CACI at Bank of America Conference: Strategic Tech Shift

On Wednesday, 19 March 2025, CACI International Inc (NYSE: CACI) presented at the Bank of America Global Industrials Conference 2025, outlining its strategic transformation from a labor-based to a technology-driven solutions provider. The company highlighted its focus on software-based solutions and niche expertise in response to evolving threats. While the leadership expressed cautious optimism amidst political transitions, they emphasized sustainable growth and strategic acquisitions.

Key Takeaways

• CACI is transitioning to a technology-driven model, focusing on software solutions for the U.S. federal government.
• The company reported improved margins and a 7% organic compound annual growth rate over the past five years.
• CACI has $24 billion in submitted bids awaiting government decisions, with $111 billion in awards won.
• Future growth areas include electronic warfare, counter UAS systems, and network modernization.
• CACI is exploring expansion in Eastern Europe, particularly in Poland, for electronic warfare equipment sales.

Financial Results

• Transitioned from 80% expertise and 20% technology to 55% technology and 45% expertise.
• Margins increased from mid-8% to low 11%, with a book-to-bill ratio of 1.6 times over five years.
• Generated $2.3 billion in free cash flow, aiming for $1.6 billion over the next three years.
• Backlog exceeds $30 billion, with a focus on high single-digit growth over the next three years.

Operational Updates

• CACI is emphasizing software-driven solutions to address rapidly changing threats.
• The company has transformed its business development team to focus on revenue capture.
• Strategic bidding on larger, longer-term contracts, with an average program duration of six years.
• Active reskilling initiatives for workforce and customer base, with a focus on network resilience and cyber protection.

Future Outlook

• Key growth areas identified include electronic warfare, counter UAS systems, and software-defined networks.
• Exploring expansion into Eastern Europe, particularly Poland, for electronic warfare equipment.
• Strategic acquisitions focus on filling technology gaps rather than buying scale, maintaining a debt-to-EBITDA ratio of 2.5 to 3 times.

Q&A Highlights

• CACI is assessing opportunities in Eastern Europe, with a focus on partnerships for electronic warfare equipment sales.
• The company uses employee referral and internship programs to attract talent, with 40% of employees being veterans.
• Incentive programs for the business development team are based on revenue capture rather than awards won.

For more detailed insights, readers are encouraged to refer to the full conference call transcript below.

Full transcript - Bank of America Global Industrials Conference 2025:

Unidentified speaker: Thank you for having us.

Marianne, Analyst: So just to start, for investors that might not be familiar with the defense environment or defense services, could you mind going through a big overview of, like, what CACI does and the key markets you are exposed to?

Unidentified speaker: Yeah. So CACI, sixty year old company, been a public company for a little over fifty years, eight point five billion dollars revenue business, low 11% margins. And we deliver expertise. So think about personnel to the federal government and we deliver technology. The split for revenue, 55% is technology, 45 is expertise.

And we like to say that we’re in very narrow, deep funding streams across the United States federal government. We’re involved in cyber, we’re involved in space, we’re involved in network modernization and enterprise IoT. And electronic warfare and all of our technology is delivered with software as its basis because we firmly believed that the threats were going to continue to change and hardware based solutions were going to be something in the past because we believe that the threat was going to be very dynamic, and that’s how we built this company forward. So very purpose built, and we’re sort of where we are now now by accident. It’s actually a long term strategy that sets us up well as we go forward.

Marianne, Analyst: So over these, like, decades, right, you have been transforming what type of solutions you provide. How has been that transformation, especially the one that you started less than ten years ago, towards technology, towards software from more of boots on the ground expertise purely. What how has that transition has been, and what motivated that?

Unidentified speaker: Yeah. So I came into the company in 2012. Timing is every everything. At the end of twenty twelve, sequestration hit and low price technically acceptable hit. US was coming out of the Middle East wars, And CCI, over the last fifteen years prior to that, was really delivering people.

So when the wartime came down, better buying power comes out, low price technically acceptable comes out, sort of say it’s time for another strategic change. In 2012 period, we were 80% expertise and 20% technology. Our margins were in the mid-8s and growth was low to mid single digit. So we took a strategic pause and looked forward and said the CACI of the future needs to be more involved in what we say is stickier. We have to come up with stickier ways to stay close to our customers.

