CACI - NYSE

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International First Quarter Fiscal Year 2026 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] 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, Tina, 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 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 is 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 first quarter fiscal year '26 results. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. Slide 4, please. CACI's strong first quarter results are a great start to our fiscal year 2026. We delivered free cash flow of $143 million, driven by revenue growth of 11% and an EBITDA margin of 11.7%. We also won $5 billion of contract awards, which represents a book-to-bill of 2.2x for the quarter and 1.3x on a trailing 12-month basis. Over half of our awards were for new business to CACI, and we also continued our excellent track record of winning recompetes and securing sole-source extensions. Our first quarter performance gives us increased confidence in achieving both our full year guidance, which we are reaffirming and our 3-year financial targets. Jeff will provide additional details shortly. Slide 5, please. Turning to the macro environment. The federal government continues limited operations under a shutdown. However, our business remains resilient given our national security focus with most of our work funded and deemed essential. Looking beyond the shutdown, we continue to see enduring needs, good demand signals from our customers and prospects for a healthy funding environment for national security priorities. In addition, we are starting to see early indications of how reconciliation funds available to DoD and DHS may be used. For DHS, the focus is likely to include modernization and border security, which we expect will benefit programs like BEAGLE and drive demand for our Counter-UAS technology. For DoD, in addition to areas we have previously discussed, we also expect reconciliation funds, including those for Golden Dome, will benefit some of our intelligence programs as we focus on left-of-launch situational awareness. Our ability to reaffirm our guidance and deliver on our commitments even in the face of a government shutdown demonstrates the resilience of our business and as a result of deliberate choices and investments we have made over many years. Our actions have positioned CACI for success in any environment, including this one. Slide 6, please. Let me discuss some examples of awards, program performance and investments that highlight our competitive differentiation in several areas. First, in Counter-UAS escalating drone threats and increasing incursions globally are driving strong demand for our capabilities, including from our international partners. In fact, during the first quarter, we received a follow-on order from the Canadian government for additional manpack software-defined Counter-UAS systems. This follows the initial order we received in fiscal '24 as well as in order for vehicle-mounted Counter-UAS systems were received from Canada last quarter. But the threat is no longer just abroad, it is here at home as well, and the administration has made it clear that the defense of the homeland is the top national security priority. That's why CACI has been investing ahead of need to develop Merlin, our latest Counter-UAS detect and defeat system. Merlin's Counter-UAS capabilities are extremely differentiated and particularly well suited for defending the homeland for many reasons. It is based on technology that has been operationally proven across the globe for years, focused on real missions, real threats and delivering real kills with non-kinetic capabilities that include low to no collateral damage defeat modes with a detection range of up to 75 kilometers and providing industry-leading wireless capabilities that address Counter-UAS threats utilizing cellular networks. Our Merlin system has outperformed competitors in several government-sponsored demonstrations against a wide range of UAS systems utilizing our software-defined technology, tipping and queuing a third-party kinetic system to defeat a drone and also integrating with [indiscernible] platform, which was recently selected as the Army's Counter UAS fire control system. These results are what is driving strong customer interest, both in the U.S. and abroad. A second area is Counter-Space. Modernizing our nation's capabilities is crucial to address peer threats in the increasingly contested space domain. We are seeing increasing customer interest and demand for CACI's capabilities. This includes a $240 million award in the first quarter to sustain and modernize the Tactical Integrated Ground Suite (sic) [ Support ] or TIGS Counter-Space program for the Army. Additionally, a few days after quarter end, we received an initial production order from the U.S. Space Force for a Remote Modular Terminal or RMT. RMT is a broadband counter satellite electronic warfare system that leverages our existing Counter-UAS software to provide our customers with enhanced counter space capabilities. Both TIGS and RMT are great examples of how we can leverage our differentiated software-defined technology and our strong past performance to help war fighters execute critical missions across the entire electromagnetic spectrum. Slide 7, please. Third is network modernization, a foundational dependency for many critical national security priorities. Without modernized networks, DoD priorities like NGC2 and [ Gen C2 ] either won't be as effective or just won't be possible. Given this reality and the administration's focus on modernization across the government, we continue to see good demand and a strong pipeline of network modernization opportunities. For example, Air Force recently awarded CACI task orders #2 and #3, on the base infrastructure modernization program, previously known as EITaaS Wave 2. CACI will modernize networks for the U.S. Indo-Pacific Command and the U.S. Space Force, ensuring more efficient and more secure network operations. Together, these task orders represent approximately $400 million of awards this quarter. Additionally, we continue to execute on our existing network modernization programs. On our SIPRMOD program, we received NSA authorization for use of our software-defined CSfC technology, allowing for the processing to classify data through our framework. This accelerates our ability to test and field devices on the network and positions us to make the network operational in 2026. The final area is digital application modernization. Our customers were seeking greater efficiency, effectiveness and speed of delivery as they modernize software applications. CACI continues to lead the industry with our use of commercial agile software development processes and DevSecOps. For example, our BEAGEL program for Customs and Border Protection is one of the largest agile software development programs in the federal government. Our exceptional performance on this program recently yielded us our second 1-year contract expansion, a strong indication of the value we deliver to CBP and a further indication of how well positioned CACI is with our customer base. The combination of our leading agile development capabilities and strong past performance has enabled us to win the $1.6 billion JTMS award this quarter. The Joint Transportation Management System is [ TransCom's ] enterprise modernization initiative to unify end-to-end transportation and financial processes across the DoD on a commercial software platform. CACI will leverage our agile software development and AI capabilities, combined with SAP's S/4HANA off-the-shelf commercial platform to significantly improve visibility, collaboration and [ auditability ] for the command. It's yet another example of the federal government selecting CACI to modernize at scale to enable mission success, while generating long-term value for the government and taxpayers. It is also important to note that as we continue to win in the marketplace, we also continue to invest ahead of customer need and our industry-leading agile capabilities to ensure that CACI remains well positioned to win and execute these critical modernization initiatives. We are now expanding our use of AI tools to increase the speed, efficiency and scalability of our agile software development processes and continuing to innovate to stay at the forefront of utilizing commercial software development tools and processes to address critical national security priorities faster and more efficiently. These are just a few examples of the many successes we are seeing at CACI, thanks to our focus on critical national security priorities, software-defined technology, commitment to investing ahead of customer need and unwavering focus on superior execution. With that, I'll turn the call over to Jeff.

