On Thursday, CACI International (NYSE:CACI) discussed third-quarter financial results during its earnings call. The full transcript is provided below.
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The full earnings call is available at https://events.q4inc.com/attendee/226577560
Summary
CACI International reported third-quarter revenue of $2.4 billion, marking an 8.5% year-over-year increase, with an EBITDA margin of 12.3% and free cash flow of $221 million.
The company acquired ARCA, a technology firm specializing in space domain national security, enhancing capabilities in space-based imaging and AI processing.
CACI International raised its fiscal 2026 revenue and EBITDA margin guidance due to the ARCA acquisition and strong organic performance.
The company secured $2.2 billion in awards this quarter, with a book-to-bill ratio of 0.9 times for the quarter and 1.2 times on a trailing twelve-month basis, despite government shutdown impacts.
Future outlook includes significant growth opportunities in electronic warfare, counter-UAS, and space domains, backed by a constructive macro environment and a $33.4 billion backlog.
Full Transcript
OPERATOR
Ladies and gentlemen, thank you for standing by. Welcome to CACI International International third quarter fiscal year 2026 earnings conference call. Today’s call is being recorded currently. All lines are in a listen only mode. Later we will announce the opportunity for questions and instructions will be given at that time. If you should need assistance during this call, please press star zero and someone will help you. At this time, I would like to turn the conference call over over to George Price, Senior Vice President of Investor Relations for CACI International. Please go ahead, sir.
George Price (Senior Vice President of Investor Relations)
Thanks, Jeannie. Good morning everyone. I’m George Price, Senior Vice President of Investor Relations for CACI International. Thank you for joining us this morning. We are providing presentation slides, so let’s move to slide 2. There will be statements in this call that do not address historical fact and as such constitute forward looking statements under current law. These statements reflect our views as of today and are subject to important factors that could cause our actual results to differ materially from anticipated. Those factors are listed at the bottom of last night’s press release and are described in the company’s SEC filings. Our safe harbor statement is included on this exhibit and should be incorporated as part of any transcript of this call. I would also like to point out that our presentation will include discussion of non-GAAP financial measures. These should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Let’s turn to Slide 3 please. To open our discussion this morning, here’s John Menguchi, President and Chief Executive Officer of CACI International. John. Thanks, George. And good morning everyone. Thank you for joining us to discuss our third quarter fiscal year 2026 results as well as our updated fiscal 2026 guidance. With me this morning is Jeff McLaughlin, our Chief Financial Officer. Move to Slide 4, please. Before turning to our results, I want to start by reminding everyone the CACI is a fundamentally different company than it was 10 or even five years ago. This evolution is the result of a clear and consistent strategy, intentional leadership and disciplined execution over many years. It did not happen by accident. The key elements of our strategy are. First, we operate in seven markets where we possess decades of deep mission knowledge. We know and understand what our customers need. Second, we focus on enduring priorities. We are a national security company that targets narrow, deep funding streams. Third, we’re a software defined technology leader. We differentiate ourselves by using software, excuse me, to address critical needs with the speed, agility and efficiency our customers demand. Fourth, we invest ahead of customer need to show the art of the possible without waiting for requirements. And fifth, we deploy capital in a flexible and opportunistic manner to create value for our customers and our shareholders. Executing this strategy has enabled us to expand our portfolio, increase free cash flow per share and generate additional shareholder value. Slide 5 Please Turning to our third quarter results, we delivered another quarter of outstanding performance on our way to another exceptional year. Revenue for the quarter was 2.4 billion, up 8.5% year over year. We also generated a strong ebitda margin of 12.3% and robust free cash flow of 221 million. In addition, we won $2.2 billion of awards which represents a book to bill of 0.9 times for the quarter and 1.2 times on a trailing twelve month basis. These awards were driven by our exceptionally strong recompete performance, an important indicator of customer confidence and a key enabler of long term growth. While award activity improved in the quarter, it is not yet fully recovered from the multiple government shutdowns and acquisition organization changes. As we said before, quarterly awards can be lumpy, but we continue to have excellent visibility, a strong pipeline and see a very constructive macro environment. Our results continue to reinforce the CACI is differentiated and well positioned. With that said, we’re raising our fiscal 26 revenue and EBITDA margin guidance driven by the addition of ARCA and the strength of our organic margin performance. Slide 6 please on that note, let’s discuss our recent acquisition in a bit more detail. During the third quarter, we closed the acquisition of arca, a leading technology company focused on national security missions in the space domain. ARCA brings exquisite space based imaging sensor technology with high technical barriers to entry, agentic AI based ground processing software and deep customer relationships built over decades of strong performance. ARCA is a powerful addition to caci. We now have sensors deployed across all domains. We can provide multi source actionable intelligence and bring operationalized agentic AI capabilities to classified customers across the national