Q4 2025 CACI International Inc Earnings Call
Ladies and gentlemen, thank you for standing by. Welcome to the CACI International fourth quarter fiscal year 2025 earnings conference call.
Today's call is being recorded at this time. All lines are in a listen-only mode. And later, we will announce the opportunity for questions and instructions will be given at that time.
If you need any assistance during this call, please press star zero and someone will assist you. At this time, I would like to turn the conference call over to George price, senior vice, president of investor relations for caci international. Please go ahead sir.
Thanks, Amy, and good morning everyone. I'm George price, senior vice, president of industrial 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 facts. And as such constitute forward-looking statements under current law, these statements reflect our views as of today. And our 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 any part of 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.
You should not be considered in isolation or as a substitute for performance measures prepared in accordance with gaap.
Let's turn this 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, 25 results as well as our fiscal. 26 Guidance. With me this morning this Chef McLaughlin our Chief Financial Officer
side 4, please.
Before we begin, I would like to take a moment to acknowledge the recent passing of our chairman, Mike Daniels.
Mike was an exceptional leader, mentor and friend.
His vision, experience, and dedication greatly enriched CACI and the broader technology, government, and corporate communities.
Mike's unique perspective in governance was based on many valuable lessons.
And experiences throughout his renowned professional career, as critical government advisory roles and his humble life story.
He contributed greatly to the growth and success of many organizations, including caci, where he was a steadfast supporter of our strategy.
We extend our deepest condolences to my family and our grateful for his invaluable contributions to our company.
Slide 5, please.
Cci's, strong fourth quarter performance, closest out another, great year, and underscores strength, differentiation and resilience of our business.
With a full year of fiscal 25, we delivered Revenue growth of 16% on an underlying basis. Keep it down margin 11.2%.
Free cash flow is $442 million, with free cash flow per share growth of over 16%.
We deploy Capital to acquire 3 strategic assets. While also repurchasing 150 million of shares.
And we won 10 billion of contract Awards, representing a book to Bill of 1.1 times.
As we've discussed many times, we undertook a strategy years ago to become a more focused and differentiated company. It was positioned to drive long-term growth and shareholder value in any environment.
Our exceptional results, demonstrate the successful execution of that strategy.
Site 6, please.
the market trends, you're increasingly seen in hearing about today, speed efficiency, lethality software base capabilities, modernization,
These are all the result of the rapidly evolving environment around us.
Government budgets and procurement actions are adapting to reflect this reality, but we anticipated these changes years ago and invested ahead of need accordingly.
We are a leader in the use of software and investing ahead of customer needs to develop and deliver high value capabilities, faster more efficiently and with greater flexibility.
And we are strategically positioned in enduring and well-funded areas and align with our nation's most important National Security priorities.
That is why caci is so resilient so well positioned and already able to deliver in accordance with buying methods. The government has only recently started to more formally implement
Among the many examples, I could share here are 4.
First.
Electromagnetic spectrum is a critical domain for National Security and Modern Warfare.
Ceci today delivers differentiated, software-defined, commercially developed, and commercially sold technology to multiple customers who demand best-in-class capabilities.
Our investments ahead of customer.
Need led to the development of the TLs man pack which integrates signals intelligence and electronic warfare.
Collection processing, exploitation, and effects into a single software-defined system for the dismounted soldier.
It is 1 of the first successful rapid Fielding mid-tier Acquisitions for the Army because of caci's ability to rapidly prototype and deliver a Cutting Edge solution in record time.
The recent ceiling increased to 500 million supports the Army's decision to deploy our technology as the primary sig-int. Ew system for a brigade, combat teams.
Additionally, the Army announced plans to enhance our TLS manpack.
To field a vehicle mounted option demonstrating, the versatility of our technology.
Second our software-defined counter uas. Technology is addressing the increased demand for protection Against drones.
We were recently awarded a contract by the Canadian government to deliver county UAS vehicle-mounted systems, which follows a previous award from Canada for our backpackable country OS systems last year.
We're also seeing an increase in demand for our technology and support of US Border Protection and is a key component of building Dome.
Our technology, leverages Decades of experience and actual Mission results, delivered by our sensors and operation globally.
able procurements looking for proven ready now, technology that can defend across the electromagnetic spectrum with no or low, collateral defeats
Caci checks every box and more to defeat all levels of potentially threatening uas.
Next enterprise software modernization is another area where CCI is both well-aligned to Administration priorities and where we have demonstrated clear industry leadership.
Recently, the Army issued a memo highlighting the imperative for significant system consolidation across the service to enhance security, reduce costs, and improve efficiency. It also requests that enterprise systems be commercial-based with limited enhancements and integrations to other systems as required.
our initial its Army, implementation Consolidated, 50 Legacy systems into 1 modern commercial based enterprise system,
Our performance on its Army, put caci in a strong position to consolidate an additional 40 systems that the Army has identified.
And it also positions caci as the partner of choice for other DOD and intelligence customers Community customers as they execute similar modernization and consolidation initiatives.
Finally, in fiscal 25, we also began executing on our NASA, mcats program where we are, deploying a commercial agent scale, delivery model to standardized and centralized software development across NASA. Enhancing efficiency quality and speed of delivery, a key customer and administration priority
Since November our encaps team has met all key metrics related to system. Availability, and is currently supporting nearly 900 applications and platforms.
