Prepared remarks
Ladies and gentlemen, thank you for being here. Welcome to the CACI International First Quarter Fiscal Year 2026 Earnings Conference Call. Today's call is being recorded. I would now like to hand the call over to George Price, Senior Vice President of Investor Relations for CACI International. Please proceed, 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. I appreciate you joining us to review our first quarter fiscal year 2026 results. With me this morning is Jeff MacLauchlan, our Chief Financial Officer. CACI's strong first quarter results mark a solid beginning to our fiscal year 2026. We achieved free cash flow of $143 million, driven by an 11% revenue growth and an EBITDA margin of 11.7%. We secured $5 billion in contract awards, resulting in a book-to-bill ratio of 2.2x for the quarter and 1.3x on a trailing 12-month basis. More than half of these awards were for new business for CACI, alongside our continued success in winning recompetes and securing sole-source extensions. Our performance in the first quarter boosts our confidence in meeting our full year guidance, which we are reaffirming, as well as our three-year financial targets. Jeff will share more details shortly. Turning to the macro environment, the federal government remains partially operational under a shutdown. Nonetheless, our business is holding strong due to our focus on national security, with most of our work funded and categorized as essential. Looking past the shutdown, we observe ongoing needs and positive demand signals from our clients, indicating a healthy funding environment for national security initiatives. Additionally, we are starting to see preliminary indications of how reconciliation funds allocated to the Department of Defense and the Department of Homeland Security may be applied. For DHS, the focus will likely be on modernization and border security, which is expected to benefit programs like BEAGLE and drive demand for our Counter-UAS technology. Regarding the DoD, aside from areas we’ve talked about before, we also anticipate that reconciliation funds, including those for Golden Dome, will support some of our intelligence programs, as we concentrate on left-of-launch situational awareness. Our ability to restate our guidance and fulfill our commitments during a government shutdown illustrates the resilience of our business, which is a product of thoughtful choices and investments we've made over the years. Our strategies have equipped CACI for success in various environments, including the current one. Let me share some examples of awards, program performance, and investments showcasing our competitive edge. First, in Counter-UAS, rising drone threats and increased encroachments globally are generating strong demand for our capabilities, including from 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 an initial order we got in fiscal 2024, along with an order for vehicle-mounted Counter-UAS systems from Canada last quarter. The threat is not just overseas but also present domestically, and the administration has emphasized that homeland defense is the top national security priority. That's why CACI has proactively invested to develop Merlin, our latest Counter-UAS detect and defeat system. Merlin boasts highly differentiated capabilities that make it particularly suitable for homeland defense. It is built on technology that has proven effective globally for years, focused on real missions and threats, delivering significant outcomes 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 functionalities that deal with Counter-UAS threats using cellular networks. Our Merlin system has outperformed competitors in various government-sponsored demonstrations against a wide array of UAS systems, utilizing our software-defined technology to successfully guide a third-party kinetic system in defeating a drone and integrating with a platform recently chosen as the Army's Counter-UAS fire control system. These outcomes are driving significant customer interest, both domestically and internationally. The second focus area is Counter-Space. Modernizing our nation's capabilities is essential for addressing peer threats in space. We are witnessing rising interest and demand for CACI's offerings, including a $240 million award in the first quarter to sustain and modernize the Tactical Integrated Ground Suite for the Army. Additionally, shortly after the quarter ended, we received an initial production order from the U.S. Space Force for a Remote Modular Terminal, a broadband counter-satellite electronic warfare system that utilizes our existing Counter-UAS software to provide enhanced counter-space capabilities. Both TIGS and RMT exemplify how we can leverage our differentiated software-defined technology and strong past performance to assist warfighters in executing vital missions across the electromagnetic spectrum. The third area is network modernization, which is a foundational requirement for many critical national security priorities. Without modernized networks, DoD priorities like NGC2 and Gen C2 will either be less effective or impossible to achieve. Given this context and the administration's focus on modernization, we are seeing good demand and a solid pipeline of opportunities for network modernization. For instance, the Air Force recently awarded CACI task orders #2 and #3 under the base infrastructure modernization program, formerly known as EITaaS Wave 2. We will modernize networks for the U.S. Indo-Pacific Command and the U.S. Space Force, ensuring more efficient and secure network operations. Together, these task orders represent about $400 million in awards this quarter. Furthermore, we are progressing with our existing network modernization initiatives. For our SIPRMOD program, we received NSA approval for the use of our software-defined CSfC technology, enabling the classification and processing of data through our framework. This expedites our capacity to test and deploy devices on the network, positioning us to operationalize the network in 2026. The final area highlights digital application modernization. Our clients are seeking improved efficiency, effectiveness, and speed of delivery as they modernize software applications. CACI continues to set the industry standard by employing commercial