Thank You, John. Good morning, everyone. Please turn to Slide 8. As John mentioned, we're very pleased with our first quarter performance. The continued strong performance once again underscores the deliberate positioning of the portfolio and the differentiation of our business. In the first quarter, we generated revenue of nearly $2.3 billion, representing 11.2% year-over-year growth, of which 5.5% was organic. I'd also like to call your attention to the revenue by customer disclosure in our earnings release, where we are now breaking out revenue from intelligence community customers. This additional transparency aligns our revenue disclosure with the national security focus that is a foundational element of our strategy. EBITDA margin of 11.7% in the quarter represents a year-over-year increase of 120 basis points, driven primarily by strong program execution, timing of some higher-margin software-defined technology deliveries and overall mix. First quarter adjusted diluted earnings per share of $6.85 were 16% higher than a year ago, greater operating income along with a lower share count more than offset higher interest expense and a higher income tax provision. Finally, free cash flow was $143 million for the quarter, driven by our strong profitability and increasing cash generation from working capital management. Days sales outstanding, or DSO, were 56 days. Slide 9, please. A healthy long-term cash flow characteristics of our business are modest leverage of 2.6x net debt to trailing 12-month EBITDA, and our demonstrated access to capital continued to provide us with significant optionality. We remain well positioned to continue to deploy capital in a flexible and opportunistic manner to drive long-term growth in free cash flow per share and shareholder value. Slide 10, please. We're reaffirming our fiscal '26 guidance. We continue to expect revenue between $9.2 billion and $9.4 billion, EBITDA margin in the mid-11% range adjusted net income between $605 million and $625 million; and finally, free cash flow of at least $710 million. One item I'll note is that our strong Q1 performance has helped us derisk the EBITDA margin step-up from the first half to the second half that we discussed last quarter. To help with modeling, we expect EBITDA margin in the second quarter to be about 11%. Slide 11, please. Turning to forward indicators, all metrics provide good long-term visibility into the strength of our business. Our first quarter book-to-bill of 2.2x, and our trailing 12 months book-to-bill of 1.3x reflect strong performance in the marketplace. The weighted average duration of our awards in Q1 was over 6 years. Our record backlog of $34 billion increased 4% from a year ago and represents nearly 4 years of annual revenue. And finally, our funded backlog grew nearly 26% year-over-year, some of which was likely driven by our customers preparing essential programs for the government shutdown. For fiscal year '26, we now expect more than 92% of our revenue to come from existing programs with less than 4% coming from recompetes and 4% from new business. Progress on these metrics, specifically on recompete revenue, which was 11% just last quarter, reflects our successful business development and operational performance and yields increased confidence in our expectations for the year. In fact, I'd like to point out that in the past 10 years, this is the second highest amount of revenue from existing programs that we've had at this point in the year. In terms of our pipeline, we have $6 billion of bids under evaluation, around 80% of which are for new business to CACI. We expect to submit another $13 billion in bids over the next 2 quarters with about 75% of that being for new business. In summary, we delivered outstanding first quarter results, derisked fiscal year '26 and continued to demonstrate our differentiated position in the marketplace. We are winning and executing high-value enduring work that supports long-term growth increased free cash flow per share and additional shareholder value. With that, I'll turn the call back over to John.

