CACI International Inc Price & Performance (CACI)

I would also like to point out that our presentation will include discussion of non GAAP financial measures. These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Let's turn to slide three please. To open our discussion this morning, here is John Mengucci, President and Chief Executive Officer of CACI International. John? George. Good morning, everyone. Thank you for joining us to discuss our third quarter fiscal year twenty twenty five results as well as our updated fiscal twenty twenty five guidance. With me this morning is Jeff McLaughlin, our Chief Financial Officer. Slide four please. CACI's third quarter results represent another strong quarter on our way to a great year. We delivered revenue growth of 12%, EBITDA margin 11.7%, and free cash flow of $188,000,000 In addition, we won $2,500,000,000 of awards representing a book to bill of 1.2x for the quarter, and 1.5 times on a trailing twelve month basis. We've said it's not unreasonable to expect some slower decision making in the current environment but we continue to see our customers issuing RFPs, and making awards. In fact, so far in the fourth quarter, we have won an additional $1,300,000,000 of awards.

The business is performing well Our strategy, differentiation, resilience and superior execution are borne out by our results. We're in the right places, doing the right things, controlling what we can control. Given our strong execution and healthy pipeline metrics, we are raising our fiscal year twenty twenty five guidance for revenue adjusted EPS and free cash flow. Jeff will discuss this in more detail shortly. And we remain confident in our ability to achieve our three year financial targets and to continue driving long term growth and free cash flow per share and shareholder value.

Slide five, please. Turning to the macro environment. We continue to see good demand signals from customers in our key focus areas. The world is a dangerous place. And demand is being driven by geopolitical realities as well as a new administration. We see a constructive funding environment with healthy budgets, and an upward bias in national security spending and investment. And our strategy and capabilities are extremely well aligned with the new administration's priorities. As an example, Secretary of Defense HACCEPT recently issued a memo emphasizing the criticality of software defined capabilities and mandating the use of the software acquisition pathway to pivot from a hardware centric to a software centric approach.

We came to the same conclusion years ago. That software would be the enabler of greater speed agility, efficiency and even lethality. We developed a strategy invested ahead of need to position CACI for where we saw the market going. The SECTAV's directive is a clear validation of our strategy. And the software based approach we employ in everything we do. On the budget front, visibility is beginning to improve. For fiscal twenty twenty five, have a full year continuing resolution in place, that includes increased flexibility for our customers, allowing new starts, greater discretion and allocating funds.

While there may be a learning curve for the DoD, given this is the first full year CR for defense, we don't expect any material impact to our business. Additionally, both the House and Senate recently passed separate budget reconciliation bills which would provide additional funding for defense and border security. While these bills still have to go through the conference process, they represent significant incremental multiyear funding in key areas our addressable market. Looking further out, government fiscal year 2026 is still evolving. The President's Budget Request or PBR is not expected until next month. But early comments are positive. With the administration showing support for a $1,000,000,000,000 defense budget. Both the reconciliation bills and the PBR comments are strong signals for our business and generates 90% of its revenue from solving the toughest challenges of the DoD, the intelligence community and the Department of Homeland Security. Finally, the Department of Government Efficiency or Doge continues conduct the reviews. We've seen minimal impacts thus far, but we continue to stay close to our customers to support whatever they need. While Doge is not done with its work, we remain confident that our strategy differentiated software based capabilities, and superior program execution are extremely well aligned to the new administration and DOJ's objectives.

A piece through strength, secure borders, increase efficiency, and technology modernization.

Slide six, please.

With that in mind, I'd like to highlight some of our recent successes on key programs supporting enduring national security priorities. Our proven commercial agile software development capabilities and software defined approach these programs. Continue to accelerate speed agility efficiency and lethality across the national security space. Is exactly what this administration is asking. First, our TLS Manpack technology is a perfect example of our strategy playing out in the electromagnetic spectrum. TLS Manpack is a commercially developed software defined system that allows discounted soldiers to conduct signals detection direction finding and electronic attack while on the move. Manpack's upgradable software and signal sets enable our war fighters to be more capable and more lethal. And demand for this technology continues to strengthen. Our program of record sealing was increased this quarter and the number of systems we have delivered has more than doubled and will continue to grow. GLS Manpack was even featured on the cover of the April edition, the Journal of Electromagnetic Dominance.

Next, our Navy STEPRO program continues to progress well as we enter the next phase of the program. We are beginning to upgrade existing systems as an interim step, to deliver enhanced capability to the fleet faster, and enable a more efficient transition to the full spectrum system.

SPECTRAL's software defined capabilities and upgradeable signal sets enhanced with AI to reduce the cognitive burden on the sailor will make our warfighters more capable and more lethal. The continued success of the program is not only a resounding endorsement of our investing ahead of customer need, and our software defined approach, but also a great example the strategic value of the Azure Summit acquisition.

Next is one of our seven large network modernization programs [indiscernible] Here we are modernizing the U. S. Army's secure Internet protocol network a highly complex network for transmitting classified information around the globe. The software defined network technology we're deploying includes ARCON, which is a CACI commercial technology that was developed ahead of customer need and proved to be a crucial differentiator. In winning the program. We recently installed the first ARTCOM gateway represents an important program milestone. The Army Supermod program highlights the significant opportunity for additional software defined network modernization across the federal government to increase security and delivery efficiency and is another great example of CACI winning by investing ahead of customer need. Our support of DoD's push for financial accountability and transparency is yet another success story.