After Base. Keep
Commercial tools and processes and investment ahead of customer need are enabling critical National Security priorities to be addressed faster, and more efficiently to drive, reduced customer costs and Propel the growth of caci.
In other words, we are extremely well aligned to the environment we see today.
We don't need to transform. We're already here.
Site 7, please.
Turning to the macro environment, we continue to see healthy customer demand and a strong pipeline of opportunities in our markets.
To manage is being driven by today's Global geopolitical realities, as well as the administration's priorities including peace through strength, securing our borders and an increasing use of software to enhance efficiencies speed and lethality.
As I've discussed, these are all areas where caci continues to be extremely, well, positioned.
And this positive customer demand is Now supported by the reconciliation funding contained in the 1 big beautiful, bill act.
Which provides over 150 billion for defense of which 25 billion is to fund. Golden dome.
It also provides approximately 170 billion for border security.
This is a favorable development for our business, which generates 90% of its revenue from national security. Customers are solving the toughest challenges of the DoD, the intelligence community, and the Department of Homeland Security.
Looking forward. We are closely monitoring the government fiscal year. 26 budget process.
Should the new year start with a CR as most years? Do we are comfortable operating in that environment and typically do not see a material impact to our business.
So it can sometimes influence the quarter to quarter timing, a shorter cycle Revenue like our software defined technology.
But as you know, we are focused on the long term. We continue to see significant opportunities across our large, our large and growing addressable markets.
slide 8, please
Looking ahead, our proven strategy, differentiation, execution, and resilience.
Set the foundation for caci to deliver another strong year.
With that in mind in fiscal 26, we expect Revenue growth of nearly 8% at the midpoint.
Keep it on margin in the middle 11% range.
And free cash flow per share growth of over 60%.
Jeff will provide additional details on our guidance shortly.
Our 26 guidance. Reflects our continued business momentum, our robust Pipeline and the constructive macro environment, including passage of the reconciliation fund.
It is consistent with the 3 year Financial targets. We discussed at our investor day last November which we remain. Highly confident in achieving.
And this is aligned with our objectives of driving long-term growth and free cash flow per share, and shareholder value with that. I'll turn the call over to Jeff.
As John mentioned, we're very pleased with both our fourth quarter and fiscal year 2025 performance. Not only does the continued strong performance underscore the deliberate positioning of the portfolio, it's also very much in line with what we communicated to you throughout the year.
and the fourth quarter, we generated revenue of 2.3 billion dollars, representing 13% year-over-year growth with 5.3% of that being organic,
even though margin was 11.5% in the quarter, slightly above our expectations, and in line, with last year,
Fourth quarter, adjusted diluted earnings per share of 8.40 for 27% higher than a year ago.
Greater operating income a lower tax provision and a lower share count more than offset higher interest expense.
Notably the effective tax rate in the quarter, reflects a 28 million tax benefit resulting from the favorable resolution of an outstanding IRS R&D tax, credit audit.
This results in both a current period benefit for open tax years. But also gives us confidence to reduce our estimated tax liabilities prospectively.
I would also note that even without this tax benefit, we exceeded consensus estimates for the quarter.
Free cash flow of 139 million, for the quarter represents strong profitability and reflects Day sales outstanding or DSO of 56 days.
As we've mentioned, previously Azure is currently a modest headwind to DSO due to the billing terms and Milestones in Legacy contracts and is currently impacting our DSO by about 4 days.
We see an opportunity to lessen that impact over time, as we migrate new business, to our more standard terms.
5 10, please.
Turning to full year results, we delivered significant growth in revenue, EBITDA margin, and free cash flow.
Driven by strong customer demand for our differentiated technology and expertise, and by the exceptional execution of our team.
In fiscal year 25 we generated 8.6 billion dollars of Revenue. Representing just under 16% total growth and 10% organic growth. Both on an underlying basis.
You may recall that when we provided our initial fi25 guidance last year, we discussed a number of factors that could drive results toward the upper end of the range, our outperformance of these factors, particularly in regard to the faster ramp up of our Awards, stronger on contract growth and successfully defending our recompete.
Allowed us to finish the year. Well, ahead of our initial expectations.
Even though margin of 11.2% for the year was in line with our most recent guidance of low 11% range and represents an 80 basis point increase year-over-year.
Earnings per share were 26.48 up 26% from the prior year, despite an increase of 54 million in interest expense. It was partially offset by lower tax provision.
Delivering 26% year-over-year growth.
Despite this Factor underscores our robust operating execution, while positioning for future opportunities.
Operating cash flow for fiscal. 25 also reflects strong, profitability, and cash collections, driving free cash flow of 442 million, which represents a 16% increase in free cash flow per share.
I'll note that we did not receive the 40 million dollar tax refund related to Prior year tax method changes previously identified, as a risk, due to a delay associated with the extended negotiations on the IRS audit, I mentioned
But I would point out that adjusting for the delayed refund, we delivered free. Cash flow ahead of our expectations.
As is likely clear to you. At this point, there are several moving pieces related to our tax position in both fiscal, 25 results and fiscal, 26 guidance.
This is a result not only of the successful conclusion of our outstanding audit, but also the passage of the 1, big beautiful, bill act.