Thank you, Jeff. Let's go to Slide 12, please. CACI delivers distinctive and differentiated expertise and technology to address our nation's critical national security priorities. We help customers address their biggest challenges and their most important priorities. We help them succeed in their missions. And because of that, our customers increasingly rely on us. We are the company that consistently gets things -- gets the hardest things done when our customers need it most. Because of this, our business continues to perform well, and we continue to meet our financial commitments even in this dynamic and somewhat uncertain near-term environment. The strength of our strategy, our differentiation and our execution is borne out by our consistent performance. Our outstanding first quarter results represent a great start to fiscal year '26. We are successfully executing our strategy winning and ramping significant new work, capturing our recompetes and driving additional on-contract growth from our large contract portfolio. As a result, we are pleased to reaffirm our fiscal '26 guidance and we remain confident in achieving our 3-year financial targets. We are well positioned in the right markets with the right capabilities, and we are confident in our ability to drive long-term growth in free cash flow per share and shareholder value. As is always the case, our success is driven by our 25,000 employees who are ever vigilant and expanding the limits of national security. To everyone on the CACI team, I am proud of what you do each and every day for our company and our nation. And to our shareholders, I want to thank you for your continued support of CACI. With that, Tina, let's open the call for questions.

[Operator Instructions] Our first question comes from the line of Colin Canfield with Cantor Fitzgerald.

Perhaps we could shed some light on early expectations for the FY '27 request. I think we have kind of 2 camps forming up in terms of buy-side sentiment, one being that the step down from kind of reconciliation plus base implies -- it implies a step down year-on-year. And then another camp is that it's pretty insane to think that Congress would kind of imply a cut on defense budgets into a rising national security environment. So if you can shed some light on kind of where you expect kind of high-level budgets to go.

Yes, Colin, thanks. That's a meaty first question. Look, we're very, very focused strategically on critical national security priorities and we've always talked about those priorities have deep and enduring funding streams, and we have great bipartisan support. That bipartisan support is why we vectored this portfolio over the last decade to be 90% focused on national security. But we've also said before that we're really focused on the top line budget, budget growing. But at the end of the day, we're a $9.3 billion company in a $280 billion total addressable market. So we look at that tone as we have plenty of room to grow. And then where is the money going? So if you look across the areas like electromagnetic spectrum, software-defined tech space, Counter-UAS, border security, that's where current budget dollars and reconciliation dollars go. So I think we're in the right spot. We continue to have a great book-to-bill greater than 1 and our software-defined tech continues to deliver growth for us. So there's a lot of what-ifs as we get into '26 and into '27. But the fact is we're winning a lot of long-term business that really draws across a number of year budgets. So with the level of backlog we have with the duration of contracts, we just put into backlog right around 6 years. It does allow our company to endure and allows us to continue to grow regardless of what some of those top line numbers are.

Got it. And then in terms of like Counter-UAS cyber electronic warfare contracts, I think investors have traditionally been conditioned to kind of large multiyear vehicles, but it seems like contracting officers are taking a more agile approach. So maybe if you can kind of talk about how you expect those contracts to be awarded as well as kind of the level of agility that is rewarding within folks like yourselves, [ Epirus ], AeroVironment, folks that kind of have commercially developed solutions in that domain.

Yes, thanks. So look, I think it's safe to say that the U.S. government has been buying capabilities in very different ways as of late. It was about 3 years back, we started to hear about OTAs. It's within the last year, we heard about how advantageous is to be a commercial company. And look, we've double the amount of OTA work that we've done in the last 2 years from the last 5. We're a company that is both [ cash ] compliant, which means we have a rate-based business like traditional government vendors, but we also have a portion of our business that's truly commercial as commercial accounting and commercial practices. So that sort of lays that groundwork that should tell everybody. CACI is a unique company within our space and that we're very well positioned to address how the government buys. Most of our software-defined technology work has actually been purchased over the last few years in a very different manner. So it is true that some of our technology is funded by large multiyear programs, but it's also more the norm that we receive our awards on purchase orders in a very commercial-like manner. You can now buy from CACI just about anything across the electromagnetic spectrum whether it's SIGINT or it's EW, and it allows us to provide an item number, a part number and a price. And so we're very used to supporting those types of ordering vehicles. At the end of the day, it's also what moves our financials around, right? I mean if we're sitting here getting purchase orders that come in, in quarter, quarter 1, and we turned that around in the first quarter, that's going to move our financials around. So true that the government is buying different. I love the fact that the government is buying different. I love the fact that we saw that coming 7, 8 years back, we positioned this company very well. And then I'll sort of end, Colin, with TLS Manpack is a perfect example. That went from an OTA to a program of record where that customer continues to buy 250, 300, 500 units. So better for us to put a program in place and that allow our customers to buy in a manner that supports their budgets.

And your next question comes from the line of Scott Mikus with Melius Research.

Very nice result. John, CACI was ahead of the game when it came to investing in Counter-UAS solutions, but we've seen in Ukraine, both sides are now using fiberoptic cables to prevent their drones from being jammed. So how are you thinking about that challenge when it comes to developing more Counter-UAS offerings? Is it an opportunity for you? Just wanted to get your thoughts on that.