Last quarter, we highlighted our work the defense agencies initiative [indiscernible] where we have developed and deployed commercial software to enable successful financial audits for DoD agencies. This quarter, I'm pleased to report another great milestone, The U. S. Marine Corps recently received their second clean financial audit. CACI is the only technology company that has helped a service level agency in the DoD achieve a clean financial audit Now for the second year in a row. And we've done the same many other DoD entities as well. With the software we have implemented for the DAI, CACI has provided the blueprint for DoD agencies to successfully pass audits and provide financial accountability and transparency. And we expect other DoD agencies to follow the Marine Corps' example. Finally, this past February, our Beagle program for DHS Customs and Border Protection saw the highest monthly volume of software releases ever. This significant increase in release demand was driven by the new administration's border security policy. Our agile software development capabilities are purpose built for exactly this type of rapid changes and requirements. We are on track to deliver well over 1,000 software releases this [indiscernible] with greater than 99% defect free quality.

We are taking these same capabilities to NASA where our MCAPS program is increasing velocity and efficiency by consolidating software applications from 11 centers across NASA using the same proven commercial agile software development processes combined with our six decades of mission focus. These examples highlight how CACI's differentiated software based capabilities commercial processes, and exceptional execution helping our customers. Address critical and enduring national security priorities. And they're helping CACI continue to win grow and deliver value to our shareholders. Slide seven, please. In summary, our strategy and business remain resilient. As underscored by our continued strong financial performance. It's the reason we are again able to increase our fiscal year twenty twenty five guidance and remain confident in achieving our three year financial targets. We remain positive given increasing budgets and bipartisan support to the national security priorities that we focus on. We are executing our strategy and purpose built our business for this environment and that continues to position us well to drive long term growth increasing free cash flow per share and additional shareholder value. With that, I'll turn the call over to Jeff. Thank you, John. Good morning, everyone. Please turn to Slide eight.

In the third quarter, we generated revenue of $2,200,000,000 representing 11.8% reported growth of which 5.6% is organic. As John mentioned, our strategy that differentiates CACI from traditional competitors and our superior execution are evident in our strong results. Third quarter EBITDA margin of 11.7% represents a year over year increase of 40 basis points. Similar to last quarter, EBITDA margin is above our previously stated expectations, primarily due to the timing of certain software defined technology deliveries occurring in the third quarter. Excluding these items, third quarter EBITDA margin would have been in line with our comments last quarter. Adjusted diluted earnings per share of $6.23 were 9% higher than a year ago. Greater operating income and our recent share repurchases more than offset higher interest expense and a higher income tax provision. Third quarter operating cash flow, excluding our accounts receivable purchase facility, was $2.00 $4,000,000 reflecting strong profitability and effective management of working capital. Day sales outstanding, or DSO, were fifty five days, Free cash flow for the third quarter was $188,000,000 representing strong sequential and year over year increases. Slide nine, please. During the quarter, we announced that we would be initiating an open market repurchase program utilizing our existing share repurchase authority.

Through the end of the quarter, we bought 436,000 shares at an average price of about $344 per share. After completion of these latest repurchases, we have approximately $187,000,000 remaining in our current authorization. Including this latest activity, we have repurchased approximately 15% of our outstanding shares since FY21, while also completing 12 acquisitions during the same time period. This track record is a testament to our flexible and opportunistic capital deployment approach. Third quarter net debt to trailing twelve month EBITDA was 2.9 times on a pro form a basis following the acquisitions of Applied Insight and Azure Summit and reflecting the capital used this quarter for the share repurchases. We remain well positioned to deploy capital in a flexible and opportunistic manner to drive long term growth and free cash flow per share and shareholder value. Slide 10, please. We are pleased to again raise our FY 'twenty five guidance as a result of our strong business performance heading into the fourth quarter. We're raising the low end of our revenue guidance. With a new range of $8,550,000,000 to $8,650,000,000 driven by stronger organic growth. This represents total growth of 14.5% to 16% on an underlying basis, which includes about six points of growth from acquisitions.

We continue to expect fiscal twenty twenty five EBITDA margin to be in the low 11% range. And in light of our Q3 margin overperformance, was driven by the acceleration of the software defined technology deliveries from Q4, we now expect Q4 EBITDA margin to also be in the low 11% range. As a result of our higher revenue outlook, combined with a slightly lower effective tax rate and interest expense, we're also raising the low end of our adjusted net income guidance with a new range of $543,000,000 to $557,000,000 This, along with our reduced share count, yields an attendant increase in adjusted earnings per share to be between $24.24 and $24.87 per share. Representing growth of 15% to 18% compared with last year. And finally, as we're always focused on the efficient use of our capital, we're increasing our free cash flow guidance to be at least $465,000,000 driven by a reduction in our CapEx forecast. About half of the CapEx reduction is related to capital efficiencies from using existing Azure capacity with the balance coming from other program efficiencies and the timing of program ramp ups. As we've said before, we see free cash flow per share as the ultimate value creation metric.

