CACI International Inc (CACI) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome back to the Aerospace and Defense track at the 2025 JPMorgan Industrials Conference. I'm Seth Seifman, the U.S. A&D equities analyst. We are very glad and grateful to have CACI here with us today to talk about the company. And so we have Jeff MacLauchlan, CFO; we have Jason Bales, Chief Technology Officer; and we have a strong contingent from IR as well, we have George Price and Jim Sullivan. So welcome to all of you. Thanks for being here.

Thank you.

Sure.

I guess we'll start off. It's been -- we recall your earnings report back at the end of January, and the numbers were quite good, but we see what the stocks have been doing. And the market is acting as if companies in your part of the market are going to be facing some significant sales declines. How do you see things now? When you think about risks in your business, where is that risk focused now? What's the range of outcomes?

So thank you, Seth. Let me first observe that we're -- our year is off to a really strong start. We're a June 30 fiscal year. So our January earnings call was the halfway mark of our year. First 2 quarters, we beat and raised. We've raised our guidance each of the quarters. We gave 3-year targets last fall, pre-election actually. And I'm happy to say that our view of the business is still that all those indications are intact. We remain on track for a really good year and the impact of DOGE and the administration's priorities has actually been pretty de minimis. And I'm sure we're going to talk about it in a lot more detail. I can start by observing that we had 2 contracts show up on the DOGE board. One of them was for a contract that had already added. And the other was for a contract that was about to end, had about $1 million of revenue in the current year. A week or 2 later, the government issued a list of top GSA contractors, which did not include us. I'm happy to say, in that top 10. And those top 10 were invited to a review of certain -- contracts in a certain category. I won't geek out with you all with the code system that the government uses. But there were certain category -- half a dozen or so categories of consultant and advisory type contracts that the government was focused on. We have about 2,500 active contracts we had 80 -- although we were not on the top 10 list and not invited to interact with them about them, not surprisingly, we went through the portfolio identified that we had about 83 of our 2,485 that were with the GSA, and we had 7 of those that were in the identified codes. Of those 7, 2 accounted for about 70% of the revenue, and they were both readily identified as mission-critical, very key engagements that the relevant customers were able to very quickly defend and have removed from the list. So even though we were not on the top 10 list, we did go through the process and sort of scrub our portfolio of those things that have been identified and concluded that we didn't have any kind of meaningful exposure. So let me add, though, that unless it sound to you like we're being dismissive, we're not. And in fact, we have kind of revised our approach a little bit here to focus on the things that we control -- that we can control, which we are, keeping our antenna up and remaining vigilant to whatever may come next. The fact that we've had a couple of these exchanges with the government that have not resulted in any disruption, obviously, we're happy to report, but we're also sure that this process isn't over. But we do remain very confident that the things we're doing are important vital national security interest and also well aligned with the things that the government has identified as priorities. So things like network modernization, things like bringing modern commercial software tools to enterprise IT, passing financial audits. These are all areas where we have active significant engagement with various government customers that we believe are very much aligned and in service to those objectives. And then finally, before I let Seth get a question in, I would point out that many of you may have seen this or be aware of this, but only about 6% of our revenue -- annual revenue is related to non-security federal civil business. And the security business with the federal government, we define as Department of Defense, the 18 intelligence agencies that are in the intelligence community and the Department of Homeland Security, where we have a very large presence with customs and border patrol in particular. So I don't mean to minimize the attention that we're paying to this, but our exposure to the areas that the government seems to be particularly focused on is quite small. And while ours is 6%, all of you will be well aware that many of the companies to whom we're routinely compared may have 25% or 30% of their annual revenue in these categories. So I don't -- certainly don't mean to be dismissive of DOGE as an initiative. I just think it has so far, proven to have pretty limited applicability to us. And we remain committed to the objectives of obviously avoiding fraud, waste and abuse and being everything we can to be good corporate citizens and work towards customers' objectives.

Yes. That's actually all super helpful and some really good detail. Just we won't spend a lot of time geeking out about codes and stuff like that. But when -- the stuff you're talking about that was sort of subject to review, is that things like OASIS and stuff like that, that comes under GSA?

No. They were -- OASIS was actually not one of -- not one that was in that code. They were really focused on advisory consultancy type engagement. So in contracts where you were overseeing the work of another contractor, contracts where you were giving government organizational advice, classic I'm going to generically say management consulting kinds of business, which is really not something that we do.

