think we're still in the month of April. So in the first 20 or so days, we've gotten a lot don. And Andreas, who is running the combination of ARKA 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.

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

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

And 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 in decision-making?

Yes, Tobey, we thanks. So look, let's start off with where we are in the Counter-UAS market. We're were already in the government inventory. We've been doing this for a couple of couple of decades. Merlin is our family of Counter-UAS systems. It is part of our broader $2 billion EW portfolio, and we do continue to expect growth from [indiscernible]. And the foundational part of this is that we've actually -- we are able to sell it under 2 different vectors under Far Part 12, Far Part 13. So we can meet the administration's priorities. We're in place for world events and the like. We are currently providing Contras to all 4 of the armed services. We're in active discussions and negotiations with 16 other agencies and organizations across the federal government. And we already have, as I talked about in my prepared remarks, a system that's already been fully deployed on the Southern border. So as you all know, it's our practice or anything competitive. We're not going to provide any 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, TAS459, Gita401 and CENTCOM for mobile Counter-UAS units. We're getting kids prepared to support testing against one-way attack drones and those are all the ones that better than news over the recent quarter. We have built established relationships with resellers to give us access into the Saudi, the Kuwait and the Qatari markets through their ministries of defense. They're all in various stages of the process. But you should expect those folks to be on board within 45 days and we have to work through the exportability issues.

So we are very strong in this market. We've talked about this for quite a long time. Current events are driving stronger demand and as well as the 17 countries, we've already delivered EW2. So strong market, well funded in the U.S. through both 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 [indiscernible]. So a lot of positive work here, putting the right dollars of investments, and you saw the CapEx is up slightly, half of that was to ARKA, half of that goes through our EW portfolio, and 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.

Just one question for 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 '27?

Yes. There are a couple of things going on in Civil, Sheila. You can see the modest DHS headwinds, but you can also see the NASA NCAP's ramp I mean, 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.

This is Josh Corn on for David. One to follow up on the broader defense budget question. So I saw note in the slides that the reconciliation funding is starting to flow through. So 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?

Yes. So the majority of what we do and what we have been able to grow through is in the base budget. It will continue to be in the base budget because we have selectively decided in our several markets to go after areas that are traditionally funded within the base. On the reconciliation funding, we have seen those start to flow. They're really going to be very prevalent in Golden Dome as well as border security. We've seen some additional funding show up there. We're doing a lot of AI-based [indiscernible] tracking tech as well as additional spend in our Counter-UAS area. We are currently modernizing the space force critical infrastructure through reconciliation funding. Again, you can directly tie that to things in the Golden Dome area. In the intelligence world, we continue to enhance what we do in the left of launch area around situational awareness. And then in [indiscernible] modernization, we have a lot of large enterprise systems that we're looking to try to make common across the Department of War. So if the Army has a picture perfect enterprise system [indiscernible], we are pushing to have that same solution be used through the Rest of the Department of War. So I mean, a lot of nice funding. And whether it's already T&E or in procurement versus O&M, it doesn't quite matter to us. We're always doing modernization through sustainment, which is a large use of O&M funding, and clearly as our business continues to evolve, we'll see increasing amounts of R&D or T&E funding. So really well funded to close out 2026 and just as nicely funded as we go forward in fiscal year '27.

Your next question comes from the line of Mariana Perez Mora with Bank of America.

This is Alex Preston on for Mariana Perez Mora. I just wanted to go back to NASA and the Civil side real quick. Given the sort of budget fluctuations there in FY '27, right? Obviously, request calls for, again, pretty significant cuts year-over-year. but there's also this shift towards exploration away from pure science. So there's a bit of a dynamic there. I'm just curious if you had any sort of broad puts and takes on that budget request, and where you see CACI and ARKA playing within that context?

Yes. So I guess we're full size of that, right, Alex. Let's start with NASA NCAPs first. We continue to successfully ramp that program. We're receiving very high price for our customer. So what we're deploying there is the commercial, agile and scale delivery model to really standardize and centralize software development across NASA. So very similar to what we have done with customs and border patrol on BEAGLE. So the way to think about that work in terms of budgets and administration priorities, we're reducing software development times, we're increasing efficiency, we're bringing administrative systems across NASA into compliance with the plethora [indiscernible] reporting requirements. And we've got all key metrics, and we're supporting, I think, 800 to 900 different applications in the platforms. So there's no -- there's no work for you. First, there's no impact to the work that we are doing. But you should see that by driving commonality and moving NASA and their software development frameworks forward closer to the way that commercial companies do their software development practice as well as the AI, that's going to generate cost savings across the organization. A nice thing for us, it supports the theme of [indiscernible] wanted to reduce their reliance on outside headcount and push those dollars more into mission, which is fantastic for us as we look at our space business.

So it is the organization that really is taking full advantage of what we're doing on one part of our business, driving agile software development practices and [indiscernible] place, that's been saving the organization money and the even sweeter news is we're on the receiving end of that looked at what we do in space. So very much aligned, not a funding threat to where we're going NCAPs and how that will continue to ramp to support '27 growth rates.

Your next question comes from the line of John Godyn with Citigroup.

This is Jeremy Jason on for John Godyn. So I just wanted to ask, as we think about these complex sort of technical solutions transitioning from development, production like petrol. I kind of wanted your take on what your outlook is for the scalability of these technologies across different customers and upcoming budget cycles. And could that, in theory, be sort of affected by a potential blue wave?

Yes. The [indiscernible], I'll take your last comment first. The beautiful thing of being an investor in CACI is a number of years back when we set this company on its next course, we spent a lot of time looking strategically at the kind of markets we wanted to support and the parts of the federal government we are going to be very focused on. Mark my words is it's not an accident that we're focused on national security, which is DoD, the intelligence community and DHS, all..., which are fully have Bipartisan support. Blue rays, ways, roadways, purple ways, doesn't much matter to where we're doing things. We're in very critical areas that the government tomorrow morning will not decide to just turn off. So first and foremost, that's where we're at.

So if we talk about systems that we're out there doing Counter-UAS, spectral, work we're doing in agentic AI, those are all things that scale wonderfully as we move forward. Our [indiscernible] communication terminals, beyond the 2- and 4-watt perforated LEO systems to very exquisite systems. So Spectral, its scalability is to deliver the baseline we've agreed upon to over -- well over 100 combatant ships and then move into the FMS side of where Spectral goes. On top of the FMS work is all the topside [indiscernible] that we and the Army believe should be the next phase of Spectral, so we can secure even more signals from those top sites antennas and able to drive processing improvements that will protect ships, not only for missiles, but also from drones.

In the Counter-UAS area, we have been scaling up production capabilities in Sterling and in Melbourne to be able to deliver Merlin. It's a tough supply chain. Right now, there's a lot of people buying flat [indiscernible] radars. But what differentiates us there, frankly, and how we enhance it going forward is the software capability of that system. So it's not so much of [indiscernible] update hardware and whether this is fly-by-wire drones, one-way attack drones, cellular drones, you name it, we've already seen them all over the planet. So we are more than able to scale forward from that position as well. And we can talk a lot about optical communication terminals and everything else we've done in the tech area, but they all follow that common theme, right?

You need to understand mission so that you can deliver. We hear a lot about AI, and how that's going to move different parts of our business forward. Frankly, AI without mission is like a car without gas. It's great to look at, but you really can't do much with it. So we've been able to scale AI use throughout a lot of what we do, and we're looking forward to driving the growth further in fiscal year '27.

Your next question comes from the line of Jan Engelbrecht with Baird.

Congrats on another good quarter. Just I want to talk about the ARKA and legacy CACI space portfolio. And I was just wondering sort of is there an ability to sort of -- I wouldn't say sort of cross-sell, but like how do you combine those capabilities into a sort of a solution for the customer?

Yes. Thanks, Jan-Frans. Probably the most prolific revenue synergy we have is going to be on the ground processing side where where ARKA already has authorizations to operate agentic AI solutions in a number of different -- a number of different mission models that allow them to process and find different things in the geo end stream. We are just as adept on the SIGINT, but we have not moved to agentic AI on that on that side. We're just beginning to have customer meetings given that we just got everything integrated. So there are revenue synergies there that haven't even begun that will allow us to move the intelligence community further down the path that we know that they want to move towards, which is getting to higher level multi-end solutions.

The other area that we're already connecting is, hey, how do we go about building larger scale optical communication terminals, larger ones or ones of the same size they need to push a terabit of data through versus 2 to 4 mg. ARKA is a 60-plus year space company. We are a 6-plus year space company in the world of optics. So there's a lot of synergies already taking place there. We're looking at different ways that we can get through production. We're looking at different ways we can do engineering. So there's just so much more we can be doing for the folks who build satellites and the customers who absolutely need information from those missions. So really excited about what the future brings for us.

Very helpful. And then a quick follow-up, if I may. Just if we look at FY '27, and you've obviously got great visibility in the business is close to 4 years of annual annual revenue in the backlog. But any sort of large multiyear contracts that you bid on sort of multibillion dollar contracts that you expect to be as [indiscernible] in FY '27 or any sort of notable recompetes that we should look out for in the next 12 months?

Yes. I think on the new business front, excuse me, we're always -- we always have a number of multibillion-dollar things that are running around at different stages. Do we have some jobs that are over $1 billion that are going to be awarded in fiscal year '27, absolutely so. And frankly, we were looking at some of those to be awarded towards the end of 2026. But clearly, we're not there, but we'll be able to report on how '26 wrapped up how they go forward within 2027.

On their recompete front, this was -- this year, 2026 has been a really large year for us. As I think Jeff mentioned during his prepared remarks, we're already greater than 90% on their compete front. And what's just as exciting is the fact that future recompetes that were to come up in the first quarter, so '27 have already been extended by 18 to 20, 24 months. which is really a great way to win or compete, right, just to never have to bid on them. You only get there when customers recognize the areas that we're in, the important national security of the areas that we're in and the level of performance we've had. So thanks for the follow-up.

That concludes our Q&A session. I will now turn the conference back over to John Mengucci for closing remarks.

Thanks, Gene, and thank you for your help on today today's call. We really want to thank everyone who dialed in or listened to the webcast for their participation. We know that many of you will have follow-up questions and Jeffrey MacLauchlan and George Price and Jim Sullivan, are available after today's call. So please stay healthy. all my best to you and your families. This concludes our call. Thank you, and have a fantastic day.

This concludes today's conference call. Thank you all for joining. You may now disconnect.

Welcome, everyone, to this fireside chat with CACI. We are here with John Mengucci, CACI's President and CEO; and Jeff MacLauchlan, CFO. Thank you both for being here again.

Thanks for having us.

So in these type of conferences, I'd like to start with a broad question usually, and it's for people in the audience that are more like generalists. Could you please give a quick overview of like who is CACI and what do you guys do?

Yes. So CACI, we're a national security company based in Northern Virginia. We are a 60-year-old plus company, been publicly held for about 50 years. 90% of our revenues come from the national security side of the U.S. government budget. 60% of what we deliver is in the technology space, 40% is in the expertise space. We serve 7 markets, very resilient markets. Size of the business has grown to $9.4 billion, 27,000 employees. And our ultimate measure of the success of how the company is run is by measuring free cash flow per share growth. That's how we make all of our investment decisions. We have a very flexible and opportunistic capital deployment strategy, and that's how we run the company.

Perfect. And then I struggle a little when I talk to investors about like it's hard to differentiate for what is tagged defense services, right? And your strategy is a little bit different. It's a mix of what you just mentioned, technologies and services piece, but also overlap with the primes a lot. What do you do uniquely and how you differentiate from like the traditional defense services companies that you were before and some of those competitors to the primes to the commercial software companies that are also trying now to approach some national security solutions?

Yes. So every once in a while, there's a company that comes along like ours that doesn't quite fit in each of those 3 neatly, right? So traditionally, defense services companies, government services companies, [indiscernible] is really a place where companies traditionally provide inputs. They provide labor hours and experts in different areas, and that's how we support what the Department of War or the Intelligence Mission is.

Where we differentiate is right from that first sentence. 60% of what we deliver are software-based technology solutions across the national security customer base as well as DHS. We don't neatly fit into any one of those 3 areas, which is why some of the confusion. But to us, that confusion means we've differentiated ourselves in a manner that allows us to continue to grow better and faster. We're much more relevant to where the fight is today than where it was in the past. We believed as early as 2014 when the U.S. government moved to low price technically acceptable as it was buying services, which really meant that past performance did not matter. And we found ourselves losing bids based on price, which means that the market was going to commoditize.

We've all gone to business school. We all understand that if you only differentiate on price, and it's highly likely it's a commodity business. So we moved the company more towards can we use our permission to win in our purchase that we've earned with customers over 50 years at that time. Can we move the company forward? We were always an acquisitive company. How do we buy the right building blocks, acquire those and build a complete technology business around it. That's what we've done.

So we do differentiate from many of our [ GICS code ] brethren and that we have mostly exited the by-the-hour services business. So you're looking for a by-the-hour services company, we're not the right investment for you. If you're looking for a modernized company that is looking to provide exquisite technology solutions that are all software-based that are driving the business, measuring free cash flow per share, not number of hours, hours billed, then you found the right company. And we've been able to grow better than other folks in the sector from a top and a bottom line growth.

But again, I want to focus on free cash flow. That is our ultimate measurement and how we manage the business, whether it's a line of business level or one of our markets or even at the program level, we're very maniacal about making certain every decision we make drives free cash flow per share. So that's sort of how we're different. That's why we're different. It's a conscious move to move into delivering tech.

We always believe that there was this echelon of work that the large aerospace and defense prime contractors, they are set up to do a certain thing very well. They're set there to build mission platforms day in and day out. There's a high amount of rigor that is needed in that quality checks, unionized workforces, production facilities. We just believe that this part of the business that we need to be much more agile, but also deliver with certainty and speed. And that's what we have created.

And the fact that we say our technology is all software-based, it brings in a whole another echelon of folks who do SaaS type work. We're not a SaaS provider. We just want all of our technology to be software-defined because that allows us to change it at the pace of mission. And if you're looking at any of the current conflicts today, you understand that with drone warfare and electronic warfare, which are 2 very large things that we are a part of, that just begs the fact that your solutions need to continually change. So...

So you just mentioned the like software-defined solutions, but you also have expertise. And when I think about your technology, what was it like 1/4 of the business like 10 years ago. And now it's like it was 50% last year, and you said 60% now. What is the right balance between like expertise and technology?

Yes. I'm not sure. I mean, clearly, 100% of the business being tech is not what we're looking for because there's a strong interplay between the expertise that we provide and the end of technology that we provide. Some examples of the expertise work that we have today. We have 1,400 people that are co-located with the 5 large combatant commanders all around the globe. That is -- that allows us to have unique access to every minute of every conflict that the U.S. is involved in to understand what technologies are working, which ones aren't, where are the gaps, how are we prosecuting different conflicts, what's the EW picture look like there?

That's all firsthand knowledge that our 1,400 people. Yes, we do sell that as expertise. I'd like to say it's highly legal but grossly unfair that we get to see that on an hourly basis. That expertise and positions like those folks, whether it's intel analysts, targeting analysts and all provide that constant feedback loop to us. We then invest ahead of customer need using our own balance sheet, not reimbursable through the U.S. government, which then allows us to sell the technology that we create in a commercial-like manner, which is exactly what this administration wants, invest ahead of customer need. We don't place very risky bets because every bet we place on building the tech is well informed by the experts that we have out in the field.

So whether 40% is right percent or 30%, it's never going to be 0. What's really important is we're not involved in the work of racing to the bottom, trying to bid the lowest rate to go deliver Jimmy or Julie or Johnny, it's not very much. We're very tactically focused on making certain every person that we deliver to the government as an input that they're very responsible to help us driving outcomes, which is what drives our technology business.

Do you have any examples of like work that you have won because of this like double-legged type of like capability?

Yes, sure. I mean, plenty, a couple of them that -- so if you can imagine people being involved in a command and commanders fight or conflict understanding what the electromagnetic spectrum looks like there and the type of EW effects that work, the type of EW effects that do not work and the type of effects that a commander doesn't have today, but wishes that they had tomorrow. We built very exquisite EW solutions and again, software based.

So in the area of drones and counter drones, a lot of field-based experience as to how our drones being flown, whether it's large near-peer countries or nation states. And the lesson that those enemies change their tactics every 4 to 8 hours continuously over a 3- or 4-year period. Every 4 or 8 hours, the signature that those threats fly in is completely different than it was 4 hours earlier. So for us to understand the nature, when we say we build counter drone solutions, hundreds of systems, thousands of sensors that are out there with hundreds of real-time confirmed kills in a non-kinetic, low, no collateral manner, that's a calling card that just about every command or everybody in the United States military knows.

And I know that we're in a very busy time where a lot of companies are claiming they have counter UAS solutions. I'm willing to say we probably have some of the best because we have those embedded folks there. And there's many, many more other examples. But just picture everywhere where the technology could be deployed. If you had folks, which we do in those turn circles, understanding what the mission really is and the threat, it unfairly, but responsibly does inform us how we want to make those investments. So...

I would love to double tap on counter UAS because you were one of the first companies to start talking about these capabilities. And now as you said, many are trying to like provide solutions with that, that became like more obvious of a challenge and a problem. How do you differentiate? And what is the challenge towards actually like with a government that is looking for diversity and like new solutions and is open to like these new entrants, how do you balance that and how competitive it is?

Yes. So let me start with the last point first. I think what the administration is looking for is the traditional defense contractor, and this is the way the government sees it. There's 100 different views. I'm not on stage to tell you that companies are not doing a great, great job. But there are companies who make large platforms across the federal government. And the administration in some areas, their review is they always take too long, they're always late, they always cost too much. Always and never are 2 terms I never use because things are not that fixing. Yes, I just did use the terms. So...

You maybe rarely uses it.

Rarely uses it. But I want to set that context because what the government is looking for is the threats are going to continually change. And you have to tell -- you cannot tell me, the administration, that there's not one thing that private companies, public companies can invest in that can help us out. We have been that company since 2017 have been investing ahead of customer need, okay, where we are taking the expertise we have, we are building 80% solutions. We're putting those into the field. They're all software-based. We allow the customer to try a little bit and then we build some, and then we'll get to an agreement where we can go to full rate production in a much quicker manner, like 1.5 years versus an 8- to 10-year period. So that's what the administration is looking for.

We looked at the counter-counter drone market. We do differentiate. Everybody out there today has a counter-drone solution. It's like when AI first came out -- I'm sure we're going to talk about AI at some point today. As soon as AI came out, I went to the Consumer Electronics Show. I'm looking at a cable company who builds power cables and they're AI approved, because they run a server that runs AI, right?

So the last -- least we have is counter-counter drone market. What's important about countering drones is distance. So how far out can you detect that threat that give you time to take the right course of action. We all know the economic side of counter-counter- drone work is we, as a nation, other partner nations cannot spend -- cannot afford to spend $2 million on a missile, take a $30,000 drone down. We've already heard that. If you let that continue, you lose the economic war. Eventually, you lose the overall war.

But our solutions are at a distance that give commanders 18 minutes of decision time, not 6 seconds. Majority of what you all hear about today is 1 to 3 kilometers on a small Class 1 drone that gives a commander about 6 seconds of decision time, and you're only seeing 1 to 3 kilometers. So it takes you 2 seconds for your mind to react. You got 4 seconds to pick the right button to hit. If you miss it, you're going to going to get hit. So it's great to talk about low-cost drone solutions. There are low-cost drones, but the way to find them in either cellular or satellite-based or using radar, using passive radar, active radar, using RF, there's a multiple number of sensors you need to be able to track these things.

Not only track them, but find them and then come up with targeting, you can either pass to a kinetic kill or you can nonkinetically take those down. So in a software baseline that learns continuously, it's all AI-based. So as we find other threats and other cyber bullets that we can send to those drones, we can update everybody's systems concurrently all over the world. So it's a very different scale, a very different level of discrimination and something that is selling very well today and will continue to sell very well.

So I still think that, that market is in the early innings. Like how much -- how large is going to be like 5 years from now, if you want to measure that? And then how are you seeing between like I think the problem is clear and there is a will and the Department of War identified that, but like how many dollars are they actually like spending towards that to happen as soon as possible?

Yes. I think you look to 2 different budgets in the reconciliation bills. The part of the Golden Dome, the $150 billion that has multiyear money, a portion of that, that we're interested in is left of launch, which is how do we prevent as many missiles that are out there that could come to the U.S. from launching versus having them launch and having to detect and then use other means to take those down.

And then the other area is a counter UAS layer. So a portion of the $150 billion will clearly be spent on that layer. And on the DHS side, protecting borders, protecting all of the critical infrastructure inside the U.S., protecting all of the Department of War bases within the U.S., those are all avenues where at least the U.S. government is going to be spending billions of dollars. We recently took our total addressable market up from around $280 billion to $300 billion based on -- we expect that across all of our electronic warfare, [indiscernible] has probably added $20 billion to our addressable market based on U.S. government spend.

We sell to all FVEY countries today, a multitude of different electronic warfare systems. We're in Eastern Europe as well. I think we've got 18 or 20 other companies that we sold to. So it is part of that $2 billion of annual revenue, and it will continue to grow.

So you have mentioned electronic warfare, the electromagnetic environment. And I think to investors, it was clear the applications for tracking and actually targeting drones and missiles, to explain it to the generalist investor, where else you could actually also apply this electromagnetic capabilities in the world today?

Yes. So we just announced and closed on a rather large acquisition, ARKA. It was a Blackstone asset for the last 5 years. It came out of the merger of UTC and Raytheon. It was an asset that we looked at. We're a highly acquisitive company. We looked at it about 5 years back. We've been able to track it. And their role in Golden Dome and looking at electromagnetic spectrum is to use -- they build space-based EO/IR sensors.

So imagery data, creating that and not only pushing that information down to the ground, but they have coupled that now with an Agentic AI solution that allows many, many models to go into those data streams coming down. And with extreme knowledge of the data, which is crucial to AI working, they've trained their models on the actual classified data and top secret data and secret data, unclassified data all comes down from these assets. So it's not as though we're using a frontier model that was trained on the Internet and having to modify and make that work.

So being inside the circle allows us to build models faster. So that's another area where all the information we glean from that goes into a common baseline. And that counter UAS baseline also does counter space. So if somebody is flying a drone using space assets, how do we counter the space link to stop communications from space to the drone and any other unmanned system. So a lot of applications for it. It's part of our $2 billion of our $9.4 billion of revenue.

And what we have is we have past performance credentials. We have hundreds of confirmed kills. We're not on a range where everything is fixed. And I'm flying my own drone having to find it, we're actually finding enemy drones. And like it or not, they don't tell us where they're going to be, right? You actually have to find them. And it's why we have one of the only proven solutions to it.

You mentioned earlier that we'll touch base on AI, of course, because everyone wants to talk about AI, right? So in this context, right, how much of that -- like the LLM models and agents are advancing like pretty fast, but they are also starting to be more common in between themselves. When you have to choose between choosing a commercial solution versus doing bespoke things, how do you balance that?

So the AI solutions that we provide are actually tested on a number of models. So we're a partner with Amazon. They have a layer of their infrastructure. We can take the models that we're creating and we can run them with Anthropic. We can run it with OpenAI. We can run it with Galileo, I think, which is the Google model. So we can remove and replace those different items just like sockets. We're going to plug those in to see how our models run with theirs.

The other thing that's different about what's going on in the commercial space and that which is trying to come into the government space is that most models are working on a defined set. It's a defined data set, and it's a defined solution. I'm an insurance company, I want to process all of my claims without any more people, right? I do fire theft in auto. I go through decades' worth of data. The model learns it, understands what actually pays out and all. But it's a discriminate question to be answered, and that works awesome for them.

The issue in national security space is those hundreds and thousands of questions change every week because the threats continue to change. So how do you base a model. The best way to build your models is to have it rehearse and understand the actual 0s and 1s coming from a multitude of different sensors, okay? Far more data that's being used on the commercial side because it's continually coming down to you, it's never static, it's continually dynamic.

So being able to take some of these frontier models and build our models from those and then have those run on that data, it's a very different setup. The other thing I've heard about AI is it's going to be revenue deflationary -- or deflationary to our revenue. True story, if you are delivering people who create software for another client, and a machine can create that software, it's clearly deflationary, okay? The software we create is the software that goes into the outcomes, the technology that we deliver.

