CACI International Inc Q3 2026 Earnings Call Transcript

CACI International Inc (NYSE: CACI) Q3 2026 Earnings Call dated Apr. 23, 2026

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Third Quarter Fiscal Year 2026 Earnings Conference Call. Today’s call is being recorded.

[Operator Instructions] At this time, I would like to turn the conference call over to George Price, Senior Vice President of Investor Relations for CACI International. Please go ahead, sir.

George Price — Senior Vice President of Investor Relations

Thanks, Jeannie, 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’s John Mengucci, President and Chief Executive Officer of CACI International. John?

John S. Mengucci — President and Chief Executive Officer

Thanks, George, and good morning, everyone. Thank you for joining us to discuss our third quarter fiscal year 2026 results as well as our updated fiscal 2026 guidance. With me this morning is Jeff MacLauchlan, our Chief Financial Officer.

Let’s move to Slide 4, please. Before turning to our results, I want to start by reminding everyone that CACI is a fundamentally different company than it was 10 or even five years ago. This evolution is the result of a clear and consistent strategy, intentional leadership and disciplined execution over many years, and did not happen by accident.

The key elements of our strategy are; First, we operate in seven markets where we possess decades of deep mission knowledge. We know and understand what our customers need. Second, we focus on enduring priorities. We are a national security company that targets narrow, deep funding streams. Third, we’re a software-defined technology leader. We differentiate ourselves by using software to address critical needs with the speed, agility and efficiency our customers demand.

Fourth, we invest ahead of customer need to show the art of the possible. We’re not waiting for requirements. And fifth, we deploy capital in a flexible and opportunistic manner to create value for our customers and our shareholders. Executing this strategy has enabled us to expand our portfolio, increase free cash flow per share and generate additional shareholder value.

Slide 5 please. Turning to our third quarter results. We delivered another quarter of outstanding performance on our way to another exceptional year. Revenue for the quarter was $2.4 billion, up 8.5% year-over-year. We also generated a strong EBITDA margin of 12.3% and robust free cash flow of $221 million.

In addition, we won $2.2 billion of awards, which represents a book-to-bill of 0.9 times for the quarter and 1.2 times on a trailing 12-month basis. These awards were driven by our exceptionally strong recompete performance, an important indicator of customer confidence and a key enabler of long-term growth. While award activity improved in the quarter, it has not yet fully recovered from the multiple government shutdowns and acquisition organization changes.

As we said before, quarterly awards can be lumpy, but we continue to have excellent visibility, a strong pipeline and see a very constructive macro environment. Our results continue to reinforce that CACI is differentiated and well positioned. With that said, we’re raising our fiscal ’26 revenue and EBITDA margin guidance, driven by the addition of ARKA and the strength of our organic margin performance.

Slide 6 please. On that note, let’s discuss our recent acquisition in a bit more detail. During the third quarter, we closed the acquisition of ARKA, a leading technology company focused on national security missions in the space domain. ARKA brings exquisite space-based imaging sensor technology with high technical barriers to entry, agentic AI-based ground processing software and deep customer relationships built over decades of strong performance. ARKA is a powerful addition to CACI.

We now have sensors deployed across all domains. We can provide multisource actionable intelligence and bring operationalized agentic AI capabilities to classified customers across the national security apparatus. In fact, we already have agentic AI efforts underway with our shared customer footprint, and we see significant additional cross-selling opportunities.

ARKA positions us for opportunities, including Golden Dome, INDOPACOM support, future ground architecture and space superiority missions. To fully leverage our combined capabilities, we have integrated ARKA and CACI’s existing space portfolio under leadership of ARKA’s former CEO.

ARKA exemplifies the type of acquisition that investors should want us to make wide competitive moat, unique capabilities and technology, exceptional execution history and strong financial performance and all in one of the most strategically important domains in national security. It’s our flexible and opportunistic capital deployment strategy and action, positioning CACI to drive long-term growth in free cash flow per share and additional shareholder value.

Slide 7, please. CACI is a national security company. That focus continues to be a powerful differentiator in the marketplace. We have more than 1,400 people embedded in mission spaces across all combatant commands, performing planning, intelligence analysis, cyber and operational support. We are involved in every operational headline you read as well as the many operations you will never read about.

This proximity to mission gives us an advantage that is hard to replicate. We understand the mission and the threats because we see them every day. This creates a feedback loop that sharpens our business development, strengthens our reputation for execution and informs our decision-making, allowing us to confidently invest ahead of customer need.

These are meaningful discriminators that create competitive advantage and help drive our financial performance. For example, CACI recently received multiyear extensions on several contracts in critical mission-focused areas as a direct result of our exceptional delivery.