Right. Okay. Okay. We think regardless of what the specific targets of DOGE are, it seems like a time where there's a fair amount of dislocation in Washington. And when we think about your customers in the government who may be very distracted at this time with what's going on in their offices and their own jobs and futures, how do we think about the order environment since the inauguration? And also within that, not only what the customer is doing, but are there things that maybe you are not pursuing now because it's a different environment and maybe it's not the best place to be, and so best not to bid?

Let me start with the second part of your question first. It has not affected our pursuits or the things that we vet and filter for the pipeline. The things that are important to us technology content, the ability to differentiate longer-term, larger contracts, those things are all still intact as filter criteria. In terms of the general attitude and climate in Washington, it would be -- it would be virtually impossible to not observe and note the fact that there's a lot of disarray, people being people. A lot of people are on easy. We interact with the government across the spectrum of seniority and roles from flag officers to billing clerks to contracting officers, kind of the mid-level management of the government and their administrative staffs that sort of do the day-to-day work of the obligation of funds and moving things around between accounts and all of the minutia that it takes to make the government run. Those people are very distracted. They're worried about themselves, what it might mean for their friend that works down the hall, their neighbor, those people are distracted. And while we have not seen any affirmative sort of slowdown or strategy of pausing or dragging feet, we do observe that things that used to take 2 or 3 days, sometimes take 3 or 4 days. So that is something that's manageable and factored into the way we work and manage the business. But we have a number of things related to ongoing contract administration. I mentioned the mechanics of funding is one. The evaluation of proposals, the approving of invoices. In fact, some of you will be aware of the fact that we have the last piece of our back-to-back method change tax refund as a $40 million refund this year, which will require the IRS to focus some attention and it has kind of a bureaucratically complicated -- given the size of the refund at $40 million, it has kind of a complicated path that the government has to occupy. And I can tell you that people at the IRS are as distracted as others in the government are. So again, it remains in our guidance. I have no reason to think it's in jeopardy. But there are things we need the government to do, and we need them to do that.

Absolutely, absolutely. Just in terms of some of the recent news we've seen continuing resolution, we'll see what happens over the next few days. And it's a little bit different for you guys given the June fiscal year, but this kind of CR that would extend to September with -- it looks like some latitude to pursue new starts. How would that affect your outlook for this fiscal year? And then as you think about the way that you'll have to start off thinking about fiscal '26, if that were to be in place?

Yes. The -- of course, the CR is not done. It's through the House and Senate now. And so we don't know exactly what the final version looks like. But my understanding, similar to yours, is that it carries a little bit more flexibility than a conventional continuing resolution would, which is a positive for us. When we laid out our guidance in the second quarter, we sort of give a range because we identify sort of a handful of things that we think are some potential to break the right way, a handful of things that might not go in our favor that we need to be able to accommodate. And on that list, within that range, was a full year continuing resolution. So that doesn't result in any revision to our outlook for the year. And in fact, if there's some added flexibility in the -- given to the executive branch, that could actually be helpful, actually be better than our assumption. The other thing on the table that would be very helpful to our outlook is the supplemental appropriations we've talked about. It's about $100 million for the DoD and about $200 million for DHS. I'd say about because the House and Senate versions are $10 million or $15 million different, but they're with an easy kind of conference reconciliation range. But that $300 million would be additional incremental funding for the next 2 years in customers that represent about 2/3 of our annual revenue. So if you think about the ability to add some of the things we do to the southern border, some of the things to European defense and in particular, accelerating some of the things we're doing that are important to INDOPACOM like our spectral program, those are very positive indications.

When you say million, you mean billion, right?

I'm sorry. I meant billion. Yes. Million is not anything anymore.

Right. That's good to know. And then I think maybe the other thing that's been in the headlines recently, Ukraine and to the extent that there is an end to support to Ukraine or a seize fire there. Maybe just it's something that I think naturally comes to people's mind for any contractor to DoD, how does that affect your outlook?

Yes. We don't have any contracts or any revenue associated specifically with Ukraine. We do have some kit that has been provided to them by the government that is in use. But the cessation of hostilities or the U.S. government's change in position there wouldn't have any business practical financial effect or anything on us.

Right. Okay.

And actually, a corollary item, the increased attention of the European governments on their own defense, you may actually also present an opportunity.