And our FY 2025 guidance now implies 22% growth in free cash flow per share. Slide 11, please. Turning to forward indicators. Our trailing twelve months book to bill ratio of 1.5 times reflects strong performance in the marketplace. Our backlog of $31,000,000,000 increased 10% from a year ago and continues to represent almost four years of annual revenue. These metrics provide good long term visibility into the strength of our business. Entering the fourth quarter, more than 97% of our FY '25 revenue is expected to come from existing programs. With about 2% coming from recompetes and less than 1% from new business. Progress on these metrics reflects our strong operational performance and underpins our confidence in our updated expectations for the year. In terms of our pipeline, we have $17,000,000,000 of bids under evaluation. Nearly 80% of which are for new business to CACI. The significant sequential increase in bids under evaluation reflects our strong business development performance and the sometimes lumpy timing of RFP issuance proposal submission and award decisions. We expect to submit another $10,000,000 of bids over the next two quarters with more than 75% of that being for new business. In summary, we continue to deliver successful results in an uncertain environment underscoring the resilience and durability of our business.

We are seeing healthy demand from our customers as we help them address critical national security priorities. And we continue to win and execute high value enduring work that supports long term growth increasing 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 12, please.

In summary, we delivered double digit revenue growth increased profitability, strong cash flow and solid awards. Our performance positions us to again raise our fiscal year twenty twenty five guidance. And underscores our continued confidence in achieving our three year financial targets.

Additionally, we opportunistically repurchased $150,000,000 CACI shares to further enhance shareholder value.

We continue to navigate a challenging and uncertain macro environment thanks to the successful execution of our strategy. A strategy where we utilize commercial structure development processes in everything we do we invest ahead of customer need, and we provide differentiated expertise in technology. This strategy enables CACI to continue delivering increased speeds agility, efficiency and lethality. And we see proof point after proof point.

That this is exceptionally well aligned to the administration's priorities. As is always the case, our success is driven by our employees' talent, through innovation, and their commitment.

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

With that, Calvin, let's open the call up for questions. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. As we enter the Q and A session, we ask that you please limit your input to one question and one follow-up.

Please press star 1 again. Your first question comes from the line of Scott Mieklas of Melius Research. Please go ahead.

Good morning, Scott. Good morning.

Is Scott. Good morning. Nice Very nice numbers. Quick question on contract growth. Just wondering how that trended since the change in administration. You're finding any changes in customer behavior, or they're maybe not spending to the ceiling on some of their contracts. Or some of the task orders from IDIQs coming out more slowly than you would have anticipated? Yes, Scott. Thanks. So if I look at our own contract growth that's just one element of of how we grow this business and how we have grown it through fiscal year twenty twenty five. We haven't seen any slowdown on our own contract growth measures. We just talked about what our book to bill was in the third quarter, so really haven't seen a a material slowdown in awards And I think what else is telling as we look forward is the level of RFPs that we're responding to the fact that bids to be awarded and bids that we're going to be submitting is up until, I think, about 2,000,000,000 or $3,000,000,000 from the last, last period really gives us the confidence that we're going to continue to see awards and funding that will drive future growth.

Okay. And then I know that you're not guiding to FY '20 now, but I was just curious how much revenue is already in that backlog? And are there any sort of major recompetes that we should be aware of over the next, say, twelve to eighteen months? Yes, Scott. There's not one program that's more than 5% of our revenue. It's sort of a moderate recompete year as we look forward to 2026.

Yes, I most likely won't be sharing '26 guidance, the fact that we're still working through where we're going in fiscal year 2026. But yes, it's actually building up very, very well. And Jeff, anything else you want to add?

Yes. I would only add that while John alludes to the fact obviously that we're doing our detailed FY '20 planning right now, the positioning of the portfolio the pipeline that we see and the pace and rhythm of the business is very much aligned with our three year targets for last fall. So while we're not going to give you any details today on FY 2026, The medium term horizon is very much consistent with what we saw then and see now.

Thanks, Scott.

Your next question comes from the line of David Strauss of Barclays. Please go ahead.

Hi. Good morning. This is Josh Korn on for David. Nice results.

Wanted to ask sort of an industry question about the, the DOD memo, about insourcing or updating acquisition from for tech. You know, I I guess you mentioned you haven't seen any major negative impacts from those. But just positively or negatively, how that could play out? Is that more of a short term more of a short term impact or longer term impact, you know, when those policies put into practice.

Thanks.

Yes, Josh. Thanks. Let me parse that into couple of pieces. Let's talk about the EOs first. Look, there's a lot of executive orders and memos They're being released, we are assessing all of them. A lot of the EOs related to our industries are really focused on greater spending efficiency. For the U. S. Government, especially in national security space. There is a focus on streamlining decision making so that we can get better capabilities to the warfighter faster and more efficiently, which clearly myself and I'm certain others in the industry strongly support. But how we relate to us, these concepts are really central to the strategy we've outlined for a number of years, which is why we embarked on a softer defined capabilities path Okay. It's really in line with where the world is going. So look, the are going to be important. It's going to depend on how they're implemented. But we do continue to engage at the appropriate level Josh, and we see it as a net positive for CACI orders. Time. You asked something specifically around how the the government may be looking to buy based on some of those EOs. I'll just focus on the software pathway Juan, because I think that's really well aligned to where we have we have been.