security apparatus. In fact, we already have agentic AI efforts underway with our shared customer footprint and we see significant additional cross selling opportunities. ARCA positions us for opportunities including Golden Dome, Indo paytime support, future ground architecture and space superiority missions. To fully leverage our combined capabilities, we have integrated ARCA and ceci’s existing space portfolio under leadership of arca’s former CEO. ARCA exemplifies the type of acquisition that investors should want us to make wide competitive moat, unique capabilities and technology, exceptional execution history and strong financial performance and all in one of the most strategically important domains in national security. It’s our flexible and opportunistic capital deployment strategy in action positioning CACI to drive long term growth and free cash flow per share and additional shareholder value. Slide 7 Please CACI is a national security company that focus continues to be a powerful differentiator in the marketplace. We have more than 1400 people embedded in mission spaces across all combatant commands performing planning, intelligence, analysis, cyber and operational support. We are involved in every operational headline you read as well as the many operations you will never read about. This proximity to mission gives us an advantage that is hard to replicate. We understand the mission and the threats because we see them every day. This creates a feedback loop that sharpens our business development, strengthens our reputation for execution and informs on decision making allowing us to confidently invest ahead of customer need. These are meaningful discriminators that create competitive advantage and help drive our financial performance. For example, CACI recently received multi year extensions on several contracts in critical mission focused areas as a direct result of our exceptional delivery. Slide 8 please Our strategic investments informed by the mission proximity I just described have positioned CCI as a leader in software defined technology and key war fighting domains that are receiving significant attention and funding from our customers and these investments also demonstrate a repeatable strategy that will drive future growth and shareholder value. A great example is our Spectral program where we are developing the next generation of shipboard signals intelligence and electronic warfare capabilities for the Navy Surface Combatant ships. We initially invested ahead of customer need to show them the art of the possible and to demonstrate our differentiated solution during the bid phase. Now we are actively investing ahead of need during execution to accelerate delivery of capabilities to the field, a key ask of the current administration. During the quarter the program continued to progress as we achieved milestone C marking the start of Spectro’s low rate initial production and deployment phase. This is a defining step towards ramping up the program and and delivering this critical EW technology to the fleet. And because Spectral is built using software defined technology with open architectures, another key administration priority, we see significant additional opportunities across the Department of War and internationally. Another example is in Counter UAS where we are seeing accelerating demand, increasing orders and a growing pipeline driven by Merlin, our commercially sold counter UAS system. Merlin leverages nearly two decades of our counter UAS investments and work across the Department of War to deliver a system to seize further detects more, provides more critical decision making time and delivers more effective low to no collateral damage capabilities than any other available system. Merlin is a software defined system that can be rapidly updated and provides a nearly unlimited magazine of economically sustainable non kinetic effects including unique cellular detection and defeat capabilities from concept to deployment in under a year. We are not only providing the Department of War with the capabilities they are asking for, we are also delivering them at the speed demanded. We are proving this in real time with the Merlin system that our customers deployed on the southern border. A final example is our strong positioning for Golden Dell. CSCI has been investing in developing and building many of the capabilities this mission requires across many critical layers. First are our counter UAS systems. Defending the homeland is not just about ballistic or hypersonic threats, it’s also increasingly about threats from unmanned aircraft systems. CCI’s technology is ideally suited for this mission where extended detection range provides critical time for decision making and low to no collateral damage effects are critically important for mission success. Second are our exquisite left of launch capabilities. These include sensitive cyber activities as well as our worldwide set of embedded sensors which can detect and defeat threats before they are deployed. And third is our space based sensing. ARCA significantly expands our capabilities in the space domain, including technologies such as hyperspectral imaging for missile detection. Spectral Merlin and Golden Dome are three significant proof points of how CACI creates value for our customers and our shareholders. They demonstrate where we identified an enduring need early, invested well ahead of award and had established differentiated positions through years of disciplined execution and continued innovation. Slide 9 please. Turning to the macro environment, we continue to see constructive budgets and demand signals. While the government fiscal year 27 budget is still evolving, the proposed spending looks very positive in many key areas for CACI including electronic warfare and counter UAS space, especially classified space and counter space programs, C5, ISR and IT modernization, including AI and the digital backbone. We are in the right markets that are aligned to enduring well funded priorities. We’re providing the right capabilities to address our national security customers most pressing needs. And with that I’ll turn the call over to Jeff.
