Conor Walters

Conor Walters followed up on the upside from reconciliation funding for Golden Dome, asking about other considerable opportunities in CACI's portfolio tied to this funding beyond EW, and the bid process and timeline.

Answer

President and CEO John Mengucci highlighted Golden Dome's reliance on early indications and warnings, or 'left of launch' capabilities, and non-kinetic, low-collateral defeat for unmanned systems. He explained CACI's contribution involves leveraging sensitive activities and thousands of embedded sensors for a common operating picture. Mengucci expects funding to ramp up, with more clarity by the end of Q2 or early Q3, emphasizing the initial $150 billion spend focused on homeland defense.

Conor Walters noted CACI's unchanged top-line growth guidance (7-9%) despite stronger organic growth and lower acquired revenue, and requested an update on the acquisition integration process for Azure and Applied Insight. He also asked about other significant opportunities tied to Golden Dome reconciliation funding beyond electronic warfare, and CACI's outlook on the bid process and timeline.

Answer

CFO Jeff MacLauchlan confirmed that the Azure and Applied Insight integrations are largely complete and meeting expectations, validating their strategic and financial value. CEO John Mengucci explained that Golden Dome's concept relies on early indications and warnings ('left of launch') against ballistic and unmanned threats. CACI's contribution involves sensitive activities, thousands of embedded sensors for a common operating picture, and non-kinetic, low-collateral defeat methods. He expects funding to ramp up, with better clarity by Q2/Q3 end, focusing on the initial $150 billion spend for homeland defense.

Conor Walters asked for clarification on the margin cadence for the rest of the year, noting that guidance could imply a second-half decline, and also inquired about the working capital outlook and its impact on cash flow.

Answer

CFO Jeffrey MacLauchlan explained that while the second half is typically stronger, the disparity between halves is lessening. He expects Q2 margins to be flattish with Q1, followed by a step-up in the second half. He confirmed that working capital demand, driven by growth in inventory-heavy technology businesses, is factored into the free cash flow guidance.

Conor Walters asked what drove the Q4 adjusted EBITDA margin beat and for the puts and takes on the expected margin deceleration in early FY26. He also inquired about the outlook for capital expenditures.

Answer

EVP & CFO David Farnsworth attributed the strong Q4 margin to increased operating leverage from higher-than-expected volume and a favorable program mix within the accelerated deliveries. CEO William Ballhaus projected that CapEx might 'tick up a little bit' in FY26 to support automation and capacity but does not foresee a significant increase.

An analyst on behalf of Conor Walters from Jefferies asked for details on the drivers for the expected Q4 adjusted EBITDA margin improvement to the mid-teens, specifically focusing on gross margin progression and its viability as a baseline for fiscal 2026.

Answer

CEO Will Ballhaus explained the Q4 margin expansion is driven by two key factors: the improving average margin of the backlog as lower-margin work is replaced by new, higher-margin bookings, and the positive operating leverage from a streamlined cost structure. CFO Dave Farnsworth reiterated that this margin improvement will be a gradual process over time, not a sudden step-change.

Conor Walters asked if the strong 90% production mix in Q1 bookings provides better clarity on the timing of achieving the 80-20 mix target. He also asked about the drivers for the lower R&D spend and its future trajectory.

Answer

CEO William Ballhaus agreed that the 90% production booking mix is a strong indicator of the ongoing shift. Executive David Farnsworth added that the financial impact of this shift should become more apparent in the second half of the year. Ballhaus explained the lower R&D spend was due to completing internal projects and reallocating resources to customer-funded work, and he expects only an incremental increase going forward.