We've talking about this for years. It really is a pivot from a long term program hardware focus to a software defined approach, and that's right in line with Agile software development Literally today, we can overlay all the current metrics of the programs we've won the last six to eight years as it pertains to Agile. And show our customers today how we can align that to this new EO. So you also asked about Doge. You know, I think that, they're, they're still going through their reviews. De minimis impact so far. We do continue to support customers and those as questions are asked. In every ways they need. But I have pretty strong confidence in the strategy of what we do that we're really well aligned to those Doge objectives. And I guess from a from a roll up again, we've got seven contracts that we're aware of. Including one that was already over when Doge singled that out. Potential annual revenue, 3,000,000 but for just about $2,000,000 of that $3,000,000 we don't have any formal contraction notification. So a $1,000,000 impact from where Doge is at now really is a testament to the strategy we have.

And we're going to keep talking about that over and over again because strategy is such that doesn't mean we're going to be dose immune. I think to a great extent, we've positioned this business long before these concepts have come out. Which is why we're so strongly supportive of them. Thanks, Josh. Great. Thank you. Very helpful. I'll stick to one.

Okay. Thank you.

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

Hey. Good morning. Good morning. Good morning. Maybe talk to the budget cadence contemplated in your investor day target. Not necessarily the top line DOD budgets, or or getting into FY '26. Guidance by any stretch, but but maybe just how you think about kind of the outweigh mechanics and and where expertise and technology are kind of more sensitized to Typically, think of expertise as more o and m and technology is more r and d.

Any color there would be. Super helpful.

Okay, Colin. Thanks. Look. Government fiscal year '25, full year CR allows for new starts, agencies more discretion and flex. [indiscernible] To be able to lose their funds, So that's a net positive, provides really good visibility. And really good certainty. National security spending, another thing you've heard me say a lot, remains bipartisan. And look, we're going to focus on the things that we can control. We're going to run the business.

And drive long term growth. And shareholder value. And on that front, we're doing very, very well. You talked about technology and expertise. Look, our strategy has always been to strongly align around national security priorities and invest ahead of need. And that's why we've been bringing differentiated expertise and tech which does position us extremely well. If we look at the FY 2026 budget and we look at all the numbers we have now, as Jeff and I and the rest of the company look forward to doing '26 and beyond, planning. I just wanted to share a little bit about how we see our long range plan. Because there's a lot of questions on budget and timing. Here's how I look at it. Book to bill, fiscal year 2025 Q1 through Q3 strong and supportive awards. We've already booked $1,300,000,000 awards in Q4. With a large volume of to be awarded remains. We've got a number of large awards over the last two fiscal years that contribute to out year growth as they continue to unpack. Jeff shared that during our Investor Day in the fall around how expertise and technology programs unpack. Haven't begun to see the unpacking of Spectral yet as well as several other programs.

We've got enviable backlog with at least four to six quarters clarity on where growth is going to come from. On the funding side, a favorable government fiscal year '25 CR. Allowance for new starts funding flexibility. And then you talked about future budgets. Reconciliation bills, up $250,000,000,000 of defense spending, up $200,000,000,000 of DHS, represents two thirds of the business that CACI executes year over year. We're seeing signals to support a $1,000,000,000,000 government fiscal year 2026 budget And we have a portfolio that's really much aligned with Peace Through Strength, China, Indo Paycom, protecting the homeland. So when we look at those mileposts, that we use to measure how our strategy is stacking up and we're looking at where this customer set is going. Whether it's Doge, whether it's GSA scrub list, whatever those are. Those are quantitative measures that we need to support our three year plan. So high single digit revenue growth, mid-eleven percent margins, dollars 1,600,000,000.0 of free cash flow, the use of which is not contemplated in the revenue and margin growth rates We have things to navigate without a doubt. But where we are, folks, is not by accident. It's by aligning a strategy ahead of customer needs, that makes up with the customer at the right time.

And it's the right time.

Got it. And then and then maybe on the supplemental is there a way to think about kind of how fast you think the those monies can get started and whether that supplemental is is balanced more towards what I call as an o and m style cadence or more of an r and d style cadence. On on the outlays. Thanks.

Yeah. I think if we look at Not sure we have that visibility. I mean, we have a fair amount of work that's funded with O and M but it'll be across both areas. I'm sure. We'll get more details Thanks, Colin. Thanks.

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

You mentioned the $1,000,000,000,000 you know, DOD budget and border security Are there specific areas of incremental funding that represent sort of the the biggest and best opportunities for the firm going forward that you could highlight for? Yes. We I don't think a lot of us have the details behind the 150,000,000 and hundred million but I can share a little bit about where we've positioned. Within those areas. Electronic warfare is going to continue to be an issue that as recently as last week, there were senior government officials talking about that how how woefully underinvested we have been in electronic warfare. You probably can't talk about things like Golden Dome, And I'd Like To Just Say Airborne Based Defense In The U. S. Without believing that that's going to cost additional funding. I think you've got combatant commanders out there. We're all focused sort of in the UCOM area, but we have to build up into OPaycom. For the China fight, Taiwan defense We've got a lot of bad actors still in CENTCOM today. So I think you're going to see a lot of capabilities so that we can build out those commanders need. So there's a large number of areas on the defense side On the DHS side protecting borders, that's going be everything from customers and border agents.

