Good afternoon, everyone. Welcome back to the Aerospace and Defense Track at the 2025 J.P. Morgan 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. We have Jeffrey D. MacLauchlan, CFO. We have Glenn Kurowski, Chief Technology Officer. We have a strong contingent from IR as well. We have George Price and Jim Sullivan. Welcome to all of you. Thanks for being here.
Thank you.
Sure. I guess we'll start off. It's been, you know, we recall your earnings report back at the end of January. And, you know, the numbers were quite good. But, you know, we see what the stocks have been doing. And, you know, the market is acting as if, you know, 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?
Thank you, Seth. Let me first observe that, you know, our year is off to a really strong start. We're a June 30 fiscal year. Our January earnings call was the halfway mark of our year. First two quarters, we beat and raised. We've raised our guidance each of the quarters. We gave three-year targets last fall, pre-election, actually. 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. The impact of DOGE and the administration's priorities has actually been pretty de minimis. I'm sure we're going to talk about it in a lot more detail. I can start by observing that we had two contracts show up on the DOGE board. One of them was for a contract that had already ended.
The other was for a contract that was about to end, had about $1 million of revenue in the current year. A week or two later, the government issued a list of top GSA contractors, which did not include us, I'm happy to say, in that top 10. 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. There were certain categories, 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 83, 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. We had seven of those that were in the identified codes. Of those seven, two accounted for about 70% of the revenue. 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. 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 had been identified and concluded that, you know, we did not have any kind of meaningful exposure. Let me add, though, that lest it sound to you like we are being dismissive, we are not.
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, you know, 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. You know, we're also sure that, you know, this process isn't over. We do remain very confident that the things we're doing are important, vital national security interests, and also well aligned with the things that the government has identified as priorities. 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. 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. 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 Protection in particular. I do not mean to minimize the attention that we are paying to this, but our exposure to the areas that the government seems to be particularly focused on is quite small.
While ours is 6%, all of you will be well aware that many of the companies to whom we're routinely compared, you know, may have 25% or 30% of their annual revenue in these categories. I 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. You know, 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 toward customers' objectives.
No, 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. 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, OASIS was actually not one of, not one that was in that code. They were really focused on advisory consultancy type engagements. Contracts where you were overseeing the work of another contractor, contracts where you were giving government organizational advice, classic, you know, I'm going to generically say management consulting kinds of business, which is really not, you know, not something that we do.
Right. Okay. Okay. We think, you know, 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, you know, your customers in the government who may be very distracted at this time with what's going on in their offices and, you know, their own jobs and futures, you know, 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, you know, 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 virtually impossible to not observe and note the fact that, you know, there's a lot of disarray. People being people, a lot of people are uneasy.
We interact with the government across the spectrum of seniority and roles from, you know, flag officers to, you know, 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. You know, they're worried about themselves, what it might mean, you know, for their friend that works down the hall, their neighbor. You know, those people are distracted. While we have not seen any affirmative sort of slowdown or strategy of pausing or dragging feet, you know, we do observe that things that used to take, you know, two or three days sometimes take, you know, three or four days.
That is something that's manageable and factored into the way we work and manage the business. We have a number of things related to ongoing contract administration. I mentioned the mechanics of funding is one. You know, the evaluation of proposals, the, you know, 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. 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. I can tell you that, you know, people at the IRS are as distracted as others in the government are. It remains in our guidance.
I have no reason to think it's in jeopardy. You know, there are things we need the government to do, you know, and we need them to do that.
Yeah. No, absolutely. Absolutely. Just in terms of some of the recent, you know, news we've seen, continuing resolution, we'll see what happens over the next few days. It is a little bit different for you guys given the June fiscal year. 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? As you think about, you know, the way that you'll have to start off thinking about fiscal 2026, if that were to be in place.
Yeah. Of course, the CR is not done. It is through the House and Senate now. We do not know exactly what the final version looks like. 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, you know, 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. On that list, within that range, was a full year continuing resolution. That does not result in any revision to our outlook for the year.
If there's some added flexibility 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 say about because the House and Senate versions are $10 million or $15 million different, but they're, you know, within easy kind of conference reconciliation range. That $300 million would be additional incremental funding for the next two years in customers that represent about two-thirds of our annual revenue.
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 SPECTRA program, those are, you know, very positive indications.
When you say million, you mean billion, right?
I'm sorry, I meant billion. Yeah.
Cool.
Billion's not anything anymore, is it?
Right. Right. That's good to know. I think maybe the other thing that's, you know, been in the headlines recently, Ukraine, and to the extent that there is an end to support to Ukraine or a ceasefire 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?
Yeah, we don't have any, 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. The, you know, 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.
A corollary item, the increased attention of the European governments on their own defense may actually also present an opportunity.