I'll note that we have included slide 16 in the appendix to provide greater specificity about the expense and cash flow impacts in both years to assist in your analysis.
Slide 11, please.
The healthy long-term cash flow. Characteristics of our business are modest leverage of 2.9 times. Net debt to trailing 12-month Eva dog.
And our demonstrated access to capital provides us with significant optionality.
Statistically repurchased, 150 million of shares at an average price of 344.
We also took an important step in refreshing and diversifying your debt. Stack with a high yield Bond offering, we executed during the quarter.
Caci closed on a 1 billion dollar offering of 6 and 38% senior unsecured notes, and a transaction that was substantially, oversubscribed increasing our flexibility and underscoring our ready access to Capital.
We remain. Well, positioned to continue to deploy capital in a flexible and opportunistic manner to drive long-term growth and free cash flow for share and shareholder value.
Slide 12, please.
Help provide some additional details on our fiscal year 26 guidance.
We expect revenue between 9.2 billion and 9.4 billion, which represents growth between 6.6% and 8.9%.
Even though margin is expected to be in the mid 11% range. Representing a 30 basis point increase at the midpoint
Adjusted. Net income is expected to be between 605 million and 625 million.
Which translates into adjusted diluted earnings per share of between 2713 and 2803.
We expect free cash flow of at least 710 million, which equates to free cash flow per share of $11.84 cents based on our full year, diluted share count, Assumption of 22.3 million shares
This implies free cash flow per share, growth of more than 60%.
I'd also like to point out that our free cash flow, guidance adjusted for the tax related. Cash benefits I mentioned earlier, means that our expected FY 26, free cash. Flow conversion is slightly above 100% of the adjusted net income Bitcoin.
This implies accomplishing our goal of returning to a 100% free cash flow conversion rate by the end of our 3-year targets a year early.
As we routinely say, we are focused on full-year results, rather than any particular quarter. Since a myriad of factors can skew quarterly trends.
But to help you with your modeling we provided additional details on the slide including information regarding certain timing Trends. We expect an FY 26.
And finally, I'd point out that our guidance does not contemplate any Acquisitions or share repurchases that might occur during the year.
Slide 13. Please
Turning to our forward indicators, our prospects continue to be strong. As John mentioned, fiscal year 2025 awards were $10 billion, with a healthy mix of new work and recompete.
Our trailing 12 months booked to Bill ratio of 1.1 times, reflects continued differentiation in the marketplace and our backlog of more than 31 billion dollars represents about 3 and a half years of annual revenue.
The weighted average duration of awards that went into backlog and FY2 continues to exceed 5 years.
Together, these metrics provide good. Visibility into the long-term strengths and cash, generation potential of our business.
As we enter fiscal year 26, we expect approximately 84% of our Revenue to come from existing programs 11% from recomp computes and 5% from new business.
We continue to have a healthy pipeline of New Opportunities. We have 16 billion dollars of bids under evaluation 80% of which are for new business to caci.
And we expect to submit another 1 billion dollars in bids over the next 2 quarters with about 75% of that for new business.
In summary we delivered strong fourth quarter and fiscal year 25 results during an uncertain environment. Highlighting, the resilience of our business and the effectiveness of our strategy.
As we look to fiscal 26, we expect another year of strong performance. We are winning and executing high value enduring work that supports increased free, cash flow per share, long-term growth, 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 that our strong performance is a result of intentional purposeful actions taken over many years through the successful implementation of our strategy. It's not by accident.
Caci to be resilient.
This is how we're able to deliver strong 25 Results issue. Robust fiscal 26. Guidance Express confidence in achieving our 3 year, Financial targets and continue to drive growth in free cash flow per share is your older value.
As is always the case our success is driven by our employees Talent, their Innovation and their commitment to everyone on the CCI team. I am proud of what you do each and every day for our company and for our nation,
Thank you.
And to our shareholders, I want to thank you for your continued support of CCI.
For that Amy. Let's open the call for questions.
Thank you. The floor is now open for questions if you have dialed in and would like to ask a question, please press star. Followed by the number 1 on your telephone keypad, to raise your hand and enter the queue.
If you would like to withdraw a question again, simply press star 1.
We do request for today's session that you please limit to 1 question and 1 follow-up again, star 1 to join the queue. We'll pause for just a moment to compile the Q&A roster.
Your first call comes from the line of Scott micas with Melius research. Your line is now open.
Morning, John and Jeff nice.
Guidance, um, 1 of your peers, this quarter mentioned. They see is 70 billion pipeline over the next 12 months. With about 3 quarters of that being takeaway work.
And when I think of government services companies pursuing, takeaway work, it kind of makes me nervous because to unseat the incumbent, you have to have a better solution or bid really aggressively on price.
You highlighted a $16 billion pipeline of submitted bids, and that 80% is for new business. But how much of that is new programs launched by your customers versus takeaways from an incumbent?