Yes. Thanks a lot, Scott. Look, I'm going to sort of step back on this whole Counter-UAS story. I guess, first of all, we've been doing it for a really long time, a couple of decades. And I've covered a lot of the basis in some of my prepared remarks with the creation of Merlin that frankly allows us to quickly bring different phenomenology in, so we can better find drones. The drone threat is really unique in some ways but very much the same in other ways. Time is going to be the differentiator for this threat. Most other solutions that are out there, look at simple drones within 1 to 3-kilometer range, Merlin and other of our systems detect up to 75 kilometers away. And what that does is it gives the operator time. So in some instances, up to 15 minutes of time versus about 8 seconds of time by those who were looking at Group 1 or maybe Group 2 drones within a 1 to 3 kilometers space. We're already in the U.S. government inventory. We're already pushing at the scale, already battle hardened with hundreds of confirmed kills. So it's true that there are drones that are trailing fiber. There are drones that are operating in the cellular infrastructure. So if you look at what the homeland fight is going to be, we may have drones from people who are not our friends, flying their drones on our networks. So at the end of the day, I think we have an outstanding solution. I know we have an outstanding solution. But I'm also going to end with to most companies, Counter-UAS is like the new AI, right? Everybody does it now that it's popular and the difference between the AI stock-pop hype and the Counter-UAS stock-pop hype is if you have a Counter-UAS solution, you say it does and it does so much and it doesn't, at the end of the day, somebody dies. If you've only deployed your kit at demos around the AUSA floor, it's very telling. We've been on this market for a couple of decades with a great installed base, hundreds of systems, thousands of sensors. I would expect this threat to continually change and that's why our solutions are software-based. That's why our Merlin system brings different phenomenology in. So we're able to more than adequately not only defend this nation, but other nations out there.

Okay. And then I have one for Jeff. I mean, Jeff, what really surprised me was your Fed civilian agency sales were up 17% year-over-year. So I was just wondering if you could maybe parse that out between organic versus inorganic? And then perhaps what was DHS up versus non-DHS?

Yes. So about 10 points of that percentage basis of content is DHS. So the growth there, Scott, is in DHS and it's in the ramping on NASA NCAP, which is ramping up nicely and moving with our plan. It's really all organic. I don't think there's no inorganic in there. As I think about Azure and Applied Insight, none of those are going to be offensive.

Our next question comes from the line of Gavin Parsons with UBS.

John, I know you always remind us, bookings are super lumpy, but obviously, a pretty strong booking quarter here. So I guess a 2-part question. The submitted pipeline is down, but obviously [indiscernible] those strong bookings. So as part of the question, does the simple math imply a very strong win rate on that conversion? And then second question, should we expect bookings to maybe take a breather over the next few quarters given the submitted pipeline is down a bit?

Yes, and potentially. Look, we -- I'm actually quite happy that the transparent information that we share is exactly what should lead to questions like this. Look, we really pride ourselves in giving you all the information we have as we run this company. We do our best to talk about bids that are going to be awarded at some time. We look at what our pipeline of submittals are and we talk about what we end up winning. So yes, there's going to be different movement of numbers out there. Very proud of our first quarter win rate. Of course, I look at where we are at the end of the year, but winning $5 billion in the first quarter, which is half of the total we won last year, it really does position us well.

I think you also have to look, Gavin, at the whole data set because we obviously had a really good awards quarter you would expect that to probably result in a dip in the awaiting decisions number, but you also have to look at the expected to submit piece, which is up. So this -- the adequacy of the pipeline is really a little bit like a balloon. I mean any one time one piece of it may dip down and another piece dips up. I mean that's inherent in the lumpiness, right?

And I think your second question was around with everything going on, how could it potentially impact the second quarter. Look, I think it's unrealistic to believe that the pace of awards given we're in a shutdown mode is going to continue to the level that we have. What that number ends up being is whatever that number ends up being, I'm sure we'll talk about what the book-to-bill was at the end of the second quarter. I'm more excited about what the book-to-bill is at the end of the year and even more excited by having a trailing 12-month book-to-bill of 1.3x. So we put a lot of awards in our $34 billion backlog, funded backlog is up 26%. I think it really bodes well regardless of what gets thrown at us.

Our next question comes from the line of Seth Seifman with JPMorgan.

The government shutdown. It appears some awards, especially funded were accelerated ahead of the shutdown. So should that mitigate some of the near-term impact? And is there some sort of length of the shutdown that presents a risk to guidance?

Yes. Certainly, it leaves us better positioned. I think it's important in the sense that it leaves us better positioned in terms of programs being funded, obviously, but I think it also is sort of an expression of confidence and support by customers to position us to have minimal disruption from this. So certainly, that's true. One of the reasons that we affirmed our guidance despite the fact that you can kind of see some growing momentum in the business is our approach to the guidance, which we've talked about with you before, and this left goal post, right goal post approach, really encompasses sort of a range of outcomes. And we really, at this point, don't see reasonable outcome that isn't encompassed in the guidance range we've given you. Not only is there minimal disruption, the nature of much of the work is that we would expect to make it up within the year. And we really don't see it as being a disruptive factor. I don't know if John adds here.