agile software development methodologies and DevSecOps. For example, our BEAGLE program for Customs and Border Protection stands as one of the largest agile software development initiatives in the federal government. Our outstanding performance on this program recently led to our second one-year contract extension, reflecting the value we provide to CBP and further demonstrating CACI's strong positioning with our customer base. The combination of our superior agile development capabilities and proven past performance has allowed us to secure the $1.6 billion JTMS award this quarter. The Joint Transportation Management System is TransCom's initiative for enterprise modernization, aiming to unify end-to-end transportation and financial processes across the DoD on a commercial software platform. CACI will harness our agile software development and AI capabilities, alongside SAP's S/4HANA commercial platform, to markedly enhance visibility, collaboration, and auditability for the command. This is yet another case of the federal government turning to CACI for large-scale modernization to enable mission success while delivering long-term value for the government and taxpayers. It's crucial to note that as we continue to succeed in the marketplace, we also remain committed to investing ahead of customer needs and our industry-leading agile capabilities to ensure CACI is well-positioned to win and deliver on these essential modernization efforts. We are now broadening our application of AI tools to enhance the speed, efficiency, and scalability of our agile software development processes, continuing to innovate to maintain a leading edge in leveraging commercial software development tools to address critical national security priorities promptly and effectively. These are just a few examples of the numerous successes CACI is experiencing, thanks to our focus on vital national security priorities, software-defined technology, commitment to proactive investments, and unwavering focus on high-quality execution. I will now hand 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. The 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 continues 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 move to Slide 12. CACI provides unique expertise and technology to tackle our nation's key national security challenges. We assist our customers in overcoming their most pressing issues and achieving their goals. As a result, our clients are increasingly depending on us. We are the company that consistently addresses the toughest challenges when our customers need us the most. Because of this, our business remains strong, and we continue to fulfill our financial commitments even in this changing and somewhat uncertain near-term environment. The effectiveness of our strategy, our unique position, and our execution is reflected in our steady performance. Our excellent first quarter results mark a strong beginning to fiscal year '26. We are effectively implementing our strategy, securing and ramping up significant new projects, winning recompetes, and driving additional growth from our extensive contract portfolio. Consequently, we are happy to reaffirm our fiscal '26 guidance and are confident in reaching our 3-year financial goals. We are well situated in the right markets with the appropriate capabilities, and we are confident in our ability to foster long-term growth in free cash flow per share and shareholder value. As always, our success is supported by our 25,000 employees who remain dedicated and continue to push the boundaries of national security. To everyone at CACI, I commend you for your efforts each day for our company and our nation. To our shareholders, I appreciate your ongoing support of CACI. With that, Tina, let's open the call for questions.
Questions and answers
Our first question comes from Colin Canfield with Cantor Fitzgerald.
Perhaps we could discuss the initial expectations for the FY '27 request. There seem to be two perspectives forming regarding buy-side sentiment. One suggests that the reduction from reconciliation plus base indicates a decrease year-on-year. The other perspective is that it seems unrealistic for Congress to propose a cut to defense budgets in the context of an increasing national security environment. It would be helpful to understand where you anticipate the high-level budgets to trend.
Yes, Colin, thanks. That's a meaty first question. Look, we're 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. Regarding Counter-UAS cyber electronic warfare contracts, investors have typically been used to large multiyear contracts, but it appears that contracting officers are adopting a more flexible approach. Could you discuss how you anticipate these contracts will be awarded and the degree of flexibility that is being recognized among companies like yours, Epirus, and AeroVironment, which have commercially developed solutions in this area?
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 it is to be a commercial company. And look, we've doubled 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 in 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 1, and we turn 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 fiber optic 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 that bookings can be quite unpredictable, but we certainly had a strong booking quarter. So I have a two-part question. While the submitted pipeline is down, we still saw those strong bookings. Does this suggest a very high win rate on that conversion? And for my second question, should we anticipate that bookings might slow down a bit over the next few quarters since the submitted pipeline is somewhat reduced?
Yes, I’m actually quite pleased that the transparent information we share prompts questions like this. We take pride in providing you with all the information we have as we manage this company. We do our best to discuss potential bids that may be awarded in the future, review our pipeline of submittals, and share what we ultimately win. So yes, there will be fluctuations in the numbers. I’m very proud of our win rate for the first quarter. While I keep an eye on our position at the year’s end, winning $5 billion in the first quarter, which is half of what we won last year, places us in a strong position.