So every time someone can come up with something that can write software faster, we're more than willing to use it because it gets an outcome to the customer faster, that hits speed, that hits agility. It also can be delivered in a commercial manner, which means since I've invested ahead of that need and the investment is hours, I can sell it on a purchase order back, back to the federal government at much better margins. So the government gets a faster, swifter solution that's much more agile. We make an additional margin because we made the right bet and actually invest ahead of time.

So last thing I'll say about AI is the last time that technology has come in and disrupted our market, do we buy less technology or more technology moving forward. We all buy more. We can't buy enough tech. And in the federal government world, when they save $1, they spend $1 because the list of things they have to go work are endless. So it's not as though revenue overall is deflationary in our software. In our agile software jobs, we have customers who have saved millions of dollars. And the day after they save it, they call us right back and say, "On this current program, can you do these kind of tasks for the money we just saved?" And that's perfect for us, right?

Because you're getting sticker to the customer. The customer is showing that they like to buy outcomes versus inputs. And that's what's driven our growth. And we made that change 8 to 10 years ago. So companies who say, we're doing tech also, your best day is being on the stage saying that now you're going to start doing tech because the next 7 years, frankly, it's really tough rewickering an entire organization to not deliver people, but to deliver outcomes. And it's a very different business model.

It's the same with the Federal Civilian customers? Could you mind touching base on like how is the environment there, if there is any disruption? And one thing that you mentioned, when you look at your reporting, right, Federal Civilian accounts are like 20%, but then the National Security is 90%. So like how do you triangulate that?

Sorry. So we realigned our reporting earlier this year, at the beginning of the year to highlight, we thought better the way we were talking about the business. So Defense, Department of War and the Intelligence Community, we report explicitly. The bulk of our civil work is in the Department of Homeland Security. And it's obviously a civil agency. We consider it national security. We're obviously in the middle of a lot of important initiatives related to the border and a number of items. So it is national security, but it's the bulk of our civil as reported. We have a little bit of work with NASA and a little bit of work with Department of Justice that we've had for many, many years, and then it falls off really quickly.

It was a conscious decision years ago when we refactored where the company was going to go. I got there in 2012, the company was a 50-year-old company then, but you sort of take stock and where the company is at and what are the competitive forces you're coming into, it's a pretty simple call, right? National security agencies for 40 years prior had bipartisan support. And only half of the years did the federal civilian citizen-facing agencies have bipartisan support.

So rule of growing your businesses go to where the money is consistent, right? You have to have supportive budgets. We can talk about shutdowns and how that can be disruptive, but that's where we made that decision. So we have a very unbalanced portfolio. So current investors and potential investors, that is a clue. Having a balanced portfolio is not always the right thing to do. It may look that way when you look at a pie chart. But from what we deliver, 60% of our business delivering technology, that is very much a high-end call for item in a $300 billion TAM market without being involved in the federal civilian area.

And our customers, National Security have been shown to move faster and move faster from buying labor hours to buying outcomes. And that's what drives margins, it drives growth and it drives productivity and it gets solutions out to our customers faster. So...

And those shutdown dynamics that John referred to, I think, are particularly important for a couple of reasons. When the government was shut down for 42 days, we had only really modest disruption in the second quarter, tens of millions of dollars of revenue, and we actually raised guidance for the year. We talked about it being timing. DHS now, which has been shut down since February 14, also is going to similarly have very minimal disruption.

We -- most of the important activities, most of the more important activities that we do are covered either in the reconciliation funding or deemed essential. There's a little bit of administrative sort of corporate DHS, I'll call it, that may be minimally disrupted in the quarter. It doesn't change our view of the year, maybe a little bit of chatter when we report the third quarter. But again, largely unaffected as the broader shutdown did, largely unaffected, which really goes to underscore the point that where we've deliberately pivoted the portfolio are in areas where we see really durable demand impulse and areas that are going to be relatively unaffected.

So in general, how is the award environment, right? Because you have the shutdown. You talk about the reconciliation bill and Golden Dome, but to be fair, it took 8 months to actually say where that money was going to be spent? But to your expectations, how that award environment is actually performing?

So the award environment generally has been a little bit slower to restart. I think we're close to getting back to sort of a normal rhythm. If you think about the timing of the shutdown in the middle of the quarter, we were sort of moving into the holidays. There were rumblings about government employees worried about losing their vacation by the end of the year. A lot of people came out of the shutdown, went to vacation. Those and other things have probably contributed a little bit to that sluggishness.

But I think what's important here to note is -- first of all, it is getting back on pace and also the fact that we're really not in a hand-to-mouth sort of mode anymore. And we have about 3.5 years revenue in backlog. Over the last 2 years or so, the average duration of a contract we've won has been over 6 years. We had a soft awards quarter last quarter. The quarter before that, it was over 2. And so we talk about awards being lumpy. But really, we sort of keep an eye on the trailing 12 months where we still feel really good around 1.3 or so and confident we'll be in the posture we want to be as things continue to revert to normal.

Yes, it's definitely an environment where we're not using as a reason that, that happened to us, and therefore, we can't hit our revenue guide that we provided. We actually said, here's the hit that we had in the second quarter. We raised guidance, okay, just to show the resiliency of the markets that we're in, and we're very much on track to finish the year within that guide. So again, it's a very different business. We're not as impacted as we may have been 8 to 10 years back.

So when I think about you guys, I also think that it wasn't only like, okay, national security versus civilian or services versus tech. There was also a really disciplined and focused determination on what type of contracts you are going to go after. And in terms of investments, you are investing towards capabilities and not just like the contract on record that was about to be awarded. When you think about like bid and proposal, could you please discuss that? You talk about duration and size. But in the calls, you also talked about new awards. Could you mind discussing that strategy and how it plays out?

Yes. I mean I can start. Part of the strategy to move the company forward was you had to change what a good opportunity looked like. So we -- as I said, when we said we were going to make this pivot to more technology focused, and we had to update every single function. Business development sales were the very first team, right? That's where sort of reality hit. So the people who used to sell 35 people or 65 people on a specific contract now being told, sell a counter UAS system as an outcome at 65% gross margin and understand what the threat is.

Well, how do I sell that? Well, you don't without an awful lot of training. So we had to retool our business development team. We came up with a few measurement points. One is to bid less and win more. So we're going to also go after larger, longer duration jobs. Because when you do that, it stops the chatter and it stops these quick whips from left to right of this customer, I heard this customer has a job to bid on. And we never heard of it 1.5 years earlier. We traditionally, not always or never, but we rarely bid a job. We haven't had 1.5 years to 2 years to go shape it.

You should see that as a positive because a $9.4 billion company with a $300 billion total addressable market, you have options, you have choices, okay? You had choices in how you approach a job. You have choices on how you invest ahead of customer need. So you can show them the art of the possible. So the customer is a much better buying customer.

Trust me, I love the smartest customers out there. The ones who aren't at that level, really tough to work with. They take a lot of leadership time away from managing the business. So therefore, how about we not chase that kind of business, which is why we're not hand to mouth, which is why we're looking at longer duration jobs, but you can't decide to do that on a Wednesday. You've got to decide that over a 3- or 4-year period, you're going to get your entire workforce into that model where you shape the opportunities. The addressable market is large enough. We can walk away from just about any new bid and really position yourself differently. So that's what we've done. The proof is in the level of backlog and the duration.

Jeff, anything else?

Yes. I think another thing that's interesting about this restructuring and the business contracting environment is the rise of the use of OTAs, other transaction agreements, which have really ballooned here recently. In the last 2 years, we've had 2.5x as many OTAs as we had in the previous 5. And this is really an artifact of the industry segmentation that we talked about earlier in our discussion here today because it really enables us to work collaboratively with customers in a way that gets sort of 80% answers, solutions fielded quickly and then lets us continue with the customer to iterate and refine and evolve and get a better answer more quickly. And it's a really interesting arrangement, I think, to deal with the changes that we see in the speed of the fight and the technology implications that, that brings.

I'll add one other point, which is another differentiation point back to your very first question around how do we differ? Our company was intentionally set up early last decade to really position ourselves to be -- to deliver under FAR Part 12 and FAR Part 15. FAR Part 15 is cost accounting standard, disclose all your costs. The government can scrutinize costs and they can decide what kind of fee structure they want to put on top of that.

The other part of our business is commercially set up. It's a cost of goods sold business. It cannot do time material or cost-plus work because they don't have certified cost and pricing rates, which with a government that's been moving more towards buying commercial like, not buying from commercial companies, buying commercial like with same terms and conditions, that's allowed us to decide which part of the business we want to make bids from. If a customer wants an 80% solution, they want to buy it from a purchase order, we're not going to debate fee, I'm going to bid that out of one of my commercial companies. And that allows us clear, clean division and clear clean access to customers based on how they want to buy.

So I don't have to drive a firm fixed price arrangement. I can invest ahead of need, build an 80% solution in a software-defined handheld device or a box or a rack, a mobile fixed unit thing and sell that as a quantity 10x price x and that's how we deliver. And that is completely 100% differentiated for the majority of the companies in the aerospace and defense area, not just those who are in the defense services area.

And how is that impacting margins and how that's going to continue to impact margins?

It generally contributes. It's consistent with the increased technology content where we've said margins on the average are 300 basis points or so better than the expertise side of the business. And so generally, that efficiency is good for customers and good for us. So it lets us move quickly in a more streamlined way, which generally contributes to better margins.

And it drives free cash flow, right? It allows us to manage top and bottom line. If we have opportunities to go juice margins, we're going to go juice margins because we're able to sell more of tech. In other times, we have a hotter hand on the revenue side. Maybe we hold margins consistent. But every operational decision is made around how does this increase free cash flow and free cash flow per share.

So now with strong free cash flow generation, the next good problem to have is capital deployment.

I love that part.

How do you prioritize it?

So I think probably ARKA is our best recent example. I mean we have said for a number of years that our approach to capital deployment is to be flexible and opportunistic. And so we do not pay a dividend. So we really are looking at share repurchases, which we've done a fair amount of over the last 5 or 6 years. I think we bought in 12% or so of our shares and acquisitions where we've obviously been very active in our serial acquirers.

So we've used that environment to sort of seesaw back and forth between where we saw the best opportunities and the best near-term ways to allocate capital. We like to be 2.5 to 3x trailing 12 months EBITDA. And we're prepared, we've said to pop up a turn or so above that, which we have with our ARKA acquisition. I think over the next 6 quarters or so, we expect to be back around 3, 3.1 or 3.2. So just our latest instance of executing on that capital allocation approach.

Another thing to be aware of also is we talk about M&A very, very frequently because we are a highly acquisitive company. We've been doing acquisitions for a better part of 35 or 40 years, probably done just under 100. But what's really important is we are in 7 markets across the federal government. We do a strategic plan every year and look at it twice each year to look for gaps. It is only those gaps we look for acquisitions.

There's companies who will go out there and never do an acquisition for a long time until revenue growth is tough and then they're going to be serial acquirers for a quarter. Frankly, if you're buying revenue, it's not a way to grow more organically. So we really look to buy those assets. They're going to fill a capability or customer relationship gap. If there's a capability gap that I can fill by investing, I'll do that 100% of the time. But most times, you don't have that time line.

Somebody else thought of a better idea quicker, and they've actually productized that. And most of those smaller companies, we know by name. We've sub to them or they have sub to us. So we understand their cultural rhythms, and it works very, very well. And our ability to provide certainty of closure is well known across sellers out there. So we get a lot of directed calls in that says, "Hey, I've got this asset, why don't you come, come take a look at it." And that's really the true report card, right? If we're treating sellers in a fair-like manner, where they come back and have other properties and those previous owners are still with us or they're a great reference for us, then that model works. But we don't just go out to buy revenue for revenue's sake. It has to fill a capability or a customer relationship gap we have.

And do you think in what I would like sense is a really competitive M&A environment for critical capabilities? Is the cultural piece? What is that attracts those targets to come to you?

Yes. It's our absolute myopic view of mission and how we support the national security mission. 40% of our workforce are veterans. They understand the mission very, very well. People like that. They understand that we have great connections across the entire buying community. We've been a company for 60-some years. It helps. And we do keep good tabs and we do earn value and build value for those folks who actually sell to us.

So the fact that we are exquisite provider, we meet our contractual commitments, the culture is right and the relationships that we've built across the industry at times breaks ties. We're not always paying the highest -- we're always the highest priced buyer, but we are the one that's going to guarantee certainty of closure and guarantee a good future for that asset. So...

Perfect. I could stay here like asking you questions like all day, but we only have like this many minutes. So thank you so, so much for being here.

Yes, Mariana, thanks for having us.

Thanks, Mariana. It's always a pleasure.

Thanks, everybody.

All right. And we are back at Canter's Global Technology and Industrial Conference. We have the pleasure today of hosting Jeff MacLauchlan, CACI's CFO. I'm Colin Canfield, Cantor's government technology and space analyst. Thank you, Jeff.

Thank you, Colin. Good afternoon.

Good afternoon. So kicking it off right away, we'll start with company growth. How does the team think about the acceleration of defense spending relative to CACI's growth acceleration? Can you perhaps frame it within the context of your targets?

Sure. So an important part of our strategy over the last decade or so has been to deliberately position ourselves in areas of the budget where we were relatively, I won't say completely insensitive, but relatively insensitive to top line budget growth. And so the areas that we've chosen to concentrate on are ones that we very deliberately picked focused around electronic warfare, space, digitization, digital modernization and areas where we did not see great amounts of budget volatility in areas that were largely among the more stable segments of the budget. So that's sort of what it is.

In the current environment, there are a number of areas that are enjoying some budget support that are beyond areas where we have planned and are not fully reflected in the targets and expectations that we've been talking about. And specifically, those would be areas in the reconciliation funding around Golden Dome, some Department of Homeland Security upside in that reconciliation bill as well as the increased attention in recent months and quarters around counter UAS, both of which sort of -- which also sort of touches on those other areas. So positioned ourselves in areas that would be relatively stable and with some significant areas where we see strong interest that are beyond our current planning and expectations.

Got it. Got it. So maybe then contemplating on those factors, how do you think about the growth environment beyond your 2027 targets? And what business capture areas are you most focused on that would drive the greatest [indiscernible] acceleration?

Yes. So there are a couple of dimensions to that question. One would be around the heightened interest in counter UAS, which I referred to a few moments ago. Our Merlin product, which is commercially developed and demonstrated in a couple of areas and shown quite well, is a technology solution that's gotten a lot of attention recently, both in the Middle East 9 months or so ago and in the Middle East in the last 10 days or so. So that's been an area of particular interest. And the other area would be similar sorts of -- or another area would be similar interest around Golden Dome and Southern border security. Where we expect there to also be a significant intelligence and sensing dimension along with layered counter UAS as part of the ultimate Golden Dome solution.

And then finally, our ARKA acquisition, which we completed on Monday, has some really interesting opportunities and areas where customers are displaying a great deal of interest in our new capability around providing multi-int solutions that involve both signals intelligence, where we have a significant capability today and imagery intelligence where ARKA, of course, is a leading provider. So a couple of really interesting areas that we're really excited about.

Got it. Got it. And then maybe if you can just talk about the optempo environment and discuss where you consider CACI is best prepared for increases in operational tempo over the next 24 months and then compare that to the CACI of 20 years ago in terms of how the optempo dynamics impact.

Yes. So that's a really interesting question and a great place to highlight the journey that the company has been on and the retooling that we have been about in the last decade or so in particular. A key part of our thesis when we began this portfolio evolution, a decade or so ago, was around taking advantage of the deep mission expertise and franchise positions that we have, which is probably best demonstrated by the fact that we have about 1,400 employees around the globe embedded in various combatant commands. This gives us a really great feedback loop and a really important position in understanding optempo in particular, but also ways that we can be further helpful and that we can bring new capabilities to bear on those problems.

Relative to change, 20 years ago, the business was really about services, and it was about providing expertise, providing people that we're in position to support operations and do that in a way that was not particularly technically differentiated, obviously, quality support, dependable support on which our customers could rely but a very different kind of support and it was more focused on the provision of service and capability rather than technology and differentiated ability to add value to the real crux of the operations in a different way today.

Got it. Got it. And then maybe contemplating ARKA and the closure there. How do you think about the pro forma product exposure as a percentage of sales and as a percentage of earnings? And then where does CACI see the best risk reward in terms of those products?

Yes. We -- although we obviously increasingly have a hardware component in our revenue base, we really don't think or talk about it as products and there's a reason for that. It's really to keep our organization focused on the fact that when we actually deliver a tangible physical article, it's a vessel for the software. And so our real focus is on ensuring the software-centricity of the technology solutions that we're providing.

So nevertheless, obviously, we do provide some amount of actual tangible articles as part of that. We are today on our technology transition about 60% technology and about 40% expertise. That will continue to grow. ARKA will add to that technology component. And we'll see another 6 or 7 points there in addition to the sort of continued growth of that portion of the portfolio. So we look for that portion to continue to grow with the attendant implications to both differentiation and the stickiness of our positions as well as the opportunity to generate more margin, which we can use for further investment to fuel growth and drive free cash flow per share, which is our ultimate goal or realize it as margin.

Got it. Got it. And then as we think about kind of investing in growth, perhaps maybe talk about how the team thinks about R&D and CapEx requirements for the future growth for the technology?

Yes. So our CapEx requirements are unlikely to be very different. We may see a very slight change there with ARKA. We've averaged the last couple of years a little under 1% of revenue in terms of capital expenditure. I think last year, we were 0.9%. That may increase a little, and we may be point or 110 basis points, but it won't be a dramatic difference. We will, however, continue to spend money and invest in developing the technology and in pursuing opportunities and developing capabilities along the model we've talked about, where we take advantage of this privileged access to have a really good, high-quality feedback loop to find targets for investment and to invest in that differentiation that customers need, which is a very, very important part of our thesis.

I should also add, we have been talking about this and executing on this for the better part of a decade, and it's interesting in the current administration that we find our customers thinking and talking about it in a way that we have been thinking and talking about it for a while. So it leaves us in a very nice spot.

Got it. Maybe shifting to the ARKA business and the growth profile there. Perhaps maybe you could talk about kind of within the capability set, where are you most excited between space-grade optics communications or call it, the rest of the satellite component portfolio for ARKA?

Yes. So the space grade optics are obviously an important position in an area that we're really excited to increase our value to our customers and a customer set in particular that is already a customer set, but increase our footprint and our presence with that customer set in a way that adds value. What may be most exciting though about this is the ability to take the sense making part of the ARKA business and use it in a really cool way with our signals intelligence collection business.

So as a leading processor of signals intelligence, combining with a leading processor of imagery intelligence, we have a very exciting opportunity to add multisource intelligence immediately and early in the process in a way to give broader, more integrated situational awareness to customers and war fighters that use the intelligence, obviously.

Got it. And then maybe taking aside from that, is the plan there for that to be mostly done in a classified setting? Or do you think of partnering with some of the leading commercial earth intelligence players, someone like a Planet Labs for example.

Well, there's a little bit of both. A great deal of the business is classified and that's an important sort of foundational element. But there are some classified opportunities, and we'd certainly be open to exploring ways to do more in that world. But it's difficult for me to imagine that the core of the business, it doesn't remain heavily classified provision.

Got it. Okay.

That's quite a set of notes you've got going there.

I love to write them on stage. The margin profile of the business as we pivot to that discussion, perhaps talk about kind of how you think about the different pathways -- or excuse me, discuss the cadence of the margin progression, between now and your updated -- excuse me, your FY '27 targets and what elements of the business are best positioned to drive outperformance? Where do you foresee the greatest degree of risk?

Yes. So ARKA, of course, will be helpful to that. But the margin improvement in the legacy business that we have underway will continue as well. And that's really a function of increasing efficiency in our execution of the business and an increasingly favorable mix as the technology content grows. And of course, the inclusion of ARKA will not only enhance the aggregate margins in and of itself, but we also see an opportunity to accelerate the mix transition that's already underway there by including ARKA. That's really the important part. Did I miss -- what was the second part?

Where do you foresee the greatest degree of risk?

Greatest degree of risk. That's an interesting question. I'm going to go back to our to our margin theory and management principle to answer that question. Our margins are really an artifact of our growth opportunities and our investment decisions. There's very little operational margin risk that's sort of inherent in the business. And we operate the business, those of you that follow us will know by solving for free cash flow and free cash flow per share in particular. So we really modulate investments and growth opportunities to solve for free cash flow increases.

So margin risk, I would say, is more likely to be an affirmative decision to invest in an opportunity-rich environment, which I would have a hard time characterizing his risk, but that would be -- that would probably be the principal margin downside thought about very narrowly. I should also say, by the way, that I don't see that as a very likely outcome where the business is running very well and accelerating. We're generating a good amount of margin, feel adequately positioned to invest in those areas that are the greatest interest to us.

Sure. Okay. Okay. As we think about the longer-term margin aspirations for the business, maybe talk about kind of the pricing tailwinds that you're seeing in privately developed software versus open source integration. So essentially, within your intelligence business, how do you kind of think about customers not wanting to be locked in to commercial solutions and that helping pricing within the open source domain and thus margins.

Yes. That's an interesting question. I think the philosophy that we've brought to this by embracing open source solutions is really part of the -- is really at the core of the answer to that -- we -- our commitment here to our customers is to not present sort of a captive encumbered solution. And so our commitment to approach these problems in a way that's open and collaborative can enable the inclusion of the work of others to the extent it's complementary, is at the very core of our strategy. We are affirmatively as a point of strategy, not about creating closed locked systems.

And even to the extent that you see things like some of the recent discussions around Anthropic, we've codesigned systems that will let us change out the frontier level to be able to use the best of the current available options, to adjust different situations and circumstances to changing needs to adjust the government deciding they do or don't want to use a particular solution. We have designed that flexibility and that openness into our technology solutions.

Got it. As you think about kind of your prime or subcontract this margin discussion, how do you think of that trade? And what areas of partnership do you think about -- or I think are producing the best margin outcomes for CACI?

Yes. So we have largely historically been a prime contractor. And that is in our traditional business, legacy business, that's been an important distinction, the access to the customer, the feedback loop that we talk about, that's all an important part of it. There is a changing sub current though in a portion of the business that will increase our subcontract content, but it does it in a way that doesn't violate the things that are important to us about being a prime. And what I mean by that is, specifically, for instance, if you look at ARKA.

ARKA is occasionally a subcontractor. They're also occasionally, a term that they use, associate prime, where their particular differentiation and position with their customer makes them not a subcontractor in the typical way that we think about subcontractors. So they want a competitively differentiated position and have enlisted the support and the endorsement of a customer even if -- even in those cases where they may contractually be a subcontractor. So another variant of this model is where we -- in our optical communication terminal business, where we are routinely a subcontractor to a number of space primes.

But again, in an area where we're technologically differentiated and our size, weight and power characteristics, of our solution will often make us the supplier of choice on a number of systems. So there are some situations where we have subcontract content growing, but in those 2 particular areas, it's a thoughtful, deliberate point of strategy to enter into those positions in those market solutions.

Got it. Got it. Maybe pivoting off of margins and turning to the macro for a second. Not as relevant, obviously, to CACI, but your insights in terms of the budget have always been typically the front of government technology pack. So maybe in the defense technology pack as well. But maybe talk about kind of the different pathways provided by the [ Haskin ] SaaS and any commentary towards growth from that $1 trillion line item? And essentially kind of how real do you think $1.5 trillion is for '27.

Yes. So this is a situation where I first have to apologize for you being burdened this afternoon with the finance guy. And if our CEO were here or our CTO, both of them from time to time travel with me, you'd get a little probably more fulsome answer. But the short answer is the decisions that we've made and the deliberate positioning we've made in terms of the markets in which we participate and the ways we participate, we expect to be very resilient and durable in this same environment.

As far as the $1.5 trillion, I think everyone in the room could have a different political view of the viability of $1.5 trillion for a budget. I would go back and tell you -- remind you that the areas that we've chosen to participate in are generally those areas where we see more durable demand impulse. And we don't see the volatility that you see when you see swings -- big swings in the top line budget. And so think about changes to big platform programs and areas that often are affected by that.