Yes. Seth, I'd also just add to Jeff's comments. Given our significant intentional exposure to national security work and as Jeff said, the level of technology work and a large level of funding backlog. And the fact that a lot of our work is essential and that -- which is not there, says that we're able to make that work up. You may not see that null any Q2 impact in quarter 2, but you'll definitely see that null any short-term impact over the full year because we have the full year to make that -- those times up. So I think we're in a really good position. Clearly, if it continues to linger for months and months, I think Jeff already covered that. It's well covered within our guidance that we have out there today.

Great. And then how does the hiring environment look over the last few months? And do shutdowns tend to impact the pool of applicants, whether there's more people coming from, say, like a federal agency that are applying or people are kind of scared off from the industry?

Yes, [ Rocco ]. Look, we're actually seeing applicant value -- or volume, sorry, at an all-time high. Believe it or not, we had 0.5 million applicants in fiscal year 2025, and we have quite a large number of folks applying for jobs to date. It does help that we're more a technology company if we were purely a pure play government services company, when you see shutdowns that go on for 15, 20, 25, 30 days, that gives folks pause if they want to go do national security work on the expertise side. But we've got -- we're still running -- 40% of our hires are coming from referrals. We've got about -- we have well over 300-person intern program that will be kicking off here shortly. So we haven't seen any slowdown in number of applicants, and we certainly haven't stopped hiring given the level of wins we had in the first quarter.

And our next question comes from the line of Tobey Sommer with Truist Securities.

It's Henry on for Tobey here. Maybe just to start, I thought I go back to Counter-UAS for a second, but I'm just curious if you could roughly quantify the full opportunity set for that space over the next 12 months, let's say? And then how much of that could be related to Golden Dome on the non-kinetic C-UAS side?

Yes, Henry, thanks. Look, I think that the government, given the different funding buckets is still sorting through that. I'm not going to give you a direct answer on amount of Counter-UAS sales we expect in the next 12 months. But I will share that our portfolio of EW technologies, it includes Counter-UAS, and it includes a number of systems. Because if you remember, the hardware form factor is different for us, but the software baseline is the same, okay? So as we build systems, whether they're manpack, whether they're handheld, whether they're mobile, whether they're fixed, the beauty, not by accident of our solution is that software-based allows us to continually modify these with a common software baseline. Our portfolio of EW technology generates about $2 billion of revenue, each and everywhere, and we expect with newer requirements on Counter-UAS, it will experience continued growth. Some of that growth you all see on a quarterly basis when we talk about where our technology portfolio is growing in relationship to our expertise one. But administration priorities are very much focused on defense of the homeland, board security, world events, use of drones in modern warfare. European and allies are all up and we're going to have additional funding through reconciliation. Some of that growth is planned in our current FY '26 plan, and we gave you a low and a high end to our guidance range. We are very well positioned for other upcoming Counter-UAS opportunities, which do include Golden Dome.

I appreciate the color there. And maybe just to follow up. The contract awarded in this past quarter. How much if any of those were due to reconciliation bill funding at this point? And a broader question, looking ahead, is [ reconciliation ] bill funding kind of one of the key difference makers that you're seeing in terms of funding priorities as the shutdown moves along, that differentiates you all from competitors?

Yes, I'll try to take the last comment first, and I'm sure Jeff will have some comments here as well. The Golden Dome funding and the reconciliation funding, we haven't seen that begin to be spent. So that's sort of gives us a backstop to what we're going through and we're experiencing now perhaps.

Yes, that's right. It's -- we're seeing it in a planning sense. We're starting to see opportunities, meetings about developing alternatives, things like that. So we're starting to be able to see a little bit of where it's going to land, we believe. And of course, the heavy DHS content, along with the portions of the DoD reconciliation funding that are focused on the areas that are in our sweet spot give us some confidence about that. But none of the performance in the first quarter or the funded backlog that we talked about, we'd identified directly to reconciliation funding.

Our next question comes from the line of Jonathan Siegmann with Stifel.

The margins were really impressive, especially in the context of your earlier outlook of lower margins to start the year. The incremental sales year-over-year were all technology, which implies the incremental margin year-over-year was over 20%. Can you comment a bit about the mix or any onetime benefits this quarter? It suggests the margins and technology maybe are trending higher than at least we were modeling.

Yes. Thank you, Jon. Yes, I mean, I'm not going to quibble with your math. The technology margins were strong in the quarter. I would remind you that the segment is not monolithic. There are pieces of the technology portfolio that have margins north of what you mentioned, and there obviously are some that are obviously less. So when we talk about mix, it's both mix of technology and expertise but it's also a mix within the technology sector. So I would also note that it did not change our view of the year. So I would encourage you to think about that as sort of de-risking what you see -- what you've seen historically is our customary first half, second half margin step-up. We now see that increase in the second half as being a little smaller than it has been in some recent years. But you've done the math the right way.