And we spent the next two years, frankly, looking at the expertise delivering labor hours and saying that is a commodity market. So we knew that back in 2013 and 2014 that selling labor to the federal government was a commodity. And we’ve all gone to business school, right, when you only differentiate on price, you either got to have the lowest price or you got to be in a different market. So we quickly transformed our business to focus on technological solutions. And since we were new to that area, we were very strategically focused on everything has to be software driven because we truly believed after the last twenty years of war is that coming up with hardware based solutions where you can count on your adversary changing tactics every year, we believe it was going to go to changing tactics every day.

And software allows you to make changes. Your iPhone has apps. Your iPhone has apps because every vendor is going to change what that app does on a not on a routinely basis, but whenever they believe they want to provide you something, something different. So we took a step back. You can look at our financials in ’eighteen and ’fourteen, a lot of negative double digit growth quarters.

And we were really getting out of the expert expertise business, out of the price sensitive expertise type business. What we’ve doubled down on was expertise where there’s only two or three companies that have that knowledge to sell into the federal government. So very pinpoint focus on the expertise we’re going to sell going forward. And then we have always been an acquisitive company. We’ve done over 90 acquisitions in the life of the company, probably 40 or so in the last twenty years.

And really said, let’s build a capability based business where we can focus on seven markets and go very, very deep and provide solutions in a software manner. It worked because we believed we had and we did prove it a fifty two year history with customers. So in the DOD and the intelligence market, past performance matters. And what had happened in selling labor hours is past performance would no longer ask for. Because if you don’t ask for past performance, you can’t get lower and lower pricing.

So I’m watching peers in our sector lower their rates, cease investments, just sell people. That became jobs that used to be five years long, three years long, two years long. And my premise is if we’re recompeting for our book of business every eighteen months, it’s not really a business. So let’s take all those all that money that we invest to re win our book of business and we’ll apply that towards new areas. So right out of the gate, did a little 15 to 20 different acquisitions.

Many of them were tuck ins, some were major placeholders, and really built this technology business forward. Today, we enjoy 55% of our business is tech, 45% is expertise, and that expertise is very selective. Margins are not we’re not getting in bids where every twelve to eighteen months, we’re being asked to rebid. And we have an actual stature in the customers that we provide labor to. So very different looking business, dollars 8,500,000,000.0 business now, up from $3,000,000,000 and $3,500,000,000 low 11% margins, up from mid-8s.

The last five years, seven percent or organic compound annual growth rate, about $2,300,000,000 of free cash flow, book to bill 1.6 times over a five year window, and won $111,000,000,000 dollars plus awards, which is new for the company. Because our theme was, let’s stop bidding everything that moves because we’re selling people. Let’s really look at things that are in this mode where we can bid less and win more because we can spend more time winning larger programs. Larger programs, as you’ll hear about, is what gives us great view many more years into the future, which is why when we talk about the craziness which is going on now, we actually have a very healthy backlog. But the most important part to our new backlog, instead of being eighteen months with year and a half long programs, the majority of the programs we put in the last four years have an average duration of six years.

And our backlog is over $30,000,000,000, 30 billion dollars, so very different position business going forward. But it did take some quarters of negative growth and investors hanging on a way to see if this strategy played out.

Marianne, Analyst: So when you think about the future, what is the right balance between this like really niche expertise that you want to be exposed to and the technology?

Unidentified speaker: Yes. So what’s crucial to the technology that we built was hanging on to some of the expertise work. I’ll give you a couple of examples. We were embedded with a lot of ground forces for the better part of fifteen years. What you learn are two things.

One is you learn how to build the deepest relationship with your customer because you understand what their mission is. But we also had firsthand technology that worked and technology that didn’t have technology that hadn’t been created. So if you look at our mobile and our manpack and our handheld software based technology delivering to protect folks in the electronic warfare world, we understood where the threat was. We need to read a specification. So we moved into this model of investing in how the customer need.

So if we have an inkling from the people embedded with our customer, that tells our technology side of our business, here’s what you need to build, here’s what the customer is talking about, here’s what they need solved, don’t want to wait for a specification to come out, actually shape that spec. Okay. We understand what customer goes through. We’re on the receiving side. So let’s go front load builds and talk to customers about art of the possible.

So really expand the DOD and the intelligence customer’s mind of the art of the possible because those customers are so filled with, here’s all you can get today. Because the old model is, here’s what I’ll give you today, knowing the three years I can resell all of that with something that you’re going to need. Our model was software based. You can have whatever you need, whatever you needed. And we put great business cases in place.