Yeah, Scott. Thanks. I'll uh, start on this 1. Um, I guess, first of all. Um, I had to look at us at here at CCI is being a traditional government services, um, company. Um, and and that's why I, when I hear numbers of 80 billion or 90 billion, um, it's nothing that frightens us and it's nothing that we aspire to frankly. We've got over 250 billion dollar, addressable Market, we serve 7 markets. We're very, very focused and we we retool the entire company around understanding. What is a valuable and what is not valued. Valued at the only way we deliver 1.7,
6 billion dollars of free cash flow over the next 3. 3 years is that we're out there bidding things that matter and markets that matter areas that we can differentiate in what we're going to drive single high single digit Topline growth.
and um uh, achieve mid to higher 11, 11% percent margins um
As for our pipeline there is the majority of that would be new work to ca caci and well over half of that is going to be new customer work as well.
Um,
you know, we, we are going to talk about the level of the E, competes, we have, I think this year, I think Jeff Cherry were around 11% of, um, District Revenue, plan, f, f f f, f the midpoint um, and we're very confident on that. Um, I also would say that the recompete work that we have,
Because the government is going through uh a number of personnel reductions and the Contracting officer ranks uh continue to shrink. We're looking at achieving these additional.
Uh follow on option here. Work with a customer will push rate competes down uh another 1 to 2, 2 years. So
Uh, you know, there's an awful lot there to unpack, but, you know, I would I would boil it back to absolute focus, our pipeline supports the growth rates we have in our FY 26 plan and in our 3 year 25 through 20 27 plan. So it nothing in those in those comments, give us. Give us pause. I I would add to that.
Talked to many of you.
Part of our strategy is the idea of bidding less and winning more. We are focused on areas where we can bring differentiated uh capabilities to a position to provide compelling value. And the size of the pipeline is important in as much as it supports our growth plans, but we're not uh, on a path to sort of bid everything that we can we can get
Had been reduced, I think by about 77 dollars but your book the bill was really good so just want to make sure. There wasn't any sort of price reduction know, potential impact on margin booking rates or no debt of backlog. Just any color on that.
Yes Scott, thanks. Um, um look.
It has is a 10 year program.
In the ceiling was reduced from $5.7 billion to $5 billion.
It doesn't change a thing for this company.
Our work is going to continue on this program. We continue executing extremely well, you know, giving the efficiencies that I have spoken about that we've already brought to this program. Customers are most likely looking to bank those savings now, and you all should hear that as a positive thing.
It's a silly reduction from an estimated cost of a 10-year program.
But on a 10-year-long program, your force can always program additional ceiling.
During any of the next 8 years of execution as requirements change, which in this world, they inevitably will change. Um, I'd also like folks to recall that when we won the it test job, we announced it in January of 2023, we booked 2 billion dollars of total contract value. We didn't book 5.7 billion.
The remainder of the ceiling.
5 billion dollars over our over our projections. Still allows us for additional 150% growth over the 10 year period, if it's fully spent, so there's no backlog adjustments. There's no D books, there's no impact to guidance, there's no reduction in Revenue. There's no reduction in margin or any of our 3 year targets.
So,
We, we have programs and task order cancellations where, uh, revenue is impacted from our, um, current work and other moves that Dosh is driven, uh, but that's still stays at $1 million.
Of reductions of Revenue. So taking a feeling down, has nothing to do with our growth rates that we have, uh, published in our outstanding fiscal year, 26, plan that we're looking forward to achieving. Yeah,
I mean you you covered it, there is zero impact to anything.
Thank you. Your next question comes from the line of Colin Canfield with caner. Your line is now open.
Hey, good morning, thank you for the question.
They got the guy to talk with it. Sounds like he's uh assuming Crescent in terms of the kind of uh, midpoint of the guide. So if we assume that the Senate moves quick like they are
And we get a budget in place faster. Is it fair to assume that you can hit the top end of that organic growth guidance?
and then as we think about next year, what are the sort of milestones and timing of those Milestones that you need to see to sign on for
Increased investor day growth targets. Thank you.
Okay. Tom Colin, thanks. Let me, let me cover the um, our 26 guidance range. Look, you know, we intentionally put out, low-end high-end guidance. And uh, as we've discussed many, many times, we have quite a uh, quite a robust
Robust process. Um, you know, looking at, uh, how we would, uh, post as uh, this current current current guidance. But we, we strive to not be conservative and not be aggressive. We contemplate a multitude of different scenarios and we do try to account for many factors that can come up and that's why we have this low in um, uh, high end. My first part of my answer to you, is I did the calculations last night. We actually have 92% of fiscal year, 26 ahead of us. Um, so and, and we're already talking about, you know, bursting through the ISS. Um, look at
The funniest slower and uneven. And we have a full year Crescent that that mostly Stakes us more towards the lower, the lower end.
If the gift coming to your 26, CR is shorter and the budget gets passed sooner and finally remains steady then. We can see us towards the higher end. Now, multitude of things can come up and happen as you all know who followed us for a an extremely long time. Uh, but we feel comfortable that we can support the, uh, current guidance that we have. At the end of the day, we're going to focus on what we can control but we're very confident in executing our strategy. We're going to talk about golden dome and other things I would imagine. Um, you know, the only thing we don't have covered frankly is that the government shuts down for several months
You want to talk about the second part of that? Yeah, I would only, uh, I'd only comment that uh, as John described there's 10 or so factors that go into the upper end of the range and a quicker budget and faster funding, uh, is certainly 1 of those. And we got a lot of uh you know we have a lot of a lot of the year ahead of us.