That's great. And maybe just a follow-up on what John said about loving the fact the government is buying differently. Is it more the impact of these changes the more customers are embracing some of these more progressive ways to buy software, an agile software? Or is it the same customers just buying more?

It's a little bit of both. John will want to add to this. But if -- certainly, there's been a tremendous increase in OTAs, both in their use by people that have been using them, but also customers that haven't used them before. I think also I would go back and underscore the answer to one of the first or second questions where John talked about the fact that we really are positioned deliberately by design to be able to sell commercially, to be able to sell in a traditional far [ cast ] disclosed environment. I mean we -- literally, there is no way that customers buy that we don't sell. So I think that can't be overemphasized.

Yes, Jon, I'll also add. Look, what customers want is a Far Part 12, Far Part 15. They want to be able to use those when they believe that one of those supports their needs over the other. The days of large development programs where you write your requirements in 2025 and you get your first case of the system in 2035 are not going to support how fast the threats are moving. So as Jeff mentioned, about a decade ago, we positioned this company to be very agile in both, right? So -- and it's why when we invest ahead of customer need, what the government is asking everybody to do is, hey, how about invest ahead of need more on your dollar than on ours, okay? Explain to us how that fits into part of our solve and then allow us to buy that as I answered earlier, from a commercial price sheet that says if you want a mobile Counter-UAS system or a handheld EW gadget then give me the part number and let me start buying that. Our software wrapper around these things is that when you buy that, you're going to find different uses for it. So there should be a quick upgrade path either from a licensing yearly fee that gets that customer additional upgrades and updates to it. Again, at the end of the day, I've been saying this for a decade. This is not the old way, where if you want a new capability, buy the new device. So you're continuously throwing devices away. So they're looking for agility, and what they're saying is they want to be able to buy in the way commercial companies buy and not be locked to long-term development contracts. And as Jeff said, we can support either and both in any other ways.

Our next question comes from the line of Guatam Khanna with TD Cohen.

Great results, guys. Wanted to ask 2 questions to follow up on some earlier ones. First, has there been any impact to the business from the shutdown with respect to either revenue, cash or unusually soft awards in the first of the quarter? And then I have a follow-up.

Yes, I can start with some of that. John will want to add to this, I'm certain. But there's been a slight amount of cash collections disruption that's primarily related to staff that's available for invoice approval and things like that. So we're feeling a little bit of administrative sluggishness, I'll call it, related to that. It's not tremendous. It's -- collections may be 10% or 15% off, it's small but noticeable. And similarly, I would say in terms of revenue, we have pockets of places where we have attenuated levels of activity. It's really de minimis. I'm going to say it's kind of single-digit millions revenue, it's activities that we expect to recover during the year. So it doesn't really affect our view of the year. But yes, it's detectable, but small and manageable.

Okay. And just wanted to ask, given the environment maybe tougher for some of the "peers" in the space relative to CACI, have you seen any intensifying price competition. Maybe talk about the bids that you didn't prevail on, is that typically a price shootout? Or anything you've changed -- you've seen in terms of competitor behavior, if any?

Yes. Gautum, it's John. I can answer for everybody else out there. I can tell you that if we've ever lost on price, it's not because we're in a price shootout because we gave up that part of the ecosystem about 7 to 8 years back. But I would imagine people are going to do whatever they need to do to continue to win business. I mean, we've seen a little uptick in the number of protests, which are out there. That, to me, being in this marketplace for a few decades, is usually that early sign is if you win, you win. If you don't, you protest. So I think we'll continue to watch the level of protests which are out there. But for us, I haven't seen pricing be an issue. We believe that we are fairly priced and where we invest ahead of customer need where we've gone out on risk to spend the company's money to help defend this nation in a better, better manner. We would expect to see higher margins. And thus far, that plan and that mode of running this business has served us very, very well.

Next question comes from the line of Conor Walters with Jefferies.

Congrats on a great start to the year. Maybe just to start, it seems like the unchanged top line growth of 7% to 9% embeds stronger organic and perhaps around $40 million in lower acquired revenue. So curious, first, if I'm reading that correctly, but also if you could provide an update on the acquisition integration process.

Yes. The acquisitions of Azure and AI are largely complete. And in fact, we're finding what we've always found, which is when it's done well, it's increasingly difficult to tell them apart. There is some Azure timing. John may want to comment some more on this related to some of the activities between the Azure legacy programs and Spectral. But they're very definitely meeting expectations and we remain convinced of their strategic and financial value where they're terrific fits, both of them.

I don't have anything else to add.

That's helpful. And then maybe just one follow-up. You guys discussed the upside you're seeing from reconciliation funding for Golden Dome. You mentioned the EW potential there. Curious if any other areas you would call out as considerable opportunities in your portfolio tied to that? And then how you're thinking about the bid process and time line now that you're starting to see that money actually being spent?