Yes, that was something I was going to ask as well. Before we get to that, though, I want to -- let's -- a question for Jason. Maybe as CTO, if you could talk about some of the things that distinguish the CACI and some of the ways -- I think there is -- I mean, there's a few things we'll talk about in terms of photonics and stuff like that. But just at a higher level, how do you think about the things that you guys do as CTO that distinguishes CACI?

Yes. Good question. Thanks, Seth. So real important thing, right, is to understand where we came from right our heritage. We got 60 years of ability and expertise in the mission space specifically. And so about a decade or so ago, we started transitioning to include technology inside and build ourselves as a technology portfolio on the backbone of that mission expertise. So I think a big distinguishing area for us is that we pull -- we're pulling a lot of that commercial technology. We're pulling technology processes through to the defense space to provide mission outcome. And that's -- we can do that because of all the expertise with the mission we have. So building technology that is not a commodity. It's not commodity focused. It's based off of specific long enduring mission for national security and tying that technology to mission outcome through the speed and velocity that comes from commercial practices and applications. That's a real big hit for us right there.

Excellent. I mean maybe -- is there maybe a good example we think about in terms of how you guys do that?

Yes. So if you think about our modernization programs, our software modernization programs for -- and a specific example, our BEAGLE program, which is for customs and border patrol, where we have implemented an agile approach there to be able to deliver a massive speed in deliveries to them. So in the past, before we had the contract, they were getting a handful of deliveries every year or updates to their mission applications to help them do the mission. Since we came on board and we brought agile processes in place, we can deliver -- I think this year alone, we're delivering about 1,000 releases to them in a single year. So massive amount of savings for them because we're continuing to improve using some of those commercial modernized approaches to doing software development and gets the mission outcome a lot faster. They can do a lot more with their money. That's just one example.

Excellent. And then Jeff, when you think about the return on investment that you get from bringing these commercial practices in, bringing them to the government customer, getting -- earning a return on that. How do you think about that?

Yes. I mean it's really the best of both worlds. Jason alluded to it, but we trained several thousand software engineers a couple of years ago in the context of our partnership with GitLab, which is in the middle of many of the items. Jason referred specifically to BEAGLE as an example. But we have 3 of the governments -- we have the 3 largest agile software programs in the federal government. And the return calculus is really pretty simple because we are able to generate greater returns for ourselves at the same time that we're generating savings for customers which they generally then turn around and use to increase capability funded by the savings that they make. So it's really kind of a win-win-win. To go from a handful of application updates to Jason mentioning 1,000, I mean, that's sort of -- that's a mission-changing kind of pace. And in fact, our NASA NCAPS win 9 months or so ago at this point was largely a result of our BEAGLE success. It's a very similar program in one of the other 3 large agile programs where NASA will consolidate across their 11 centers, all their mission application work, which we will handle under the NCAPS program, which was practically sold by customs and border patrol. So a happy customer or a happy client, we all know is a good thing, your best reference account.

Absolutely. It's interesting you bring that up because you talk about agile software development and we think about -- I mean, I think -- not always clear on what DOGE is attempting to do, and I think there maybe are several things that they're attempting to do. But one of them, it sounds like, is to bring some of the technology and best practices in the commercial sector into the government. It sounds like that's something that CACI is kind of doing already. Has there been any consultation with them in terms of taking the stuff that you do and applying it more broadly?

Yes, there has been. Jason will probably want to add a little bit to this answer, but we do have some channels, not surprisingly, into the administration, into the government. We have on our senior staff, a couple of people who were in the first administration and retain some access and ability to interact. One particularly good example of this, I would say, is related to financial audits. And we all know that it's a really intriguing sort of slack [indiscernible] headline, soundbite to be able to say everybody should be able to pass their financial audits, which is obviously true, right? All of us in the room in one form or another have to deal with this every quarter, every year. We recently, a year or 2 ago, undertook a program with an Oracle application for the DAI, the Defense Agency Initiative to create a financial system that would enable, among other things, in addition to the normal sort of budget and control features, would enable agencies to pass audits. The 7 of the 43 or so defense department agencies that use our tool have all passed their audits every year that they've used it. And the Marine Corps is the only service that uses it, and they're the only service to have passed their financial audit now 2 consecutive years. So that's just an example of a -- one of a handful of things that we've been able to feed into the government that says hey, here's something that's happening that we're doing that seems aligned with some of the things you're talking about. We're happy to obviously talk about it more or help migrate more agencies to it, et cetera. So I don't know if there's any other examples you'd like to add?