I shared a lot of fantastic news and support that we have given to that agency thus far under our legal contract. I truly believe that something that's going to hit defense of the homeland as well as border security is going to be how do we track and find drones that are bringing a lot of nefarious things not only across the border, but are also used by folks south of the border to traffic individuals. So I think that's another area. So and then last, I'd tell you that on the DoD IT side and network modernization side, dodges some of their very initial comments were once the savings pieces are done, where do we have to place more investments versus cuts. And I'd tell you, we are well aligned as a publicly traded company, a sixty some year old company to bring our expertise and our technology to both network modernization and the number of the improvements that the government would like to make in enterprise IT. Thanks, Joe. Thank you. For my follow-up, I was hoping you could update us on the development and ramp of production for in your optical communications business? And and maybe remind us of the the the leverage in that units as you start to ramp production?

Thanks. Yes. Thanks. Look, we are coming up upon making certain that we'll be delivering at least six times greater than our FY 'twenty four OCT, delivery volume during twenty twenty five. I'll first start off that SDA acquisition is a really large and very complicated programs. But in a lot of areas, both in optical terminals as well as space, craft and bus, design Look, we're all pushing the edges of technology at every turn. But it's extremely relevant and time sensitive to the future of space dominance. So we have delivered 25 OCTs are operating in space which includes 10 SDA Tronjuro [indiscernible] Those have already been used to approve out space to face, space to ground, and space to air connections. We are right in the middle of production now. We're looking at deliveries by the end of this month. By the May and by the June. But I am very confident that we will hit our goal for SA Photonics and our OGS Photonics business of delivering six times, if not more, the number of deliveries we made last year. So well on our way. We've solved an awful lot of very difficult production problems. But you would expect that because no one's ever put tightly wound fiber in optical terminal and pushed information through it.

So really pleased with where we're at. We'll start to see some of the investments in that area start to come down as we get through 2025 and go into 2026. Which is directly in line with what we told folks when we did the SA Photonics acquisition. Have investments through 2025 We would be giving or we would be getting we would be delivering terminals, and more volume by the end 'twenty five. When we get into FY 'twenty six, our time frame will be able to talk about what the backlog looks like and how we're going to achieve more and more deliveries. Thanks for the question, Tobey.

Your next question comes from the line of Sheila Kahyaoglu of Jefferies. Please go ahead. Good morning, guys, and thank you for the time.

Morning.

Hey.

I appreciate the Dodge comment Dodge comments. So maybe one big Victor question, and it's clear that CACI portfolio is positioned well with only $1,000,000 impact. Another competitor yesterday made some comments about the perils of just you know, divesting government employees and how that potentially could impact contracts or the pipeline conversion. Sean, how are you thinking about that? And how are you working with the government to maybe better educate them on the process?

Yes. Jeff, I'll start and I'll ask Jeff. Actually, go ahead, Jeff.

Yes. So we have been saying for some time, Sheila, that we sort of anecdotally are seeing some slight slowdowns in the sort of administrative pace of the business. So things like invoice approval, things like funding mods, the kind of day to day business of the business things that used to take, you know, two or three days or, you know, are taking four or five days. We're still feeling and seeing a little bit of that distraction But it's been, you know, only only mildly disruptive and relatively short lived And I think that's what really translates into us seeing really net net relatively little disruption to the business. Things are a little you know, a little bit slower than they are in in more normal times, but it's not it's been very manageable disruption from our view.

Sheila, I'll add something else to add to maybe at an even larger level how I pertains to this company maybe why we're different. We built resilience into our strategy. You all have heard me come up with this term lumpy. For at least the twelve years I have been here and the forty years I've been in this industry, I don't think there's ever been a customer who's awarded exactly on the day that they believe they were going to deliver. And now that's not a sight of our customer. But what it is, is for us to have built this portfolio and strategy going forward, we had to make certain we're more resilient than end of the quarter book book to bill number because we're living hand to mouth between awards and then revenue growth. So we're sitting here got a quarter left. We've got maybe 1% now that we're in the fourth quarter. Worth of awards we have to win to get the end of the year revenue. So that's one marker. The second marker is that we've talked a lot about that April 20 looks the same as March 30. To me. And that's why we shared the $1,300,000,000 awards, which is something we haven't done in the past.

But really to try to show that this strategy and how we grow can expand and contract based on when the majority of these awards are let out. So that $1,300,000,000 have easily been March 29 if we were in different times. And instead, it didn't come out until April. So do feel that a lot of government employees are under an awful lot of stress and that is going to just naturally human element But I don't know if I have to advise or coach Doge or coach the government as to how they put awards out there. They've been pretty much in our portfolio, been pretty much on track as well as issuing RF RFPs in areas that are really, really struggling because of layoffs and the like. So I like where we are today. But to your point, we got a long way to go.