Yeah, that was something I was going to ask as well. Before we get to that, though, I want to, let's, a question for Glenn. Maybe as CTO, if you could talk about some of the things that distinguish C ACI and some of the ways, you know, I think that there is, I mean, there's a few things we'll talk about in terms of photonics and stuff like that. Just at a higher level, you know, how do you think about the things that you guys do at CTO that distinguishes C ACI?
Yeah, good question. Thanks, Seth. A real important thing, right, is understand where we came from, right, our heritage. We got 60 years of building expertise in the mission space specifically. About, you know, 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. 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. We can do that because of all the expertise with the mission we have.
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 big, a real big hit for us right there.
Excellent. Is there maybe a good example we think about in terms of how you guys do that?
Yeah. If you think about our modernization programs, our software modernization programs for, and as a specific example, our BEAGLE program, which is for Customs and Border Protection, where we have implemented an agile approach there to be able to deliver a massive speed in deliveries to them. In the past, you know, before we had the contract, they were getting, you know, a handful of deliveries every year, updates to their mission applications to help them do their 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. Massive amount of savings for them because we're continuing to improve using some of those, you know, commercial modernized approaches to doing software development and gets them mission outcome a lot faster.
They can do a lot more with their money. That is just one example.
Excellent. Jeffrey, when you think about the return on investment that you get from bringing these commercial practices in, bringing them to the government customer, you know, getting, you know, earning a return on that, how do you, you know, how do you think about that?
Yeah, I mean, it's really the best of both worlds. Glenn 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. Glenn referred specifically to BEAGLE as an example, but we have three of the government's, we have the three largest agile software programs in the federal government. The return calculus is really pretty simple because we're 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. It's really, it's really kind of a win-win-win.
You know, to go from a handful of application updates to Glenn mentioning 1,000, I mean, that's sort of a, that's a mission-changing kind of pace. In fact, our NASA NCAPS win, nine months or so ago at this point, was largely a result of our BEAGLE success. It's a very similar program and one of the other three large agile programs where NASA will consolidate across their 11 centers all their mission application work, which we'll handle under the NCAPS program, which was practically sold by Customs and Border Patrol. You know, a happy customer or a happy client, we all know is, you know, is a good thing, your best reference account.
Absolutely. It's interesting you bring that up because, you know, you talk about agile software development and we think about, I mean, I think not always clear on what DOGE is attempting to do. I think there maybe are several things that they're attempting to do. One of them, it sounds like, is to bring some of the technology and, you know, best practices in the commercial sector into the government. You know, 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?
Yeah, there has been. Glenn 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 retained 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, you know, slack-jawed 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 two ago, undertook a program with an Oracle application for the DAI, the Defense Agencies 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. Seven of the 43 or so Defense Department agencies that use our tool have all passed their audits every year that they've used it. The Marine Corps is the only service that uses it. They're the only service to have passed their financial audit now two consecutive years. That is just an example of 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.
You know, we're happy to obviously talk about it more or, you know, help migrate more agencies to it, et cetera. I don't know if there's any other examples you'd like to add.
Yeah, I'll answer the question on the other side. You know, to Jeffrey's point, we've kind of interfaced with the government to show them, hey, here's how we're doing efficiencies. You want to bring forward, 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. I'll answer it on the other side. We also interface with the commercial world, with the Silicon Valleys. You know, we have deep partnerships with AWS. We have deep partnerships with GitLab, a company that's, you know, very well known for building DevSecOps, you know, development security operations, pipelines. In fact, we build our, we have our entire company stack is built with a relationship with GitLab to be able to speed and accelerate those things.
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 two 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. Okay, we'll keep going here. I guess maybe Glenn, 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, you know, 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? I ask because there's been some, you know, some news recently. I think there was a GAO report earlier this month talking about this topic, but you probably explain it way better than me. I'll let you go ahead.
First understand is, right, that CACI sees space as a warfighting domain, right? It is a critical part to ensuring national security across and defense across the world. We play in that space in several different ways. The question that you are getting after, though, is about Space Development Agency, specifically in our optical communication terminal business, right? We build the optical communication terminals that we have sold and have partnerships and relationships with SDA, with DARPA, with NASA, Space Force, and then other intel agencies as well as they are 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 warfighters 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 is necessary for military and national operations.
That is 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 is different than a commercial specification.
Right.
That's important to understand, right? Also, we build those terminals completely on a supply chain that's U.S.-based. That was intentional from the beginning, right? 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, you know, the places that we're moving in terms of the world and the relationships with foreign entities and near peers as well. That's an important area. You know, and we absolutely agree with GAO's thing, right? Tranche Zero was getting satellites up there with terminals to be able to kind of make sure that this was a good approach. Tranche One 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.
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, you know, 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. We're feeling pretty confident about that.