We've put ourselves in a position where we're relatively insulated from that phenomenon. I would also point out that we think our TAM is about $300 billion a year. And so the midpoint of our revenue guidance this year is $9.4 billion. That obviously gives us a lot of headroom in the landscape that we see. So.

Got it. In terms of the Federal Acquisition Regulation reform, kind of what is remaining that you think that investors should expect? And essentially, where are customers finding CACI is able to provide the most value in reducing costs and acquisition layers?

Yes. Amen. This is something that we have been talking about as well for the last decade or so. And if John were here, he would tell you that he left Secretary Hegseth's A&D CEO meeting, maybe the only one with a big smile on his face. The things we have been talking about are exactly the things that the administration has been talking about and that are finding their way into the FAR revisions that we spent a lot of time talking about. So the ability to invest ahead of need and to bring solutions, not just IRAD bills to customers the ability to sell commercially.

And I'd like to remind everybody that when you hear the Secretary talk about buying in this new way. He doesn't say buy commercial. He says, buy commercially. So it's an adverb. And we have spent a lot of time positioning ourselves to be able to sell commercially. So if you look at the acquisitions we've done over the last decade or so to position ourselves to be able to do this, we have created a commercial company within our broader CACI. So we have a portion of the business that is well equipped to sell both in FAR Part 12 and Part 15.

So the traditional cost accounting standard defined method of contracting is one that we're obviously comfortable with and fully capable of doing. But we're also fully capable and have a nice amount of business today in our nondisclosed businesses where we're investing, building our own products and solutions and selling them commercially in a catalog type environment. So we are very happy to find ourselves in a situation where the administration is talking about acquisition reform and of course, how that ripples through into their rewrite and tweaking and reinterpretation and use of the FAR, that's very well aligned with exactly what we have been talking about and doing.

Got it. Got it. In terms of the ARKA acquisition and the signaling there, perhaps if you could shed some color on how should investors think about CACI acquiring ARKA as essentially a bet on the growth of classified systems and classified satellite systems.

Yes. Well, look, we obviously have a conviction that space is a very interesting area of growth. It's obviously a contested domain. There will continue to be a need for classified space presence which is very well aligned with -- conceptually with exactly the things that we've been talking about and the other moves that we've made here strategically over the last decade or so.

So, thinking about areas of durable need, thinking about areas that have significant differentiated capability that come with meaningful moats, are exactly aligned with what we've been talking about, and this is one more move in the direction that reinforces our commitment to those areas and those qualities in the businesses that we choose to pursue and then in a corollary way that we choose to acquire.

Got it. Got it. Maybe pivoting to capital deployment, as we think about the last 10 years of acquisitions, which technologies do you think have brought up the most amount of value to the table? And where do you think CACI still has remaining capability gaps?

Yes. So look, our increased presence in electronic warfare has got to be at the very core of this. And that electronic warfare capability shows up in a couple of different ways. Our work around the electromagnetic spectrum and electronic warfare shows up in both brigade level tactical SIGINT tools and equipment. It shows up in our optical communication terminal and our secure communications in space, and now it will show up in ARKA.

So those areas will continue to be areas of focus. And as we kind of work through the next handful of quarters and get the leverage back in the range that we've communicated, we'll continue to look for areas where we fill in gaps in capability or gaps in customer footprint and continue to execute the strategy that we have been now for quite some time. I'd point out we don't buy volume. We're not interested in acquiring bulk. We fill gaps, as I referred to a few seconds ago. We integrate relatively quickly. We have a shared service center in Oklahoma City, where we do a lot of our back office and administrative work. We're set up to acquire businesses that we can quickly plug in to that framework and execution framework, and we'll continue to do that.

Got it. Maybe in terms of kind of the M&A philosophy, talk about kind of acquisitions for larger assets like Azure Summit or ARKA. And essentially, how do you think about kind of your appetite for increased larger swings versus smaller tuck-ins?

Yes. Well, these -- even though the numbers, the numbers have gotten larger with Azure and ARKA, but they're still really functionally, as the business gets larger, they are also sort of tuck-ins as a sort. I guess, they're larger tuck-ins, but they're still very much focused on what I described as filling areas in gaps, gaps in capability and positioning ourselves better in our differentiated technology sort of offerings, Azure was certainly that. ARKA will also be very much aligned with that strategy as we pursue the multi-int initiative that I talked about earlier and bring that increased capability to the market.

Got it. Maybe in the last 45 seconds here, if you can touch on any key points that you think we missed that investors need to know about.

Yes. I feel a little repetitive when I say this, but hopefully, it doesn't sound that way to everyone. I would only point out that what we're doing here is really very much what we have described over the last decade and the repositioning of the company to use our privileged mission expertise franchises to provide and expand our footprint into differentiated technology is very much what we're about.

And some of the acquisition items I talked about related to investing ahead of need and being positioned to provide customers with in a relation -- contractual relationship with output rather than input and to flexibly and opportunistically deploy capital so that we can drive continually increasing free cash flow per share.

I mean that's really sort of at the crux of everything. And I think in the last year or so, we found ourselves in a situation where the market, I think, is recognizing some of the things that we have been saying for a long time, which is that the ability to withstand things like DOGE and the government shutdown, and do that in a way that is really minimally disruptive, really, really drives home what we've been doing.

Right. thank you, Jeff, I appreciate the time.

Sorry for running over a little.

Not a problem at all. Thank you.

Thank you.

Good morning, everyone. We're going to get started here. I'm Brian Gesuale, senior analyst covering the defense and space markets at Raymond James. Thanks so much for joining us. Really delighted to have CACI here to take us through their story. It seems like this year, there's always something big to uncover at our conference. Last year, you convinced people those didn't matter and then your stock doubled. This year, people want to talk about how structurally different CACI is from its peers, how AI is creating an opportunity and not as much of a threat and really some of these other topics around your product business.

So perfect time. We've got the CEO and CFO here, John Mengucci, Jeff MacLauchlan. Really excited to go through a fireside chat, and then we'll adjourn to the breakout. Gentlemen, thanks so much for joining us.

Brian, thanks for having us.

Thank you.

Appreciate it.

So let's maybe just level set, John. Maybe talk about CACI's core skills, key markets you serve and talk briefly about how you've transformed CACI into a very different organization than the one that the public markets first got to know in the start of the century here.

Yes, thanks. Look, thanks, and thank you all for attending this session. So we're -- if you look at our GICS code, we're a government services company. We've been in business since 1962, so a long-term provider of what used to be expertise or labor hours and support to the federal government, predominantly the intelligence community and the Department of War.

As Brian mentioned, we've transformed this company since 2012 to really reshape and drive us in a very different direction. And what we focused on was the ability to or the desire to deliver labor hours into this government starting 2012 forward was going to be a commodity play. All you heard about from better buying power and low price technically acceptable, which were the terms that we used in the '12 through '14 timeframe. It was clear that buying labor hours in a non-discriminate manner and taking past performance away was going to be a very low-margin commodity-based business. And it's not the kind of business we wanted CACI to be in going forward.

So we very much transform this business over a number of years. We announced in the 2015, '16 timeframe, we were going to move into the technology delivery side. Why did we do that? Because we had 50 years of purchase with Department of War customers who understood that we deliver. And when we put bids in place, we don't walk back from them. So a high track record of delivering, and if I could get these customers to agree that we can move more towards a technology company and less of a labor hour delivery company that would be great for investors, that would be great for this nation. And so here we are 2026, a very different company, $9.4 billion company predominantly focused on free cash flow per share growth. So every question about top line growth and bottom line growth, I start with free cash flow because that's sort of how we measure.

We are in 7 different markets. We're in space. We're in cyber. We're in spectrum superiority. We're in digital solutions and a few other markets, and we'll talk a lot, I'm sure, about space and our electronic warfare market as well. We've been in these markets for a number of years, probably just over a decade now. We chose these markets. One is because of the bipartisan support these markets have. We're 90% national security company. 6% of our revenue is in the federal civilian space. That's not by accident. That's myopically intentional. It doesn't mean that citizen services is bad, but it only pays the bills every other year. It's really bipartisanly supported. And it doesn't generate great growth. So folks who want us to diversify into the civilian space, you're talking to probably the wrong CEO and the wrong CFO. We've been down that path. It's really, really dry. It's really, really hard. So national security company is where we branded our ourselves, and it's driving more than respectable top and bottom line growth. It's driving free cash flow. So I'll park it there.

Yes. We're going to double click on a lot of those topics. So let's move on. And before we hit some of those topics, I want to talk about the budget. Two questions for the budget. There's a lot of discussion about an urgency to spend these fiscal '26 reconciliation funds. One, are you seeing that? And what areas are you starting to see that in? And then I do want to get your thoughts on this $1.5 trillion budget for fiscal '27 and how you could possibly get there and what your thoughts are?

Yes. So I'll spend a little time on the first part of that question. So look, based on what this company does and what we do in the electronic warfare area and the space area, you should expect that the $150 billion additional funding for Golden Dome and $150 billion additional funding for DHS for protection of the homeland. There's some overlap in both of those areas, but different authorities enforce that. So additional $300 billion being spent in the backyard of what we're really good at doing.

As for the spending, I don't know if I'd call it an urgency. I think if you look at this administration, everything has to happen yesterday, okay, which I'm a more supporter of than I am unless we need to move quickly. But I do think that if you look at the government shutdown, if you look at just getting budget authorizations put in place, I think that slowed things down. It definitely was not intentional. I also think that the folks who are in charge of Golden Dome understand what this administration's calendar is, and they're probably going to be knocking on the door saying, "Hey, when are we moving forward?"

So yes, we have seen some funding. We'll talk more about Golden Dome today, but one of the things that crossed the Golden Dome and the budget lines are left of launch. So if you all are watching what the Golden Dome system is supposed to do, part of that is to protect the nation from on a missile defense side. There's also a counter UAS layer in that as well. And there's a lot of work being done on left of launch. So we're a plank holder in the SHIELD MDA contract. But our focus is going to be space and it's going to be left of launch. So how do you reduce the number of missiles aimed at the U.S. if as and when somebody pushes an awful lot of buttons on a bad Tuesday? So how do you take the flow of those missiles down? How do you use electronic warfare? How do you use knowledge of the signal space around the globe to understand how we can affect potential enemy launches of missiles.

So there's money being spent there. There's architecture money being spent. Counter UAS, there are funds, there's RFPs out there. I think you should see that start to come out in the next month to 3 months. Some rather material awards in counter UAS, both from DA DHS and from JIATF-401, which is the Department of War agency that's sort of consolidating all counter-drone purchases.

$1.5 trillion, awesome tweet. I think that was on a Tuesday also. Look, here's how we think about budgets. We don't track the $1.5 trillion. We sort of track $9.4 billion company, $300 billion addressable market. We're making sure that those 77 markets have really rich funding streams. The other reason why we chose those markets as well is they are in areas that are inescapable to continually spending more and more money on. So SIGINT, so signals intelligence around the globe that feeds into our EW systems. I don't believe on a Thursday, the government is going to say, let's -- here's an idea, let's stop spending money collecting signals around the globe. It's something you're going to be able to turn on and off. So it's historical levels of funding. We'll see that continue.

So $300 billion addressable market, we're really making sure that the markets we're in stay funded. There are so many things that go into the $1.5 trillion. So will we get to $1.5 trillion? Sure. As a public company CEO in natural security, would I enjoy that? More money sooner, better? Yes. But I'm not -- we're not lighting any candles or watching that. So we've got our margins defined.

Yes. Fair enough there. John, you've performed so well fundamentally this last 12 months. Many of your peers have struggled a bit. As I talk to investors and newer people to the story, it's -- the question I get more is how do we think about CACI qualitatively and quantitatively structurally different from that peer group that people typically talk to you about. And people that have been in the markets for a while have seen the government services being mean reverting space. Where a couple of good years on, then you kind of mean revert a little bit and so forth. How do you think about quantifying the structural differences?

Yes. So if you go back a number of years, at least 10 years, when we looked at how do we move this company forward in a different direction. We spent a lot of strategic time. And I always talk about strategy is a place where we come from. We're not a reactionary company. We've been in business for a really long time. 40% of our workforce are veterans. So when people talk about the mission and where the threat is coming from, we understand it better than most.

Another element of what differentiates us is, which is highly legal but grossly unfair, is we have 1,400 people embedded with all 5 commands around the globe. So what happened this past weekend, you should bet your last dollar that we have hundreds of people who were in that area of responsibility to understand everything from target planning all the way through effects, all the way through threats, all the way through the technology that can make the next time we have to prosecute something like that better. And we learned on Friday, what happened on Thursday. We learned on Saturday, what happened on Friday. So again, highly legal, grossly unfair that we have 1,400 people that are positioned where we need them to. And that was the crux of how we rebuilt this company going forward.

I already shared that having a commodity low-price supplier of people was not in our future. So we did pick the 7 markets that we wanted to be in. We built an infrastructure because we're highly acquisitive to make certain that we could handle FAR Part 15, which is cost reimbursable, cost accounting standard business as well as FAR Part 12, which is what we're all hearing about commercial, right? FAR Part 12 isn't buying from commercial companies. FAR Part 12 is buying commercially. So have companies invest ahead of customer need, let us put some money and mission knowledge on the table and let's work on a model where we can spend our own money, but therefore, the reward is going to be larger, read that in faster revenue and higher margins.

So we spend a lot of time focused on that area and how we would come out. We explained that we believe we made an awful lot of changes that we're not as exposed to labor hour contracts. And then DOGE came, right? It was the best independent auditor we could have found that we had no vote on. It was to look at all these contracts, find consulting hours, find companies that are just providing services, maybe they can buy them cheaper or some other way. We sat in this meeting, I think, a year back and said to all of our investors, we did the right thing. We're not going to be impacted by this. The entire marketplace went down. We're tagged with the same fixed code as others. We had just under $5 million of impact over that entire year. Other companies had billions of dollars lost. I'd say we differentiated well, and we had an independent source called DOGE.

So I like how we came out of that. We're into this next phase, which is let's find things that we can buy where you're willing to invest ahead of customer need and put your own money on the table, and then we'll buy defense needs in a very different model. It's music to our ears. We were already down that path in the past. So qualitatively, we've done a fantastic job. The entire leadership team has. And then quantitatively, I think you can look at our free cash flow per share. I'll have Jeff talk a little bit about that. But we have put some 3-year targets out there and sort of like where we're sitting, Jeff?

Yes. I'd also add to that question. Quantitatively, we appreciated following DOGE, the opportunity to buy $150 million worth of shares for $344, which warm the cockles of at least my heart. I would also add to the DOGE evidence, the qualitative point about the government shutdown, because once again, we have an artifact that we could talk about publicly and say, we told you that we've deliberately positioned ourselves in places and activities that we can't practically stop. And the fact that we'd have the revenue that we did in the quarter, $2.25 billion or so when our government customer was closed for half the quarter, which was in line with what we thought, what we communicated, I think, is another kind of point along that path.

Absolutely. The performance has been clear. Let's keep pulling on this product and technology thread. That's where I want to kind of take the rest of these discussions or at least most of them. John, you've made comments that the EW business is approaching $2 billion or about $2 billion. I think about that as largely sitting in your $6 billion technology market. How do you think about the other pieces of that portfolio in there?

Yes. So when we talk about electronic warfare, it's tough for us to segregate cyber from that and the fact that some of the defeats we do in counter UAS areas and then the signals world actually come from space. So we're trying to -- we're being very careful as to roughly the -- just went to $5 billion of technology revenue. How do we share a little bit more? So we put everything into an electronic warfare bucket. And the example is if there's a drone out there flying in, we electronically do something to that drone in a low, no collateral manner. It stops it from operating. And it was a cyber bullet that we actually fed it. Is it cyber market? Is it EW? So I don't want to get into those...

It's growing.

It's growing. It's all we really, really care about, right? So beyond EW, a lot of the digital applications that we build, that we modernize is probably a close second to how the technology part of our business builds out. And then there's a number of space kind of market thing. So it's a very strong portfolio of work. And we've used a lot of our acquisitions to sort of put the foundational elements in it over a number of years, and we can talk through that on a one-by-one basis. So...

Yes, great. I want to dig into the space market for sure, and we're big believers in that strategic industrialization of low earth orbit, which -- so as we talk about this, ARKA is a deal, a transaction that's coming up. Talk about your space business, I want to deep dive ARKA. I want to think about your addressable market and where you sit across the value chain in space?

Yes. So when we got involved in the space market, we were well known for processing signals data from signal-based satellites. So any satellite out there that's collecting signals. When all the information comes down to the various ground centers, we're quite a substantial processor of all that information. So think about a bunch of zeros and ones coming down and how do we classify what the satellite has actually picked up and is this good as a bad signal and the like. So that's sort of all the information processing side.

In the '15, '16 timeframe, we had a couple of acquisitions. One was Lucent Government Services. It gave us 2 pieces that are very germane to space. One is cellular and then one is photonics. So you all have listened to the perforation of space a number of years ago. It was how safe is space. We no longer own the final frontier. Everybody else is there. And oddly enough, the way that most satellite builders talked about protecting assets in space and from jamming is to build more satellites because then I can block and I can defend, I can understand it. We thought a better solution would be to move all your data links to optics. High-speed data optics, which unless you have a piece of glass and you've got a jet pack and you're in space and you can hit that link exactly at the right time, you're not going to interfere with that link. So merchant supplier to all aerospace and defense companies that build satellites as well as commercials.

So that was our first step. Building this out came ARKA. So ARKA was a company that came up for sale about 5 years back. They were the result of a UTC-Raytheon merger. It was one of those must sells. We looked at the company 5 years back. We just had a lot of other things going on. And so that one went to Blackstone. Blackstone did a fantastic job over the 5 years that they owned it, doing a lot of CapEx adjustments and investments. So where does ARKA play now? We build exquisite sensors on land, air and sea. We don't have a space sensors business. So that filled that capability. It also built out addressable market for Golden Dome. So that's the second large footprint where we see us playing. And then the third part was they had invested in a few ancillary companies to bring into the fold. So how can they use AI? I know we're not going to talk about AI at all today.

Your multiple just went up a point.

I hope so. So using it because you can't spell CACI without AI. So when you go forward, they did a great job of building AI-based models that could process the imagery data that their on-orbit payloads provided. So ARKA, a 65-year-old company building exquisite space-based payloads in EO/IR and space radar. That is not a new thing. They're not a new entrant into this field. Been doing it for a number of generations and do it exquisitely well, 1 of the only 2 companies. If you ask them, they'd say they were 1 of 1.5. So bringing ARKA in gives us a strong space-based sensor. It gives us another heavy business to be a merchant supplier with aerospace and defense company and commercial satellite company primes.

And then all of the AI and the agentic AI that they have created and agentic because they are training their models that they have built on real top secret classified payload information coming down from a national security asset. That is very different than training your models on the Internet. There's a lot of doors and tickets and clearances and rooms you need to get into before you can quickly translate, this is a cool commercial license product, let's just throw that into the highest classified levels to go process space-based data. So they are in those rooms and they have an authorization to operate it as well over an 18-month period.

The play for us is to take that and bring it into the signal collection side and do that for national security companies and then take their agentic AI models and the frameworks they built and take that across everywhere else where CACI processes information. So space is a great market growth area for us and budgets strongly support space and new ways of collecting and building payloads. So I like our hand there a lot.

Yes, I really -- that was a transaction I'm really fond of. Another area if we think about it, so space is growing really fast. You've built a really nice footprint there. Historically, CACI was heavy Army if we went back 15, 20 years ago. You've made some really good investments with the Navy and have a lot of technology there. Would you take us through those pieces that are building out that naval franchise and what your outlook and how you think about that business?

Yes. It all comes back to electronic warfare, frankly, right? So if I look at the Air Force, Army and the Navy, our large footprint there and our goal over a number of years was to be the EW, the unique and preeminent EW supplier to the Armed Forces, now it's Department of War. So in the -- we did 6 acquisitions in this area over a 7-year period, all different sized companies, and some of them were very, very small founder-owned 50 folks and some were a little bit heavier. But at the end of the day, what we have built is an EW capability that brought us a program called TLS Manpack.

This was the first hint a couple of years back of moving to OTAs, other transactional authorities. That's the model where the government wasn't quite FAR Part 15, they're ready to do something different. It's a you put some skin in the game, the government put some skin the game. You get through the requirements process in about 2 months versus 2 years. We had already built potential kits. We showed the customer the art of the possible. We worked through that phase. We got to design and the development done in a 6-month period, and we received $0.5 billion production contract.

The Army also was able to cancel a 5-year $5 billion contract with another larger well-known company and set of companies to do the large-scale integration of design, the requirements and everything else that the technical user did not need. So we are the ground provider of EW to all brigade combat teams across the Army. You step forward and take the same EW into the United States Navy. That shows up as technical software-based technology sales. It also drives large-scale production programs. One of those was Spectral. So that is the -- that is for all combatant surface ships. That is the EW system of the future. And I say future because once we have it, we're not letting it go, because it is a dynamic software-based solution, whereas signals and different apertures change and the threats change, it's a software baseline upgrade.

There's some hardware with that as well, but it's not the old days of cutting a hole in the hall every 7 or 8 years to provide better capability to it. It is a large-scale system that can handle over-the-air upgrades, which is exactly what you would like to have had this past weekend, if you're a Navy combatant ship commander.

So we did a number of acquisitions there, built that framework in and have now won Spectral, which is a multibillion-dollar, multiyear job as well as Azure Summit, which is another acquisition that had the precursor program to Spectral. So if you look at Navy EW at a macro level, Azure Summit won the program from another aerospace and defense company to put all the baseline hardware and some of the preliminary EW capability in. And then CACI comes in with them as an acquired partner and delivers everything in an AI framework. And as a true AI framework, it is thousands of signals hit a Navy ship every second and instead of having operators sort through that sausage making, machine learning and AI have taken the processing and that cognitive overload away and be able to say the highest probability of that signal comes from these 3 devices, 2 Iranian, 1, a Russian. And what you have on board, kinetically and non-kinetically, here's a way to go take those out. So there is a step function growth. So in the EW space, if you look at Army, Navy or Air Force, we're very well positioned there and growing.

Exciting markets. We're a big believer in the dollars there and the necessity of that technology. I want to talk about -- one of the things, topics I need to get to is artificial intelligence. Multiple goes up again, I guess. But there's a lot of people that perceive it as a risk as well as an opportunity. It seems with some of the technology business, it's much more opportunity for CACI. But can you take us through your general thoughts of disruption to the market, both positively and negatively?

Yes. Look, at a very high level, when you deliver people, you're delivering inputs to the federal government. And when you're delivering technologies, you're delivering outcomes to them, right? I need this built. I need this process. So when we read a lot of the research reports that came out a couple of weeks ago and it hit the government services market like an asteroid, we were not spared because that's sort of the way some research notes come out, right? And the quants can't tell really good stuff from really bad stuff. And so it just sells. That's sort of the way the world works.

In reality, we're a high-tech user of technology innovations, AI included, AI model companies, frontier models, everything we can get our hands on because we are not making money on developing the software. We're not selling the software as an end item. We're selling a solution or an outcome to the federal government. So if somebody comes in and says, I can understand the code you've already written. I can write that next set of code faster, outstanding. It's most likely better margins. It's faster delivery cycles. And the difference between what goes on national security and goes on trying to find the cheapest red golf shirt at the local mall is that that's a singular issue. Find a cheap item at a mall, simple to solve. Go train your model on the Internet data, you can suck in all the information you want. Here's where the cheapest red golf shirt is.

The difference is the national security space never runs out of outcomes they have to solve and how you solve them because your enemy changes how they communicate in the electronic warfare world every 4 hours. This model never catches up. It's continually changing. So we are that company that is providing outcome-based solutions to our federal government national security customers. That's never going to stop. So we're a huge user and a huge benefactor of all the AI models. So Anthropic, OpenAI, no way to really talk to here, great, which one you want to use. It doesn't much matter because the framework allows all of those models to come in with a unique partnership with Amazon Web Services, who provides all of those models to us in a cloud-based manner that we can trial each of those models as we're trying to solve what we have to solve for.