Clearly, if we had driven revenue up, we hadn’t grown margins, it would be not a really, really, really, really strong business case. So plenty of examples where expertise still feeds tech, and that’s that level of knowledge that we want to hold. We also picked that expertise business that would not only be differentiated, but also would drive margins, right? It’s if the competitive side goes from thousands of companies to three, then I I can differentiate on how I’m gonna solve that customer’s problem. I can differentiate on the skill sets of our people, therefore, garner and command higher margins that customers are happy to pay because the service that they’re getting is so much better.

So

Marianne, Analyst: Sometimes it’s difficult for investors to differentiate between defense services companies, and it’s probably because it was mostly labor based before. So depending on who you had as a person, as a hire to position. What makes CACI unique today?

Unidentified speaker: Yeah. So we often get compared to folks in our sector. So those of you who who follow GICS and NICS codes, we really don’t get to call that. So in the sector that we’re in, we probably got assigned in 1965 that we’ve never been able to move. But having said that, we were the first, and I would say the only, that has been focused on this level of technology.

We’re not building platforms. So there’s some phenomenal plans out there that build great ships, planes, or whatever it is. We’re looking to build those mission suites and those packages that ride on those. They’re software based. So as a threat changes, new software comes out, you’re able to more rapidly address those threats.

When the government talks about velocity, quality, efficiency, that’s what they’re asking for, is I don’t have the ability to take a ship back to shore in the middle of a fight because my enemy just changed their tactics yesterday. That’s an old fight. It doesn’t matter how many ships you have, how many planes you have. So we’ve been very focused on talking about technology that you can touch. So we have an investor day last in November.

You can come in there and look at a entire suite, and people got the right message. Why are you a government services company? Because that’s what my GICS code is. Okay? But what and so some examples, I guess, that show that we’re different.

Our EBITDA margins are just that. There’s no GMO. There’s no extras. It’s just plain EBITDA.

Jeff, CFO, CACI: There’s no a.

Unidentified speaker: That’s right.

Jeff, CFO, CACI: No adjustment.

Unidentified speaker: Right. Our growth rates have been in the low to mid single digits because we’re going to be very selective about what it is we win and because we’re working on top and bottom line growth because our ultimate focus is free cash flow per share. Now most people in the sector talk about, well, I do technology also. It’s a statement, and some police departments actually call that a clue. They are talking about delivering tech now.

They’re talking about their margins. They’re talking about that they’re going to bid less and win and win more, but that strategy has been in this company for just about a decade now. So what makes us different is we’re also purpose built for where we are today. We didn’t just hear what Doge was going to do and change how we talk about our comm company. I led off with the changes that we believe were going to be needed.

We believe we took the best of the aerospace and defense primes, quality and process driven, very, very rigorous. But we’re not building a thousand versions of the same exact thing. So we threw agility and mission knowledge, which government services providers bring in, and we brought in all of the commercial software development processes that have ever been created and that were created by folks like GitLab and AWS on the cloud commodity side and others. So we retrain our entire workforce. What we’ve been working through is retraining our customer.

As our customer still likes to write all the requirements up here, 12 program, year six check-in and start doing testing, seven realize over the last seven years, the requirements have changed. You end up in these large overrun programs. We believe in build a little, test a little, deploy. Just continue that cycle. That’s a commercial build process today.

So I can’t find anybody else in our sector. And the final statement that I’ll leave you all with on why we’re different is about 95% of the technology jobs that we bid on, no one in the government services sector bids against us. So that’s the biggest clue there is, is that when we say we deliver a technology, we are competing against the major aerospace and defense primes. We’re not competing against people within our sector. It’s easy to say you do technology.

It’s really hard to transform a business that has only sold hours into building it. We think we found that happy niche. We weren’t lucky. We are actually strategically focused on those. And that’s how we’re addressing our market going forward.

Marianne, Analyst: Perfect. And you just mentioned Doge, and I think that’s the elephant in the room. How do you think about the U. S. Government focusing on efficiencies?

And you also just mentioned that you have been trying to push the customers to focus more on the solutions and not the requirements.

Unidentified speaker: Yeah.

Jeff, CFO, CACI: Do you

Marianne, Analyst: think this could accelerate that approach? Or

Unidentified speaker: Yeah. I you know, we’re based on where DOGE was last night, I didn’t get any tweaks this morning, so I’m not quite sure where it’s at today. But with all the reverence that he deserves, I think with $37,000,000,000,000 of debt, we have to find a better way to spend money and be much more efficient, period. We can talk about fraud, waste and abuse that’s been in the government forever. The fact that DOGE and other people are are are routing that out, that’s that’s that’s great.