And maybe if I could just ask one on program specifics. With Spectral. Can you maybe just give us an update on Azure and how the integration process is going? I know you you discussed some capability enhancements, but if you could just provide an update there in the next milestone.

Yeah. Sure. Look, the integration is going very, very well. There they those are folks from Azure Summit are very much contributing to Spectral. Time line, we're about six months into the integration. I could not be more pleased. They have brought incredible talent technology and integration capabilities. We're a highly acquisitive company, and you'll always hear us say what a phenomenal group of folks whoever it is that we're bringing in. They proven it from day one. And they've helped us collectively better address the challenges that we're going to be able to see in the EndoPACOM area. Cultural match, fantastic. Ongoing technical exchanges, and their commitment to the mission could not be better From a program side, based on that, we've aligned both programs under a blended leadership team. Where we can provide the best concept to our customers on getting capability to the field quickly. We are moving even in developing and deploying next generation shipboard signals. What makes the combination to me, Sheila, a real win is the win for our U. S. Navy customer. Is the fact that both companies have a similar view to open architecture [indiscernible] and we know how to be flexible and deliver world class systems.

So we're accelerating the use of open systems now. We've got C, Inc, F program and Spectral running side by side yet staggered. We're going to bring plug and play capabilities what's most important in a non proprietary non licensed model, which to us is far superior to a licensing model where updates are based on the vendor's business case, we actually believe our national security customers should own the software and layout when they want those requirements. That's what Agile gives and both teams are doing extremely fantastic job.

Yes. Sheila, I would also add, you will have noted on sure, that our free cash flow increase in the for the year is related to as we get through the details of the integration being able to optimize the capacity utilization of the Azure facilities. And we've actually been able to reduce some of our spectral production CapEx spend plans.

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

Hey, thanks. Good morning, guys.

Just wanted to follow through on what you were just talking about on the slowdown. Is there a common theme? I mean, that the department level, the contracting officer levels or turnover at your customer? Is there any common theme in that slowdown?

Yeah. I mean, I guess, one is we're not seeing a material slowdown. I think we're seeing some of the normal actions that have happened during other times, Gavin. I mean, do believe that if you lay the human element on what worked, what the government's asking contracting officers, funding orders have not slowed down.

Look at our funded backlog, that portion is very, very strong. But if you look at the awards side, I do believe that people are going to, one, make sure they have the funds. Right? Even though we're in a more open CR, it's still a year that we have a CR going on. I also believe that they're making sure that all I's are dotted and all T's are crossed.

I don't think any acquisition official can have a can have a slip up. And I don't have an opinion on that. That's their role. Our job is to put winning proposals out there and their job is to select us. So I don't I just don't see a pronounced slowdown, and that's what's been driving really strong year long to bills for us.

And I'd add, Gavin, if you think about my earlier comments about the sort of day to day business of the business, it's not isolated in any particular customer set or any particular activity. It's more of a just a general you know, things take a day or two longer than they used to.

I guess if you have executive orders every other day, you probably wanna double cross your t's and double dot your i's.

Yeah.

I I think there's some of that going around.

Okay.

That's helpful. The $17,000,000,000 pipeline, I think that's a record. Is there a is there a mathematical way to extrapolate that to a a book to bill? Because you guys have [indiscernible] better than a 1.2 book to bill on a smaller pipeline in the past, or is that that not a great comparison?

Yeah. I think that's probably gonna be a hard thing to do. There's a lot of variability in there across customer sets, across timing, periods of performance, It's hard to, I think, translate it quite that precisely other than the fact that I would just reiterate that it's a positive development relative to the broader environmental view that we have of sort of our near and medium term prospects.

Yes. Gavin, we also looked at is to your question, is there something we can learn from beating news versus where it competes? And oddly enough, both of them are pretty much on the same time line, the same percentage of jobs due award on time and so deliberately.

On contract growth, clearly, is much more predictable. We already have all the means. We have the contractual language in place. The customers' time line is really just finding additional funding and putting that on contract. But there's nothing there that we like to call it lumpy because don't have a better forecasting metric, frankly, to how these things get awarded. What is important though, as I shared earlier, is that not living hand to mouth. We don't need to win a $200,000,000 job before April 30 to meet the end of the year revenue numbers, and that's really a function of multiyear strategic move for CACI. Thanks, Kevin.

Next question comes from the line of Jan Engelbrecht of Baird. Please go ahead.

Good morning, John, Jeff and George. Congrats on another good results.

Thank you. Yeah. So I think sure.

So I think we've talked about this topic today, but it might be a bit more specific question. Just tied to the the ongoing GSA review, and as it relates to cost savings initiative and we know that CACI has obviously been excluded from the top 10 list of contractors that's been making the headlines since sort of late February. But are you informally sort of part of that process with the GSA in terms of that review? And and and can you just share anything that you've learned? Over I guess, over the past two months? As as part of that review, what they're looking at and then just obviously contrast that with your strong positioning that you're seeing on your contract.

Yeah. Thank you. So it's true we're not in the top top 10 list Everybody out there on those staff we don't consult. We we we we do. We outcomes. We have not been contacted, so I don't know the details what they're all looking for. But as we said before, have about 80 GSA programs We've taken a stab at what codes they could be potentially pulling together.

