CACI INTERNATIONAL INC /DE/ Q4 2025 earnings call

Thanks, Amy, and good morning, everyone. I'm George Price, Senior Vice President of Investor Relations for CACI International. Thank you for joining us this morning. We are providing presentation slides, so let's move to slide two. 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 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 any part of any transcript of this call. I would also like to point out that our presentation will include a discussion of non-GAAP financial measures.

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

Thanks, George, and good morning, everyone. Thank you for joining us to discuss our Fourth Quarter and Fiscal Year 2025 results, as well as our Fiscal 2026 guidance. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Slide four, please. Before we begin, I'd 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, his critical government advisory roles, and his humble life stories. He contributed greatly to the growth and success of many organizations, including CACI International Inc, where he was a steadfast supporter of our strategy.

We extend our deepest condolences to Mike's family and are grateful for his invaluable contributions to our company. Slide five, please. CACI's strong Fourth Quarter performance closes out another great year and underscores the strength, differentiation, and resilience of our business. For the full year of Fiscal 2025, we delivered revenue growth of 16% on an underlying basis, EBITDA margin of 11.2%, free cash flow of $442 million, and free cash flow per share growth of over 16%. We deployed capital to acquire three strategic assets while also repurchasing $150 million of shares. We won $10 billion of contract awards, representing a book-to-bill ratio of 1.1 times. As we've discussed many times, we undertook a strategy years ago to become a more focused and differentiated company that was positioned to drive long-term growth and shareholder value in any environment.

Our exceptional results demonstrate the successful execution of that strategy. Slide six, please. The market trends you're increasingly seeing and hearing about today: speed, efficiency, lethality, software-based 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 need to develop and deliver high-value capabilities faster, more efficiently, and with greater flexibility. We are strategically positioned in enduring and well-funded areas that 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 four. First, the electromagnetic spectrum is a critical domain for national security and modern warfare. CACI 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 LAN 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 one 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 increase to $500 million supports the Army's decision to deploy our technology as the primary SIGINT EW system for all brigade combat teams.

Additionally, the Army announced plans to enhance our TLS LAN Pack 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 counter-UAS vehicle-mounted systems, which follows a previous award from Canada for our backpackable counter-UAS systems last year. We're also seeing increasing demand for our technology in support of U.S. border protection, and it's a key component of Golden Dome. Our technology leverages decades of experience and actual mission results delivered by our sensors in operation globally. In addition, the significant reconciliation funding associated with this critical administration priority will enable 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 UASs. Next, enterprise software modernization is another area where CACI is both well-aligned to the administration's 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, as well as request enterprise systems to be commercial-based with limited enhancement and integrations to other systems as required. Our initial IPS Army implementation consolidated 50 legacy systems into one modern, commercial-based enterprise system. Our performance on IPS Army put CACI in a strong position to consolidate an additional 40 systems that the Army has identified. It also positions CACI as the partner of choice for other DoD and intelligence customer community customers as they execute similar modernization and consolidation initiatives.

Finally, in Fiscal 2025, we also began executing on our NASA NCAPS program, where we are deploying a commercial, agile scale delivery model to standardize and centralize software development across NASA, enhancing efficiency, quality, and speed of delivery, a key customer and administration priority. Since November, our NCAPS team has met all key metrics related to system availability and is currently supporting nearly 900 applications and platforms. These examples of how CACI's software-based capabilities, 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. Slide seven, please.

Turning to the macro environment, we continue to see healthy customer demand and a strong pipeline of opportunities in our markets. Demand 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 efficiency, speed, and lethality. As I've discussed, these are all areas where CACI continues to be extremely well-positioned. This positive customer demand is now supported by the reconciliation funding contained in the One Big Beautiful Bill Act, which provides over $150 billion for defense, of which $25 billion is to fund Golden Dome, and 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, 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 2026 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, though it can sometimes influence the quarter-to-quarter timing of shorter cycle revenue like our software-defined technology. As you know, we are focused on the long term, and we continue to see significant opportunities across our large and growing addressable market. Slide eight, please. Looking ahead, our proven strategy, differentiation, execution, and resilience set the foundation for CACI International Inc to deliver another strong year. With that in mind, in Fiscal 2026, we expect revenue growth of nearly 8% at the midpoint, EBITDA margin in the mid-11% range, and free cash flow per share growth of over 60%. Jeff will provide additional details on our guidance shortly.

Our 2026 guidance reflects our continued business momentum, our robust pipeline, and the constructive macro environment, including passage of the reconciliation funding. It is consistent with the three-year financial targets we discussed at our Investor Day last November, which we remain highly confident in achieving. It 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.

Thank you, John. Good morning, everyone. Please turn to slide nine. 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. In the Fourth Quarter, we generated revenue of $2.3 billion, representing 13% year-over-year growth, with 5.3% of that being organic.

EBITDA 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 were 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 four days. We see an opportunity to lessen that impact over time as we migrate new business to our more standard terms. Slide 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 2025, we generated $8.6 billion 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 FY 2025 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 recompetes, allowed us to finish the year well ahead of our initial expectations. EBITDA 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. Fiscal 2025 adjusted diluted earnings per share were $26.48, up 26% from the prior year, despite an increase of $54 million in interest expense that was partially offset by a 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 2025 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 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. 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 2025 results and Fiscal 2026 guidance. This is a result not only of the successful conclusion of our outstanding audit, but also the passage of the One 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 EBITDA, and our demonstrated access to capital provide us with significant optionality. During the year, not only did we complete three strategic acquisitions, we also opportunistically repurchased $150 million of shares at an average price of $344. We also took an important step in refreshing and diversifying our debt stack with a high-yield bond offering we executed during the quarter. CACI closed on a $1 billion offering of 6.375% senior unsecured notes in 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 per share and shareholder value. Slide 12, please.