So it truly was a miss fire against our company that AI was going to be deflationary, I think what it was to our revenue. At the end of the day, if you sell people who write software and you sell the labor hour of software, that would be a deflationary thing, okay? And last time I checked, as technology advances, all we do is buy more technology, okay? So this is a positive thing for us.

Very clear. As we're coming up on time here, I want to talk a little bit about margins. As this technology footprint continues to grow and proliferate, you look like that part of the business looks like a more Agile prime, which typically has a higher margin structure. So how do we think about this a long period of time, how this model evolves?

Yes. You're going to -- you've heard us mention free cash flow a couple of times, and that's really the touchstone here as well. I mean we solve all of our investment decisions, all of our growth opportunities, margin, all solve for free cash flow. So John started our remarks today by talking about our 7 markets. We go through each one of them twice a year, kind of refresh our view, what's new, what's different. Things have gone away, things have become less likely, more likely. All those decisions drive gaps and investments where we're trading off investment versus growth versus margin, solving for free cash flow.

Great answer. There's a lot of topics we couldn't really get to. We're going to talk about counter UAS in the breakout and some of the opportunities there. So join us downstairs, but John and Jeff, thanks so much for joining us today. I appreciate it.

Thanks, everybody.

Thanks.

All right, everybody. Thank you for your attention here. We've got the management team of CACI, Jeff and Jason, here with us today. I'm very excited to have you.

For those of you that don't know me, my name is John Godyn. I'm the aerospace and defense analyst at Citi. And we've got a good list of topics here to dig into. So I think we'll just hit it.

The #1 question I've been getting lately is just about the volatility in defense services. And normally, we won't ask a company about short-term volatility in the stock or in the group. It doesn't really come up as much. But in this case, I think it's kind of interesting because you guys have spent so much time and effort trying to differentiate yourselves from the rest of the peers. And we see that so clearly in the fundamentals, in your growth rate, in your margin profile, even some of the capital allocation that you're doing recently. Maybe a good place to kick off is just to give you the opportunity to dig into that and maybe revisit and explain to the audience all of the ways that CACI is different than the peers.

Yes. Thank you, John. Nice to be here this afternoon. That's an interesting question. Part of the answer, and I'll start with the fact that we spend a lot of time explaining questions like this or some flavor of that question by saying that we're increasingly compared to people with whom we don't feel like we have much in common. And I think I appreciate you acknowledging some of the differentiation that we've been doing and the work around that. But I think broadly, the reflexive reaction is still to sort of treat our sector as being somewhat homogeneous, even though increasingly it's not.

And many of you who have followed us for some time will know that at the crux of that differentiation are a couple of things that we undertook, some of them as much as a decade ago, opportunities to differentiate ourselves by applying technology rather than sort of the classic expertise model that had been the practice in the government IT services sector and to put ourselves in a position where we were bidding fewer number of larger jobs, places where we could apply technology, places where we could shape relationships with customers. And the operational reality of that is that we've been quite successful, we think.

And along with that, we've been focusing on software as being at the core of the solutions, being the only way that we could evolve as a nation to the changing nature of threats. And again, we feel like we've done a pretty good job of that, although I think in times of, I'll say, alarm or sudden market pulses, we seem to still sort of fall into the same group. So I don't know what to do except keep doing what we're doing and look for more.

I appreciate that. There's another layer to what's going on just recently in defense services. I get a lot of questions about AI, AI exposure, AI disruption. As you mentioned, you guys have certain software exposures. I'm sure the topic of AI is coming up. Can you just give us a sense, AI, good thing, bad thing for defense services for you specifically? And how are you positioned?

Yes. Good thing is the short answer. And Jason is our CTO. He'll want to expand on some of the summary comments I'll make here. But I would observe, first of all, our increased technology content, which is really focused on delivering outcomes. And if you're in the business of focusing and selling output, then it goes from being a threat to being an opportunity.

And the second thing is, in those areas where we are still in an expertise mode, where we're supplying input, we've increasingly managed that part of the portfolio to be focused on areas where we have great efficiency opportunities. So think about things like intelligence analysis, where a relatively small percentage of material gets analyzed, and the opportunity to use AI tools to increase that efficiency and focus on the important things and do more work and better work rather than less work. But I don't know, I'll let you expand.

Yes. Thanks, Jeff. So at CACI, we've been using AI for a long time. For over 2 decades, we've applied AI across the board, right? And that comes to computer vision, to analytics, to transformer-based technologies. Generative AI, which is really what's popped up in the last several years, that's the transformative across business, right? But it's in our blood to take advantage of disruptive technologies to enable efficiencies in our business. So when we think about expertise and technology, both aspects of that are working with AI under the hood to be able to accelerate outcomes.

We're not interested in selling you someone to write code for you. What we're interested in is giving you the outcome that's going to help your mission, right, that's going to go directly to the war fighter. So the process that we take along the way to produce the outcome, we're all about cutting the inefficiencies out of that process. So when AI comes along and says, hey, we can write code for you. That's great, write the code for us, so we can focus on the outcome and the algorithms. Let's just produce more outcomes. And then it's a force multiplier for us, right? And that's really the key is AI is a multiplier on our output, and there's an infinite amount of outcomes that are needed in the national security space. So there's always more work to do there.

Yes. No, that's a real helpful overview. I want to talk a bit about organic growth. A good segue into that is just plugging into all of the tailwinds and themes that are out there. We have this moniker we talk about megatrends affecting defense right now. Maybe you can talk about what you're most excited from a growth outlook perspective and just sort of set the stage.

So there are a couple of areas here. As part of the earlier strategy shift that I talked about, we developed a couple of convictions around that, that are turning out to have been very, very good calls. I talked about the fact that software was important to be able to move at the speed of advancing threats. But we've also built some really interesting capabilities in some areas that we could see were going to be important and in fact, they're proving to be important.

Counter-UAS is an area of particular strength, again, which Jason will be able to talk to you a little bit about some of the things we're doing there and specifically around our Merlin system, which we delivered -- or which we've developed on our own investment dollar and have sort of in different demo phases. That's an important part of this. I would also say around network modernization, we've got some really interesting large projects underway that will form some bedrock capabilities that the government needs to be able to sort of move to the next level here of threat response and moving with some agility. But the counter-UAS area is one of particular interest that I think most people would be eager to know a little bit more about and our Merlin system.

Yes. So to kind of Jeff's point there, electromagnetic spectrum is a huge area of investment in our company. We continue to build that part of our portfolio through investments there. Counter-UAS is a huge part of that, right? So being able to kind of detect the wireless world around us, detect drones that are being used for nefarious purposes. And we've been in that space for over 2 decades. From the national level all the way down to the tactical edge, we have over 300 systems deployed specifically focused on counter-UAS across the globe. We've got thousands of electromagnetic sensor systems deployed across the globe.

And we've taken that knowledge and that expertise and invested in bringing -- creating a capability called Merlin, which kind of brings the best of all of that across those 2 decades together in a commercial product that we can then offer to our customers, and we've taken it and been successful in 2 field exercises with it and are now working with customers to deploy it in specific locations in the world. So it's been a big success story for us.

Yes. Those are some great data points. We also hear a lot about electronic warfare, enterprise technology. Every conference call, those come up. Could you dig a little bit into those businesses and what the outlook is there?

Yes. This, again, is an area where Jason will probably have a little bit more insight to add. Enterprise technology has become sort of a catch-all phrase that is pretty wide in its definition and the things that are swept up in that net. The areas that are of particular interest to us are areas that are deeply important to mission and areas where we can use our skill to bring those to bear. The network modernization item, the second part of your question, is also an item of particular interest in an area where we have several large engineering -- several large programs underway, including the ability to use CSfC, Commercial Solutions for Classified, where we have a proprietary Archon product that we're using in the Army's SIPRNet modernization program. So very, very important places where we're happy to be quite busy.

You did a great job. You keep bounce passing it to me, I'll just bounce pass it back to you. But no, look, when it comes to network modernization, enterprise IT services, people come and say, Jason, you work for CACI, an IT company, and I cringe a little bit, right? Because yes, maybe in the past. Today, that's not who this company is. Today, this company is -- we're about modernization, right? I like to tell people, we don't care if your lights are blinking in the closet. We're not going to check to make sure your lights stay on in the closet. What we will do is we will re-architect your entire network for the modern data flow, right? We will find ways to increase your platform to be able to bring AI into your system, so that you can enable your workflows and accelerate them. That's the type of modernization.

Jeff mentioned CSfC, Commercial Solutions for Classified. It's transformative in the way that our military accesses classified data remotely. Before CSfC, it took years to be able to get classified information at a specific edge place. Now with that, we're bringing that to the front right now, right? And so that's the kind of work that we have transitioned our portfolio to that distinctive modernization.

Got it. That's very helpful. Another big theme out there, international growth opportunities. I feel like on the conference calls, you guys have flagged a bit more and more in that respect. Counter-UAS is something that's come up a little bit and some of the things that you've done with Canada. Can you talk about the portfolio, international growth opportunities? And is there more there?

Yes. Commercial opportunities in a couple of areas are particularly appealing and attractive to us. Counter-UAS happens to be one in particular. We have a large total addressable market today and are focused primarily on our domestic business. Some of the international opportunities that are presenting themselves to us are obviously interesting, and we're taking advantage of them. We're really tightly focused at this point on the Five Eyes countries and on NATO and on following government policy rather than broad-based international business development type activities. So certainly, we're aware of a number of opportunities there, and we're pursuing them. But you won't see us move into international probably the way you would for airplanes or missiles. I mean, it's a different sort of dynamic in our market segment, but an area of some promise.

Sure. And one of the things that's interesting about CACI and what you report, you report technology versus expertise revenue. Technology has been growing for some time, outgrowing the rest of the business. Just help us understand the importance of that as a leading growth driver and what it means for the organization.

Yes. So this is really at the core of our strategy. When we started the strategic evolution I talked about in my first response, John, we were starting from a place where we had a number of very long-standing expertise relationships with customers that we had a lot of history, a lot of mission knowledge, a lot of familiarity. And the starting point for adding the technology dimension to our business portfolio was to leverage those relationships and the mission knowledge that came from those long associations. So what we've been able to do is take the expertise part of the business -- we've refined this in the ensuing 8 or 10 years, take the expertise part of the business and use that privileged access to inform opportunities to apply technology to the problems we saw in those expertise relationships.

So what do I mean by that? We have about 1,400 employees that are embedded in combatant commands all over the world. They're working with war fighters at the table, constantly monitoring, making decisions. The war fighters obviously are making decisions, but with our technical support and intelligence analysis. And we have been able to use that to present better options and better support to war fighters in the execution of their responsibilities. So that cycle becomes particularly important to our basic investment thesis, which is that those areas of expertise that are well defined and important, where we have good credibility and great insight, enrich the technology business in a way that you couldn't if you just showed up to sell technology. And in some places, there are some providers that have similar sorts of models, and they present that as kind of being forward deployed engineers or people that are out at the edge. The difference for us is that it started the other way around, and we're building on that access and that insight and that mission knowledge to provide better technology.

That's great color. And another data point we get out of you guys quite often is you're the prime on 90% plus of your contracts. Can you talk about the strategic importance of that?

Yes. I mean, basically, it's customer relationships and the proximity and connectedness to the customer. I mean if you have a prime in between you and a customer, you, by definition, have a layer of insulation that changes the nature of that relationship. An exception to that, to what I just said is particularly on our optical communications terminal, but in some areas where we produce some pretty important and pretty cool space subsystems that we sell sometimes directly to ultimate customers and sometimes to satellite primes. But in those cases, we sort of don't have necessarily a classic prime sub relationship. There's a level of customer access and program involvement that is slightly different. But being a prime and the proximity to the customer and being able to see and deal with those needs as they're evolving and changing is a critical part of the broader thesis.

That's fantastic. And when we put it all together and when I think of CACI, I think of predictable organic revenue growth. You guys have shown that now for a number of years. It sounds like based on everything we're talking about, that's going to continue. Maybe you could talk a little bit about that growth engine, what drives the predictability and whether for the next number of years, we should expect the same.

Yes. So an important part of this transition has also been the fact that it has led us to bid fewer larger programs, and that's put us in a really nice position. I think we have about 3.7 years of revenue in backlog now. The average duration of a program that we have put into backlog that we've won over the last couple of years has been 6 years. So what that does is give us sort of a bedrock of programs that we can see and manage and sort of understand how they're going to develop and how we're prosecuting them.

So we're not winning things. We don't need to win anything today for revenue in June, for instance. So I mean, we've very much moved away from the traditional expertise sort of model, which is a little bit more hand to mouth, and into longer duration programs with good visibility and good horizons, which led us, I guess, now 1.5 years or so ago at our Investor Day, for the first time, to issue 3-year targets, which we had not done before. So that increased visibility lets us understand the business better, lets us communicate it better to investors as well, because we have good, solid, high confidence sort of idea of where we're going.

Yes. No, that's very helpful. And maybe we could just talk a little bit about the budget outlook and what it means for you guys. And there are some big numbers being floated out there, and we'll see what's real and what's not. But generally speaking, the investors that I talk to expect there to be some sort of upward slope, acceleration in the budget, whether it's through reconciliation, whether it's the $1.5 trillion, I think people are a little skeptical of that. But generally, the outlook is positive. In that world, how do you think about CACI's exposures, how they map to various budget priorities and how you see that shaping up from here?

Yes. So those of you that have followed us for a little while know that we regularly say in response to some flavor of that question that the total budget is not generally terrifically important to us. Part of the strategy -- again, I'm going to come back to my early response, part of that strategy was to start with a few basic convictions about things that were going to have durable demand and were going to be widely appreciated and valued and needed even in occasional volatile budget environments.

So if you think about electronic warfare broadly and you think about things like counter-UAS, which is a dimension of EW, you think about some of the other things we're doing related to cyber, you think about space broadly, some of which is EW and some of which is more than EW, those things are not going away. If you think about the things that get debated, it may be the rate of submarine builds, it may be the size of the next F-35 buy, it may be any one of a number of things. No one is saying we don't need a counter-UAS strategy. So the size of our TAM at about $300 billion and our revenue this year, about $9.5 billion, gives us plenty of headroom in those areas that we've identified as being particularly important in the areas in which we're distinguishing ourselves.

Yes. And if the outlook did play out the way that some hope, it does sound like you think CACI would have a lot of upside leverage to that world because you're so well aligned with...

Yes, absolutely. And in fact, one of the areas that is not in our 3-year targets or in our guidance in any meaningful way that Jason will want to expand on is related to Golden Dome, where we have, I think, some very interesting positioning and capabilities where as that program becomes better defined and starts to evolve, I think we have a meaningful opportunity here to sort of play an important role in that.

Yes. And as Jeff kind of mentioned, as our strategy has shifted towards these kind of enduring missions, which lets us kind of ride lumpiness a little bit, right? It also means that our investments stay relevant over the long-term game. That connection down to the mission expertise, you mentioned we've got about 1,400 people deployed across the world. They're living and breathing mission right now as we're sitting in these chairs, right? Those people are constantly testing the market for us, for our investments to make sure that they're relevant. So a large part of our portfolio is very relevant to the threats that are currently developing and evolving.

I'm answering your question about Golden Dome, because Golden Dome is an answer to the threats that have been evolving in the world around us with our nation state peers. And our investments have already been on the trajectory to answer that, answer the mail on that front, because we have people deployed all over the world that have been watching those threats develop, right? So when it comes to left of launch capability, make sure that we could take advantage of our cyber techniques that we could deploy of monitoring the movement of threats, try to take advantage of nonkinetic effects that happened before the missile actually launches in the early phases. All of those are part of our portfolio and are very relevant to the overall strategy to protect the homeland. As those threats are starting to be able to migrate over here, our investments have been in the long game for that to begin with.

That's great. Maybe we can change gears a little bit, talk about margins. I think one of the features of the CACI story is not just organic growth outperformance, but also consistent margin gains. Maybe you can give us a bit of a back story to what's been driving the margins higher? And do you see that continuing?

Sure. I think the margin question is...

Yes, you can take that one.

So there are a couple of factors at play here. The growing technology content is part of it. The average technology margins are -- in this, average I have to stress because there's a wide range here, but average technology margins might be 300 basis points higher than expertise. The other thing that I'd add to that thought is that we really are focused primarily foundationally on free cash flow per share.

So I think I said on our last earnings call, I didn't plan it this way. I think I referred to it as our North Star, which I've now had like 5 people comment on the North Star. So maybe that means it was a good way to talk about it. But free cash flow per share is at its core how we make decisions. And so if you think about investment and you think about opportunities and you think about margin, we solve those 3 variables, solve the balance around those for free cash flow per share. So if we can invest more and grow a little bit more quickly, and maintain margin within that reasonable sort of range that we've been operating and generate more dollars of free cash flow, we will make that decision.

Conversely, if the growth -- if the opportunities to grow the top line were to become constrained or a few of them were to be somewhat smaller, that would command less investment and would generate more cash flow per share by having higher margins. So I said to someone recently that if you saw our margins like take a sudden spike up, that you actually might have a follow-up question of like what's the matter? Because if we found ourselves in an opportunity-constrained environment, that would be one of the ways that it might show up.

But happily, relative to our 3-year targets for our Investor Day, I think we said on our last call that we expected to definitively beat the $1.6 billion of free cash flow that we expect to generate in those 3 years. And we're about 2/3 of the way through year 2 of those 3 years. And so we feel good about where we are and feel good about the array of opportunities, both programs to win and investments to make, I feel good about where we're situated.

And just unpacking that, in an opportunity-rich backdrop, it sounds like what you're saying, flattish margins, but accelerating organic growth is a trade-off that you would be happy to make.

Yes. Let me hasten to add that's sort of in what we've been telling you. So we're not making any new announcements today about guidance or expectations. But in general, we see an opportunity-rich environment and opportunities to invest to deliver what we've laid out and articulated to everyone at this point.

Got it. Well, we've got just a little over 10 minutes left. And I really wanted to focus on ARKA for a bit. I mean this is obviously a transformational deal, really enhances the presence in space. You had some preexisting exposure in space, but this obviously is a game changer in that regard. Just for the benefit of the audience, anybody that's new to the story or not current on what's happening with ARKA, maybe you could just recap the rationale for the deal and the transaction a bit and why it's such an exciting platform.

Yes. This is going to be mostly a Jason question. But space is a very important part of our strategy and a place where we see great growth opportunities. And ARKA brings us some really complementary capabilities in a customer set we know, in a world we understand, and that we think can further leverage and improve our utility to our customers by combining some of the things we do today with some of the things that will come with ARKA.

Yes. So pre-ARKA, we have, like I said earlier, thousands of systems deployed across the globe, collecting electromagnetic spectrum, doing sensing, doing attacks, all those kinds of things, right? A lot of times you associate that in the signals intelligence space, right? That's on water, on land and air, right, sensors all over there. With ARKA, now we have sensors in space. So we now truly become an all-domain sensing provider, sensors all over the domains, right, even cyber. So that expands our ability to collect data and then process and produce actionable intelligence for the war fighter.

Heavy in the SIGINT space. We're known for that in the domain there, okay? ARKA brings in the geo intelligence. They bring in the imagery, right? So now we have another intelligence that comes into the picture, and we can process that to produce a multi-int actionable intelligence. So now we are a shop that does multi-intelligence to give that to the war fighter to help them make battlefield decisions that are informed, right, ultimately to save lives and to give ourselves a competitive advantage on the battlefield, right?

So ARKA gives us that sensing up in space, and they're not just any sensor up in space. A lot of people you could buy just to say you have sensors in space, right? These are a national asset, right? They've been doing this for decades upon decades, right, back in the Cold War days is when they started doing this kind of stuff, right? So high barrier to entry, really mission-critical stuff, which is right along the strategy of what we want our portfolio to be, right? It's that distinctive mission-critical expertise and technology combined together to provide valuable outcome to the war fighter. And ARKA completely augments that. It's a great cultural fit for us.

Yes. And financially, we're looking at an asset that has a great growth rate, but also a high margin. And you're already a company that has a great growth rate and a relatively high margin, but you're mixing up. Can you talk a little bit about that?

Yes. So ARKA will be accretive to our growth rate and our EBITDA margins immediately. We'll be earnings per share neutral in the first full year and accretive in the second. Those statistics that I just gave you don't presume any synergies, either revenue or cost, and we expect to realize some of both. So I have every expectation that we will deliver or overdeliver on what we've articulated.

At $2.6 billion, it is the largest acquisition that we have done to date. It will take our leverage at closing to about 4.3x trailing 12 months EBITDA. We have been in the low 4s before once or twice. We have a very well-established track record of delevering quickly. The core legacy business generates a fair amount of cash, as many of you will know. And we expect to be back to about 3x or just over 3x in about 6 quarters. So we will fund the $2.6 billion about half with existing cash and credit capacity on our revolver, and the other half, the other $1.3 billion with a high-yield bond and an additional Term Loan B. And we're on track to close on the time line that we outlined on December 22 in our call, which is probably sort of mid third week of March, sometime late in our third quarter, which ends in March. And we're kicking along.

Great.

Yes.

[indiscernible] U.S. seems very good at sensing when in space in terms of the accuracy and speed of sensing versus, let's say, China and Russia. So in that context, [indiscernible] sense like [indiscernible]?

I'm not sure I can give you a very satisfying answer to your question. I don't think there is another imaging capability of this sort in space. I'm not sure I can -- Jason, if you have a thought you can...

So the question was around what type of kind of exquisite sensing do we have in space, because there's a worry that we're not keeping up with the nation threat that's there, right? And there are lots of sensing phenomenology, different types of sensing that we need to do, that we as a nation need to do that we need to improve on up there. One of those is imagery, and that's what ARKA brings to the table. So they're not the entire sensing portfolio. There's a lot that we need to expand on in there. But there's one really key critical aspect of it, and that's been able to do very high exquisite sensing on the ground, and they're doing that very well today, and that's where they shine. But to your point, there's a lot more sensing modalities that we need to expand up in space today.

If we could circle back to the commentary about synergies. You mentioned that a lot of the comments that you were offering were excluding synergies. There may be some upside to synergies. Jason, when you were talking about the capabilities that are unlocked, I mean, that was very positive. Maybe we could just talk a little bit about how quickly synergies can roll on, what form they take and what the shape of that might look like?

Revenue synergies or capabilities, because he's going to talk to the revenue synergies.

Revenue synergies, back to the math.

I can start. So in addition to the sensing that we talked about in the imaging, there is also a capability then to collect and process those images. So the vocabulary here is sense making. So making sense of what you have sense and think about that and turning it into actionable intelligence. One of the key areas here we see for collaboration and potential additions to revenue is related to some Agentic AI capabilities that they have that are -- I think, it's the only system that has authority to operate in classified environments.

So ATO, authority to operate, sounds like a pretty simple thing. It isn't. It is a multi-agency long extended vetting process and approval item. And it is a system that we'll be able to use not only in the imagery processing that they're doing today, but will also have applicability to some of our SIGINT processing. And then additionally, to the development of what's called multi-int, which is the combination of the imagery and the signals intelligence.

Yes. And just to kind of augment a little bit of what Jeff said there, right? They're really one of the longest-standing Agentic AI platforms that are on the high side today. They've been there for a long time. And the key there is that they're using real mission data to train the AI in those critical areas, right, versus kind of just bringing foundational models like your big Gemini and Anthropic and all the guys that are bringing them down. They're training their AI on real data on the high side. And that's really a critical differentiator. And that's something that we're going to be able to bring through to all of the processing that we do across our company as we engage, and that's just going to ramp our capabilities of them.

Appreciate it. Looks like we've got time for maybe one more question here. I wanted to ask about -- completely changing gears, but just trying to ask all the defense companies about the executive order not long ago. This isn't really something that has been as topical of defense services. But of course, you guys are a prime on many contracts. How do you think of the executive order, this focus on underperforming contractors? Do you believe you'll be subject to it? Anything you're willing to talk about or comment would be helpful.

