CACI(CACI) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported revenue of $2.2 billion for the second quarter, reflecting a year-over-year growth of 5.7%, with 4.5% being organic growth [26] - EBITDA margin increased to 11.8%, a rise of 70 basis points year-over-year [26] - Free cash flow for the quarter was $138 million, driven by strong profitability and effective working capital management [26][28] - Adjusted diluted earnings per share reached $6.81, marking a 14% increase compared to the previous year [27] Business Line Data and Key Metrics Changes - The technology segment has grown to represent nearly 60% of total revenue, with significant contributions from electronic warfare and agile software development [9][13] - Electronic warfare alone generated approximately $2 billion in revenue, showcasing the company's leadership in this area [13] - The company won $1.4 billion in awards during the quarter, resulting in a book-to-bill ratio of 0.65 for the quarter and 1.3 on a trailing 12-month basis [12] Market Data and Key Metrics Changes - 90% of the company's revenue is derived from national security customers, with increasing visibility into funding streams from reconciliation funds [22][23] - The backlog increased by 3% year-over-year to $33 billion, with a funded backlog growth of 7% [34] - The company expects 95% of its revenue for fiscal year 2026 to come from existing programs, indicating strong operational performance [35] Company Strategy and Development Direction - The company emphasizes a strategy focused on expanding national security capabilities and investing ahead of customer needs [7][8] - Recent acquisitions, including ARKA, are part of a strategy to enhance technology-driven growth and expand into critical markets like space [13][39] - The company aims to maintain a flexible capital deployment strategy to support long-term growth and shareholder value [30][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate a dynamic operating environment and achieve long-term shareholder value [11][39] - The macro environment remains constructive, with good demand signals from customers despite some unevenness post-government shutdown [22] - The company raised its fiscal 2026 guidance, expecting revenue growth of 8%-10% and free cash flow of at least $725 million [23][31] Other Important Information - The company is strategically positioned to benefit from ongoing acquisition reforms and the shift towards firm-fixed-price contracts [72] - The acquisition of ARKA is expected to increase leverage to 4.3 times net debt to trailing 12-month EBITDA, but management is confident in returning to lower leverage levels post-acquisition [28][30] - The company is actively engaging in the counter-UAS market, which is expected to see significant growth due to increased funding and demand [90][92] Q&A Session Summary Question: Impact of higher U.S. military OPTEMPO on CACI - Management indicated that the current OPTEMPO is favorable for CACI, as it aligns with the demand for mission technology and software-defined solutions [45][46] Question: Pipeline and bid conversion expectations - Management acknowledged a slower ramp-up post-shutdown but expressed confidence in filling the pipeline and returning to pace [49][50] Question: Update on recent protest win - The JTMS protest was denied, allowing the company to ramp up on the program, which is expected to contribute to growth in 2027 and 2028 [58][59] Question: Reconciliation funding impact - Management noted that reconciliation funds are starting to flow, positively impacting border security programs and other areas [62][65] Question: Federal Acquisition Regulation reform - Management stated that the company is well-aligned with acquisition reforms and is positioned to support the government's shift towards more commercial models [68][72] Question: Scalability of ARCA acquisition - The acquisition of ARCA is expected to enhance the company's capabilities in intelligence services and align with long-term growth funding streams [78][82] Question: Addressable market from reconciliation bill - Management highlighted that reconciliation funding will significantly expand the addressable market, particularly in electronic warfare and counter-UAS [89][90] Question: Defense spending growth in 2027 - Management expressed cautious optimism regarding defense spending growth, emphasizing the company's strong market position regardless of budget fluctuations [114][116] Question: Margins and indirect costs - Management attributed strong margins to favorable technology mix and effective management of indirect costs during growth [126][129] Question: Pentagon's reaction to acquisition scale - Management indicated that there have been no barriers to smart acquisitions that support national security, and the company remains focused on driving shareholder value [131][132]