Got it and then if you think about um the implied margin progression to be invested in a Target. So I think folks are probably assuming know, 10 to 20 dips a year of expansion onwards to that middle 11%. But obviously the Delta this year is is probably, you know, more like 30-ish gifts. So not to direct that whole history. But but as we think about kind of the pathway of this company to Mid teams margins, how do we think about kind of the long term potential there and and where do you think about the levers between expertise and Technology to get to those type types of longer term margins?
Yeah, there's let's unpack that a little, there's 2 or 3 questions. I heard in there. The first 1 is, I'd refer you to the guidance slide in the deck where we talk about uh, about the progression in the year over time over the last several years. Uh several of our more impactful customers and programs have fallen into a rhythm uh that that gives us slightly attenuated margins in the first half of the year and then they uh they move up through the year.
you'll notice though that the revenue is a little bit more evenly distributed,
Uh meaning of course, done that you have lower margins in the first half, higher in the second. So we see in our current view of the year, a very similar distribution to that,
And uh and you see a similar distribution in cash flow as well. Where, uh, it's very back-end loaded. We have a disproportionate amount of our outflows in the early part of the year, uh, compensation expense prepaid, uh, expenses associated with certain programs, a number of things that just sort of structurally give us, uh, heavier second half uh, cash flow. So, I think, did I cover your whole question? Did I miss anything?
Uh, I think it's fair. Um you're probably going to wait till later in the year to follow up on kind of the the algorithm on on longer term. Mid te potential but uh appreciate the color as always and thank you, thank you for your question.
Thanks.
Thank you. Your next question comes from the line of Gavin Parsons with UBS your line is now open.
Thanks guys. Good morning.
Morning morning.
John I think you mentioned maybe fewer Contracting officers. Was hoping you could just talk a bit more about the award environment and if things are generally still moving more slowly than usual
Yeah, Gavin, Gavin, thanks, look. We're, we're, we've talked a lot about this, the last couple of quarters. Um,
My uh comment was really around the fact that we've seen some modest impacts, uh but nothing major. We have talked about some award decisions, you know, that are taking a little bit longer. Jeff mentioned that things that you should take 1 to, uh, 1 to 2 days are, you know, Taken 3 to 4 days around slower, invoice payment and uh, processing
But it also counts that with, you know, remember that awards are lumpy and in any environment, um, you know, we're not a business that I like to say, we don't live hand to Mi, we don't have to book an award by a certain date to badge flip, you know, 200 people to meet next quarter's Revenue numbers. Uh, we know how to operate in this environment and we seen it in the best. Um,
But what, as I mentioned earlier, I think as the procurement bandwidth gets a little tighter we believe that could result in a few of few other outcomes 1 being in the, the current work we have gets extended. So there's folks out there within 80 billion dollar pipeline that are looking for our work to you know come up on on our e compete soon. I think the
Appreciate the the color. And obviously, you know, you pointed out, it's lumpy but giving you had 2 quarters now of a record pipeline, any thoughts on what you could do for a book to bill for the year?
Well, we always strive to finish the year as something greater than 1. Um, I like what history tells us, um, and I'll actually, you know, sort of tag back to 1 of the earlier questions. We are very judicious.
Before we talk to a customer 1 or 2 or 3 years before, they're looking to get a system online as to whether we're going to bid that job or not, do we have a differentiated solution and then do we have the right business model which is going to involve, you know, period, point a period Point Investments and then the types of margins that we would expect for doing that type of type of work. So, um, you know, I, I actually believe that we're, we're in the right, we're in the right place. And, uh, we put so much time left of the RFP come out, coming out, and we have a pretty good idea as, as to, how this work will unfold. So, um, I hate to be predictive. But, uh, you know, my expectation of our entire team here is that we continue to grow backlog.
Um, and especially as, as Jeff's comments mentioned, you know, in 11 cents growth of funded backlog is really really crucial for us to achieve in our 26 plan.
Thanks, thank you.
Your next question comes from the line of Peter Armen with beard. Your line is down.
Thanks look. We're, uh, we're having great success with the with the techn technology. Uh, as you mentioned, there's a lot of strong demand from, uh, from across government.
Um, our technology is the most mature. Uh, we are uh, through the design and the produce producibility items. And we've, we've had to work through a uh, supply chain and Manufacturing issues that led to slower production, so we would have antic and anticipated.
Uh, but it's not an underlying technology issue, you know, we know, we have best-in-class terminals. We know we are, uh, us design developed and man, man. Manufactured, we have a full us bill of material. Uh, so there's a lot of, um, there's a lot of positive things there. We've also, um, announced that we're on Tron, 01 and 2. We have a lot of terminals been on Tron 3, but part of our, uh, our our overall phonics model is to really grow beyond that as well. Uh, you may have read that, we were selected uh as 1 of the few vendors to move on to phase 2 for the Enterprise space terminal. Uh, this is an adjustable market for up to 3 vendors where the customers looking to spend about 200, 300 million dollars per year. Uh, which also to your reference does not include any of the projected increase to the United States space, space force, and the constellations that they'll have to launch uh, due to the golden dome.