That’s sort of like a Lucky Strike extra. The focus for us has been resilient networks for our customer set, cyber protecting those, enterprise IT that can change with the needs of whatever organization it is. Space based communication is very important and everything in the electromagnetic spectrum. Doge, when they came out, focused on the networks in the government need to be re architected and be more nimble, and that’s a true statement. And their semicolon was it needs to be better funded.

Not that it’s being done wrong, but it needs to be better. It has to have the same priorities building assets because if there’s no networks there to move that information, those assets are materially less valuable. They believed in enterprise IT that was more dynamic and that had continuous funding. We still agreed with that. They also believe that people who spend billions of dollars should be able to audit themselves and pass financial audits.

We built audit software for the federal government. It started twelve years back. We’re still building today 30 some organizations, but our government use that software. It’s software as a service. I’m sort of dating myself used to talk about SaaS.

Right? But all 30 or so agencies that use it pass their audits. 100% of people who don’t use it fail their audit. So the Marine Corps is the first DOD service that signed on to it. It’s provided by the government.

This is all government soft software. They passed their audits the last two years. So those three areas, we strongly believe that we’re in line with Doge. I think what has happened as a public company CEO, when you say you saved a dollar, you better make sure you saved a dollar. Okay?

If you saved a billion if you say you saved a billion, it was only a million, you get, like, one mistake when the eleventh or twelfth or twenty eighth mistake happens. And it’s it’s easy to see. It’s not that DOGE is is bad in trying to mislead. It’s under it’s difficult understanding how the federal government does budgeting. It’s very difficult to understand what an EAC is and what an ITD is and what an LMNOP is.

So they’re coming out with data that is later shown to be not accurate. So the credibility, I think, is what’s hurting there. Do we still need to spend less and spend it more efficiently? Yes. And they believe that software and if you saw the recent, DODOD policy that has come out sort of a software first, you know, we’re we’re sitting here saying we were early to that to that fight.

This is right in line. So for us at a macro level, they’re saying all the right things. We can sort of stop it. We gotta find different companies to go to go, do this. I think the government has to buy more efficiently.

So we’re sort of net net happy with those. We have not had $1,000,000 of things that were on the wall. We had another $3,700,000 and that turned out to be a contract that had been ended many, many months prior. So a million dollars worth of impact

Marianne, Analyst: thus far. So when we think about the short term, right, how is this continuing resolution affected you so far? That is continuing resolution plus an administration transition and knowing that we’ll be under a continuing resolution for a year long and probably extending into fiscal year twenty six. But it’s a different continuing resolution that is allowing to move money around and new starts. Like, how do you think about that?

Jeff, CFO, CACI: Yeah. It actually is better, as you note, than prior CRs. And actually, we give our guidance in a range as most do. And we have we craft a specific set of assumptions that go at each end of that range. And we when we put our guidance together, one of the things that we wanted to make sure we provided for was that we could accommodate the continuing resolution, which we have.

And in fact, the added flexibility probably gives us even a little opportunity among a little more opportunity than we had in our more conservative subjects. So I think actually this I’m cautiously optimistic that the continuing resolution as it’s crafted as well as some of the supplemental reconciliation items that I’m sure John is going to talk about in a few minutes, actually gives us a little bit of maneuvering room here. I think we can see a little bit of upside in the landscape as we view it today.

Unidentified speaker: Yes. What else people should take strength from is we gave that latest guidance after upping our guidance twice. It was the January. It was either just before or a couple of days after the election, actually, it was prior to the election, if I remember right.

Jeff, CFO, CACI: I think it was.

Unidentified speaker: So we have plenty of chances to sort of say this is gonna be too ugly here. Let’s just back down. Let’s just run this year out. But strategy is a place where this company comes from. Everything is strategically based to an absolute driven point.

So we had all the information that said we’re in the right markets, we’re greatly funded, there’s no noise out there talking about we’re going to be impacted. There’s a lot of unknowns, that’s a lower part of the range. There’s a lot of positive things going on at the upper side. We’ve been in business for over sixty years. So we’ve seen a lot of CRs.

And we said, okay, we stay in the CR for the full year, which was the old style CR. We’re adequately funded, 97% of our revenue is already in house. We’ve got six months left to the fiscal year. We’re a July to June company. So we had it wasn’t bold or bullish.

It was just fact of, we said we’re going to build a business that is immune to a lot of minor swings and also some major ones. And let’s just continue up the guidance because that’s the way the year is going, going to finish.

Marianne, Analyst: Are you concerned at all in any programs that you have in the pipeline to be awarded in the next six months or not really?