Yes. Talk a little bit about Golden Dome. Out in the public domain, you're going to hear a lot about sensors and effectors in command and control. But it's not just a ballistic threat, it's also threat from unmanned systems as well. So we're making it very clear that the Golden Dome concept is going to be completely reliant on early indications and warnings, meaning, as I mentioned earlier, knowing far in advance, when a threat is imminent and then giving folks who have to defend against those minutes and hours of time. We've actually coined that as left-of-launch. It's sort of our contribution to the entire Golden Dome effort. There has not been money spent on this yet. General Guetlein is taking our [ key ] responses. We've submitted our credentials on a few related proposals, but we're really looking at taking all of our sensitive activities work and all of our worldwide set of embedded sensors, which are in the thousands to give a common operating picture. And from there, let's go work on that non-kinetic low collateral defeat of those threats. Because clearly, taking a hypersonic missile on and using that to knock down the drone or other missiles over the Continental U.S. has a high collateral issue. So we're looking at non-kinetic low ones. So we would expect funding to begin to ramp up. I think we'll know better as we get to the end of the second quarter, early third, and we're very excited to be looking at that $150 billion potential spend purely focused on defending this country.

Our next question comes from the line of Louie DiPalma with William Blair.

Following the positive TLS Manpack developments, is CACI also well positioned for the U.S. Army's modular mission payload plan for small drones with your Spectral Sieve and KickFlip? And related to this, how does the modular mission payload differ from how the Army is currently using Spectral Sieve on Puma or C100 drones?

Yes. Louie, thanks. So look, our entire -- I shouldn't say our entire, a large portion of our EW portfolio really is modular mission payloads, right? And for the rest of the audience. That's really taking common software capabilities and putting that on different form factors. It can be looking for wireless signals. It could be looking for a land-based signal, it could be looking at missile signals. There's a plethora of RF out there around the globe. The program that Louie mentioned is we already deliver a number of modular mission payloads to [indiscernible], folks who build drones and they're looking for an overall package. They have a drone that's size X that can carry weight Y. What kind of features do we have, what type of devices can we put into those unmanned systems. So we have delivered those. We have delivered to the Puma and a number of other ones, either directly to United States Army and other DoD agencies will be gone directly to a drone builder. So I believe that market will only continue to grow. It's the reason why we got into this market a number of years back. It's the reason why we positioned this company to be able to deliver either under a Far Part 12 or Far Part 15 and allows not only the U.S. government but OEMs of drones and the like to easily be able to buy our systems and have them ready and also allow us to modify those as the threat changes. So that's what we've been up to.

Makes sense. How has the Navy Spectral program been progressing?

Navy Spectral program is going very well. Jeff talked about Azure. Azure has the precursor program. We worked very closely with the Navy to make certain that we could time some of the Azure deliveries in a manner that then support the Spectral delivery. So on the Azure front, there were some deliveries that have been pushed out, so that can be more closely integrated with the Spectral ones. The next phase for spectral is a January, February time frame where that program will get through its [ milestone sea ] and that will freeze the design. We'll be able to begin deliveries as we've always mentioned during calendar year 2026.

Our next question comes from the line of Jan Engelbrecht with Baird.

Congrats on the strong set of results. I wanted to talk a little bit about just the international opportunity. I think it's not something that you maybe highlight a lot. But just given where NATO budgets are going, now about the 3.5% of GDP and then there's the additional 1.5% bonus on top of that. Just sort of -- there's clearly capability gaps in the EU and in Europe and NATO as a whole. And is there anything you can highlight where maybe areas you guys are targeting in the next couple of years?

Yes, Jan, thanks. Look, I've said many times that the world is a dangerous, dangerous place, and I think that the Ukraine was a real wake-up call. It definitely raised the urgency level around defense and national security globally. And I would say mostly in the electronic warfare area, a war in the end market not by accident, but by a very, very, very solid planning. So as you mentioned, there's many allies they're going to be expanding their defense budgets. We deliver technology to a number of [ 5 NATO ] countries today. And I've been on this slow reveal of what we're doing in the international front solely because we want to be very cautious and very, very careful because you can spend a lot of money on the international front very, very quickly. Since we last talked, we've expanded our sales to 15 NATO countries, and we continue to assess demand signal in 7 other countries. Eastern Europe, allies are increasingly interested in our SIGINT, in our EW, in our Counter-UAS tech. I will tell you that our initial focus was on technologies with existing U.S. government and DoD sales following the FMS path. The number of countries that we have added have now gone to direct commercial sales. And I'm only tempering that -- I should say, I'm tempering that only by the fact that it's true, a lot of European nations are going to be spending far more money, but those same European nations are going to look to spend that money within their borders. So our next step is to understand what relationships do we need. So we either license or we coproduce some of our tech here and then add the applicable software baseline to those products. So still a long way to go there, but it's a market that over the last 90 days since we've last spoken, it has truly opened up to us.

And just a quick follow-up. If you could just comment on the slide deck talks about the M&A pipeline expanding. Just any areas that you think that would sort of be a niche capability that you could fill? Just any comments on M&A just in the environment.