We have about a half a dozen of those in total across the entire $8,500,000,000 portfolio. It adds to about $158,000,000 total contract value, and you can hear total contract value mean over a number of years. And as I shared earlier prior to this call, two of those programs are an extremely mission critical areas and very highly aligned and have full customer support on those. I think the other question also in this, I'd like to share a little a little bit is there's a lot of discussions on cost savings ideas with GSAs, which seeing a lot in reports. We haven't been in those meetings But I think it's fair to say that, frankly, we have been having those customer meetings over the last eight years. And it really began when we began bringing commercial agile software development to the federal government. Utilizing DevSecOps, and already beginning without those and our GSA contract scrubs moving customers from purchasing labor hours to developing digital applications. It's a strategy we've been explaining for quite a long time. It is one of the material differentiators in the market. And simply stated, the value proposition has always been between CACI and our customers.

If I'm moving to a commercial like model, customers are going to inherently spend less they're going to receive better outcomes, that they can fully control all costly labor hour contracts. And the customer could then use those savings from their appropriated budgets and go by even more. So and at the end of the day, think a customer who owns the software which is critical national security, is more important than one that has bought multiple licenses. So to me, we're having a lot of talk about moving the federal government to a new place, and maybe one way to do that is to go through all these GSA contracts. I don't know. I'm not involved in that. But from what we understand, all the discussions around how do you save the government costs, we believe we've been having those discussions. The most recent one was with NASA where it drove a multibillion dollar award to consolidate 11 centers. This is not new news for us. It is a clear differentiator. I don't know where the outcome of GSA contracts and NAICS and NICS and elemental PX codes are are going to be? I'm rather confident that what we're doing is on the right side of right.

And we've had a lot of these discussions. And it's why we open any other discussions, any other customers out there about how to get more from us.

Great, John. Thanks for detail there. Just as a quick follow-up. Just within Counter Unmanned, it seems like you're you're well positioned and that's gonna be a focus area. Under this administration. So could you just talk about CACI's positioning within the counter unmanned market today? And then just some potential near term opportunities we've we've seen about the army TIC two point o contract. I think that's about a billion dollars of funding through '27. There's some kind of counter unmanned systems in there. There's some EW systems. I think there's 250 that they're looking for. Is that anything that sort of that you're aligned with? Or and or could you just talk about the kind of mountain market for for CACI?

Yeah. I'll I'll I'll I'll start with strong fact that you've got over 5,000 EW County WAF systems deployed all over the world today. We've got a lot to bring to the table. It's proven. It's deployed. It's operational, including both sensors and Conroe SK [indiscernible] They're both coming from current program records and everything we deliver has confirmed kills and they're in theater. So they're not in a range. They're not in exercise. They're not in a PowerPoint slide. They actually are out there driving confirmed kills for combat commanders. If we look at two areas going forward, Golden Dome will have some layer, would imagine, of air defense to it. I'll be in the same meetings everybody else has been They're looking for sensors, effectors and command and control We could talk about currently deployed systems as some companies have already talked about There is a lot of capabilities out there. Always been about getting them together in a more cost efficient manner. And we believe that we have the right kind of solutions that combat not only the simple drones you can see [indiscernible] but everything, everything from a Level one to a Level five Class classroom.

So I think we'll see more specifics around Golden Dome. I think we'll see some discussions from the combat commands from North NORTHCOM and the like around how they plan to defend The U. S. In a broader manner And then we can also talk about the the authorizations that are already out there for base commanders. For us to be able to string some counter gas systems along the southern border to at least get a jump start on providing better border protection. So thanks very much for those questions.

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

Hey, thanks very much and good morning.

Good morning, Seth. Good morning, Seth. So first question I wanted to ask and I apologize, I might be betraying my lack of technical expertise when I when I ask this question. But, when you you talk about, the soft memo, and ways that the government is buying software, and I think that's memo has come up a lot in the trade press. When you think about how you're going to market and how it changes your relationship, if it does at all, with with hardware providers. Does it, you know, does that create more opportunities for partnerships? It doesn't mean you have to spend less time thinking about what you're gonna do with hardware providers because software will be more epicenter or is it just kinda not not really relevant?

Yes. So we're two different pieces. So there's large hardware and then there's, I'd say, component hardware similar to what the Azure Switchblade product does, right? You got to have memory and processing power to put the software on it to look in the EW kind of UAS world.

But no, don't think it fractures anything. I think it's built some great relationships, right? I think in the optical communications terminal area, right, a lot of that is software based. There's some hardware in there. But at the end of day, we're a to a lot of fantastic companies that are doing the actual larger platform based work. They do it extremely well. We've got a current large scale hardware providers on our spectral team. Right? So we build some antennas. They don't build them all. So we have their expertise. We're working below the deck plate on the ships. Surface ships for the United States Navy. And they work a lot of the topside work. So I don't think it's it's not a one versus the other, but I do strongly believe, as we've been stating, that we don't get to make that vote right? The enemy gets to vote as well. And the vote the enemy is making is, quick changes on their TTPs. Their their tactics and their procedures which just because the nature of hardware and software you can call it physical and digital, whatever those terms are, But the software side can be modified quickly.