And issue initiative. So, um, I like what we're doing doing there. Uh, I like what we're uh, doing at at the Leo layer, uh, and then we've got a lot of programs to looking at beyond beyond Leo, as we, uh, work, uh, as we continue to work with, with the space force. So I like where we are, uh, today I would, you know, clearly wish that we are producing more, uh, terminals in volume, but we are moving up that curve. Well, uh, and the Investments that we're making in that part of our business.
Uh, are on track. Uh we are now uh investing um less and we are delivering more.
Appreciate that caller. And then just as a quick follow on, uh, we see some changes with, uh, some of the governmentwide, it acquisition contracts, you know, transitioning to individual agencies from to the GSA just, you know, any any impact, the way to you guys, I know that you, you're you're certainly more on the higher end of of things in it and maybe that doesn't impact you, but just any caller there. Be helpful. Thanks.
It programs, uh, are going to stay exactly where those are. We're already, uh, delivering great efficiencies there. Um, so there's a lot of language and there's a lot of uh um nuanced reports at the end of the day, our large Enterprise it. Um, programs are here to stay, um,
And we spent a lot of time looking at different variations of that across the dod and our Intel Community. Um, and we are delivering at a very high op Tempo. We are delivering savings to, um, customers in the United States Army in in United States, Air Force, and other areas. Uh, so I don't see, uh, any impact the small to no impact to some of that.
Um, some of that press around it going to a GSA, thanks Peter.
Thank you.
Your next question comes from the line of Seth siekman with JP Morgan. Your line is now open.
Okay. Uh, thanks very much and uh, good morning. Um, morning morning. Um, first wanted to ask just about the the Cadence of of Revenue and um, and growth through the year, it looks like the organic growth will start out kind of low and then, you know, move to, uh, above the midpoint in the second half of the year. Uh, or are there particular items that you're looking at that, that will accelerate the organic growth in the second half.
No, I think you're you're connecting the dots. Uh Seth the right way we continue to have uh accelerating growth.
Uh on the major programs that we've been talking about uh both technology and expertise um but focused Fox.
Beagle.
Itaz are all continuing to ramp uh and you'll see that as uh uh in the in the condition that you identify. And as uh as Azure and applied Insight uh anniversary here in the first half of the year also.
Okay, excellent. And then, um, maybe John, you talked a little bit earlier about about work with the Army and and C2. Um, the NGC initiative that's underway. Do you see that as, um, you know, providing any specific opportunities for the companies or, or any risks?
Yeah, so, uh, if you're talking about the Next Generation C2 program, we have a number of programs across the United States Army, we work on, uh, command and control. Uh, you know, we're still looking through what type of strategy? Uh, uh, we want there. It's going to be highly competitive. Uh, so I'm probably not going to share too much as to, uh, what our plans are are there. But, uh, it, we expect it, uh, just like everyone else across the Army, you know, looking to, uh, do things, uh, faster, better and cheaper and, uh, Drive reuse.
Uh we are fully supportive of what the Army's doing there and I'm sure we'll have more to uh share as we move forward.
Thanks for the question.
Your next question comes from the line of David's child with Barclays. Your line is now open.
Uh, morning. Uh, John, the, uh, 20% or so of your business, that's Fed Civ. Can you just remind us of your exposure there? And, you know, what you're seeing in terms of the, uh, budget outlook.
Yeah, thanks. So, uh, how we look at our business.
Is, uh, we look at it from DOD, Intel, and DHS, and that's about 90%. So the residual in the federal civilian area is 6%, uh, with a full 1% coming from our NASA and CAPS program. And, uh, you all heard during my prepared remarks, uh, teams doing an outstanding job are off to a very strong start. That leaves about 5% of our overall revenue, uh, within the federal civilian space. And that is very specific in, uh, very tight to the flag pole work. Uh, there are background investigations. There's work we do with, uh, the Department of Justice and the like, so really doesn't leave us a lot to have to watch, um, in the entire federal civilian space. That was an intentional strategic.
Change that we embarked on in 2019 uh to really get our portfolio more driven towards defense and Intel and slightly away from federal civilian. There's nothing wrong with the federal civilian work, but when we sat down and uh looked over the last 30 to 40 Years of budgets,
The, uh, cost efficiency dose, GSA actions. Uh, really hitting the federal civilian area area hard.
Uh, but as the CEO of a bubbly traded company who moved away from that market a number of years back, I really doesn't have any impact, so it doesn't really keep us up at night. The kind of changes that are that are happening in that part of our of our, um, business
Okay, that's great color. Thanks for that. And um,
Um, in terms of uh, the cash flow Outlook. Um, when does the, um,
The tax benefit that you're calling out the 40 million. When when do you expect that to hit in the year and then the section 174 uh benefit. Uh, does that stay with you beyond? Uh, fiscal 26. Thanks,
It does, let me let me start first with the, uh, with the 40 million tax benefit.
Uh refund you ought to think about that in the second half of the year. I think, probably our third quarter.