Jan-Frans, as you know, we've talked many times before, and there's no departure from this. Our process and approach is very much GAAP-driven. The opportunities that we see in the pipeline are generally a little bit more technology than they are expertise. A little bit more focused on sensors as well as, not surprisingly, software applications that go around those sensors and things that kind of fit nicely into our sweet spot. So we are seeing a little bit of life in the pipeline, and we look forward to developing a few of these ideas, very early stage at this point, but we'll -- it's an active area of interest for us.

Operator, we have time for one more question.

Our final question comes from the line of Noah Poponak with Goldman Sachs.

John, you spoke about -- or you alluded to kind of everyone at AUSA having counter UAS and it was like if you did 15 meetings, 12 had it and 10 led with it, which is pretty unusual. Is the funding coming down the pipeline that significant and can it move the needle for companies much larger than yours? And I know that you didn't want to quantify the forward on that, but can you give us the baseline of how much of the current revenue base is counter drone?

Yes. I'm going to stick with about $2 billion of our entire portfolio is in the EW place, which does include counter drone. And we deliver to both DoD and the intelligence community. And as I shared, a large number of NATO countries. Back to the first part, yes, I think it's a burgeoning market. I think you have to look at 2 different streams of funding, Noah, right? One is the $150 billion on Golden Dome, some portion of that. And I would tell you, it's multiples of billions that will be spent on a layered defense that's going to have to defend against unmanned systems. And frankly, uncrewed systems are a very different beast. Traditional radar is not going to find that. It's going to look like a bird, okay? So it takes new technology. And then on top of that, we're not in a war time in somebody else's zone where the U.S. is assisting. We'll be defending this nation, right? We're also going to have events like the World Cup. We're going to have the Olympics. We're going to have so many more things. And that threat vector, Noah, is up materially. And you can look at common new sources that the threat vector for other countries, potentially drug cartels and others using drones. So I think there's a market growth that we're all watching. It will be billions of dollars worth of Golden Dome funding. And then if you look at the DHS additional funding, that's going to work on the border security side. And today, there's 1 kilometer systems that find group 1 drones. Tomorrow's threats are going to be we need 75 or 100 kilometers to give us minutes of time to go defeat against that. That's going to be Class 1 through Class 5 drones. So yes, I think that the rest of the industry is waking up to this market. My only earlier comment around this hype is we went through 1.5 years period of AI hype and I feel as though we're going to go through another 1.5 years of Counter-UAS hype. So at the end of the day, the government is going to go with systems that have been deployed, where combatant commanders swear by the fact that they want one of what we have. And it's just really allowing funding to catch up to that. And then, of course, you do well know, Noah, government shutdown is going to sort of slow that down as well. So I think it's an emerging market. We've been in it for a couple of decades. I think we understand it very, very well. We have the right partnerships. And we're always looking for additional capabilities that we can add to our system. I'll end with, and we build our latest system on our own nickel, right? So we're not dependent on U.S. government IRAD dollars to advance what we have because I do think that the threat is that real and the government is asking us to look at this as harder. So very large...

I Appreciate the detail there. If I could just ask one more question. Just hoping to better understand a little bit shutdown impact and shape of the year. Can you shed a little more light on how the government goes through deeming what is essential. The comments you made there at the beginning of the call are interesting. I thought it would have been more missed work in your 2Q that's just made up before the end of the year, but it sounds like that's not the case. And I think historically, you've had a 2Q that's pretty often flat sequentially versus 1Q, and then a back half that's up mid- to high single versus the first half. Is that still the shape of your '26?

Yes, broadly -- this is Jeff. No, probably, it is with the caveat that I mentioned earlier about that step-up will be between first half and second half. We expect to be less pronounced this year than it has been in prior years given the strong first quarter, which largely was comprised of items that did not change our view of the year. So that's kind of a qualitative way to say quantitatively, the first half, second half step-up will not be as pronounced as it has been in the past.

Noah, I'll also throw in there. If you look at the last shutdown, right, it was '18, '19. If I remember right, some of that was December to January, right? So you had a lower level of folks because you were around with Christmas time. What's different from our company between the '18-'19 shutdown and where we are now is, and we've got far more long-term tech programs that are being developed. We have far more programs that we're investing ahead of customer need and putting enhancements into that software baseline. We're selling them on a purchase order. So that has a very different buying schedule to it. It doesn't take folks to sit around and do a down and select, they can buy these things off of a GSA-approved price list. So there are a lot of differences at least to this sort of de minimis impact. And then you also closed up with -- we can make a lot of these hours up. If we're at a help desk and nobody needs help now, they're not going to be more help later. So clearly, that doesn't get made up. That's your traditional government services work. But the vast amount of this are work that will have to be done. And every agency -- back to your initial comment, every agency is going through their own process. I wish I had that rubric that told us what was mission essential and not. But frankly, I'm sitting on the government side, that sort of changes too, right, whether we defense of the homeland different than other things that are out there going. But all in all, a really good book of business right now as Jeff and I look at the impacts how we can get those covered and we believe we're right at quarter 1 point to having an outstanding year.

And at this time, I will turn the call back over to John Mengucci for closing remarks.