Yes. So we obviously are aware of the order. We are happily not on the underperforming contractor list. Our programs are functioning well and don't have issues in that regard. We do not pay a dividend. As a matter of policy, we have not in our 60-odd years of existence. We allocate capital to grow. And we have done share buybacks in the past. We have not done any recently. And we also obviously have, as a point of strategy, which we've been talking about for a very long time, invest ahead of customer need and have a number of cases where we've developed programs in collaboration with customers using OTA, contract mechanisms, which allow us to co-invest and develop programs in a collaborative way. So we actually are in a really good spot, I think, in already being in the posture that the executive order deposits they would like us all to be in. So we actually, I think, find ourselves in a really good spot relative to the EO.

That's great. That's great to hear. We've hit time here. Jeff, Jason, pleasure to have you.

Thank you, John.

Thank you.

Thank you very much. All right. Terrific. Thanks, everyone, for joining us this morning. My name is Gautam Khanna, TD Cowen equity analyst. I cover CACI and a number of aerospace and defense-oriented companies.

We're very honored to have with us the leadership team of CACI International, John Mengucci, who's President and CEO; and of course, Jeff, who we all know is CFO. Of course, always on the calls and explaining all the complicated stuff.

But I wanted -- we only have 30 minutes. So I want to be efficient and just -- if you could just talk at the open, we're getting a lot of questions on the volatility we saw in the stock yesterday and in the market broadly. Any concerns that you guys have? And what's sort of your response to what you saw?

Yes. It's the reason why my IR team says, do not check the stock on a daily basis. But look, we're a long-term growth company. So we treat everything that we do with that -- through that lens.

Yesterday, I think, was another example of being compared against companies that we share very little alike with, frankly. We can't change our NICs code overnight. So we're a government services company. Everybody expects these certain things from a government services company. So this is who you compete against. Whether that's true or not, this is -- that's the bin that we're in. And sometimes when bad news hits a couple of houses in the neighborhood, the whole neighborhood goes, right?

So no, there's no concern about what we're doing. We're very focused on the fact we're a free cash flow per share growth company. We are very, very focused on taking top and bottom line growth to drive that additional free cash flow. We're an over 60-year-old company, understands the mission very, very well. And in the next 27 minutes, we'll be talking about why understanding the mission is so important. There's -- I think there's a lot of factors involved as well. There's AI and there's software company models. And we said that we're a software-first technology company, software equals software machine trade, right? So -- but I'm sure we'll have time today to talk a lot about of these things.

Yes. And just to that point, because that seems to be a theme is AI as a potential threat to the business. And I wanted to just see, what do you think about that? We've heard that as a threat to enterprise IT work, software development. How big of a threat is it to your business, if at all? And how do you use AI?

Yes. So we've said for quite a long time -- we transformed this company a number of years ago, at least 10 years ago, to be an outcome-based company, not a company that sells inputs, okay? And that was a polite way of saying the days of us selling people to drive the majority of our revenue were going to be done. And we said that -- definitely said in 2019, if not earlier than that.

So the first premise is I'm a government services President and CEO who talks about delivering less and less people as the company gets older and older and older. So we have been the beneficiary of a lot of technology, AI being one piece of it, large language models is another. We've been able to bring AI in to do exactly what I think one analyst report from yesterday talked about, which is could it be a threat to one segment of our market, which is enterprise IT.

In the enterprise IT space, to hit that one directly, you use AI to remove the transactional steps of having to keep someone's network up and running. Okay? So in that regard, AI is a positive to us in that we're able to take individuals out of the equation and drive better reliability from someone's enterprise network from their desktop all the way through the enterprise, through all the information.

There's other areas of our business we brought AI in that's looking to allow us to get efficiency up. So if you look at all of the space-based and airborne imagery data that's collected in a average day, about 7% of that gets looked at, the rest of it gets dropped on the floor. We and our customers believe we should be able to process more, but we can't hire thousands and thousands of people.

So you bring AI in, you bring large language models in, you bring computer vision solutions that can preprocess that data. We still can't get through all of it, but the message there is we want you to become more efficient. Okay? So when I read things about lowering the level of revenue because we do enterprise IT and AI is going to take over enterprise IT, it's not even factual, okay? If you are dependent in your enterprise IT solutions, which is 5% or 6% of our entire company, if you're dependent on delivering people, the news flash was in 2019, the government wanted to buy less people and buy more tech, okay?

So that's what we did. So we made all those changes. So if you look at the deflationary impact that AI has on a fraction of our market, it's de minimis. We moved there in 2019, '20, '21, '22, '23, '24, '25. We're in '26. All of our financial plans are put together, assuming we're going to get more efficient, we're going to deliver less people. That's what I said in 2019. That's what's driven great free cash flow growth. That's what's driven great revenue growth. It's enhanced our margins. So we're delivering a lot more technology than we may have done 10 or 15 years ago, but that was the plan.

The other side of that equation is we don't bid on jobs where the customer is asking for just people. It's not a -- selling a commodity in this market is just the recipe for lower margins and having to recompete more often. So we left a lot of the aspects that made me nervous out there. So I think AI is a huge positive to us, helps us support our customers, much more efficient manner. And our win rates and our financial performance really bears that out.

And just on software development, if you could touch on that?

Yes. So we -- a number of years back, I was talking about if we're going to be a software-led technology company in the national security space, we need to make sure that we could develop software using commercial processes. So companies like GitLab that allow you to do test and retest more efficiently, bringing AI in so you get better code understanding to do documentation to do test and retest, all great things. But you can't be a company because you're a national security or defense contractor, you've got to generate -- you got to build software like this, okay? The second way was moving to agile software development because the customer was telling me -- and we witness it every day around the globe -- the threats are changing on a daily basis, not on a whenever a program ends, then changes how they work and we go back at it, right? So there's that time dimension.

What we aren't is a license-based software delivery company. We don't deliver a license to the federal government because the mission changes, and you've got like 2 buyers for that software. You only have 200 million buyers. So I got it that the software sector is going through some -- that has no relationship to what it is that we do. Software doesn't equal software, okay? Licensed software is one type, building specialized software for the federal government using commercial practices, which you should hear in that is a very nimble high-tech company, building software as fast as commercial companies do that to address a mission that's constantly changing. In our market, that's a huge differentiator. It's a large barrier to entry for other companies to enter into that because you got to put quick software development skills, combine it with 60-something years worth of mission knowledge.

And that's why a lot of commercial products don't work in the national security space because they don't have access to the highly classified information. They don't have the large language models that you all help us create because you text each other and you post photos. The intelligence community just doesn't work that way. Can we use the technology from it? Yes. Can we use an off-the-shelf model for it? Not in all cases. So we're able to differentiate and deliver better.

It is interesting because oftentimes, CACI gets lumped into the public peer group. And I'm curious, like who do you actually run into most often when you compete for a new...

Yes. So yes, a lot of our technology offerings, we are going up against companies -- depending on what everybody is called today, right? It's tough to tell aerospace and defense companies from defense tech companies from commercial companies. We've sort of put even more piles out there, right? But those are the companies we've competed against since we got deeper on to the technology side. And why is that? Because we're going after the same missions that traditional aerospace and defense companies were at. We're already in missions that some defense tech companies are taking a look at.

But we got into that in a very different manner, a much more agile manner with a software-first model without wanting to be the long-term OEM of whatever it is that we're delivering. We will default be the long-term supplier because we're putting new software baselines on a hardware device handheld, backpack, rack-mounted mobile. It really doesn't matter. But the threats have got to be things we can handle with quick software enhancements. So that's who we compete against. I can tell you that we don't compete in other areas because we don't deliver people.

That's very helpful. Actually, I wanted to touch on that or give you an opportunity to give some examples because you've talked about how high military OPTEMPO has kind of played to CACI's quick development time lines. What are you guys doing in EW right now? Just -- if you could give the audience some examples of what you're actually doing in the battlefield?

Yes. So electronic warfare is a term that should encapsulate -- when you hear cyber, that's electronic warfare. When you hear signals collection, that's electronic warfare. It is literally doing nonkinetic cat and mouse games in the electromagnetic spectrum, moving zeros and ones around, not dropping munitions, not targeting munitions. But how do you rid of threats in a low, no collateral manner using nonkinetic means.

In a really simple state, if you want your cell phone to call me and I'm tired of getting your calls or I don't want you to call, I'll very quietly stop your phone from calling mine. Done, right? And to take the phone away, didn't have to confiscate it at all, just make my life easier, just don't accept signals from that individual. I'm making this really simple because every other example we have is highly mission specific.

Not simple.

Right. And whether that's in space or whether that's on the ground or whether that's in the air, it doesn't much matter. And it's why we talk about things that we do are in the electronic -- in electromagnetic spectrum. So it's electronic warfare. So when you hear about people doing offensive cyber, that is taking care of a network or a device in an offensive manner without using munitions. It's a non-kinetic way of handling that. That's what we specialize in.

So when we say we're a company that's $2 billion of electronic warfare today, and we did just about 0 starting in 2019. And we have great growth rates there. It's generating fantastic margins, as it should, because we deliver a lot of this as a commercial item, which is in line with the administration is at. Those 3 parts of our solution make us highly sought after.

I was going to say, who do you actually compete against for that type of work? Is it the OEMs that manufacture?

A lot of it is the OEMs. A lot of it is also folks that have a partial -- a piece of that solution. I can tell you on the technology front, who I'm not competing against are the government services companies that are out there. I'm not. Jeff, anything you want to?

Yes. No, almost very, very rarely in the marketplace do we meet the people to whom we're traditionally compared.

Right. No, it's -- and I was going to ask you also just because you've talked about what makes you guys different from the peer set from what you're comped. Talk a little bit about the business development process and how you've sharpened that over the last x number of years and how this new budget may actually play to some of your strengths.

So -- middle of the last decade, when we looked at where does this company go next, right? We're a 60-something year-old company. And every 10, 15 years -- we actually look at it twice each year. Where is the market going? What's our strategic direction going? Where do we aim this company next?

When we said we wanted to deliver less people and become more of a technology provider, that's a material curve. That's a material turn. So you just can't say that. There's a lot of companies out there that say that it's great to buy billboards and put really great quips out there. We do that very little. We do the hard stuff, which is do we have the capabilities to be successful in this market so our investors get rewarded.

One of the areas we had to completely revamp is our business development team. We have a team -- our entire financial management team had to be revamped. How you sell and how you manage programs you're delivering people is draconianly different than how you manage a high-end technology delivery schedule and how you sell that into your long-term set.

Our strategy was to take a 52-year-old company that we were then when we started and believe we have some pretty good credentials. We had a track record of delivering, even though more of that was delivering people. We always met our people delivery commitments. You didn't hear the CEO then saying it's bid at a price that I can't find people to go deliver, that's sort of a new one now.

But we had to retool business development. Business development in the entire process is, our mantra is we bid less to win more. And you bid less to win more because you only submit so many high-quality bids. You have some of our pricing models in our indirect cost. I only have so many pricers. I only have so many capture folks. So if I try to push 40 bids through them versus 10, the odds of me winning, they're going to actually decrease, not increase.

The second part of that is how we go about bidding. We will work a program 2 to 3 years before the customer has thought about it. Okay? A lot of that is just shaping the future. It's shaping the customers' knowledge, right? We always want to deliver to the smartest customers out there. So you make them smart by -- you share with them the art of the possible, you share with them what the possibilities are. We spend a lot of our own money. This is where this administration has caught up to where we are. You should expect companies to want to invest in what they strongly believe in. If you understand the market and you have the right technology, you should be willing to invest. So invest ahead of customer need, put that with a model that we're going to bid less to win, win more and a model where we're going to shape what that looks like when it comes out.

And we're spending money working with that customer. Customer intimacy matters. So it's changed that entire market. That's what drives win rates. That's what also drives long-term recompete win rates because customers know we're willing to invest ahead of time. And when you deliver in your own private lives, you do it every day. We just don't talk about it with the stock price around it, right? We all go to people who deliver, and we all go get competitive bids, and we all try to be as competitive as we absolutely can.

But the business development model is very different. We're not looking to place a lot of bids. We're looking to place well-placed bids in areas that are highly regarded by the federal government and very well funded. And that model has worked.

Yes, the shaping is important. The targeted investment is important. And one of the things John doesn't talk about quite so much, but is also a critical part of it is the discipline to say no. And when things come up, you say no, it doesn't fit. That's not in the book.

Yes. It's interesting because your margins -- CACI's margins have also kind of graduated up, and now we're at the high end of the "peer set." When you look at what you have outstanding with respect to bids or what's in your near-term pipeline, is it -- would it be kind of consistent with that level of margin that you guys are doing? Or like I'm just curious, how you're seeing?

We see, which we've communicated in our targets, and we'll take advantage of the opportunity to reiterate those here. We see continued modest expansion. The real story about margin for us, though, is balancing with the objective of increasing free cash flow, balancing investment and growth. So if we have the opportunity to generate greater cash flow with slower growth, we'll do that. If we can maintain the margins, not expand them, but grow more quickly, generating more dollars, we pick that route. So the decisions that we make every day are with our hands on those levers. That's right. So it's free cash flow per share is the North Star.

I'd also say that our EBITDA margin is pure. It's EBIT, and it's DA. It's where you're going to see a long page of adjustments that we've done, right? Take $20 million of M&A expense, but we decide to do an M&A, we decide to add that expense, it's all in there.

Right. So no add-backs of stock comp.

There's no A.

No.

Yes. No, I got you. It's definitely a cleaner presentation. It's interesting. We've seen other companies in the sector, if you will, get dinged by DOGE, get dinged by tweets. You guys have been pretty resilient to that. I'm just curious, like how would you describe your relationship with the DOW, if you've had any opportunities to interact with them? And kind of their procurement reform efforts, how does the company, in your opinion, align with that?

Yes. So two different pieces there. The first piece is quick. It's -- DOGE was sent out to do what DOGE was going to be sent out to do. I'm not here to debate whether it was successful or not. It was a concept. I think in some areas, it worked well.

We use DOGE as if there was ever an independent auditor of the fact that we are different than the rest of the folks in the sector. I would have thought that might have been -- like in some police departments, they call that a clue, right? That, geez, we lost less than $5 million or $7 million of work we were doing across a $9 billion corporate spend and revenue. That should be a clue that we don't do a lot of consulting. We don't sell an awful lot of people. We don't do a lot of things that DOGE was looking for. We actually are a technology company, technology-first company that delivers, and we're going to be in this marketplace for a really long time. So that was the first part. The second part on...

DOW procurements, changes that they're...

Yes. Look, I think what we're faced with today is we have a -- the way the government works in national security space is administration is coming in, it doesn't matter whether it's an R or D, it really doesn't matter to us. But the administration coming in and saying, hey, all we hear about is you all, whatever group of people that is, you deliver late. You cost more money than what you're supposed to cost, okay? And you're not really agile when the threat changes, okay? Well, you bought a 12-year long program, you bought it under cost plus and you make thousands of changes after you say you're not going to make any. There's nobody at fault in there. That's just the facts of it.

For the administration coming in, it's -- well, why don't we change the way we're buying? If the threat is going to change all the time and long-term programs don't really work for us, then let's sort of change that. There's a number of different things that the Department of War and intelligence community has done. They're all -- some are further ahead than other parts of the United States government.

OTAs is another way of the national security customers to be able to buy things. It's a little different model. That's a you invest and we invest. We'll see how it goes for a while. And if it goes well and it's a product that we can use and you can update it continuously, we'll go into a full rate production immediately. That is a breath of fresh air to a company like ours. Okay? We're not going to spend 3 years on the requirements, 2 years talking about how we're going to build it with a lot of oversight and consultants involved. We're going to put -- both put money in. We know the mission, and we're going to go deliver it.

So in those worlds, that has worked extremely well, okay? And it drives great productivity and allows software-based systems to be able to change. So in that regard, it's done really, really well, and that does differentiate us.

The OTA mechanism really fits our model really well. And if you think about some of the things John has been talking about in terms of shaping and investing ahead of need and collaboratively working before you get to the meat of the program, that really is exactly what they are. And in fact, we've seen 2.5x the number of OTAs in the last 2 years that we saw in the prior 5. And I think we have 40 or so active at the moment. So it really -- it's a procurement -- it's an acquisition strategy that really aligns well with our priorities.

And it doesn't fit every model, right? It's not -- we're not going to fix everything. Some things, you're going to break, and they have to go back and back and fix. But at the end of the day, what I'm really focused on -- because we're a mission-based company, 40% of our workforce are veterans. So we understand when you say the word mission, it actually means something. And that is that you've got to be able to be dynamic in what you're delivering because the threat is going to continually change. And the fact that we can deliver that with different acquisition models works really well for us.

I was going to ask, like what is the best example of an OTA that you're delivering under that has turned into something much bigger than anyone thought it was at the beginning?

There's a number of them. One is there's a U.S. Army program in the electronic warfare area where that program belonged to a major aerospace and defense prime. They had a 5.5-year development schedule. We built some kit and approached them about 6 months into that window. We approached the government customer and said, "We think this is what you're looking for, how does this work?" And they said, "We like that a lot better than waiting 5 years." So let's sign an OTA. We put some money in, the customer puts some money in. 6 months later, it's a $0.5 billion production program.

What's important isn't the number. What's important is how fast both sides went from a concept to an absolute war fighter need to delivering. And it's a model that also continually enhances what that product. So if it did 80% of it, in another 6 months, we'll get to 90%, 95%. By then, the enemy forces will change their tactics. We need to make more changes to it. So that's a perfect example of how a customer moved from a multibillion-dollar multiyear program, right, long, well overrun, not able to change to something that was more -- much more dynamic. And our company does that day in and day out.

Makes sense. That's a great example. I was curious, we haven't talked about ARKA, and I did want to give you the opportunity to do so. So ARKA, a big acquisition for the company. And what are you most excited about? How is this going to help bolster the capabilities that you were lacking, I guess? I don't know if you were actually lacking them. Just augments them, but...

Yes. Well, look, we serve 7 markets across the federal government. We have for a long number of years. We're very -- we have a maniacal focus on staying in these 7 markets. Why the 7 markets? Because they're national security, #1. They always have bipartisan support. So you won't see us in the federal civilian space a lot because it's rare that they get full bipartisan support. Just -- you go to where the money is stable and you can actually deliver. And the work that wasn't in that manner, we've gotten rid of over the last 7 to 10 years.

So ARKA is an example of our acquisition strategy. We're a highly acquisitive company. Those 7 markets, we look for the gaps. ARKA fills a fantastic gap for us, which is in the space market. We are in that market today. We build optical terminals, and we do a lot of optics work in space, basically moving data. Instead of using radio frequency or RF, we use optics. It's really hard to do. It's not for the faint of heart. But when it works, it's awesome because the ability to jam is nearly impossible. And that's what tomorrow's space force needs.

Having the fact that we deliver that to a lot of commercial and A&D satellite primes, the next extension is how do we get to the larger payloads that are on these that have got a long-term use. ARKA is a 60-plus-year-old company. They've been doing EO/IR from space as well as space-based radar. They're responsible for a lot of the GEOINT collection missions. But they did a unique thing in that they got ahead of everyone else, and they were able to bring Agentic AI into the ground side. A lot of stuff gets processed up in space. It gets sent down -- it gets captured in space, sent down the ground. And then there's software that processes all that information, what all those zeros and ones mean. They were able to get an authority to operate on the operations floor to bring Agentic AI in to make quick use of that data.

We, as a company, CACI, we're on the signals intelligence side of space. And so the absolute phenomenal ability to now take the GEOINT pictures and the signals pictures and blend those things together to give warfighters much more actionable information, it would be similar to me giving you a map of downtown D.C. And other than a map, give you all the cell phone traffic, everybody who's shown in those maps. You make much better decisions if you've got more ints, more information about what's going on there.

So the ability for us to take their Agentic AI models and move those into another part of our business across all 7 of our markets is massive for us. We did the acquisition without cost or revenue synergies. And also, all the numbers you hear are -- we just acquired that -- the asset there. And it builds a much tighter relationship with both commercial and traditional A&D satellite providers. So great market, billions of dollars being spent. It adds to our gold and Golden Dome set of capabilities that we can deliver and also is very germane to $150 billion of defense of the homeland as well. So a good market move, a good technology move to a 20-year-plus forward-looking market, and it's very well funded.

And accretive to earnings and growth -- or to EBITDA margin and growth rate right away. EPS accretive or neutral in the first year, accretive in the first full year. So really kind of ticks all the boxes for us.

That makes sense. I have to ask some technical questions, like very nuanced ones because people ask. You guys have given guidance for the fiscal year, which ends in June. And in that, there's kind of a bit of a step increase sequentially in the fourth quarter relative to the third. Could you just elaborate on what drives that?

Yes, there are a couple of things. First, let me say, if it needs resaying in light of some of yesterday's chop and noise, we remain very comfortable with the guidance that we articulated in our second quarter earnings call. So we talked about the next quarter's revenue being roughly in line with consensus, $2.3 billion. That remains the case. We remain comfortable as well with our guidance for the year and feel very bullish about our 3-year IR Day targets, which we also talked about. So break, break.

So what I just said, for the algebraically inclined, you will see a tick up in the fourth quarter, which is your question. So there's a couple of pieces to that. The timing of some of the EW technology deliveries is part of it. We have a number of programs recently won that continue to ramp that have steps in the fourth quarter. NCAPS is one. EITaaS continues to accelerate. That's part of it as well. And then we also have the beginning of some early reconciliation funding where we're starting to see some growth in some of those areas as well. So those are really the drivers of the third quarter to fourth quarter step.

Got you. And JTMS was another one, right? Was that...

Sorry, I should have mentioned that. The JTMS protest, where we prevailed, also is starting to accelerate actually in the third quarter and will continue to in the fourth.

In the fourth. And then just broadly on the bookings environment coming out of the shutdown, how has that trended in the quarter? Are you seeing much?

Yes. There are a couple of things. The bookings -- the acquisition structure of the government has been one of the slower, stickier areas to restart. It takes a little bit of time, obviously, for that to happen. The actual revenue activity we've already talked about was relatively unaffected. Cash flow bounced back pretty quickly, payment offices opened, things kind of got back on track relatively quickly. We didn't see any real disruption, other than a few weeks to cash flow.

But the awards -- the acquisition process has been a little bit stickier. If you look at the awaiting awards number -- and I'm going to refer now to some of the data that we shared in our second quarter call, which is still germane to us talking about this question. The awaiting awards number, relatively flat, which you would expect with attenuated awards activity. And then when we talked about the pipeline and what we expect to submit over the next 180 days, you see a pretty pronounced step up, which, again, consistent with things kind of getting back to a more normal tempo.

Yes. One other thing worth saying, we're not a hand-to-mouth company. We've got 4 years of backlog, okay? We've got exquisite looks as to the duration of the contracts we put into backlog. The average duration of those we put in recently is approaching 6 years long.

So it's not as though we have to be awarded this quarter. I have coined the term awards are lumpy. I don't much care whether they come in on March 30 or April 3. You all may, I don't. We're a long-term growth business. Every time we can add to backlog, it's a positive because these programs last 4 to 6 years.

Yes.

So it's not so much of a pronounced revenue hit because awards are not being awarded as quick as it used to.

Well, we're at time. So I'm going to adjourn here, but thank you very much, gentlemen.

Yes. Thanks for having us. I appreciate it. Thanks, everybody.

Thanks again.

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Second Quarter Fiscal Year 2026 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] Later, we will announce the opportunity for questions and instructions will be given at that time. [Operator Instructions] 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, Rob, and good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI International. Thanks for joining us this morning. We are providing presentation slides, so let's move to Slide 2. .

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 a 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 go to Slide 3, please. To open our discussion this morning, here 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 second quarter fiscal year 2026 results as well as our updated fiscal 2026 guidance. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Slide 4, please.

I'd like to start the call by reiterating our strategy. Why CACI is a company that no longer fits within traditional industry labels and how we are expanding the limits of national security. You've heard us say many times that strategy is a place we come from. Our strategy defines where we are going, what we are building and how we are executing with discipline and consistency. We serve 7 markets where we possess decades of mission knowledge, so we truly understand what our customers need. Within these markets, we focus on enduring national security priorities with narrow deep funding streams. We differentiate ourselves by delivering cyber defined technology to address critical needs with the speed, agility and efficiency our customers demand. We invest ahead of customer need to show them we are the possible exactly what the current administration is asking for.