Yes, I'll answer the question on the other side. So to Jeff's point, we've kind of interface with the government to show them, hey, here's how we're doing efficiencies. You want to bring forward the speed and the velocity that you can get kind of in the commercial world out of Silicon Valley in those spaces. So I'll answer on the other side, we also interface with the commercial world, with the Silicon Valleys. We have deep partnerships with AWS. We have deep partnerships with GitLab, a company that's very well known for building DevSecOps, development security operations, pipelines. In fact, we built our -- we have -- our entire company stack is built with a relationship with GitLab to be able to speed and accelerate those things. So we're developing the partnerships on the commercial side to pull through to the military -- or to the defense and then we're developing the relationship with the government to kind of bring those 2 together.

Excellent. Maybe I'll take a quick pause here, just look out at the audience, see if there's anyone who wants to ask a question. But okay. So we'll keep going here. I guess maybe, Jason, just kind of continuing in your world, something that's relevant for the company. And then I think also a little bit more relevant across the space of defense companies that a lot of us look at is the PWSA and the Space Development Agency. Can you tell us a little bit about photonics, what CACI does with those satellites and what the path forward is? And I ask because there's been some news recently. I think there was a GAO report earlier this month talking about this topic, but I'll -- you probably explain it way better than me, so I'll let you go ahead.

Well, so first, understand is right, the CACI space is a war-fighting domain, right? So it's a critical part to ensuring national security across -- and defense across the world. So we play in that space in several different ways. The question that you're getting after those about Space Development Agency, specifically in our optical communication terminal business, right? We build the optical communication terminals that we've sold and have partnerships and relationships with SDA, with DARPA, with NASA, Space Force and then other intel agencies as well as we're trying to build out that satellite network across the globe to be able to, one, send data back and forth across the world as our war fighters are out there; and two, be able to -- well, be able to send that with a certain level of quality of service and reliability that's necessary for military and national operations. And that's kind of the key there, right, is that we build, and we build the optical communication terminals today that meet the specification for military and national defense. It's different than a commercial specification. That's important to understand, right? Also, we build those terminals completely on a supply chain that's U.S.-based and that was intentional from the beginning, right? So we are today the only person that can guarantee every little component that goes into that terminal is from the U.S., which is important when you think about the places that we're moving in terms of the world and the relationships with foreign entities and near peers as well. So that's an important area. And we absolutely agree with GAO's thing, right? So Tranche 0 was getting satellites up there with terminals to be able to kind of make sure that this was a good approach. Tranche 1 was supposed to be operations, okay? It's really important that we make sure that we're in a good place before we go into operational mode. So we agree that we need to kind of make sure we're doing the right amount of testing with those terminals. One final point on that. Our terminals to date are not only the only U.S.-based ones fully, but they're also the ones that have gone from space to space, space to air, space to ground. So the full domain, we've done it with it. So we're feeling pretty confident about that.

Right. And so we should think about that assuming that the various tranches are going to get built out and we'll see hundreds of satellites out there for communications and missile warning. How do -- should we think about CACI having a role in -- and there are several contractors involved in this, each building anywhere from a dozen or several dozen satellites so far. Should we think that CACI has a role on all of those satellites?

We are currently on 3 of the 4 primes -- teams. We're not the exclusive supplier. They're buying different programs, different satellites, they buy from multiples, but our customers include 3 of the 4 today.

Okay. Another topic I wanted to talk about was Counter-UAS since that's something that both -- I think when we read the news about the war in Ukraine and the importance of drones and therefore, of countering drones. And then when we also read a lot about various start-up companies here in the United States, and the capabilities that they're attempting to bring to market. A lot of that seems to center around Counter-UAS. How do you view the CACI role in that mission?