You need to consider the entire data set because we had a strong quarter for awards, which you would expect to lead to a decrease in the number of awaiting decisions. However, the number of expected submissions has increased. The adequacy of the pipeline is somewhat like a balloon; at any given moment, one part of it may decrease while another part increases. This variability is just part of how things work.
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 a 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. I'd like to add to Jeff's comments. Given our considerable focus on national security work, the level of technology involvement, and a substantial funding backlog, much of our work is essential. This means we are capable of catching up on that work. While you may not notice any impact in the second quarter, we will definitely mitigate any short-term effects over the entire year because we have the full year to address those delays. I believe we are in a strong position. However, if these delays persist for an extended period, Jeff has already mentioned that this scenario is well accounted for in our current guidance.
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, we are seeing applicant volume at an all-time high. Believe it or not, we had 500,000 applicants in fiscal year 2025, and we have a significant number of individuals applying for jobs to date. It helps that we are more of a technology company; if we were solely a government services provider, the shutdowns lasting 15 to 30 days would likely make people hesitant about pursuing national security roles requiring expertise. However, we are still seeing 40% of our hires come from referrals. We also have a well over 300-person intern program that will begin shortly. We haven't noticed any slowdown in the number of applicants, and we definitely haven't halted hiring given the wins we've experienced 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'd 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 the 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 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 correct. From a planning perspective, we are noticing opportunities and holding meetings to discuss the development of alternatives. We are beginning to get a clearer idea of where things may land. The significant DHS content, along with certain elements of the DoD reconciliation funding aligned with our strengths, provides us with some confidence. However, we haven't directly linked any of the first quarter performance or the funded backlog we mentioned 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 one-time benefits this quarter? It suggests the margins in technology maybe are trending higher than at least we were modeling.
Thank you, Jon. I won't dispute your calculations. The technology margins were indeed strong this quarter. I want to emphasize that the segment isn't uniform; certain parts of the technology portfolio have margins above what you mentioned, while others are lower. When we discuss mix, it includes both technology and expertise, as well as variations within the technology sector. It's important to note that this hasn't changed our outlook for the year. I encourage you to consider this as a way to de-risk our typical margin increase from the first half to the second half of the year. We now anticipate that the increase in the second half will be somewhat smaller than in recent years. But you have calculated that correctly.
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. There's certainly been a tremendous increase in OTAs, both in their use by existing users and by customers who haven't used them before. I also want to reiterate the point made in response to one of the earlier questions where John mentioned that we are intentionally positioned to sell commercially and in a traditional environment. In fact, there is no way that customers buy that we don't cater to. I think that is very important to emphasize.
Yes, Jon, I’ll also add that customers want the flexibility of using options like Far Part 12 and Far Part 15 to meet their specific needs. The era of lengthy development timelines, where requirements are set in 2025 and the first systems aren’t delivered until 2035, is not sustainable given the rapid evolution of threats. As Jeff mentioned, about a decade ago, we made strategic moves to ensure our company could remain agile. When we invest in advance of customer needs, the government encourages us to take the lead in funding more from our budget than theirs. They are looking for explanations on how our innovations align with their solutions and want to procure items as simply as obtaining a part number for specific products like mobile Counter-UAS systems or handheld EW devices. Our software enhances these products, providing users with various applications. This creates a pathway for easy upgrades through annual licensing fees that offer customers additional updates. Importantly, I've emphasized for years that this is different from the traditional model where purchasing a new capability means acquiring a new device, leading to waste. Customers are seeking agility and prefer to buy like commercial entities rather than being tied to long-term development contracts. As Jeff noted, we are equipped to support both models effectively.
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 begin with that. I'm sure John will want to add to this as well. There has been a minor disruption in cash collections, mainly due to the availability of staff for invoice approvals and similar tasks. We're experiencing a bit of administrative delay related to that. It's not significant, possibly collections being 10% to 15% lower, which is small but noticeable. Likewise, there are areas where activity levels have decreased. This is quite minimal, likely in the single-digit millions in revenue, and we expect these activities to recover during the year. Overall, it doesn't change our outlook for the year. While it is noticeable, it remains small and manageable.
I wanted to ask about the current environment, especially considering that some peers might be facing tougher conditions compared to CACI. Have you noticed any increase in price competition? Also, can you discuss any bids you lost, and whether those were primarily driven by pricing? Have you observed any changes in competitor behavior?