And provided new updates globally. In a very cost efficient and very secure manner. So it's not that we all enjoy or we're willing to pick one over the other. We just believe because we're in the electronic world warfare world where you meet the enemies first, Okay? It's just that software is the only thing out there that can change. So software is going to be there to change. And we need software engineers 3,000, 4,000, 5,000, 6,000 of them that are trained in being able to move the customer towards an agile model then that works. So at times, we're going to be delivering stock solutions over hardware ones. And at times, we're going to be delivering software that are in concert with, right? No great software system can live out there alone without riding on somebody's platform. If you're looking at DoD or some of the national intel, areas. So I think it's very it's a very supportive ecosystem there. But customers are going to continue to pick software over the earlier ones. It's nine out of 10, 10 times we're actually convinced.

Great. Great.

That's very helpful. Just as a follow-up, just a little more detailed question. In terms of the difference this quarter between gross and net bookings, If you can address kind of what that difference was, it's obviously a little bit of a sense environment out there with regard to changes in bookings. [indiscernible] a good sized program end in early January. Without using the full expected amount of the ceiling value that we had earlier anticipated It was actually before the inauguration so unrelated to kind of the current activities. But it's a program that ended sort of naturally and happens from time to time. This quarter, is a little bit larger than usual, but that's the that's the that's the whole story.

Okay. Very good. Thanks very much. Thanks, Matthew.

Your next question comes from the line of Mariana Paris Mora of Bank of America. Please go ahead.

Thank you so much. Good morning, everyone.

Good morning. Good morning.

So my question is about M and A. On this more uncertain environment, how strong is the pipeline of opportunities? Number one, are these, like, target companies willing to sell or they want to wait until they have a little bit of more clarity of where things are going. And the second one is a software and agility become more apparent. For sound players that were not, focusing on that. Over the last couple of years. Have you seen an increase appetite for bidders on those targets?

Sure. Maria, on the on the first one around M and A, look, it's an important use of capital, but it's not the only one and everybody out there knows that we make those decisions by evaluating the dynamics at any given time. Look, we always are continuing to pursue our preemptive M and A strategy We continue to touch a number of those on our next up list But I think you have to admit that valuations and expectations are not favorable. On the sellers' end. So actionability of many of our targets on our list is going to be low. It's why we're very focused on flexible and opportunistic. I think we'll be there for some time. Jeff?

Yes. John's just right. I recover a lot of same ground. But I've talked before about the fact that we maintain a list and we stay in regular contact with a great number of people and a great number of places and situations. And it's certainly true that when you go through a period like we're in now where valuations are a little unclear, Obviously, sellers are disinclined to act in the absence of some other some other reason. And so generally, you see what we're just what we see and are expected to see, is a slightly lower level of activity and interest in transacting. The other side of that is when things start to clarify, sometimes that volume will pick up. And so we remain sort of attentive and poised to take advantage of things as they present themselves And, both we and sellers have more clarity on what things are worth and, we where, you know, where priorities may be manifesting themselves in action. On the second item around software, Agility and its importance and who do we see in some of those different markets markets. I think when you look at a customer, we've had eight years of experience on this now.

A customer is going to move to a new world, of moving into agile where they can spiral and continue to create new requirements and see capability deliver out to that field. And their hands are highly off of the actual software development. They're more on the actual order of requirements.

That's a new world and that requires customers to want to push that button, but they've always been afraid to push And when they push it, they want to do it with people who don't say they can do it. But they prove that you can do it. And the beauty of agile software development over the last eight years, we have almost a decade of metrics that show how quickly we can release these And also how can we prevent new errors from getting into the system because it changes by putting new capabilities in. That's not an easy thing. People talk about Agile development like it's a phrase. It's a whole ecosystem. It's millions and millions of dollars of CapEx investments. It's millions and millions of dollars of training software engineering folks. To make certain that they can not only deliver, but they can also talk to the customers about how they would move them down there. So are there other folks submitting bids in these areas?

Yes.

Do we like our last eight year win rate? Yes. So I think there's large market out there for us to continue to grow in these types of programs. Every market always has competitors coming into it. There's probably 35,000 competitors delivered to DoD today. So I'm not sure that adding six or seven more really make that different. Because I think the issue is around how can we get our customers more lethal and get upgrades to them in a more faster manner.

Operator, I think that's all the time we have.

There are no further questions at this time. With that, I will turn the call back to John Minkucci for final closing remarks.

Okay. Well, thanks, Calvin, and thank you for all of your help on today's call. Before we go, I did want to just recognize Rob's Spingarn, who covered this company, many of us within the sector for a number of decades. A fantastic analyst, always fair. We may not have always agreed, but he always had the investor view in mind. Want to wish his family well. We would like to thank everyone who dialed in or listened to the webcast for their participation. We know that many of you will have follow-up questions. So, Jeff McLaughlin, George Price, Jim Sullivan are going to be available after today's call. Please stay healthy, and I'll my best to you and your families. Operator, this concludes our call. Everyone, thank you, have a great day.

Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask that you please disconnect your lines.