CACI INTERNATIONAL INC /DE/ Q4 2026 earnings call

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. Let's move to slide two, 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 three, 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 produced 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. We 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 2026 are the latest evidence that our strategy is working. Slide five, please. Our strong fourth quarter performance capped another exceptional year, which we exceeded all of our expectations. For full year fiscal 2026, 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 2026 accomplishments that demonstrate the successful execution of our strategy, many of which are drivers of growth in fiscal 2027.

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 2027. This milestone also positions us for additional opportunities across the Department of Defense and International. Our SkyValor counter-UAS system was selected by the Department of Defense 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. We expanded our tactical EW footprint with initial orders from the U.S. Air Force, which provides for future Department of Defense growth.

These fiscal 2026 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 multi-source 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 counterspace program that combines adaptable software with our purpose-built mission hardware. Like Spectral was in EW, this is a statement win for CACI in counterspace, winning against traditional large defense primes.

Together with our U.S. Space Force RMT program, this new win positions us as a leader in next-generation counterspace technology, which is a significant opportunity for future growth. We also advanced to Phase 3 of the U.S. 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 U.S. 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 spaceflight. 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 U.S. Air Force and ongoing programs for the U.S. Army and Defense Intelligence Agency. 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 operation support every day. They're 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 where 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, who's 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 joins CACI as our EVP of Manufacturing, a critical function as we scale the production and delivery of technology across the company. Chris brings nearly three 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 to give us significant room to grow without depending on top-line budget expansion. Customers are also moving to acquire our technology faster through non-traditional procurement methods, including CSOs, OTAs, and FAR Part 12 commercial acquisitions. This shift plays directly to CACI's model of investing ahead of needs 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 2026 was more than double the values of fiscal 2024 and fiscal 2025 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 2027 based on our accomplishments in fiscal 2026. 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 2027, 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 three-year targets we established at our Investor Day in November 2024. Jeff will provide more detail on our guidance and our progress against our three-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 2026 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 in tax expense, demonstrating our robust operational execution and the continued strength of the business.

Fiscal 2026 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 2027. 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 half-term reduction in just one quarter. This is consistent with our track record of successfully de-leveraging 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 2027, we anticipate another year of strong financial performance. We expect revenue between $10.65 billion and $10.85 billion, representing growth of 11.3%-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 five 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-$33.86. Finally, we expect fiscal 2027 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 2027 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've provided additional details on the slide to assist with modeling, including information regarding timing trends we expect in fiscal 2027. 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 2025 and 2026 results and the fiscal 2027 outlook put us on track to substantially beat our three-year free cash flow target of $1.6 billion by 31%, generating free cash flow of at least $2.1 billion for the three-year period. This performance is driven by exceeding our three-year EBITDA margin target of mid-11%, now expected to be 11.9%-12%, and meeting or exceeding the high end of our three-year revenue target of high single-digit compound annual growth rate. These three-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 three-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 2027, we expect approximately 83% of revenue to come from existing programs, 9% from recompetes, and 8% from new business. Fiscal 2026 awards were $10 billion, representing a healthy mix of new work and strong recompete performance. The weighted average duration of these awards was nearly six 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 non-traditional 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 seven 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 two 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 2026 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 2027 outlook, substantial backlog, and strong market position give us confidence in continued growth, increasing free cash flow per share, and delivering additional shareholder value. 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 8th, 2024, when we held our Investor Day at the New York Stock Exchange and provided our three-year financial targets. It was three days after the presidential election and four 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, an extended slow award environment, numerous other dynamics. Against that backdrop, we remain focused on delivering the three-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 invest-ahead-of-need model, consistently executing, and all the while, taking our customer where we knew they needed to go. Now, over two years into our three-year targets, our results speak for themselves. We have delivered on our commitments, and our fiscal 2027 guidance puts us on track to outperform the three-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 macroenvironment 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.