We've been doing this for years. The market is coming to where we already are. Through deliberate actions and formed investments and flexible and opportunistic capital deployment, we have expanded our technology portfolio to nearly 60% of total revenue. Over the long term, we expect technology to continue to increase as a percentage of revenue and support margin expansion. I will share some additional information about 2 areas of our technology portfolio later in my remarks.

Our results and accomplishments clearly demonstrate that CACI is not the company we were 10 years or even 5 years ago. We are continuing to evolve. That's why you see us competing and winning against a wider range of competitors, including defense primes and defense type companies. It's why we're delivering consistent financial performance despite a dynamic and sometimes uncertain environment. And it's why we are confident we will continue to drive long-term shareholder value.

Slide 5, please. Speaking of performance, our strong second quarter results are another example of the success of our strategy and execution. We delivered free cash flow of $138 million, which was driven by revenue growth of 6% and EBITDA margin of 11.8%. We won $1.4 billion of awards, represented a book-to-bill of 0.65x for the quarter, 1.4x for the first half and 1.3x on a trailing 12-month basis. As a result of our strong first half performance, increased visibility and the continued momentum of the business, we are raising our fiscal 2026 guidance.

Slide 6, please. Within technology, we have built a leading position in electronic warfare, which alone represents about $2 trillion in revenue. We have also established CACI as an industry leader in entail software development and software modernization part of our enterprise technology portfolio. And we recently announced a fantastic acquisition, ARKA which represents the latest step in our technology-driven portfolio evolution and the execution of our space market strategy. These are all areas of significant and enduring investment by our customers, which support long-term growth for CACI. I'll spend some time talking about EW and enterprise technology.

Our software-defined capabilities and electronic warfare illustrate how our strategy and technology-driven evolution are driving our performance. It's a critical war-fighting domain in an area where we position CACI as a leader by investing ahead of need and delivering differentiated software-defined technology. We've known for years that virtually everything with a power button emits a signal. And today, we are seeing the significance of this and conflicts around the globe and how it's impacting our customers' priorities and their budgets.

We have developed and deployed proven technology -- it allows war fighters to sense, identify, locate and defeat these signals, whether through targeted on kinetic effects or by tipping and queuing other systems for [indiscernible] . Our software-defined approach provides increased speed, flexibility, lethality and the ability to adapt as threats evolve exactly what's needed on the battlefields abroad and in defense of the homeland.

We won a number of programs of record with the Army and the Navy, rapidly developing, delivering and fielding our EW technology. And based on that success, we see growing demand for their services, including the Air Force. An important benefit of our software-defined approach to EW is our ability to quickly adapt to new mission requirements, accelerate delivery of new capabilities and sell commercially through alternative acquisition models such as OTAs.

We previously highlighted Merlin and RMT, our latest counter OES and counter space systems as 2 examples of this concept. And customers are responding positively to these proactive investments, deploying a Merlin demo unit to the Southern border and placing the first production order for RMT. We've been saying for years and software would be the enabler of greater speed, agility, efficiency and lethality and we are proving it by rapidly addressing and expanding set of missions.

This is a repeatable process. These successes are a clear validation of our strategy and differentiation and they position us well for additional opportunities and growth in the coming years.

Slide 7, please. Enterprise Technology is another area where CACI is strategically positioned well ahead of market demand. The current administration has made modernization of a clear priority to drive efficiency, transparency and operational improvement as well as enhanced security. We've been focused on this for many years, investing in commercial agile software development methodologies and building differentiated capabilities that are driving measurable results and significant value for our customers.

That's why we won the 3 largest agile software development programs in the federal government. A great example is our work with customs and border protection. We're not just modernizing software, we're delivering transformational efficiency. Nearly 200% increase in software releases over the last 5 years, like-for-like cost reduction and exceptional software quality. We're also bringing new AI software capabilities to CBP to help secure our borders including AI-based object tracking technology that we initially developed for the intelligence community.

This cross-pollination of innovation is a direct result of our strategic focus and investment approach. Slide 8, please. We continue to see constructive metro environment and good demand signals from our customers. While post shutdown activity is still a bit uneven in the near term, our strategy has positioned CACI exceptionally well to outperform in this environment. As you know, 90% of our revenue comes from national security customers, we are seeing reconciliation funds starting to flow to several areas of our business.

As a result of our strong performance and continued business momentum, we are raising our fiscal year 2026 guidance. We now expect free cash flow of at least $725 million, revenue growth of nearly 8% to 10% and EBITDA margin in the 11.7% to 11.8% range. Finally, looking at our 3-year financial targets, we expect to exceed the $1.6 billion free cash flow target even after normalizing for the benefit from the changes to R&D capitalization from the 1 big beautiful bill.

As for our revenue and EBITDA margin targets, we are highly confident and our ability to hit the high end, if not exceed them. And I should note that none of our projections include any benefit from our planned acquisition of ARKA. With that, I'll turn the call over to Jeff.

Thank you, John, and good morning, everyone. Please turn to Slide 9. As John mentioned, we're pleased with our second quarter performance despite the lengthy government shutdown. Our revenue and awards generally reflect the modest shutdown disruption we expected while our strong margin and cash flow highlight the enduring differentiated elements of our business enabled by our strategy and the deliberate actions that we've taken.

In the second quarter, we generated revenue of $2.2 billion, representing 5.7% year-over-year growth, of which 4.5% was organic. While we saw some lingering impacts from the shutdown that impacted program timing and delayed some government material purchases in Q2, our confidence in raising our fiscal '26 guidance reinforces the broader strength that we're seeing. EBITDA margin of 11.8% in the quarter represents a year-over-year increase of 70 basis points. This performance was driven primarily by strong program execution, timing of some higher-margin software-defined technology deliveries and overall mix.

Second quarter adjusted diluted earnings per share of $6.81 was 14% 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 $138 million for the quarter, driven by our strong profitability and increasing cash generation from working capital management. Days sales outstanding, or DSO, were 57 days.

Slide 10, please. Our leverage at the end of Q2 is 2.4x net debt to trailing 12-month EBITDA. We intentionally allowed leverage to drop slightly below our target range in anticipation of the acquisition of ARKA. As we announced in the call a month ago, we expect leverage to increase to 4.3x once the acquisition closes. I'll remind you though, as I did on that call that we have a strong track record of successfully and quickly delevering after major acquisitions, which is illustrated by our historical leverage we provided in the appendix.

This underscores our consistent financial performance, disciplined approach to capital deployment and our demonstrated access to capital. In fact, we expect leverage to return to the low 3s within 6 quarters of closing ARKA based on the strong cash flow characteristics of the combined business. The acquisition of ARKA is just the latest example of our flexible and opportunistic capital deployment strategy and the evolution of our technology portfolio, which positions CACI to deliver long-term growth in free cash flow per share and additional shareholder value.

Slide 11, please. We're pleased to be increasing our fiscal '26 guidance across all metrics. We now expect revenue to be between $9.3 billion and $9.5 billion. This represents total growth of 7.8% to 10.1%, which includes slightly less than 2 points of growth from acquisitions. We're increasing our fiscal '26 EBITDA margin to be in the 11.7% to 11.8% range, underscoring our strong execution and continued evolving portfolio. As a result of our higher revenue and EBITDA margin outlook, we are also increasing our FY '26 adjusted net income guidance to be between $630 million and $645 million. This yields an attendant increase in adjusted EPS to between $28.25 and $28.92 per share, representing growth of 7% to 9% despite last year's unusually low tax rate.

And finally, we're increasing our free cash flow guidance to at least $725 million. As we consistently say, we see free cash flow per share as the ultimate value creation metric and our FY '26 guidance now implies a 65% growth in free cash flow per share. To assist you with your modeling, I'll note that for Q3 revenue, we're comfortable with the current consensus estimate, and we expect second half EBITDA margin to be consistent with what we saw in the first half.

As John mentioned, our guidance does not include any assumptions for ARKA The increase is solely due to the continued strength and momentum of our current portfolio.

Slide 12, please. Turning to forward indicators, all metrics provide good long-term visibility into the strength of our business. Our second quarter book-to-bill of 0.65x and our trailing 12-month book-to-bill of 1.3x reflect good performance in the marketplace even with the protracted government shutdown and slow rebound in award decisions. The weighted average duration of our awards in Q2 was over 6 years. Our backlog of $33 million increased 3% from a year ago, and our funded backlog increased 7% for the same period. For fiscal year '26, we now expect 95% of our revenue to come from existing programs, with 3% coming from recompetes and 2% from new business.

Progress on these metrics reflects our successful business development and operational performance and yields confidence in our higher expectations for the year. In terms of pipeline, we have $6 billion of bids under evaluation, over 70% of which are for new business to CACI. We expect to submit another $20 billion in bids over the next 2 quarters, with over 70% of those being for new business.

In summary, we delivered strong results in the second quarter 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 John.

Thank you, Jeff. Let's go to Slide 13, please. In closing, I want to emphasize that our continued strong results are not by accident or rather the direct result of our deliberate strategy and execution. We built CACI to be resilient and differentiated, delivering strong performance despite the sometimes challenging macro dynamics. That's what happens when you focus on expanding the limits of national security. For us, this isn't just a phrase. It describes our relentless focus on anticipating tomorrow's challenges and developing solutions to stay ahead of our customers' needs, not just meet them. What truly differentiates CACI is our ability to shape the future rather than simply respond to it. We don't wait for RFPs, we proactively show our customers that is possible through strategic investments and innovation. This approach allows us to be disciplined in our shop selection, shaping opportunities where we know we can win.

As we look ahead, we remain confident in our ability to execute our strategy and deliver on our financial commitments. The momentum of our business, our healthy pipeline and our strong first half performance enabled us to raise our fiscal 2026 guidance across all metrics. And with the pending addition of ARKA, we're further enhancing our position in the critical space domain, which will drive additional growth in shareholder value. As is always the case, our success is driven by our 26,000 employees who are ever vigilant in expanding the lines international security. To everyone on the CACI team, I'm extremely proud of what you do every day for our company and our nation. And to shareholders, I thank you for your continued support of CACI. With that, Rob, let's open the call for questions.

[Operator Instructions] Your first question comes from the line of Gavin Parsons from UBS.

So in light of recent developments around the world, I wanted to ask higher level, what higher U.S. military optempo means for CACI specifically and how that changes the opportunity set in front of you?

Yes. Thanks. Terrific opening question. Look, today's optempo is extremely good for CACI because it requires much of what traditional companies, frankly, don't traditionally do. Our customers are demanding mission technology at the speed of mission. So we can talk about exquisite EW, differentiating road drones from final ones and mitigating risk. I'd like to say welcome to EW. Enemy changes their tactics and their technological footprint, welcome to EW. Getting 20 helos in and out of a country without any issue, welcome to EW. We frankly do EW better and more strategically and more surgically than anyone. So what does the optempo demand? .

A few things. One would be resiliency. I look at our solutions, they are software-defined. They share a common baseline with a multitude of other sensors. What that really means is in one sense anywhere detects a new signal, all of its features on how to mitigate that signal is sent across a broad network of already deployed sensors. The uptempo demand speed. We've been really clear that we build enhancements and mitigations, almost instantaneously. It demands optionality. So whether you're looking at handhelds, backpack, mobile, fixed, short-range, long-range solutions, they all come with a common software baseline. And what the customer absolutely demands is has to have some type of optionality that allows them to acquire commercially under a Part 12.

So to us, I think op Tempo, quick response, build in delivery, provide our customers our best tech, provides investors with increased shareholder value, commercial terms, commercial investment model, commercial margins. At the end of the day, we're doing a lot of what commercial companies do and we deliver EBITDA as well.

Great. And then it looks like the pipeline of submitted bids remains a little low, exiting the quarter, but that the -- expected bid number filled up pretty nicely in the quarter. Can you talk a little bit about how you're expecting things to flow through that on what the cadence of conversion might look like as we move through the rest of the year?

Yes. You're connecting those dots the same way we do, Gavin. The one of the implications of the protracted shutdown that is a little less obvious. You can see the awards, obviously. But what you can't see is sort of the slower level of activity in ramping back up. And I think the length of the shutdown combined with the ending of it leading into the holidays, put some amount of acquisition processes sort of behind the curve. We do see that filling back up. We feel that getting back on pace and we -- and that's visible, I think, in the pipeline when you see what we plan to submit over the next 180 days. We obviously, for competitive reasons, aren't going to comment on any particular opportunities or make any predictions about win rate or anything like that. But you can look at our historical performance on those metrics that we provide regularly on a consistent basis over a number of years and you can draw your own conclusions from that.

Your next question comes from the line of Peter Arment from Baird.

John and Jeff George. Nice results. John, could you maybe give -- can you give us an update? You recently had a protest that you won. I think it was last Friday, it was a big award that you won in August. Maybe how should we think about kind of the timing of that? And just maybe any color you want to give around the process.

Yes, sure. So as you mentioned, the JCM protest was firstly denied as last week. So we are in the process of starting to ramp up on that program. We've already had very detailed meetings with our customers during the protest period, you would imagine we were ready for GO as soon as this was announced. It is a longer-term technology program, so that's going to wrap up. over an extended period of time. So I think it will be more of a benefit to growth in '27, '28, but clearly, given the timing of the protest decision -- that's going to help us drive our fourth quarter revenue number, which I know you'll all be watching. It's a 10-year $1.6 billion job. It's going to be to task order based, and that's -- which is very, very standard.

And look, we're extremely pleased. We're going to take the off-the-shelf software platform, we're going to use SAP, which is a strong OEM. We're going to take SaaS-based solutions -- we're going to use our Agile Software, our Agile Solution Factory and our agile software development processes and I would expect, Peter, that TMS is going to consolidate a large number of disparate legacy systems, which falls directly in line with some of the EOs that we've read. And we have a couple of other projects out there still. We're looking for them to resolve by the end of this month, and we'll be sure to advise all of our investors when that happens.

That's great color. And just as a quick follow-up. You talked about reconciliation funding starting to flow. Could you just maybe -- and then there's been a lot of activity behind the scenes on Golden dome. How do you see that kind of impact as you think about the second half of this year, but also the setup for 27.

Yes. Thanks, Peter. Look, we have our eyes on reconciliation funding and I know there was a lot of talk. Is that going to be early in '26, late in '26 as a total into '27? I think at the end of the day, the answer is yes to all 3. For us, we're seeing border security programs being possibly impacted by seeing reconciliation funds starting. I did share something in my prepared remarks about taking some intel AI-based technology that was a "plus up" using our reconciliation funds. You're going to see a lot of that hit in the kind of UAS area. We're a seeing already seen in indications of that.

Space programs. We've been called on to look at modernizing a lot of the critical space force infrastructure. So we're working on that. I believe there was an EO allowed around modernization of Department of War Financial and Logistics System, is directed to that EO. We are seeing reconciliation funds show up there. And then as it sort of relates to golden Dome, we are seeing a number of intelligence programs receive additional funding around left or launch, because that provides the ultimate situational awareness when you look at protect this nation in a golden dome scenario.

So we have included a range of outcomes in our updated guidance, left Goal post clearly, a smaller amount of funding, the right goal post more funding. But look, at the end of the day, any time somebody wants to add $150 billion to a market that this company is doing extremely well in, it's a constructive macro environment overall and really just doubles down on the strong demand signals that a company like us can make great use of. So thank you for those questions.

Your next question comes from the line of Colin Canfield from Cantor.

-Maybe starting out with the federal acquisition regulations. You mentioned it before, John. Just talk us through kind of where are we at in terms of the reform of the far? And how should we expect both the magnitude and timing in terms of impact on any kind of, we'll call it, CACI cost plus exposure?

Yes. I mean we're pretty much in line with the acquisition reform. There's a large number of field out there, and there's a large amount of print around driving from cost plus to firm fixed price and are we going to completely move from Far Part 15 to Far Part 12 or going to talk elements of 12 into 15. We're just going to go to 12. I mean there's a whole bunch of different avenues.

What I like about what has come out and what's great for this company is that there's a new record recognition and understandable exactly what Farar 12 is, right? I mean I think you're seeing that tied to OTAs. Look, at the end of the day, I think in items that are not highly specific, what can be borne by our own corporate investments and taken to the government in an 80% solution manner. And then do some development work, co-development with the -- with government funds and our funds that offer that into a long run of production. I mean I think that's the ultimate best way. We're seeing other long-term cost-plus programs, right, Colin, those are trying to be moved into some different investment models, which is great. We don't possess any of those.

So we're still doing some cost-plus work, but make no mistake, this company was intentionally built. They have a far part 12 commercial part of our business in a far part 15. We're able to provide customers either and/or both. And it's really driven the $2 billion of electronic warfare that we've been talking about. So we are very well poised to support where the government is going.

TLS Manpack, outstanding example. Even RMT, even though it wasn't a specific OTA, they had a lot of investment on our part. -- that then led to a larger production order. So I think we're probably the third or fourth inning of acquisition reform. But for this company, I believe that our results are shown that we're well aligned, and we're going to drive even greater growth as we go forward.

Colin, I'd add to John's point, we really are funding our rhythm here on OTAs. We've seen 2.5x the level of contracting in the last 2 years that we saw in the previous 5 years. So it's really a mechanism that we and our customers are well aware of and taking advantage of.

Got it. I appreciate that color. And then moving over to ARKA maybe talk through kind of how you think about the scalability of the intelligent -- like the related intelligence services that you might gain or kind of grow over time, thanks to the acquisition of Danbury Optics business, essentially, like beyond just manufacturing work, I think back to when you first bought SDA Photonics and essentially utilizing the space-based hardware to inform the Intelligence business. Maybe just talk through kind of how you think about that earnings algorithm and then the scalability of it. And where there's any kind of roadblocks that we should think about in terms of like the conflicts and the like?

Okay. I want to unpack that one, Colin. Look, let me -- I will -- let me just start off by saying that I'll share what we can share. We're going to hold a lot of discussions around financials and backlog and the like until we get that across the finish line when we close. But it suffices to say. And it's great for us to be able to share what we see in this company and in the business. They are a leading developer and supplier of sense and sense making capabilities. Make no mistake, they are involved in just about every critical national security missions. What I like about it? Similar to this company, they're at the forefront of technology developments, and they've been there since the cold war. So these capabilities are not new, how they have to deliver is not new.

The architectures that ARKA delivers into literally have acquisition plans that go out as far as planning goes to around 2040. They are right in the middle of long-term growth funding streams for both DoD and classified and aerospace budgets. They are focused on the fastest-growing parts of the market. Their laser warning systems are equipments of record on every platform to which they deliver. And talking about the Danbury business to your other set of questions, extremely high technical barriers to entry. It's an environment of constant capability upgrades. Their contract portfolio, combined with our outstanding record of exited execution, even in fixed price environment does distinguish them with their customers.

When I looked at this business, and we've been studying it for quite a long time, the folks at BlackRock continued to invest in this business. Stone sorry, continued to invest in this business. They continue to understand that the National Security world need an asset like ARKA So they didn't hold it for 5 years. They grew it and they invested in it. What I like about them is they invest ahead of need. They innovate and execute with agility. They deliver predictability, given cost and schedule focus. So they are well set up to the earlier question around acquisition reform.

They are well understanding of cost plus versus firm fixed price. They do have a tremendous backlog that we'll be able to talk about when we get -- hopefully, as we get to the end of our third quarter, and we shouldn't ignore the sense making part of their business. That's a lot of work that they do similar to us in an agile software development manner. They work on parts of the intelligence data, we work on other parts. They do some things that we don't do. We do some similar things but they have differentiated capabilities. They have long duration contracts. They are involved. They're very critical national security programs. Another nothing speaks larger than this company doubling down again in the space market than this acquisition.

I know it drives our leverage to 4, 3 and such, we have the right buydown mechanism. But at the end of the day, you make bold investments to drive bold growth. And that's what this acquisition is about. And this is why we're very -- we're very involved in this space market and driving future growth there. Appreciate the questions.

Your next question comes from the line of Seth Seifman from JPMorgan Chase.

This is Rocco on for Seth. Digging in more on Peter's question. How are you thinking about CACI's addressable market from the reconciliation build, both for COS in general and Merlin more specifically? And how are you thinking about that market growth in the coming years?

Yes. I know as soon as I shared that we had a $2 billion line of revenue in EW will be all look at our growth rates. New spaces are probably not going to share what we see. But look, it's -- the reconciliation funding will do a lot in the EW area because, as you all know, we consider Comas being part of the GW market. it's probably we're spending just 20 seconds on why we answer questions like this like that, okay? If we provide a cyber effect to mitigate a danger strong is that cyber or is that counter UAS? The answer is it's all EW. So that's why we lumped this in 1 area because we share software baselines, we share talent, we share technology solutions.

So the reconciliation dollars is a tens of billions of dollars to our addressable market. We continually assess that as many as call now. We're looking at about a $300 billion TAM. We're roughly $9.4 billion company. So plenty more room to go grow. And even though that reconciliation funding is driving that, the world of counter UAS is going to completely explode beyond what directed reconciliation funding needs.

We're involved in international marketplace. You mentioned Merlin. We've done some outstanding work there. But it suffices to say in the counter UAS area. There's no less than about 25 acquisition organizations that have stood up and actually brought some high notes, there's 8 within DoD, 6 within DHS. You've got DOT, the FAA, Apartment of Justice, Department of Energy, Department of State and Department of Element will be -- so there's a lot of folks out there. The acquisition infrastructure is just getting set. We're actively engaging to expand our presence, specifically with I DHS and then golden, golden dome. So there's a great spend looking to be done here, and we are extremely well positioned.

Great. And then are there any specific items to call out in the Civil business, News over the last year plus has been pretty negative about the demand environment and yet CACI's grown in the mid-teens on average over the period?

Yes. Those -- that's really dominated by our CBP work, DHS work and the ramp-up on NASA, N caps. So it's a little different flavor of civil that you may see in some others, really driven by DHS and NASA.

Your next question comes from the line of Scott Mikus from Melius Research.

Jeff, a quick question. With all the acquisitions you've made over the past 14 years and the announced deal of ARKA you tend to find that you're shifting more away from services and Here is more becoming defense electronic suppliers and in particular, L3 Harris. Just given that the government is actually taking an ownership stake in L3's Missile Solutions business, do you think that put and L3 Harris as other competitors at a disadvantage when competing for work with the Pentagon given that the government will own a stake in all 3 hairs? .

Yes. So awesome question. Look, we see what's going on, and we've read about all of those various engagements. But at the end of the day, we're seeing outstanding demand for our technology that we deliver. We're able to meet that demand. We continue to execute our business well. We continue to invest ahead of need and have access to capital should we need to enhance our delivery capabilities -- see what makes us different is that we got into the market at a time where we expected that because 1 of the earlier questions, because of the optempo and because of the need to not only protect other countries on their nations and our interests abroad but also defend our nation that it was going to require the fact that we would ourselves begin to invest ahead of customer need. .

So we are 1 of those companies. We have a nigs, gigs, whatever code you want to call it that makes us a government services company but it's been a number of years since you all asked me what my bench strength is. It's been a number of years since you're asking what my direct labor numbers were because we're not that company. So I enjoy being compared against others who are trying to make changes to adjust, okay? Those are changes you make because change has been presented. We've actually built this company purpose built in this last substantiation of CACI to be in 7 markets with strong funding streams that drive shareholder value and year-over-year growth, regardless of the government shut down or not, regardless of reconciliation budgets are slightly behind plan? We're not a quarter-to-quarter company. We're a year-to-year and we're going to be a decade-to-decade company.

And we are exactly driving this business and measuring ourselves to make sure we are providing eye-watering technology to Department awarding intelligence community. That's what makes acquisitions like SA Photonics so important and LGS and Mastodon and ARKA and others, and it's driving, okay, where this company goes.

So I really appreciate that question. There's a lot of other things that are going on within this marketplace. We focus on what we can control. And we like to think that we've got an outstanding strategy that moves along with the times and I think if you've been a shareholder in this company in the last 10 to 12 years, we've been quite excited by the way we have navigated different funding forces and moving this company from delivering people to delivering enterprise and mission tech. So thanks for that question.

Okay. And then just a quick question. I wanted to follow up on Merlin. I don't know if I missed this earlier in the call. But are there any ITAR restrictions or obstacles that would prevent you from selling that internationally?