Um, but it could be the fourth but uh, certainly the second half administratively at this point, all the issues are resolved. This is just now, uh, sort of working its way through the through the bureaucracy, uh, but that takes a little bit of time and there are a couple of wickets for a refund of that size as you would imagine.
um,
for the second part of your question related to section 174. Uh, there is a continuing benefit. We identified 50 million this year. It's a similar amount next year. Uh, and then it starts to drop off a little bit. It's about 200 million a little over 200 million dollars in total
Um, many of you will be aware of the fact that there are a couple of options on ways to treat this, uh, for us relative to the effect. Uh, it has on the deductibility of other expenses, in particular interest. This was the more advantageous way, uh, for us to treat it. Uh, but it's very much an artifact of each company's sort of personal tax situation. So others might very reasonably, uh, you know, reach a conclusion that it makes sense to take it all at once. For us, looking across the whole, uh, tax strategy, it made sense to, uh, to do it the way we're doing it. But you ought to think about $50 million this year, which we've put in the guide, uh, and it's essentially the same amount next year. And then it starts to step down a little bit over the next ensuing three or so years.
Thank you. Your next question comes from the line of Jonathan Sigmund with stifle. Your line is now open.
Good morning, John, Jeff and George. Thanks for taking my question.
Good morning, John. You're welcome. You bet good morning.
So it's been a few months since the dod's directed on software acquisition which, which you highlighted really as a positive development during your last call.
And now the Army consolidation, uh, demonstrates, a a specific action at 1 military branch, which you're clear today on is an opportunity for the company.
So, uh, just wondering just is this potentially benefiting this year because the question we get a lot is just how meaningful is these changes that are coming at the government and uh house and the timing of these things and do you anticipate similar types of consolidation and other military branches? Thank you.
Yeah, John, thanks. Look, um, every time I hear the word "software," it puts a smile on my face, frankly. Um, look, the threats are changing continuously, and there's a lot of things that platform hardware can absolutely do. But we've been focused for a number of years, almost a decade now, on what software can do, and whether it's enterprise systems.
Uh, or its mission systems software has been very very crucial to the growth model of this company. So, I'm very much supportive of anything that the Army and other services do around software software modernization and the like,
But I also tell you the other side, uh, because there have been some announcements out there around um a consolidating and contracts to be able to get Enterprise level agreements. And the like I think there was some of that uh, Inc, out in the Press earlier this week. Um, you know, the purpose of those type of Agreements are really to consolidate contracts to get volume discounts, you know? So, licensed products, um, we're not so much on the license side John, we actually believe that we should be developing software to support the mission.
Not not have the mission conformed to the software that I'm actually trying to deliver. So anywhere where the government's looking to do more with less on the Enterprise side, on the mission side. I think the governor should continue to look for more software solutions. They are faster. They are better. They are cheaper. And they're also able to be modified and changed much more quickly and lethally uh as the threats change.
Thank you. Good luck for the, for the new year.
Thank you. Your next question comes from the line of Toby Somer with truist. Your line is now open.
Thanks, I wanted to get your perspective on your pipeline and, uh, in backlog from a through a prism in, in which maybe you could characterize, how much of it is new work to the market. Um, as opposed to new work to caci only and um, also the extent to which it, uh, your initiative to kind of move towards outcome based pricing where you're sort of spearheading something is represented within both of those buckets. Thank you.
Yeah, Toby thanks. I'll I'll try to provide some color at a macro level and I I I hate to I hate to guess on an open Line call. But at least give you some some level of guidance look um new work or somebody else's work, right? You know that that's come up a couple of times here. Um,
If CCI is bidding it it is work that maybe someone else has a, we believe we can do faster better and cheaper. And we've worked with that customer ahead of ahead of time while somebody else is supporting that customer to make sure that we're setting the table in a much more cost-effective Manner. And we're delivering much better solutions to that customer than they may be, uh, that that may be being delivered. Um, uh, to them today, look as we look at things, as concrete as building out, we look at going to go and do we look at other other things that percentage of new new work is going to continue to climb? Do we do we track that internally know
Um, because to us, we're either bringing new solutions to a customer or we're bringing new solutions to our customer that are better than what they're currently struggling through today. So there are plenty of examples in the agile software development area, where customers take work they're doing with others, and they want to modernize that and they want to move to an edgeless software development model. Yeah, that's going to be work taken from others, but it's a brand new experience for our customer, and those are both getting equal funding. So we're all about taking software and actually moving.
Our customers forward. Whether it's, you know, contractually brand new work that the customer thought of or its Concepts that we've worked them through by investing. Ahead of customer need because every time we see a customer who's buying quote unquote, the old the old way.
We get to walk in there and show them the art of the possible. So the fact that comes out is you know, new work to to us. It's the same having said that and today it's probably
It's probably Toby's 60407030 around new new work. Uh, and and and then uh, the uh, 40 to 30 40% is on the quote unquote, the old style takeaway work, uh, but I think those terms, the fact that we're not a traditional government services company, we don't talk about direct labor and you know, takeaways from others. This Market has completely changed and, and, and if the market hasn't we sure as hell have, uh, because we're out there looking at ways that we're, uh, closer to the mission,
Go together. Pretty pretty nicely in our view.
Your next question comes from the line of Louie DePalma with William Blair your line is now open.
John Jeff and George, good morning.
Morning, Louis.
um,
John you discussed how Army plans to deploy a a mounted variant of of TLS manpack. As opposed to the current dismounted version that being fielded to the brigades is the mounted development and rollout included in the recent 400 million dollar contract modification that you announced and
should we be on the lookout for, for another upsizing beyond the current 500 million dollar contract and
And related to this, how many vehicles is Manpack applicable for?
okay, uh, let me let me unpack unpack that, um, uh, easy answer first, uh, it is not part of the 500 million dollar, um,
TLS manag program today.