Jeff, CFO, CACI: You know, the pipeline, per se, is not looking different to us. But it is worth observing and noting that the government and maybe I’m saying government, but I really mean the people that are comprised the comprise of government are in a little bit of chaos. I mean, a little bit of unrest. And people are nervous about their jobs. They’re worried about their friend down the hall and all the things that you would expect them to.

So we do sort of note anecdotally that there are some things in the government, routine administrative things, contract mods, funding obligations, invoice approvals, the day to day operation of the business, things that used to take two or three days take four or five days. So is that a huge deal? We don’t think so. But it’s also probably not nothing. So while we don’t see any real effect of like structured slowdown or added steps, people are apprehensive.

Unidentified speaker: Yes. And I think it’s that’s normal. It’s more of a human nature. The comment that is some draconian budget cuts, right? People there’s so much noise in the system today that’s tough for the signal to actually get out.

So we continue we’re screaming into a hundred mile an hour wind, right? It’s just just so many things people pick one item up. What’s key to know about this company is we’re a long term company. And, yeah, if you’re drinking tea in the morning, you’ll pull or cream in it, it’s really tough to see the bottom of the cup. That’s sort of the next couple of quarters.

I think the government still people in the government still sorting it out. Six months later, there’s no more milk in there. It’s a little more clear. What’s important for us is we’ve been in business for sixty two years. We’ve been through this many, many times.

There’s a short term immediacy. We’ve never been a quarterly book to bill company, so please don’t look at quarterly book to bill numbers and say they’re at the cliff. If I sold people and that was my entire model and I told talked to you about how much direct labor I have and how many consultants I have on the bench, wholly different discussion. I’m I’m almost living hand to mouth. I’ve gotta win things in the first quarter.

At the end of second quarter is driving this year’s revenue. Fact is, if we get an award on January 1 or June 2, I don’t care. I don’t watch it. You can look at the last forty eight quarters of press releases. We’ve had some three, five book to bills.

We never said we did record awards in the quarter Because at some point, you’re going to get a 0.3 because a customer delayed a $2,000,000,000 award by four days, and people are going to say, what the hell happened? So please, I beg you that we are driven by much larger, longer term contracts, which is more like a prime than it is the model that goes with government services. You know, 1.7 trailing twelve month book to bill, we’re very happy with that. We had $24,000,000,000 of bids, that have been submitted waiting for the government to make a decision on it. Will they be a little bit delayed?

Perhaps. It sounds like they’re not gonna get funded. So

Marianne, Analyst: So you mentioned before that you were trying to focus on opportunities that were now, like, competed by, like, dozens of companies. And you just mentioned that you are looking at contracts that are where you have visibility. Like, could you mind describing your bid on proposal strategy? You look at and usually, you highlight how much is, like, new contracts, how much is technology. Like, what is the strategy there?

Unidentified speaker: Yeah. It’s, the mix between technology and expertise all comes down to timing. Okay? There’s just plenty of bids of things that we can go out there after. But we live by that mantra to bid less and win more because there’s a lot of fixed costs when you deliver bids.

We have a pricing team. I don’t want to ramp a pricing team from 15 people to 38 because the other 23 people that we add don’t really understand how it is when we price. So can we get more bids out? The metric of how much how big my my world is, how many bids I can submit is not the important metric. It really is about, are you bidding on the right things?

Are you one of two or three? Are you one of a thousand that are going to race to the bottom on rates? So what we watch is the size of our programs and the duration. It’s a pretty simple business case, right? If we’re bidding jobs that last five, six and seven years and we’re entrenched with that customer, it’s sort of the prime model for winning contracts, but we’re software based, so we’re continuously delivering.

And our belief, and we’ve already proven, if you continue to deliver in a software manner, the customer stays with you, not because you provide a vendor lock and you can’t do anything without my sign off. It’s because we’re easy to work with. You’re not buying people. We buy the we procure the software engineers. Those people are fungible to our entire business.

It’s a completely different business model. So we did retool our entire business development team, starting, you know, a decade back. It’s not anything that moves bid strategy. It’s not I’ve got to put 30,000,000,000 in or I’m not going to get 2,000,000,000 out. That’s not a way to run a business.

So we’re very selective. We stay in the seven markets. People used to ask me, so what’s your eighth market? I’ve got $250,000,000,000 of just the market in the seven areas that we provided today, $3,500,000,000 company. So our word is focus.

Okay? It’s making sure when people come in, hey. I heard this job is due. No. The answer is no.

So we learn to say no a lot. Okay? And that really changes how we incentivize. We have a business development team that is, capture, funded. So everybody in our business development team is on a bonus program, and it’s for revenue captured, not for awards won.