John Menguchi (President and Chief Executive Officer)
Thank you John and good morning everyone. Please turn to Slide 10. As John mentioned, we’re very pleased with our third quarter performance despite some modest disruption from the ongoing DHS shutdown. Our revenue and awards reflect our strong market position in a recovering but still sluggish award environment, while our strong margins and cash flow demonstrate the high value differentiated characteristics of our offerings and our operational excellence. In the third quarter we generated revenue of $2.4 billion representing 8.5% year over year growth, of which 6.8% was organic. Despite the modest DHS impacts that I mentioned, we still saw the expected acceleration in organic growth moving into the second half of the year. EBITDA margin of 12.3% in the quarter represents a year over year increase of 60 basis points even after absorbing $17 million of ARCA transaction costs. Adjusting for these expenses, our strong third quarter profitability was driven primarily by overall mix and Strong program execution. Third quarter adjusted diluted earnings per share of $7.27 were 17% higher than a year ago. Greater operating income along with a lower share count more than offset higher interest expense including $11 million related to ARCA, a higher income tax provision and the transaction costs I mentioned earlier. Finally, we delivered healthy free cash flow of $221 million in the quarter driven by strong profitability and good working capital management. Third quarter cash flow was reduced by approximately $20 million due to transaction costs and other acquisition related financing fees. Days sales outstanding or DSO were 55 days, 2 days lower than the prior quarter. Slide 11 please turning to our balance sheet and capital structure, our pro forma leverage at the end of Q3 was was 4.2 times net debt to trailing 12 month EBITDA, slightly better than the expectation we provided when we announced the ARCA acquisition. We continue to expect leverage to return to the low 3s within 6/4 based on the strong cash flow characteristics of our business. I’ll remind you again that we have a strong track record of successfully and quickly deleveraging after major acquisitions, which underscores our consistent financial performance, disciplined capital deployment and demonstrated access to capital. As we have previously indicated, ARCA is accretive to both growth and margins. The acquisition of ARCA is just the latest example of our flexible and opportunistic capital deployment strategy and the evolution of our portfolio which positions CACI to deliver long term growth and free cash flow per share and and additional shareholder value. Slide 12 Please we’re pleased to increase our fiscal 26 revenue and EBITDA margin guidance driven by the addition of ARCA and the strength of our organic margin performance. You’ll notice on the right hand side of the chart we provided a breakdown of costs associated with an acquisition. For transparency and your modeling purposes. We now expect revenue to be between 9.5 and $9.6 billion. This represents total growth of 10.1% to 11.3% which includes about 3.5 points of growth from acquisitions including $150 million from ARCA. We’re increasing our fiscal 26 EBITDA margin to the 11.8% to 11.9% range, underscoring our strong execution and evolving portfolio as well as contributions from arca. Our full year margin outlook includes the impact of approximately $22 million of transaction costs related to the acquisition. Our updated FY26 adjusted net income guidance is between 615 and $630 million. Adjusted net income reflects the after tax impact of approximately $60 million of pre tax transaction costs and higher interest expense, largely offset by stronger organic margin and arca’s earnings contribution. This yields full year adjusted eps guidance of between 2770 and 2838 per share which represents growth of 5 to 7% even as we absorb these costs. And finally, we are reaffirming our free cash flow guidance of at least $725 million even after absorbing nearly $50 million of transaction costs, interest expense and an increased investment in capital expenditures. As we consistently say, we see free cash flow per share as the ultimate value creation Metric and our FY26 guidance represents 65% growth in free cash flow per share over FY25. Slide 13 please turning to forward indicators all metrics continue to provide good long term visibility into the strength of our business. Our third quarter book to bill of 0.9 times and our trailing twelve month book to bill of 1.2 times reflect good performance in the marketplace. Even with the multiple shutdowns and slow rebound in award decisions. The trailing 12 month weighted average duration of our awards in Q3 continued to be just over six years. Our total backlog of $33.4 billion increased 6% year over year while our funded backlog increased 19% over the same period. Both metrics reflect healthy organic growth even when normalizing for Arca’s contribution of $835 million to total backlog and 422 million to funded backlog. Additionally, Arca has another $2 billion of non competitive franchise programs from which we expect to recognize revenue over time but that don’t yet meet the regulatory criteria to be added to backlog for fiscal year 26. We now expect 98% of our revenue to come from existing programs with 1% each from recompetes and new business. Progress on these metrics reflects our continued strong operational performance and yields increased confidence in our outlook as we close out the year. In terms of our pipeline, we have more than $4 billion of bids under evaluation, over 80% of which are for new business to CACI. We expect to submit another $22 billion in bids over the next two quarters with over 75% of those being for new business. We continue to have excellent visibility, are well positioned in a very …
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