Uh just as the Canadians took delivery of a handheld solution last year as it pertains to counter uas. And other looking at a mobile variant, the arm is doing that same as you look across, um, the ew, sigan space. So, uh, you know, this is based on a lot of the, uh, CCI commercial companies that we have and that we've we've purchased over the past number of years. Uh, it suffered a fine capabilities,
Uh, that that needed to be there to grow as the US military requirements evolved. So it's a hundred million dollar program but actually started from a $1 million dollar oota and I'll relate back to Toby's question. You know, if you really want to talk about quick reaction performance-based that OTA was a million dollar otaa with with inside of a year we put the prototype in place. Took it out to the uh, field worked with the users made all the software modifications, and then began to delivering that. So, um,
it is the TLs manag program is a standalone program. It is there purely to deliver deliver deliver. Uh, manpack Solutions. Now, the fact that we talk about that were software based this is a perfect real life example, of why solutions that are software based can be moved to other. Um, areas there are current providers today. Looking at, how do they provide? Um, singing and ew at the platform level. So think tanks. Think of
Think Apaches think every other uh mobile asset that a customer has we've been doing right along, invest ahead of customer need to show. If I can put this software on a smaller form factor. I could probably put it in a, in a rack-mounted version or a single chassis version and have that sit inside of an Apache, sit inside of a tank sit inside of of of any other movie, V V vehicle there. And I have to tell you the minute that so, our early delivery is making it out to the field.
Every party gets to the dismounted position by riding on something which is mounted.
Okay, so it's a pretty simple step and repeat to where we're going. That would be brand brand, brand, brand new work. So, yes. We're all be on the lookout for something that, uh, you know, may come along in 26, maybe it's in, in the next budget cycle. Uh, but that is definitely a drive to the United States Army today. And I would, uh,
Be remiss if I didn't say that. It's the other services. We're looking at the same type of stuff in your E.
Thank you. You're welcome. Thank you, operator. I think we have time for 1 more question.
All right. Great. Your final question comes from Mariana, Perez. Mora with Bank of America, your line is now open.
Morning, that's first question, man. Um, good morning.
So my question is gonna be about and I know it's probably too early but your physical 27 Outlook that you gave for like 9 months ago. If I look at ebida margin you are at the mid 11% a year earlier you do have some tax benefits both from like section 174. But also from this like new ongoing benefit that you're going to have from like the taxes and the revenue growth is
Quite in line or even like exceeding, your expectations.
Uh, if I do that Math free cash flow should be like the cumulative free cash flow for the 3 years, should be more like 1.8 versus the 1.6. Uh, break level that you gave us not so long ago. How are you thinking about that?
I'll start in John, John may want to put a put a finishing flourish on this, but first of all I'd uh point out that we gave 3 year targets. We didn't give uh FY, 27 specifically was a 3 year number and you correctly, note that there are several positive developments, uh, that we were unaware of when we developed the 3 year targets. We are, uh, specifically not undertaking to update them. Uh, we're happy to talk about it, but you mentioned several points that are positive developments, uh, since we developed them and you would reasonably, uh, expect them to improve for things like, uh, like the section 174. So, um, you know, we said that we're increasingly confident in our ability to deliver on the 3-year targets and you're seeing, uh, you're seeing some of that performance now. Uh, and, and
um, you know, I would not, um,
I would, I would encourage you to not infer from that that there's some slowing in 27.
Hey look, I'll also add, I think it's absolutely refreshing that on this. Call in 2025, we're talking about generating over a 3 year period 1.6 billion dollars of free cash flow if not greater with high single digit Topline growth and um uh driving our margins to where they are today. If not, if not higher, uh, that has been the absolute focus of the leadership team in this company, for a number of years, is to make certain, we're getting involved in markets that matter.
Not only to our nation, but to our shareholders.
And I could not be happier that we're sort of talking this 1.6 yearly 1.8 or is it 2 or is it 2.2? You know, I put those 3 year targets out there as a marker to make absolutely certain that as we continue to explain the fact that the government services company. The cacy caci was for the first 50 years is not the kind of services company. We are the next after years. In fact, we talk about us, we can, we can use Mission Tech. We can talk about defense Tech whatever, wherever you want to go with that. But all of that drives better solutions for this nation. And at the same time, because we invest ahead of customer need and the Contracting V. Vehicles are changing OTAs csos, uh, um, FM ffp that we believe. And we are well positioned to do much more. Um, bottom line generating work that gives us just outstanding free cash flow and the optionality.
It comes with delivering more free cash flow as we return uh, uh, Capital to our shareholders. And we also return it to our customers in ways of investing added customer indeed. So, um, really appreciate that question.
Thank you and 1. Final question coming from the line of Sheila.
With Jeffrey.
Your line is now open.
At the top 3, all kinds of cyber provider. Yeah, operator I I I think we're ready to
I don't hear anyone. I think we need to call.
Thanks Amy. And
thank you for your help on.
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, mcglaughlin towards price, and Jim Sullivan are available after today's call stay healthy, and all my best to you and your families. This concludes our call. Thank you, and have a great day.
Thank you. That does conclude today's conference call, you may now disconnect