High is that? There’s a lot of companies win a $2,000,000,000 award, and then they complain to you all. They can’t find the people. They can’t find the people because they bid too low. Okay?

So we we we, fund our bonus program for business development by revenue. And that drives a very different model. And the fact that we vest ahead of customer need really is that differentiator that we’ve got a relationship with that customer, not the individual, not Julie or Johnny. We have an understanding with that customer that says buying agile software in an incremental manner makes a lot of sense. They spend less.

They get more. It’s a perfect business case. And frankly, we make better margins because we should because we’re hiring the people ahead and we have 100% of the risk. Jeff,

Jeff, CFO, CACI: anything else? The other point I would that I’d note is John talked about bidding fewer jobs, larger jobs, longer duration jobs. One of the other things that’s important to the strategy is that you see those farther away. So John talked about investing ahead of need, but it’s not super speculative investment. I mean, it is it’s disciplined, deliberate demonstrations, working with customers, talking about alternative solutions that shaping that ecosystem that we’ve been describing, the shaping that that lets us do is an important part of the business development differentiation.

It really brings a couple of those things together and and is a is a distinct quality of our process.

Marianne, Analyst: And how long or, like, how much time ahead you have to prepare for before the I don’t know. Request for information is out. Right? Like, you have to be ready with the software development.

Unidentified speaker: On our Beagle program, so we run the the three largest agile software development programs across the federal government. So that is a marker. We worked with customers and border patrol about two and a half years before they put their recompete. They were traditionally procuring 400 to 500 people to update all the applications that a customs and border agent uses. And we told the story five years back.

It really didn’t have any any teeth to it. Now I think there’s a lot of teeth to what goes on the border. But we worked two and a half years to convince that customer to buy buy the application. We got 140 some apps, wanna update them four times each year. Perfect.

Write a one page spec. Don’t talk about labor hours and time material rates because people will hit those rates, and then you’re gonna be stuck managing 500 people trying to do a major software development effort. So it took two and a half years to convince that customer to put a very thin RFP out. Majority of people who bid on it continually asked, you didn’t provide me labor rate guidance, which to us said we have differentiated enough that you came and bid on the job. That’s two and a half years.

Spectral, major electronic warfare software based attack system for all Navy surface ships. That was a five, almost six year investment stream that led to that. Why was that? Because you’re going after a program, which is a statement program, which is can we go directly against aerospace and defense primes on a major program win. We pulled two prime contractors to put them on our team.

Everybody else bid against us, and we were successful at winning. So that was a longer term setup, but the payoff for that job is in billions of dollars.

Marianne, Analyst: So when you think about software, right, where are the key areas where software driven solutions will make a difference? I’ll say, like, in the near term and then in the longer term.

Unidentified speaker: Yeah. So very much electronic warfare. We say that it’s all of our counter UAS systems. All of our counter UAS system, we have thousands of those around the globe. For every type of drone, which is out there, Class I through Class V, hundreds of and thousands of confirmed kills, those are systems that the tactics of the enemy changes every four hours.

So think about putting a system out in a field. Every four hours, a threat changes, and it changes enough that I can see it or I can’t see it. That’s a major threat model that doesn’t exist today. And that’s so so we look at major software systems there. It’s very germane to our our business there.

Our network modernization, software defined networks, very, very important because the networks of of today that we’re designed are going to carry everything from unclassified to secret to top secret data over get to know everybody who’s on that network, the access that they have, the access that they don’t. And we also have to handle resiliency for our networks. Today, a lot of the government networks are manually rerouted, believe it or not. So we have an outage here. It’s a manual reroute.

Software defined networks came out twenty some years back. Right? So it’s very important to make certain that these, networks are more resilient, more dynamic, especially when we get into areas where we have the tyranny of distance, which is in Indo Paycom. Not a lot of landing spots there is an awful lot of water. So how do we create and re install a network space where space based and the like.

So a lot of what we do in the technology, the majority is all going to be software based. And that’s not because we believe that to be so, it’s because customers are asking for it.

Marianne, Analyst: So when you think about these opportunities and or, like, even analyzing what you see, like, it’s gonna be in the warfare environment five years from now. How you think about building those capabilities organically versus going through them for acquisitions?

Unidentified speaker: Yeah. I mean, some of that we’ve already done. Right? A lot of our, software based solutions, we sort of invest ahead of customer, we do a little test of it. So we’re out there investing prior to.