No. The actual system itself now, there's a software load which has different ways to mitigate specific threats. And as you would imagine, like any weapons system, there are software and hardware provisos of what the U.S. government allows all of us in the defense technology space to be able to deliver. So there are -- there will be some software provisos with that. But when it comes to defending this Homeland, which is what Merlin was specifically built for, there are no issues of what we can do in the U.S. between finding and providing exquisite nonkinetic effects to remove this entire drone layer threat to the homeland. .

Your next question comes from the line of Tobey Sommer from Truist Securities.

I was wondering if you anticipate another strong year of defense spending growth in '27. The President articulated a relatively large indication, and wondering what your thoughts are on the matter?

Yes, Tobey, thanks. Look, I did the government fiscal year 2027 tweet of $1.5 trillion. A little extra color. I believe it's supported by Sask and hask but I'm not clear whether in support of the operators. I think we've got a little bit of time to see this one play out. And I also think that's pretty -- it's still early. So we'll have to wait and see what comes from the government fiscal year '27 presence budgetary request from what I understand, will be a little bit later, this year because it usually tags along when the state of the union announcement is, so we may see it a few weeks off.

But look, I've often said this company, where I don't focus on the budget top line. Either way, our $300 billion TAM for a $9.4 billion company. I think we have plenty of room to grow. We have shown that when budgets have decreased. And when they've increased, I think we're in the right markets, the right capabilities and right customer sets. And at the end of the day, in the national security realm if the threats present themselves I've never seen this nation not invest to protect us either abroad or at home.

My follow-up would be of the large marquee contract wins that the company has won over the last maybe few or handful of years. How much incremental program ramp remains in front of the company to help support future growth? .

Yes. That's no small amount. I mean we -- some of the recent contract programs that we've won, we've talked about the fact that the changing profile is such that the early phases of the program are really focused on designing and developing the balance of the program. And so that has led that has led to slower ramp-ups. And in fact, we're still seeing growth in ITAS, earlier in this call, we talked about the fact we pointed out the growing NASA in caps activity, even though those wins were still a couple of years ago.

So if you think back to the ramp profiles that I talked about at our Investor Day, I guess, over a year ago now, there were 3 or 4 sort of standard profiles. And most of our longer-term wins have been the profile where we don't really sort of reach our MAX until we're a good 3 or 4 years into the program. So we still -- we have wins from the last several years that are still ramping up.

Yes. Tobey, I'd also add a perfect example of that would be spectral, right? We've -- we're in our third year, I believe, on spectral -- we have just recently done all the paperwork and testing that we needed to submit that would lead to a Milestone C decision -- so -- and that is once we receive that, that allows us to get into low rate initial production, which then starts to ramp spectral. So just 1 of many examples.

Your next question comes from the line of Jonathan Siegmann from Stifel.

So I thought margins are definitely a good news for the quarter and the second time that it's really beaten your expectations maybe for you, Jeff, can you talk a little bit about what the drivers are -- we noticed our indirect costs, our third quarter in a row less than 21% of revenues. Just any onetime things to consider or how to think about the upside here? .

Yes. Thanks, Jon. There's a couple of things going on in there. We talked a little bit about mix. We continue to see favorable acceleration in the technology part of the business, which has -- which clearly has positive margin implications. You also noticed the indirect cost number -- we're in our fourth year now of doing something that's pretty hard to do, which is reducing indirect cost as a percentage of running the business while we're in a strong growth mode. Organizations have a natural impulse to grow in direct cost in times of accelerating business activity than we have been really hyper-focused on making sure that we don't do that.

So in absolute dollars, while there is some modest occasional increase that it spots that's consistent with what we talk about often, John has a lot to say about investing at a need. And we're certainly not giving any of those things short shrift. We're investing where we need to invest. But at the same time, we're resisting the impulse to just sort of let the infrastructure grow as the top line grows.

So both the technology, revenue, component acceleration and the management of the cost structure are both strong drivers of the margin performance that you see.

And then if I could slip 1 more for John. Recently, we've seen some unexpected displeasure with dividends and buybacks by the government among the contractors. So the majority of the industry prioritizes that and -- but CACI has only done opportunistic buybacks and prioritized M&A. So the question is, the Pentagon clearly is not supportive of large-scale consolidation but how does the Pentagon react to the acquisition that tale that CACI does?

Yes. I mean I haven't heard a lot about any blocking us to continue to do smart acquisitions that support the national security infrastructure which at the same time then as a product of doing that drive shareholder value.

Look, we've read the EO and we are supporting it. We believe we're in line with it. We have strong execution. We deliver where we're asked to deliver. We continue to invest ahead of need for probably 7 years, is where we've been on that model. As -- there's been a lot of talk about to some of the larger players divest. Do we unwind the current dip we have today? I don't see that reaching us on the unwind piece. Should that happen, we're a buyer of capability and customer relationships that continue to drive us forward in these 7 markets and if that were to happen and it were to become much more specific. Is that an opportunity for us to look at pieces of other businesses that may have a better fit here that allows them to transform the parts of their business that are strongly far part 15 and get into more of an agile commercial model so we can address the nation's needs better, then that would be that would be additional M&A opportunities for us.

But I don't see anything that we're doing today that's in conflict with that EO and we'll continue to watch where that one goes.

Your next question comes from the line of Mariana Perez Mora from Bank of America.

Gentlemen. Good morning.

So my first question is going to be around the Department of Work wanted to hire more technical talent. They have been telegraphed that in the past, but then through these Avana transformation, emote put out a couple of weeks ago. They also mentioned that they want to hire more technical talent. What that mean to CACI, like do you see any pressure to any like FTE type of roles? Or how are you thinking about that?

Yes. Thanks, Marianna. Yes, I think January 12 was on that 1 came out. When we look at the Avana Park program, I think it's 3 different teams and just like a more data platform team, the applications for the or data and then our financial management team. We look at that as a great opportunity on the financial management team. It is -- if I read the language correctly, it has a lot to do with financial and acquisition readiness systems and it's been this drive to drive a clean FY '27 Defense working capital fund and clean FY '29 an agency audit, we're really big on financial modernization.

We've got great examples with both the Air Force and U.S. Marine Corps and then we're all ready passing major audits. So for us, on that pillar, that 1 reads well. On the word data platform team in the apps. We already do that across the federal government today. On the hiring piece it's not a risk to us. We actually deliver technology in those areas. We don't provide FTEs. There may be other government services companies that do, but we're not one of them. We're out there delivering outcomes to customers in those spaces, and which is why we don't track just pure FTE deployment.

So this isn't the first time they're going to slip to "in-source" or bring that kind of work in-house. But that's a good question for them to answer but it just doesn't peso, we don't see any threat from those from EO.

And 1 more trying to assess potential risk -- and I think you have done through the prepared remarks and the questions, a really good job explaining why you're well positioned to commercial terms, fixed price, OTA. On the other side, do you see any risk for any of your existing early-stage programs to get counsel or a stop work order or anything kind of like a stop and realign redesign in order to have that contract or that program be more commercial in terms of like 80% type of capability, but also being able to be like higher volumes ramp up faster or even cheaper.

Like do you see that risk in any early-stage programs?

Yes. No, I mean I don't see any risk. In fact, I like the opportunity of what they're going to take a look at. We -- 1 example Yes, 2 examples. On only customers in Border Control, our V-Go program and 1 might be TLS. If you look at Bega, we approached the customer and ask them why you're buying 400 FTEs when you should be paying a fixed rate for every new upgrade to every app that you have. So we were ahead of government thinking on that and worked with a tremendously creative acquisition folks at DHS within customs and border to actually put that program in place, and that's driven 2 other customers, NASA and caps, TransCon. They're not buying people, they're actually putting test orders in place to actually deliver outcomes. On the TLS Manpack one, but that was a job that was owned by a major defense contractor, and we went and we approached the Army with a concept of -- let's put an OTA in place as do some development work.

And then let's take our 80% solution and see where you can go with that. So those are both examples of not the government coming to us and asking us to change what we're currently doing. We actually approach them or we were to conserve them on TLS may affect. So the OTA model does work. You have to be willing to invest upfront. You have to have mission knowledge, and you have to have something that the government absolutely needs and wants. And that differentiates us every day, including Sundays. The 1 thing we need to understand about OTAs that we're going to see as the government moves more towards that, you're going to see smaller initial awards for the development work but it's going to lead to a faster larger production value of awards.

So when I think about -- and I wouldn't call it risk area, but when I think about how we look at businesses like ours, we're used to nailing down multibillion-dollar awards in the pure technology areas where customers are going to do for Part 12, the initial awards are going to be $1 million to $5 million to $7 million, but much sooner than that, we'll see that actual source force production award come out. That's what you saw with TLS Manac, a $1 million initial award and a $500 million production contract.

The size will not correlate with the strategic significance.

Your next question comes from the line of John Godin from Citigroup.

Thanks for fitting me in here. I wanted to ask about margins. The market performance has been very strong. Of course, there's been some mix in there. this isn't about sort of new multiyear guidance and obviously, ARKA kind of will change the margin outcome. But just bigger picture, wanted to dialogue about where margins could go. If we look at recent incremental margins, they would suggest it could go a lot higher. What are some of the puts and takes as we think about margins from here, you've done a tremendous job the last few years getting margins higher. I'm just curious if that trend can continue. .

Yes, John, I think you've heard us -- may have heard us talk about this before. But this is really, for us, maybe somewhat not in to a free cash flow question. The decisions that we make our North Star is free cash flow. So if we have the opportunity to invest in a way that accelerates the top line and maintains margin, we'll generally select that over expanding the margin because we're generating free cash flow.

So it's really about dollars of free cash flow generation. And we're in the happy position of seeing a pretty opportunity-rich environment and plenty of opportunities to invest. And I think as we're starting to see the fruits of the accelerating technology content, along with the management of the cost structure that I talked about a few questions ago, I think we actually have plenty of opportunities to invest and maintain or modestly expand the margin, but more importantly and then more excitingly, have opportunities to further accelerate our free cash flow generation.

Perfect. That gives me a great sense. Appreciate it. .

And your last question today comes from the line of Sheila Kahyaoglu from Jefferies.

Great quarter. expand upon John's last question. As we think about margins, Jeff, you just gave a bunch of long-term thoughts. That's super helpful. Maybe a little bit more on the long term. Like do you think this is the new margin range for CACI and how much further can it go? And then maybe short term, you mentioned some disruption to material purchases due to the shutdown. How do we think about that mix factoring into the second half margin? .

The material purchases are not -- I mean they're there a fact, obviously, there, we saw them, and it was a contributor, not as big an issue as the mix in terms of weighting, you will see some growth. We do expect to see some growth in the material content year over -- half over half, but it won't significantly impact. It's considered in our guidance. It won't significantly impact the margin expectations that we've communicated to you. If that gets to your question. .

Yes. Perfect.

And that concludes our question-and-answer session. I will now turn the call back over to John Mengucci for some final closing remarks.

All right. Well, thanks, Rob, and thank you for your help on today's call. We want 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, Jeff and George, Price and Jim Sullivan are available after today's call.

Please stay healthy, and all my best to you and your families. This concludes our call. Thank you, and have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Conference Call to discuss the pending acquisition of ARKA Group. [Operator Instructions] Today's call is being recorded. 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, Kate, and good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI International. Thank you for joining us this morning to discuss our pending acquisition of ARKA Group, which we will refer to going forward as ARKA. We are providing presentation slides, so let's move to Slide 2. 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 this morning'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 3, please. To open our discussion this morning, here's 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 pending acquisition of ARKA. With me this morning are Jeff MacLauchlan, our Chief Financial Officer; and Jason Bales, our Chief Technology Officer. Slide 4, please. Earlier this morning, we announced an agreement to acquire ARKA, a leading technology provider to the national security space community.

As we've said many times, we are a disciplined acquirer, and our M&A strategy is focused on finding attractive assets that are compelling strategically, financially and culturally, which fill either capability or customer gaps in the markets we serve. From a strategic perspective, ARKA represents a deliberate step in executing our market strategy for space and adds complementary technology and increased customer presence. That technology and presence will allow the combined company to capture significant future opportunities in an important and growing market and strengthen our leadership in this burgeoning domain.

It also aligns well with what we have been signaling for the past year about where our M&A focus would likely be, electronic warfare and space. From a financial perspective, the acquisition of ARKA adds a business that is driving double-digit revenue growth and EBITDA margins in the low 20% range. Jeff will provide more details on the financials shortly, but I want to emphasize this transaction enhances our ability to drive longer-term growth and free cash flow per share and generate additional shareholder value.

And culturally, ARKA brings a highly technical and exceptionally talented workforce with decades of mission knowledge. Their people are focused on delivering innovation and driving customer success, which is perfectly aligned to our culture here at CACI. Together, we will continue to expand the limits of national security. ARKA truly checks all the boxes for our disciplined and proven M&A strategy and is just the latest proof point demonstrating both our flexible and opportunistic approach to capital deployment and the technology company that CACI has become.

Slide 5, please. ARKA is a technology company that traces its heritage back for decades and their business is focused in 3 areas. In Sensing, ARKA provides exquisite imaging and remote sensing technology to national security customers through prime satellite contractors and is truly a national asset. They are one of only a few companies able to provide the most advanced imaging technology payloads to support critical national security missions. In fact, their technology is deployed on satellites across all orbits and is the tip of the spear for a wide range of critical national security space initiatives, including Golden Dome and the supportive INDOPACOM.

In Sensemaking, ARKA brings software-based capabilities that enable the end-to-end generation of actionable intelligence through radar and image processing, mission management and sensor orchestration. Additionally, ARKA is a first mover in successfully operationalizing Agentic AI-based systems to automate intelligence production and other mission management functions for classified customers.

Finally, ARKA provides other Optical Technology, specifically laser warning systems and directed energy components.

Let me provide some details on how each of these areas complement what CACI is already doing and why we're excited about the prospects of the combined company going forward.

Slide 6, please. In their sensing business, ARKA's space-based imaging sensors complement CACI's similarly strong portfolio of sensors deployed across land, air and sea domains. Together, we are the company providing highly sought-after exquisite sensors to national security customers across all domains. In their Sensemaking business, ARKA's GEOINT ground processing capabilities complement our own signal's intelligence processing or SIGINT production. Together, we become a leading provider of multisource intelligence or multi-INT.

In addition, as the number of satellites grows and the volume of raw data being collected explodes, the need for automating ground processing at scale to enable speed and efficiency becomes an even greater imperative. ARKA's operationally proven Agentic AI-based software is already doing this today. And there is a tremendous opportunity to scale that software across CACI's broader portfolio of ground processing programs to deliver enhanced value to our installed base of customers.

This is exactly the kind of innovation and investment ahead of customer need that we value at CACI, and ARKA makes that possible almost immediately. While Sensing and Sensemaking are the 2 main focus areas, ARKA's well-established laser warning and directed energy technologies represent new adjacent capabilities to CACI and provide some interesting optionality with our own optical technologies.

Slide 7, please. As you can see, the breadth and depth of our combined capabilities are truly impressive. Together, we are leading a provider -- we are a leading provider of sensors and multisource intelligence across all domains with a first mover in utilizing Agentic AI-enabled software to automate and accelerate delivery of actionable intelligence to the Warfighter. This is exactly what our customers need and exactly what this administration is asking for. Together, we sense -- together, we make sense. And together, we enable our national security customers to act with increased speed, efficiency and lethality. With that, I'll turn the call over to Jeff.

Thank you, John, and good morning, everyone. Please turn to Slide 8.

As John mentioned, we're extremely excited about the acquisition of ARKA. Before getting into the specifics of the transaction, I'd like to highlight a few details about their business profile as they underscore the attractiveness of the business and its fit with our strategy.

Similar to CACI, approximately 90% of ARKA's revenue is with national security customers. In addition, ARKA's high fixed price content is driven by their IP-based differentiation, which is well aligned to evolving customer buying preferences. Finally, ARKA's sought-after technology has created a unique competitive position in the space domain, placing it as a preferred provider on a number of long-term multi-hundred million dollar franchise space programs. This is a natural complement to CACI's large backlog and proven ability to win and retain larger and longer duration programs.

Please turn to Slide 9. Now let me discuss the financial highlights of the transaction. We're acquiring ARKA for an all-cash purchase price of $2.6 billion. As a result of the structuring of the transaction, there's an ongoing tax benefit with a present value of $225 million. Net of the present value of the tax asset, our effective consideration is $2.375 billion, which represents a next 12 months EBITDA multiple of 16x. This is an attractive multiple for an established company in this market that has been deploying proven technology for decades, has a long track record of strong financial performance and has an impressive customer presence and competitive position.

In terms of expected financial performance, ARKA is a growing and highly profitable company with a track record of driving double-digit revenue growth and EBITDA margins in the low 20% range. Over the next 12 months, we expect ARKA will deliver approximately $650 million of revenue and $145 million of EBITDA, making it highly accretive to CACI's revenue growth and EBITDA margin. Considering the impact of onetime transaction-related expenses, the combination is expected to be neutral to adjusted EPS and free cash flow in fiscal '27, which is the first full year and firmly accretive in fiscal '28. We will provide updated guidance for fiscal '26 in our normal rhythm after the transaction closes.

Now let me provide some color on the financing details of the transaction. We've executed a committed bridge facility concurrent with the execution of the purchase and sale agreement. We expect permanent financing to be in place at closing. Based on current market conditions, we plan to issue $1.3 billion of new transaction debt comprised of a new 7-year Term Loan B for $800 million and senior notes for $500 million. The remainder of the purchase price will be funded under our existing revolving credit facility.

Finally, in terms of timing, we expect the transaction to close near the end of our third quarter of fiscal '26. And of course, closing is subject to regulatory approvals and other customary conditions.

Please turn to Slide 10. Post closing, we expect leverage of 4.3x net debt to trailing 12 months pro forma EBITDA. While our target range is 2.5 to 3x, we have regularly indicated a willingness to go higher than that for the right opportunity, and ARKA is exactly that. The use of our balance sheet and strong free cash flow generation has been a key element of our portfolio evolution strategy.

I'd also remind you, we have a strong track record of successfully and quickly delevering after major acquisitions. This underscores our consistent financial performance, disciplined approach to capital deployment and our demonstrated access to capital. In fact, we expect leverage to be back in the low 3s within 6 quarters of closing based on the strong cash flow characteristics of the combined business. And with that, I'll turn the call back over to John.

Thank you, Jeff. Let's go to Slide 11. To wrap up, ARKA is a fantastic technology acquisition for CACI and yet another example of our strong and consistent M&A philosophy that has transformed the company over the last decade. The macro outlook continues to be very constructive with strong customer demand signals, surging space market activity, continued administration support and healthy funding. Our significant business development and investment resources will enable us to accelerate more value to our customers and our shareholders.

For our customers, we will be one company with an unwavering commitment to your national security missions and deep understanding of the importance of the speed and agility that software and software-defined technology deliver. The combination of CACI and ARKA broadens access to our combined technology portfolio and enables us to deliver capabilities even faster. We're positioned to help you address your biggest challenges and your most important priorities across the space domain and beyond. And for our shareholders, this deal is consistent with our M&A strategy, which has served us well over many decades and will continue to deliver growth in free cash flow per share and long-term shareholder value. With that, Kate, let's open the call for questions.

[Operator Instructions] Your first question comes from the line of Gavin Parsons with UBS.

It seems like there's a lot of classified work here, but you talked about several multi-hundred million dollar programs. I was hoping you could go into a little bit more detail on any of the specifics and the opportunity set for those, if you're able to talk about them.

Yes, Gavin, that's -- given that a large percentage of ARKA's business is in the classified segment, it will be difficult to talk about specific programs. But what we can talk about is, they're a national asset in providing imaging sensor payloads, and that's for EO/IR as well as hyperspectral. They have also done an outstanding job of building a path towards multi-hardware with us on the SIGINT side and they on the GEOINT side. We're in the same -- we're in different customers across the [ IB/IC ]. And even where we're in the same customers, we're in a slightly different vertical and also serving different missions.

So there's very little direct overlap. The opportunities we have to bring the combined portfolio to a wider set of customers are very strong. And it goes without saying they bring very strong past performance. So we'll be able to share more post closing, but a very strong company, multi-decade company, well established within the market. and a well-established business with a track record over many decades.

Great. I'll try one more. What are you guys assuming for Golden Dome and what's ARKA's position in there?

Yes. I mean they're a national security space imagery leader. So their sensors, Gavin, are going to be what we would call tip of the spear for priorities, not only for Golden Dome, but also in the INDOPACOM region. They're already engaged in almost all of the EO/IR and hyperspectral constellations. As you all know, we're bringing lots of launch capabilities and a very strong [ counter-UAS ] protection layer. And again, and I'm going to have Jason talk a little bit on this. Our ability to drive end-to-end multi-INT solutions for all potential intelligence gathering missions, that is one of the major compelling reasons for this acquisition. And it also talks to future synergies as we get into running this business.

Yes. This is Jason. The question on what they could do to contribute to these critical missions, right? They currently do radar and imaging processing from electro-optic IR sensors to do detection of threats where they're popping up in the world, right? That's an important left-to-watch capability for initiatives like Golden Dome and the capabilities we have out in INDOPACOM. Combine that with our ability to do signal processing exploitation in the SIGINT side, and we have a very strong multi-end portfolio we bring to the table.

Your next question comes from the line of John Godyn with Citi.

Congratulations on the deal. I was hoping maybe you could just give us a little bit of maybe historical context on how this deal came about? Was it -- were there other interested parties? Were you part of a bidding situation? Was there a historical relationship with the company? Any kind of useful context would be great, just to add some color to the situation.

Yes, John, thanks. I guess I'll start at the strategic side. Look, our M&A strategy has always been and continues to be focused on filling gaps. We've always talked about capabilities, customers, past performance, culture and ARKA truly hits all of these. They've got decades of exceptional past performance, which only strengthens our past performance record. They also augment our growth of long-duration programs. We've talked for a number of years of bidding larger and longer duration contracts. They have a number of long-term franchise programs that also bolster that kind of backlog visibility that we've been very deliberate about.

And then it's a very deliberate step in our strategy for the space market. We're pretty good at following a number of assets. This asset came up about 5 years back. The Blackstone Group picked this up. They've done a phenomenal job of investing both CapEx and OpEx levels to continue to push this business forward. And we truly believe it will expand our total addressable market and reach.

Yes. John, this is Jeff MacLauchlan. The Blackstone Tactical Opportunities unit did a really nice job in the 5 years or so that the company has been private in repositioning it and building some really important capabilities around it that leave it well positioned to kind of re-enter the public capital market area again. And we're really excited about some of the things they've done to set up the next things that we're going to be able to do here that Jason and John have been talking about.

That's excellent. And if I could ask one more. Loud and clear in the slides that you expect it to be neutral to adjusted EPS in fiscal '27. I just wanted to sensitize that a bit. If we were to try to brainstorm scenarios more accretive than neutral, what might cause that? What might that look like? Obviously, there's a positive backdrop for space here. I don't know if that could be part of it. But I wanted to just kind of sensitize that comment and brainstorm around it alongside you.

Sure. I think there are a couple of things that leave us well positioned relative to the comments that we made here. First of all, we've not assumed any cost synergies in the first 2 years or so. There almost certainly will be some administrative ones, and we'll start to see some synergies, I imagine, a little bit ahead of our assumptions. But again, this is not a cost synergy-driven acquisition, but we have made very conservative assumptions relative to cost synergies, and we expect that will not be 0.

Similarly, on revenue synergies, John and Jason have both talked about a couple of areas where we see real opportunities related to Golden Dome, INDOPACOM and being able to apply some of the growing capabilities of their Agentic AI tools across our SIGINT community and data. And those franchises almost certainly will start to see some benefit. Beyond that, we also may find that we have a slightly better situation than we've assumed in terms of the borrowing cost and the financing of the transaction, where we've also made relatively conservative assumptions. So we're planning on it being neutral, but I have every expectation that there's a much greater opportunity for that to improve than to deteriorate. And I would further add that in fiscal '28, the second full year, both earnings and cash flow are solidly accretive.

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

Two quick ones. Just curious, is there any recompetes of note to be mindful of here in chunky recompetes over the next 12 to 24 months? And then I did want to just ask to Jeff's point on financing costs, what are you expecting in your model? Are you penciling in 6%, 7%? What should we use as a baseline?