Right. We should think about that, you know, assuming that the various tranches are going to get built out and, you know, we'll see hundreds of satellites out there for communications and missile warning. How 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 three of the four primes teams. We're not the exclusive supplier. They're buying different programs, different satellites. They buy for multiples, but our customers include three of the four today.
Okay. Another topic I wanted to talk about was counter UAS, since that's something that both, you know, 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 startup companies here in the United States and the, you know, capabilities that they're attempting to bring to market, a lot of that seems to center around counter UAS. You know, how do you view the CACI role in that mission?
Yeah, so first, you know, to understand that yes, there's a lot of competition in the small UAS space today, with small UAS being drones you can, you know, fit in the palm of your hand or you can go, you can buy very easily to obtain, right? When it comes to the larger kind of near-peer nation-state drones whose, you know, whose wingspans are longer than this table, CACI has been playing in that space for over two and a half decades. We have thousands of systems deployed across the globe that are for the DOD and various intelligence communities. Like I said, we've been hitting that problem for a long time. Lots of competition in the small UAS space.
Our systems, I would say our systems are the only ones that cover those larger drones all the way down to the smaller drones that are there. 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, you know, here into what they call the homeland, the stateside, right? We are going to start to see that we have an opportunity to pivot kind of those capabilities that have strictly been reserved to date for kind of national defense forward deployed. We are 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. Jeffrey, 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 Glenn outlined. Many of the competitors in this space are focused in Class 1 and 2 . We are well positioned and it is an important, long-standing, very successful part of the business.
Is that a place where you see, I imagine the answer to Jeffrey, 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, you know, more than a handful of players. One of the things about this that's most exciting to me, and Glenn 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. The counter UAS environment is one where the threat in the afternoon could literally frequently be different than it was in the morning. 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.
You know, nothing is real time, but, you know, in hours or a day at the outside rather than, you know, a week or two, which often renders the solution moot. I mean, if you can't characterize it and defeat it in a couple of hours, it often, you know, doesn't matter. Our whole thesis, counter UAS 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.
Yeah, and just to extend that, Jeffrey, 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, right, like counter space as well. We talked about space being a warfighting 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 are inside of three minutes, so let's take a look in the room again, see if there are any questions. We have 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. Yeah, 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. We have been in the market for the last couple of weeks buying shares under that existing authority. You know, we'll see as things unfold here whether or not it makes sense for us to do more. I suspect it may well.
Okay. That was good. It got me, you crossed off one of my questions.
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. 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 can be renegotiated. You know, in a monopsony, the customers sometimes have a disproportionate amount of leverage.
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, you know, 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, nearly all of what we're doing is, you know, 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, you know, and we would submit a termination proposal and we'd prosecute that.
We do not see at this point very much activity that is not well aligned with their objectives or important to their stated goals.
Excellent. With that, we are at time. Jeffrey, Glenn , thanks very much for being here.
Yeah, thank you, sir.
Appreciate it.
Thanks.
Thanks, everyone. Good afternoon and welcome back to the Aerospace and Defense Track here at the J.P. Morgan Industrials Conference. I'm Seth Seifman, the U.S. Aerospace Defense Analyst, and we are very grateful to have ATI here with us this afternoon to talk about the company. We have Don Newman, CFO, and we have Dave Weston, who runs Investor Relations. Thank you both for coming. We really appreciate it. Glad to have you here.
Happy to be here.
Great. Yeah, maybe we'll just kind of jump into some Q&A.
Let's do that.
Good, good. Maybe start off with, I guess, you know, something that's been topical in the news recently has been the labor contract. We saw, you know, I guess there's been a few pieces of news, including the agreement with the union leadership last Friday, followed by news that part of the contract was accepted this week, part of it not accepted, but you'll continue negotiating. Why don't you give us an update on where things stand and how you're thinking about that process going forward?
I'm happy to do that. This is related to our USW representative teams. One team, about 1,000 people on the East Coast, up in the Pennsylvania area, Pennsylvania and New York. A second group, about 150 people on the West Coast. The ratification vote was held here very recently. The outcome of it was the West Coast team, which again is about 150 folks, did ratify the agreement. The East Coast team did not ratify. Up to this point, the conversations between the company and the union representatives have been very positive. We were expecting that we will reach agreement and it'll be a good outcome for the company as well as for our people. We did get an extension on the agreement, which had expired on February 28, and now we have that extended through April 30.
We're confident that it'll be, again, a good outcome.
Can you say anything about where the sticking points are?
We, number one, do not know quite yet. I'm sure the USW representatives are having some conversations with the rank and file to understand where their concerns were. I anticipate we will hear more as that unfolds. You know, our objective as a company is, number one, to take care of our people. We appreciate our teammates. Number two, we want to make sure that we are hearing their needs.
Okay, okay. And then just from a procedural perspective, you know, should we think so if.