Now I'll provide some additional details on our Fiscal Year 2026 guidance. We expect revenue between $9.2 billion and $9.4 billion, which represents growth between 6.6% and 8.9%. EBITDA 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 $27.13 and $28.03. We expect free cash flow of at least $710 million, which equates to free cash flow per share of $31.84 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 2026 free cash flow conversion is slightly above 100% of the adjusted net income midpoint. This implies accomplishing our goal of returning to a 100% free cash flow conversion rate by the end of our three-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. To help you with your modeling, we provided additional details on the slide, including information regarding certain timing trends we expect in FY 2026. 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 recompetes. Our trailing 12 months book-to-bill ratio of 1.1 times reflects continued differentiation in the marketplace, and our backlog of more than $31 billion represents about three and a half years of annual revenue. The weighted average duration of awards that went into backlog in FY 2025 continues to exceed five years. Together, these metrics provide good visibility into the long-term strength and cash generation potential of our business. As we enter Fiscal Year 2026, we expect approximately 84% of our revenue to come from existing programs, 11% from recompetes, and 5% from new business. We continue to have a healthy pipeline of new opportunities.

We have $16 billion of bids under evaluation, 80% of which are for new business to CACI, and we expect to submit another $11 billion in bids over the next two quarters, with about 75% of that for new business. In summary, we delivered strong Fourth Quarter and Fiscal Year 2025 results during an uncertain environment, highlighting the resilience of our business and the effectiveness of our strategy. As we look to Fiscal 2026, 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. 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. The strategy we put in place years ago because we anticipated what we are seeing today. Our customers need to move faster, and we're helping them do just that with software-defined technology, investing ahead of needs, and six decades of secure performance and mission insights. This is how we built CACI to be resilient. This is how we're able to deliver strong 2025 results, issue robust Fiscal 2026 guidance, express confidence in achieving our three-year financial targets, and continue to drive growth in free cash flow per share and shareholder value. As is always the case, our success is driven by our employees' talent, their innovation, and their commitment.

To everyone on the CACI team, I am proud of what you do each and every day for our company and for our nation. Thank you. To our shareholders, I want to thank you for your continued support of CACI. With that, Amy, let's open the call for questions.

Morning, John and Jeff. Nice to be with you very much. Resulting in nice guidance. One of your peers this quarter mentioned they see a $70 billion pipeline over the next 12 months, with about three quarters of that being takeaway work. 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. How much of that is new programs launched by your customers versus takeaways from an incumbent?

Yeah, Scott, thanks. I'll start on this one. First of all, I don't look at us here at CACI International Inc as being a traditional government services company. That's why when I hear numbers of $80 billion or $90 billion, it's nothing that frightens us, and it's nothing that we aspire to. Frankly, we've got over a $250 billion addressable market. We serve seven markets. We're very, very focused, and we retool the entire company around understanding what is a value bid and what is not a value bid. The only way we deliver $1.6 billion of free cash flow over the next three years is that we're out there bidding things that matter in markets that matter, areas that we can differentiate in, where we're going to drive single-price, single-digit top-line growth and achieve mid to higher 11% margins.

As for our pipeline, the majority of that would be new work to CACI International Inc, and well over half of that is going to be new customer work as well. We are going to talk about the level of the recompetes we have. I think this year, I think Jeff shared we're around 11% of this year's revenue plan at the midpoint, and we're very confident on that. I also would say that the recompete work that we have, because the government is going through a number of personnel reductions and the contracting officer ranks continue to shrink, we're looking at achieving additional follow-on option year work where the customer will push recompetes down another one to two years. There's an awful lot there to unpack, but I would boil it back to absolute focus.

Our pipeline supports the growth rates we have in our FY 2026 plan and in our three-year 2025 through 2027 plan. Nothing in those comments gives us pause.

I would add to that. We've talked to many of you recently about the fact that an important part of our strategy is the idea of bidding less and winning more. We are focused on areas where we can bring differentiated capabilities to a position to provide compelling value. The size of the pipeline is important in as much as it supports our growth plans, but we're not on a path to sort of bid everything that we can get.

Okay. If I could ask a quick one on ITAS. There was news the ceiling had been reduced, I think, by about $700 million, but your book-to-bill was really good. I just want to make sure there wasn't any sort of price reduction, no potential impact on margin booking rates, or no debook backlog. Just any color on that?

Yeah, Scott, thanks. Look, ITAS is a 10-year program, and 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 to execute it extremely well. You'll get any 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 ceiling reduction from an estimated cost of a 10-year program. On a 10-year-long program, the Air Force can always program additional ceiling during any of the next eight years of execution as requirements change, which in this world they inevitably will change.

I'd also like folks to recall that when we won the ITAS job, we announced that in January of 2023, we booked $2 billion of total contract value. We didn't book $5.7 billion. The remainder of the ceiling, $5 billion, over our projection, still allows us for additional 150% growth over the 10-year period if it's fully spent. There's no backlog adjustments. There's no debooks. There's no impact to guidance. There's no reduction in revenue. There's no reduction in margin or any of our three-year targets. We have programs and task order cancellations where revenue is impacted from our current work and other moves that DOGE has driven, but that still stays at $1 million of reductions of revenue. Taking a ceiling down has nothing to do with our growth rates that we have published in our outstanding Fiscal Year 2026 plan that we're looking forward to achieving.

Yeah, I mean, you've covered it. There is zero impact to anything.