But again, I’m going to hearken back to the fact that we were embedded with troops, whether it was Army, Navy, and every lasting version. We have a good understanding of what we have to build and what the customers are looking for that allows us to invest ahead of need and make certain that we’re providing the right solutions. Jeff?

Jeff, CFO, CACI: Yes. And I would because you kind of brushed up against M and A there. If you talk about organic, you have to talk about inorganic. Our pipeline and our acquisition strategy, very much GAAP focused. We don’t buy scale.

We buy presence, we buy technology, customer footprint access, past performance, and we maintain a list of maintain a pipeline that we’re kind of continually refreshing and monitoring, which obviously ties into our broader capital deployment discipline as well. But acquisitions are we are and have been and will be continue to be a serial acquirer. It’s an important part of the strategy.

Marianne, Analyst: And do you want to discuss what is the capital deployment strategy generally?

Jeff, CFO, CACI: Yes. The capital deployment strategy is really driven by the fact that we like to be kind of between 2.53 times trailing twelve month EBITDA, which we think is the right combination of reducing our cost of capital by having a meaningful amount of less expensive debt in our capitalization, but also giving us the ability to flex opportunistically up to 3.5 times or so for brief periods and then get back to our target range. If you look over the last ten years, I think we’ve done that three or four times jumped up to sort of mid high 3s and then quickly over a series of ensuing quarters gotten back to where we intended to be. So within that, when we get toward the lower end of our range, we’re really looking at alternatives in the pipeline and market dynamics obviously of the share price. And then often the return analysis is kind of a relative one.

Both of them happily have given us plenty of opportunities to deploy capital in a way that’s accretive to our returns and we’re well above our WACC. And so we’re able to just look at the acquisition pipeline, see how things are coming together, when they might be right to transact and balance that against share repurchases.

Marianne, Analyst: And one more on M and A. How strong is the pipeline today? And do you have any expectations of this like change in administration, change in focus?

Jeff, CFO, CACI: I think in the near term, it’s probably less conducive to M and A. I think valuation volatility is part of that. Sellers generally process multiple contraction more slowly than do buyers. So I think if you’re in the mode where you think you might be in a position to sell, many of those counterparties are thinking, well, I’m going to wait for a quarter or two or three to see how things bake out. So that’s part of it.

And also just broadly, I think a lot of the things that the government has undertaken will get more clear over the next few quarters. And we’re starting to see some of the decisions we’ve already seen, the continuing resolution, some of the budget decisions, the presidential budget request here will be out hopefully in a couple of months. All those things will bring a little bit of clarity to our view of what’s in store over the next year or two.

Unidentified speaker: Yes, a lot of moving parts, right, but a long term strategy, right. So we put a three year guide out in November. We could easily change those numbers. We could have said new administration, what’s going to happen? Worry, Worry, Worry, Worrybeat.

You know, you’re sitting on four years of backlog and a lot of it it’s six years long. You can sort of look at your future differently. High single digit three year growth numbers, dollars 1,600,000,000.0 in free cash flow, margins in the mid-11s, but the most important number is 1,600,000,000 of free cash flow over the next three years, in an area where there’s a little bit of turmoil, there’s a little bit of uncertainty. But for a long term company, you got to be talking long term. So we don’t talk about quarterly book to bill.

It’s why we don’t talk about quarter points in our guides, because it’s a lot of wasted effort. We’re going to hit our numbers year over year. And it really does play into we’re a capability based company. So M and As are done, as Jeff said, to fill gaps, not to buy revenue. If I’m buying revenue, I’m buying my competitors’ book of business to gain market shares, how I see it.

And that’s the worst spend of dollars. Might as well just beat them in the open market. It’s cheaper. It’s more enjoyable, people get a bonus for actually winning. There’s a lot of positives in it.

And that’s how this company rolls. We’re in seven markets. We ought to be able to win the jobs we want, we want to win. And you start with business development and you drive everything through. So free cash flow per share for us is the ultimate metric.

And, and Jeff will continually say, our three year plan takes zero credit for the $1,600,000,000 of cash. What I

Jeff, CFO, CACI: was comparing

Unidentified speaker: your ad. Go ahead, Nonton.

Jeff, CFO, CACI: No. No. No. You just said it. There’s no assumption about the deployment of the capital or any attendant returns in those three year revenue and margin targets.

Marianne, Analyst: Perfect. And now I’ll open up to Q and A. If someone has a question, please raise your hand.

Jeff, CFO, CACI: Yes.

Marianne, Analyst: There’s obviously a huge demand in Europe. Is there anything that you can sell into that?