Yes. Gautam, 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 timeline 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. A significant portion of our EW portfolio consists of modular mission payloads. This involves taking common software capabilities and applying them to different form factors. These can be used to detect wireless signals, land-based signals, or missile signals. There is a wide range of RF capabilities available globally. The program Louie mentioned involves us delivering several modular mission payloads to firms that build drones, who are looking for comprehensive solutions. They have drones that can carry specific weights and are interested in what features and devices we can integrate into those unmanned systems. We have successfully delivered to the Puma and various other drones, either directly to the U.S. Army and other DoD agencies or to drone manufacturers themselves. I anticipate that this market will continue to expand, which is why we entered this space a number of years ago. We aimed to position our company to deliver our solutions under various regulations, enabling both the U.S. government and drone manufacturers to easily procure our systems while allowing us to adapt them as threats evolve. This has been our focus. 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.
Congratulations on the impressive results. I wanted to discuss the international opportunity a bit more. It seems that it might not be a focus area for you. However, with NATO budgets now reaching around 3.5% of GDP and an additional 1.5% on top of that, there are evident capability gaps within the EU, Europe, and NATO as a whole. Can you share any particular areas you are targeting over the next few years?
Thank you, Jan. I've often mentioned that the world can be a very dangerous place, and the situation in Ukraine served as a significant wake-up call, increasing the urgency surrounding defense and national security worldwide, particularly in electronic warfare. Many allies are planning to expand their defense budgets. Currently, we provide technology to several NATO countries, and we've been gradually revealing our international efforts because we want to approach this cautiously, as international spending can increase quickly. Since our last conversation, we've extended our sales to 15 NATO countries and are evaluating demand in seven additional countries. In Eastern Europe, allies are showing greater interest in our SIGINT, EW, and Counter-UAS technologies. Initially, our focus was on areas with existing U.S. government and DoD sales, following the Foreign Military Sales path. Now, we are transitioning to direct commercial sales with more countries. While European nations are expected to increase their spending significantly, they will likely prefer to invest domestically. Our next step is to determine what relationships we need to either license or co-produce technology locally, adding the relevant software. There's still a long way to go, but the market has genuinely opened up for us in the last 90 days since we last spoke.
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 discussed this multiple times, and our approach remains consistent. Our process is primarily guided by GAAP. The opportunities we are seeing in the pipeline tend to lean more towards technology rather than expertise. There is a stronger focus on sensors and, understandably, the software applications related to those sensors. This aligns well with our strengths. We are noticing some activity in the pipeline, and we are eager to explore a few of these ideas, which are still in the early stages, but it is an area of active 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 mentioned that many people at AUSA were focused on counter UAS, noting that out of 15 meetings, 12 addressed it and 10 emphasized it, which is quite rare. Is the upcoming funding significant enough to affect companies larger than yours? While I understand you are not ready to provide specific numbers, could you share what portion of your current revenue comes from counter-drone solutions?
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 wartime 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 a 1.5-year 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 about 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, this is Jeff. However, I want to note that the anticipated increase between the first half and second half will be less significant this year compared to previous years due to the strong performance in the first quarter, which was largely influenced by factors that did not alter our outlook for the year. In summary, the step-up from the first half to the second half will not be as marked as it has been in the past.
Noah, I want to add that if we consider the last shutdown in 2018 and 2019, it spanned from December to January, which resulted in fewer employees due to the holiday season. The key difference between that shutdown and our current situation is that we now have many more long-term technology programs in development. We are investing more proactively in programs ahead of customer demand, enhancing our software baseline. We are selling these on a purchase order, which leads to a different buying schedule. Customers don't need to go through extensive selection processes; they can buy from a GSA-approved price list. There are many differences that minimize the impact this time. Regarding hours made up, if we’re at a help desk and no one requires assistance, those hours won’t be recovered later, which is typical for government services work. However, most of our work is essential and must be completed. Each agency is handling its own processes, and I wish I had a clear guideline on what is mission essential. The priorities can shift, particularly with defense being more critical than other areas. Overall, we have a strong business outlook right now, and as Jeff and I evaluate the impacts, we believe we are on track for a fantastic year.
And at this time, I will turn the call back over to John Mengucci for closing remarks.
Well, thanks, Tina, and thank you for your help on today's call. I'd like to thank everyone who dialed in or listened to the webcast for their participation. We know that many of you will have follow-up questions. So Jeff MacLauchlan, George Price and Jim Sullivan are available after today's call. Please stay healthy and my best to you and your families. This concludes our call. Thank you, and have a great day.