Yes, sure. This is John. On the recompete side, virtually nothing for ARKA, as we look into '26 and even portending into 2027. They're a calendar year company. So they're January to December. We would also share that greater than 90% of their FY '26 financial position is locked and loaded. They're either currently executing on that today or it's in their backlog. So a very true technology business without any expertise. And as you all know, there's times where expertise for recompetes dwarf anything we've seen on the technology side. The second part of your question, I'm going to turn it over to Jeff.

For the interest rate portion of your question, we have assumed sort of current levels. So you ought to think in the 6% to 7%. That will vary depending on whether or not there's obviously any rate cuts coming, which many of us think there are. It will also vary as we get closer to the market and entering the market between the Term Loan B and the high-yield bond. So obviously, those markets behave a little bit differently. But also, obviously, the bond market will be fixed rates and the term loan B will be floating. So depending on where we think we are at that point in the rate cut cycle, in the anticipated rate cuts, the composition between those 2 securities could 0change a little bit. But you're in the right ZIP code, Gautam, in the premise of your question.

Our next question comes from the line of John Siegmann with Stifel.

Congratulations on the transaction. Previously, ARKA announced a fair amount of capacity expansions in Connecticut. I was just wondering if you'd be able to share anything behind the basis to that and whether there's going to be opportunities to invest more capital in those facilities?

Again, I was just wondering if you'd be able to share anything behind the basis to that and whether there's going to be opportunities to invest more capital in those facilities?

Yes, John, thanks. So I'll actually answer that a little more broadly. When we went through the diligence process, we were really looking for platform in tech obsolescence. -- where is the -- where is the strength in our intellectual property, what are the missions that they're part of today. And I won't say we were surprised. We were very pleased that they have been continually investing. And I would tell you, at a macro level, investments to grow up the Sensor stack. Think about more comm complex missions and also investments to move down the stack to "lesser capable but higher value sensors." I mean those are the 2 movements points for a company who's been doing this in the space for 5 decades. There is a lot of proof points on the both the CapEx and the OpEx investments. Their production facility is extremely high tech, and we're very, very pleased with how that business has been run. There's a lot of barriers to entry technically beyond their intellectual property.

This technology, as I know you know, has to work under some of those challenging conditions, and they made a lot of the right investments to both sustain and grow it.

Your next question comes from the line of Sheila Kahyaoglu with Jefferies.

Congratulations on the deal. Maybe a little bit more on the contract, if you can. Any help you could give on just the performance over a period of time, just given 80% fixed price, how they perform, how they managed to generate such high margins? And if you could give us a little bit more detail also on the 6 contracts that are over $100 million in revenues, that would be helpful, too.

Yes. So John may want to add to some of this. But they have a demonstrated track record over the last several years of growing in this range and this sort of margin performance. One of the things that was of particular interest to us here, and you'll appreciate that given the classification nature, we can't talk about this in as much detail as you might find more satisfying. But they are in the early ramping phase of a number of large programs that have sort of medium-term easily visible growth for activities currently underway and under contract. So demonstrate the performance though of the growth rate and of the margins.

Yes. And I would say that their margins are typical of a pure technology company. You've seen a lot of the margin movement that we have done within this company as we have continued to build our tech portfolio. Jeff covered the performance. The other area, though, I want to spend a little bit of time on is talking about just what they've done in the Agentic AI world because that, Sheila, is a really nice growth area for both -- not only for ARKA but for us. So Jason, do you want to share a little bit on that?

Yes. This is Jason. Thanks, John. So one of the things that positions ARKA nicely, right, is not only do they build sensors that are up in space, right? But once that data gets down to the ground, they also have the processing architectures that allow them to make actionable intelligence from that data. And they built an Agentic AI workflow or architecture around the processing of that data that allows them to scale up very well for like we talked about before, some of these important critical missions for national security.

But they also understand how to do that in the complex classified environments for the intelligence community and the Department of War, which puts them in a really important position to allow us to scale that capability across our portfolio of processing on the ground as well. So they're really a first mover, like we said, in getting the Agentic platforms into classified environments to do processing for intelligence that feeds the war fighter.

Could I ask a follow-up related to the ramp in the programs? Is it fair to assume just 10% growth, and that's what the company grew historically? Or are these large programs helping that drive that double-digit growth going forward?

The large programs are clearly contributing to the growth, if I understood your question correctly?

Your next question comes from the line of Noah Poponak with Goldman Sachs.

Can you quantify for us or give us a range on where you'd expect your fiscal '27 net interest expense to land relative to the $180 million to $185 million that you currently have for '26?

Yes. I think we're going to wait until we close, Noah. And until we -- relative to the earlier question about some of the variability around the rate environment, and the actual composition of the securities, I think we'll have more to say about that later.

Okay. And then can you highlight this being one of a few capable of delivering large complex optical systems. How many other companies can provide these EO/IR payloads in classified national security satellite imaging? And can you talk about how these positions are allocated? Are they decided by satellite manufacturer versus the end customer? And what kind of duration do you have on these platforms once you're on them in this market?

Yes. Noah, thanks. This is John. So it's a pretty -- there's very tight challenging specifications that are issued by the customer. And these are -- the majority of decisions are made by the customer and their sensors get a ride on somebody else's satellite. This is high-end classified processing for some of the most critical missions. There may be one other company in a couple of areas, but that's not a discussion we're going to be able to have on this line.

They are clearly very adept at bidding these programs, many of them are going to be fixed price bids. They have proven that by doing that, that discriminates them as well. They're not someone new trying to do this in a much cheaper and cheaper manner. So they're in a very discrete market. They understand their customers extremely well. There's a long record of trust because these assets need to be delivered.

And I think when you combine what they do in the space area with what they're doing on the ground processing area, we can't overstate the combination of GEOINT information, combine that with the signals production work that drives a multi-inch solution. There -- the other thing I'll say is the barrier to entry in this market is extremely high. I mean you have to have -- I think John's comment earlier, you have to have world-class production facilities. You have to have world-class talent over a number of decades. There's 1,000 engineering folks there. Over 1/3 are software engineers that are working on some of the ground processing work. So there's a multifaceted and large barrier to entry within this market, and we're very, very pleased to own them.

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

With respect to the company's ARKA's backlog and contract awards, what does the recompete profile look like over the next year or two? And how does the company's optical technology fit, complement and differ from your own existing?

Yes. So let me talk for a second about the backlog, and then I'm going to tip it to Jason to talk a little bit about the second part of your question. Backlog here is a little bit of a different animal. And if you think a little bit about Noah's question a minute ago with John's response to it, the backlog in terms of what's under contract is about $600 million.

In addition to that, there is over $2 billion in the 5-year planning window of noncompetitive franchise sort of revenue for named programs that are related to proliferated systems, they're budgeted, they're long horizon franchise positions where you don't change kind of in the middle of the program. So you have to think about it a little differently than the way we generally talk about backlog. It's a little bit different sort of environment. And I'll go -- I'll let Jason take the second part of your question.

Yes. Thanks for that question. So how is their optical portfolio kind of complementary with ours. And I would say that's the key there, right, is optics deals with the domain of photonics, which is just how to use light and lasers to do good things, right? So they build really high-end exquisite optical sensors up in space that allow us to kind of image the world around us in the ground and get information that's there, right? They also do optical processing for networking down on the ground to make -- it's about making the information there. Where we build optical information is in the communication space, so we're using that same domain of technology, but to pass data to and from up in space versus imaging down on the ground as such. And that's just one kind of taste of the differences between our portfolios in the optical domain.

Your next question comes from the line of Louie DiPalma with William Blair.

I was wondering what is the mix of space versus nonspace revenue? And secondly, does ARKA has significant content with SpaceX and the FDA's proliferated warfare space architecture constellation for which they just awarded several large contracts for?

Louie, so space, I'll say, space and the related space activities on the ground are about 3/4 of the business, maybe a little bit more. So it's the clear center of gravity. There is, however, a very meaningful part of the portfolio that is related to other optical technology, and that's primarily around directed energy and some of the related very state-of-the-art coatings that go with that. And those are not particularly competitive long-duration kind of incumbencies related to those other optical things. But the narrow answer to your question is about 3/4 of it is space and ground-related activities in space.

And your second question around SDA and other space, they have a small role in the SDA world that we can share more on when we get through closing. But their focus is really highly classified Intel space assets.

I'll now turn the call back to John Mengucci for closing remarks.

Thanks, Kate, 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. Jeff MacLauchlan, George Price and Jim Sullivan are available after today's call. Please have a safe and happy holiday season and all my best to you and your families. This concludes our call. Thank you, and have a great day.

Ladies and gentlemen, that concludes today's call. You can now disconnect. Thank you, and have a great day.

All right. Great. Thank you, everybody, for joining us for the CACI presentation at the UBS Industrials Conference. We have Jeff MacLauchlan, the CFO at CACI. Jeff, thanks so much for joining.

Thank you. My pleasure.

I guess maybe just to kick off, like new administration. There's been a lot of moving pieces. You guys seem to have or are navigating it pretty well. Anything to highlight as you've navigated these changes?

I think actually, there are a couple of observations that probably deserve a little bit of discussion. The first one is the -- some of the early disruption associated with DOGE in particular. But early adoption of some of the management techniques was disruptive, but ultimately, minimally so for us, disruptive across the industry, not particularly to us, which was good in the sense that it gave us an opportunity to highlight the differentiation and the portfolio evolution that we have been on for the last decade or so. And the repositioning of the portfolio very deliberately and thoughtfully and strategically really was highlighted by that, which I think is sort of a silver lining to the cloud.

The second thing, and more recently, that has been encouraging and I think leaves us particularly well positioned is Secretary Hegseth's focus on new acquisition approach and principles and the idea of encouraging contractors to invest ahead of need to develop solutions commercially, to sell them commercially is, for those of you that have been following us for a little while, you will recognize was right down the middle of our fairway. And gave us a real opportunity to sort of find ourselves in exactly the spot that the government would like to be in going forward and like the industrial base to be in going forward. So I think we've really, really kind of found ourselves in a really nice spot.

Could we go further into acquisition reform. I mean Hegseth gave a big speech a couple of weeks ago. Is that actually moving quickly across the Department of War? How is that affecting services versus hardware like procurement?

Yes. I think it is. I think the long-term effect of it will take a little bit of time to play out. John attended that conference, our CEO, and I think he would tell you if he were here that among the CEOs that were in the room, there were a lot of long faces. He was too thumbs up, came back very excited about the message. And particularly about the distinction that often gets lost, which is that the Pentagon did not want to -- the Pentagon did not -- Secretary Hegseth did not say we're going to buy commercial like from commercial defense tech companies. He said, I want to buy commercially, said, I want contractors to invest ahead of need, to bring me demonstrated solutions for things that work. They may be not 100% solutions. They may be 85% solutions, but they're developed at risk and contractors pay for that and make that investment and then sell to us commercially, which again is exactly something that we do.

I think in the longer term, just thinking about the industrial base, while I think this approach makes a lot of sense for our segments of the market, I'm not sure how it plays out for the large traditional primes. You're not necessarily going to build a nuclear missile submarine with the same sort of acquisition strategy that you buy counter drone systems. So I think it may lead over time to some segmentation of the market, and we may see different parts of the defense industrial base sort of behave and develop different ways and in different business models.

And you mentioned a moment right, the outcome-based solutions. I mean, John has been beating me over the head with that concept for the better part of the decade. Can you go through a couple or maybe one example there of how that's allowed you to win or positioning you in the new administration?

Yes, there are a number of them. I think BEAGLE is a particularly good case to use for this where we do some work for CBP where we maintain a set of apps that customs and border patrol agents have on their devices. And we -- the prior provider had a contract that worked in a traditional government IT services paradigm where you had a number of people with particular skills, the government largely managed and directed the work. We sort of turned that upside down in the recompete of that opportunity and convinced the DHS that it was probably more efficient and more effective for them to just tell us what they wanted. Tell us you want X number of apps, you want them updated y number of times over the course of the year.

We'll price the updates of the apps, and we'll figure out how to manage the system. You don't need to manage it, we'll manage it. You pay for the updates when we have the updates. And it's been a spectacular success. The DHS is ecstatic with a greater number of updates and support they get, and it's been a good business arrangement for us. We're able to manage it -- better able to manage it this way than in a more traditional contract.

I guess while we're on BEAGLE and maybe DHS, higher level, there's a lot of reconciliation funding going to homeland security. Is that an opportunity for you? What's your potential there?

Yes. It certainly is. I think $170-or-so billion of reconciliation money for DHS, much of that around, of course, the southern border. We expect there to be some amount of activity in there for us. There may be low tens of billions of dollars increase to our TAM over some period of time, 5 years or so. I think the other thing that is important there is that that's likely to lead into an important aspect of Golden Dome where securing the border, securing the Southern border will involve missile defense, but also sensing and characterization of threats and identification of defeat modes than of those threats.

I guess 2 parts then. Are you seeing reconciliation funding flow, whether on DHS? And then what are you seeing in terms of Golden Dome timeline?

So at this point, they're still in RFI, RFP stage. We have, particularly for Golden Dome, identified a series of capabilities in response to requests from the government related to certain capabilities we have related, obviously, to counter UAS but also to threat identification and characterization even in cases where the threat may be appropriately queued to some other missile defense system. But yes. And I think early next calendar year, we ought to start to see some of that activity actually turn to business.

And then in terms of government shutdown, obviously, I guess we have risk of another one in January, but has there been any disruption? Or is it kind of back to business as usual?

Minimal. I'm going to go back to the comments I made at the beginning of our remarks here that we found ourselves in an opportunity or found ourselves in a situation where we had really only minimal disruption. We talked in our first quarter earnings call about the fact that depending on the length of the shutdown, we saw the environment where we would have sort of single-digit millions revenue impact per week. That turned out to be about right. And we expected to recover most of that or all of that within the year and there may be a little bit of minimal disruption in the quarter. But again, not a meaningful number and very much in line with the single-digit millions per week that we talked about.

So if I go back to the '24 Investor Day, which feels like it was a lot longer ago.

It does. It feels like a lot longer ago.

I mean you're right on track for kind of that high single-digit growth rate despite a lot of moving pieces over the last year. Any puts and takes to consider whether ranging to the upside or downside risk?

Yes. I think I'm probably not going to get into commenting on specifically on what we might do to the guidance or the targets other than to say that we are ahead of where we had planned to be. I feel very -- I felt very comfortable that when we said it, I feel more so today. And I think we're on a really good track to sort of at least achieve. I would -- I do get this question occasionally, and I have to observe to people that the business is actually really running well and accelerating. I need to encourage people to resist the temptation to do the algebra that would let you derive a disappointing third year. So that's not the path we're on.

Headed off my next question. Perfect.

All right.

You did split out the intelligence business. So I was hoping maybe you could give us some of the growth drivers there and kind of what led you to break that out?

Yes. The reason for that is that as circumstances have evolved here over the last handful of quarters, we thought it was increasingly important to talk about the fact that we are a national security business. And our prior reporting -- our prior disclosures had defense and civil and then some -- and then another category. But the Civil was a large amount of intelligence. And as it became of increasing interest to investors and increasingly a part of our conversations that about 90% of our revenue is national security. Breaking out the civil intelligence agencies was a better way for us to talk about that and a better way for all of you who follow us to sort of monitor the growth in the intelligence part of the portfolio.

And it was actually counterproductive to be mixing the intelligence part of the civil with what most of us think of as the classic civil agencies like education and energy and whatnot, where we actually have very, very minimal exposure. So it lets us talk about defense and intelligence in particular. And the civil now is largely just the Department of Homeland Security.

Which I think is a big factor in why your Civil business is maybe growing faster than the kind of the end market or a lot of peers. But can you maybe parse out the growth in guidance this year for defense, intel and civil?

No, we don't -- I mean, we're not -- we don't talk about them by the pieces. They're largely -- no. No, we don't talk about them by the pieces. But the defense and intelligence portion of the portfolio is growing nicely and it is the preponderance of the industry growth.

And then I know John doesn't like talking about product sales or revenue. How do we think about that, especially in the context of, as you were talking about before the new administration and looking for maybe 75% or 90% complete solution. Do you pivot more to more upfront IRAD?

Well, first of all, I have to address the products part of this. It's increasingly important. It's important, I think, to appreciate that in those cases where we do occasionally deliver an actual tangible thing, it's only as a mechanism or a vehicle for delivering software. So our thought process around that in terms of program management, in terms of investment is we're delivering software. So you'd like to buy an Uber app, in order to deliver you an Uber app, it turns out I have to put it on something so you can use it. But the actual article that I put it on is not -- isn't the point. It's the Uber app. So relative to investment, we're in an interesting situation in that much of that software and accordingly much of the evolution and development of the software has a fair amount of applicability broadly across the electromagnetic spectrum.

So if you think about scraping RF energy out of the atmosphere, and characterizing it, identifying it and identifying defeat modes that you can use to counteract it, there's actually a fair amount of reuse whether you're using that in spectral system on the Navy surface ships, whether it's part of a TLS Manpack, whether it's part of a counter drone system, you're taking the ability to identify and characterize and then subsequently figure out what to do with it. But they're very similar so that the investment decision, to get back to your question, the investment decision gets a little simpler because nearly everything has applicability to more than one particular area of interest or product. So that's the reason that we don't talk about it as products because if we're investing in advancing that capability, it's not just for TLS or it's not just for counter UAS if that makes sense.

How does that improve long-term kind of competitive barriers?

Well, I think the most important thing to note about that is the amount of time we've been doing this. So the idea of collecting RF energy and then being able to manipulate it and use it for different things is not something that only we can do. But it is important to note that we're the only ones that are doing it, and we've been doing it for about 8 years, and it's taken us a long time to get to this point. So the barrier to change here is probably just the amount of time that it takes to do this.

And then we saw Merlin at AUSA. Can you talk about how that software overlays the hardware there based on what you just described?

Absolutely. It takes advantage of the same capability. We are building additional demo units for Merlin now investing our own capital, and we'll use those in a continued demonstration regimen that the government has outlined and we're ready to sell Merlins.

How do you think about your broader counter-UAS offering?

So counter UAS is really probably not as much about actual counter UAS capability as it is around the applications for it. So counter UAS for Golden Dome will look slightly different than it may look for engagements in the Baltics or Eastern Europe or in Israel or Gaza. But the same basic capability is there and tailored for specific circumstances and applications.

Is there more international opportunity there as well?

There is definitely developing international opportunity. We will not probably embark -- we do not expect to embark on an international infrastructure kind of delivery system. Much of our international activity will be satisfied through the U.S. government to foreign military sales. You've recently seen us sell some kit to Canada, which is ultimately going to end up in the Baltics. So we'll accomplish those through U.S. government sales and we're also accomplishing them through a growing network of VARs, value-added resellers, where we have local entities obviously vetted and qualified in all the right ways relative to export control and all the laws and regulations.

But that lets us do 2 things. It lets us create footprint and capability that we can leverage without having to actually fund it and create it ourselves. And it also gives us the ability then to market in those areas with a local face. So for instance, you will know that much of what gets sold in the EU has to have significant EU content. So the fact that you can have an EU agent or value-added reseller lets you add that incremental content easily. So you can add logistics and training and all the things that go with a fielded system with a local phase.

You guys have a decent sized U.K. business. Can you remind me what work you do there?

Yes. It is an interesting business. It's evolved and grown over time. About half of it is for the U.K. defense establishment, and about half of it is purely commercial IT business, where they do work for local councils. They do work for the Home Secretary. We made an acquisition there last year that has some very interesting biometric capability for U.K. border control. It's an interesting little business.

Wrapping all this up to margins. The Investor Day, you guys showed a slide where you pretty significantly increased your IRAD spend, but you guys have continued to expand margins over that time frame. I mean how do you think about the return on investment of IRAD?

Yes. So IRAD is one form of investment. The returns are considered in the way you would expect related to prospects and demand signal and everything else. But I think to talk about IRAD, you really have to think about the way we operate the business, which is really driven by a focus on free cash flow. And so we're managing top line growth. We're managing investment to get that growth and the margin on that growth. And the third factor, of course, is operating margin. So any time we have the ability, for instance, to increase investment and maintain margin and accelerate growth in a way that generates more free cash flow dollars those are decisions we make. So it's really about the generation of free cash flow dollars.

Does acquisition reform change the shape of any of that margin profile, whether if you're investing upfront more? And does that mean you can earn more?

Yes. I think if anything, it's improved the prospects for it for the reasons that you identify. So the government stated intent to buy commercially solutions that we've developed and made available commercially gives us more margin opportunity, definitely.

And then as you think about the technology versus expertise split, technology is margin accretive. How much can that business mix up over time as a percentage of the total?

Yes. That's an interesting question. And we spent some amount of time thinking about this. The expertise business that we do at this point is a really carefully curated part of the portfolio. I mean the expertise business that we have is the expertise business that we've been very selective in choosing. And we do that for the thesis that many of you have heard us talk about over time, which is this whole idea of expertise in forming technology and the technology enabling the expertise. There probably is some point at which that thesis tips.

I don't think I can see it at this point, but there probably is some point at which the connection between the 2 becomes less important. But for now, it's still an important part of the reason that we're successful growing the technology part of the business and the insight that those expertise franchises bring us is an important part of how we're prosecuting the technology side.

Is the technology margin also expanding? Or is it more of kind of the margin performance over the last few years a function of that mix improving?

It's expanding, and I'm hesitating because it's moderated by the investment, most obviously there. So if we were to manage the investment more closely at the expense of growth, it would contribute even more margin. But that is part of -- that is where the balancing act I was talking about a few minutes ago. That's sort of where the rubber meets the road, if you will. But certainly, the margin mix is accretive. We expect it to continue to be so and I think has more upside given the government's current acquisition intentions policy.

And the Investor Day target included increasing margins each year over the 3-year period?

We did -- yes, it did. It did premise increasing margins.

You mentioned your goal is cash flow growth. You guys do regular acquisitions. How does that play into that cash narrative and where are you focusing M&A?

So M&A is an interesting topic these days. DOGE was disruptive to this to a great extent. Valuations were very uncertain. Prospects were uncertain. Sellers and buyers had a hard time sort of thinking logical, convicted way about what things were worth. We're seeing that start to shake out some of the clarity around acquisition policy is helping this. And we see a couple of areas of interest, projects we're spending some time on. And I think over the next couple of quarters, I expect us to have some opportunities to talk about here.

What are the areas you're kind of focused on? Is it augmenting existing capabilities? Is it branching into additive?

It's largely focusing on existing gaps. I could imagine some very closely related adjacencies might be interesting to us as we think about different kind of sensors, for instance, in the context of something like Golden Dome, where we were focused on different sorts of intelligence collection and processing, particularly ones that would relate to our SIGINT capability that we have now.

You mentioned kind of distortion in valuations. Has that actually become more difficult now if you're looking for more software or tech-oriented businesses?

Interestingly, it's different a little bit, but -- but we see a little bit of multiple expansion and some valuation expansions, but also better prospects. So we're sort of net present value given our free cash flow focus. That won't surprise you. But we're sort of present value decision makers, and we are seeing some modest valuation increases, but also a fair number of opportunity increases. So that obviously, those things sort of go together.

One more for me and then I'll see if anybody in the room has any questions. Free cash conversion kind of what's the long-term target? This year has a few lumpy moving pieces, Section 174 or things like that. Can you bridge some like long-term cash conversion goals?

Yes. Our goal has been to get above greater than our 1x net income which we contemplated doing in our IR day targets in the third year. And I think we've got a reasonable probability of achieving that a little bit early. So getting back to converting our hard net income to cash flow. It's also important to note in those IR Day targets when we talked about generating $1.6 billion of free cash flow, there is no benefit to the deployment of that cash in our -- in the targets. So there's a tremendous -- we believe, tremendous bow wave we're creating in that we don't -- unlike some businesses, we don't make any assumptions about what the deployment of that cash is. So whether that's share repurchases, whether that's significant acquisitions, all those things are upside to the targets that we talked about.

Well, it seems like your M&A has been skewing higher margin, right? I mean Azure and Applied Insight, those are -- were meaningfully accretive, I believe.

Yes, very definitely. Which goes with the increased focus on technology and differentiation.