Yes. So first, to understand that, yes, there's a lot of competition in the small UAS space today. With small U.S. being drones, you can fit in the palm of your hand or you can go -- you can buy it very easily to obtain, right? But when it comes to the larger kind of near peer nation state drones whose wing spans are longer than this table, CACI has been playing in that space for over 2.5 decades. We have thousands of systems deployed across the globe that are for the DoD and various intelligence communities. And we've been -- like I said, we've been hitting that problem for a long time. Lots of competition in the small UAS space and our systems -- I would say our systems are only ones that cover those larger drones all the way down to the smaller drones that are there. So I think as we see things like Iron Dome, now called Golden Dome, right, that is coming out, the interest to bring that same level of protection into -- here into the -- what they call the Homeland, the state side, right? We're going to start to see that we have an opportunity to pivot coming to those capabilities that have strictly been reserved to date for kind of national defense forward deployed. We're going to be able to bring those back here now as well to help in defending the Homeland as policies change and update to allow us to bring that capability here. Jeff, anything else you want to add to that?

No, I think you covered it. It's a long-standing franchise. We run the gamut from Class 1 to 5. As Jason outlined, many of the competitors in this space are focused on Class 1 and 2, so we're well positioned and is an important long-standing, very successful part of the business.

And is that a place where you see -- I imagine you answered, but is that a place where you see several winners in terms of -- I mean, I'm sure on some level, scale is important, but is it a place where whether it's different agencies, different services are going to be procuring lots of different systems or a place where we'll see -- end up seeing these many players get concentrated down to a few?

I imagine there will be some consolidation at some point, but it's a large enough space that I think there's room for more than a handful of players. One of the things about this that's most exciting to me, and Jason may want to expand on this. But one of the things that's most exciting to me is that this is almost a perfect example of our thesis that the power of software is what drives modern weapon systems. So the Counter-UAS environment is one where the threat in the afternoon could literally frequently be different than it was in the morning. So there is no hope to keep up with this in a hardware-driven solution. A software-centric solution lets you be continuously collecting, characterizing, defining new defeat modes and pushing changes back out, nothing is real time, but in hours or a day at the outside rather than a week or 2, which often renders the solution [ moot ]. I mean if you can't characterize it and defeat it in a couple of hours, it often doesn't matter. So our whole thesis -- Counter-U.S. is just one place that this applies. But our whole thesis about software-centric solutions for these weapon systems is a really great almost textbook example for Counter-UAS.

Yes. And just to extend that, Jeff, in just another minute here or less because it's a software-based approach, it's very agile. It's very flexible. We've been able to pivot -- use it and pivot into adjacent markets like counter space as well. We talked about space being a war fighting domain. It's not just optical terminals that we play in that. We've taken our software baseline that we've applied to Counter-UAS, and we pivoted to the counter space with our remote modular terminal, which was a win for us a little while ago with Space Force.

Excellent. We're inside of 3 minutes. So let's take a look in the room again, see if there's any questions. We've got one and one here, too.

Just wondering, given the action in your shares, have you thought about taking action on a share repurchase or similar?

Thanks for that question. Yes, we announced a couple of weeks ago that we would be buying -- we would be in the market buying back shares. Some of you that follow us will know we had a little over $330 million of authorization remaining from an earlier authorization, and we have been in the market for the last couple of weeks buying shares under that existing authority. And we'll see as things unfold here, whether or not it makes sense for us to do more. I suspect it may well.

Okay. And well, that was good. It got me. You crossed off one of my questions.

And I appreciate you outlining what you're seeing and not trying to minimize what's happening. But maybe just speak to what would be Plan B if there are cuts coming that appear that you don't visualize today, but that do happen?

Sure. So I can make a couple of general observations. It's hard to specifically answer those, you can appreciate. One of the things that I think is somewhat maybe not completely appreciated is the degree to which really all the activity we do with the government is covered by contract. Contracts can be canceled. They can't be unilaterally changed. You can't just decide you're going to change margin or payment terms or something else. But anything could be renegotiated. And we all know in a monopsony the customers sometimes have a disproportionate amount of leverage. So I'm not sure this is necessarily a very satisfying answer to your question. But to the extent that we find ourselves in a situation where we're challenged on a particular contract or situation, we're going to negotiate -- we'll deal with a change as it's directed and we'll negotiate whatever revision to the contract is appropriate for that. I would point out to everyone, though, that I'm going to come back to the fact that most of what we're doing all of -- nearly all of what we're doing is really important consequential national security work. The government has the ability to terminate contracts. We have a variety of rights in the context of a termination. And we would submit a termination proposal, and we -- we prosecute that. But we don't see, at this point, very much activity that isn't well aligned with their objectives or important to their stated goals.

Excellent. And with that, we are out of time. So Jeff, Jason, thanks very much for being here. Appreciate it.

Yes. Thank you, Seth.