Unidentified speaker: Yes. So we currently today have legs into Eastern Europe where some of our high end software based electronic warfare equipment, you can imagine why we went there first. And we’re very central our central focus there is in Poland. As we look at the defense budgets, as we look for certainty there, which is that it’s in the books and spend begins, for a smaller company, it’s not an easy task to say tomorrow afternoon, we’ll go into the international market. I I I actually came from that world in my previous job.

You can spend a lot of money in international market, without a lot of gain. Having said that, there are nations out there who we have discussions with through the US government customers that are very much more than enamored with the electronic warfare equipment we have, whether it’s counter drone work or whether it’s sort of assessing all the signals in any given space to make sure you know where the red forces are and where the blue forces are. So, yeah, that is a strong possibility going forward. I’m going to need to see how that money is spent. Is it going to be EU only money?

Is it going to be partner partnerships that we’re going to need to sort of take the logical step? As a CEO builds a lot of these things, I’d love to say, yeah, that’s a that’s a ginormous market, but you’re not gonna hear, you know, spin from us. It’s really much of we are assessing it, making certain that we can address that market and when and if. We have a very willing US customer who already is a strong user. The second way we’ll hit that market is through programs like Spectral.

So a majority, there’s a lot of countries out there and the Navy is already talking about, this would be the company’s first large scale FMS case as we go forward to upgrade the navies and inventory. And that’s probably another avenue, perhaps slightly safer because it’s backed by the U. S. Government for us to deploy these software based kits. So there’s a couple of different avenues there.

So far more upside than there is downside. And that’s not a market we’d have to chase because we already have product that would be useful there. Thank you for the question.

Marianne, Analyst: So this is my last question because we’re coming on time, but hiring is important and how you attract people. And you describe how you have this, like, bonus program for the bid and proposal team. But in general, you have a structure where you try to, I don’t know, meritocracy is something important in your Yeah. Structure. Like, do you mind, like, would you mind, like, discussing how you treat that and how you align the incentives of your employees and the company.

Yeah.

Unidentified speaker: You know, you don’t you don’t get to continue a 60 some year old company without taking care of people. And people, whether it’s expertise or tech, you need individuals. You need really bright people, people who enjoy being upskilled, people who enjoy changing what their skill set is. You know, there’s a lot of studies out there about how long the current skill set lasts. But what we began a number of years back was an employee referral program.

And this has been a gem. That plus our internship program is pretty much what we focus on. And it simply is, if you refer someone, there’s a bonus payout. And it did a couple of things. One, great people know other great people.

People who love working on in a high-tech world know other folks who enjoy a high-tech world. You have to have a national security focus, yes. So I was asked a number of years, years back, three or four years after, during COVID and afterwards, you know, but people can go to the high-tech world and they can make a hell of a lot more money. We’ve hired a lot of those folks because we actually provide longer term employment. Okay.

We don’t over hire and then send anybody else back out to the market when we realize we will grossly over hire. What’s important about the referral program is it helps attrition. It raises retention, lowers attrition. Because if I refer you as an employee, our statistics show over an eight year period, the odds of you leaving are draconially less because you referred somebody to the company. And people come to the company as a referral, their attrition rate is draconingly less because the second thought they had between I had one bad day is what’s Mariana going to say if she nominated me and then I left within one year.

And it works, and and people build on that. We’re also an acquisitive company, so we’re consistently bringing new ideas in and new folks, and that is a positive. We’re not the company that says we bought your house, we changed the countertops, you’re gonna do it our way. We actually listen to how some of these companies got to be successful. We don’t have all the best ideas.

And a lot of the processes we have in our company today have been modified by smaller companies coming and saying, have you thought about that? So it’s that culture that actually drive folks. Do you have to have a benefit for national security? Absolutely so. Okay.

It’s what drives us. Last point I’ll share is 40% of our employees are veterans through a lot of reskilling programs. And that drives a great ethos, and it drives a great under understanding. So, you when we look at our stock price four months back, we look at it today, there’s a lot of noise in the system. Okay.

We’re a long term company doing everything we always do. And frankly, if any of you came into our business and you stay with us for the next ninety days, you rarely hear the word Doge. You’d rarely hear anybody focused on, my lord, what’s happening other than our stock price, because people are going to go forward and do their mission. We’re burning off backlog. We’re doing the right things.

We’re delivering to a customer that enjoys the past performance that we deliver. And the way we attract people is the way they want us to because it drives a longer term relationship with these folks.

Marianne, Analyst: Perfect. Well, thank you both very much. Thank you.

Unidentified speaker: Thanks, Marianne. Thank you,

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