Slide 8, please. Our strategic investments informed by the mission proximity I just described have positioned CACI as a leader in software-defined technology in key warfighting domains that are receiving significant attention and funding from our customers. And these investments also demonstrate a repeatable strategy that will drive future growth and shareholder value.

A great example is our Spectral program, where we are developing the next generation of shipboard signals intelligence and electronic warfare capabilities for the Navy’s surface combatant ships. We initially invested ahead of customer need to show them the art of the possible and to demonstrate our differentiated solution during the bid phase. Now we are actively investing ahead of need during execution to accelerate delivery of capabilities to the field, a key ask of the current administration.

During the quarter, the program continued to progress as we achieved Milestone C, marking the start of Spectral’s low-rate initial production and deployment phase. This is a defining step towards ramping up the program and delivering this critical EW technology to the fleet. And because Spectral is built using software-defined technology with open architectures, another key administration priorities, we see significant additional opportunities across the Department of War and internationally.

Another example is in counter-UAS, where we are seeing accelerating demand, increasing orders and a growing pipeline driven by Merlin, our commercially sold counter-UAS system. Merlin leverages nearly two decades of our counter-UAS investments and work across the Department of War to deliver a system that sees further, detects more, provides more critical decision-making time and delivers more effective low to no collateral damage capabilities than any other available system.

Merlin is a software-defined system that can be rapidly updated and provides a nearly unlimited magazine of economically sustainable non-kinetic effects, including unique cellular detection and defeat capabilities. From concept to deployment in under a year, we are not only providing to the Department of War with the capabilities they are asking for, but we are also delivering them at the speed demanded. We are proving this in real time with the Merlin system that our customers deployed on the Southern Border.

A final example is our strong positioning for Golden Dome. CACI has been investing in, developing and building many of the capabilities this mission requires across many critical layers. First, are our counter-UAS systems. Defending the homeland is not just about ballistic or hypersonic threats, it’s also increasingly about threats from unmanned aircraft systems.

CACI’s technology is ideally suited for this mission, where extended detection range provides critical time for decision-making and low to no collateral damage effects are critically important for mission success. Second are our exquisite left-of-launch capabilities. These include sensitive cyber activities as well as our worldwide set of embedded sensors, which can detect and defeat threats before they are deployed.

And third is our space-based sensing. ARKA significantly expands our capabilities in the space domain, including technologies such as hyperspectral imaging for missile detection. Spectral, Merlin and Golden Dome are three significant proof points of how CACI creates value for our customers and our shareholders. They demonstrate where we identified an enduring need early, invested well ahead of award and have established differentiated positions through years of disciplined execution and continued innovation.

Slide 9 please. Turning to the macro environment. We continue to see constructive budgets and demand signals. While the government fiscal year ’27 budget is still evolving, the proposed spending looks very positive in many key areas for CACI, including electronic warfare and counter-UAS space, especially classified space and commerce space programs, C5ISR and IT modernization, including AI and the digital backbone.

We are in the right markets that are aligned to enduring well-funded priorities and we’re providing the right capabilities to address our national security customers’ most pressing needs.

And with that, I’ll turn the call over to Jeff.

Jeffrey D. MacLauchlan — Executive Vice President, Chief Financial Officer, and Treasurer

Thank you, John and good morning, everyone. Please turn to Slide 10. As John mentioned, we’re very pleased with our third quarter performance despite some modest disruption from the ongoing DHS shutdown. Our revenue and awards reflect our strong market position in a recovering but still sluggish award environment, while our strong margins and cash flow demonstrate the high-value differentiated characteristics of our offerings and our operational excellence.

In the third quarter, we generated revenue of $2.4 billion, representing 8.5% year-over-year growth, of which 6.8% was organic. Despite the modest DHS impacts that I mentioned, we still saw the expected acceleration in organic growth moving into the second half of the year. EBITDA margin of 12.3% in the quarter represents a year-over-year increase of 60 basis points, even after absorbing $17 million of ARKA transaction costs.

Adjusting for these expenses, our strong third quarter profitability was driven primarily by overall mix and strong program execution. Third quarter adjusted diluted earnings per share of $7.27 were 17% higher than a year ago. Greater operating income, along with a lower share count, more than offset higher interest expense, including $11 million related to ARKA, a higher income tax provision and the transaction costs I mentioned earlier.

Finally, we delivered healthy free cash flow of $221 million in the quarter, driven by strong profitability and good working capital management. Third quarter cash flow was reduced by approximately $20 million due to transaction costs and other acquisition-related financing fees. Days sales outstanding, or DSO, were 55 days, two days lower than the prior quarter.

Slide 11 please. Turning to our balance sheet and capital structure. Our pro forma leverage at the end of Q3 was 4.2 times net debt to trailing 12-month EBITDA, slightly better than the expectation we provided when we announced the ARKA acquisition. We continue to expect leverage to return to the low 3s within six quarters based on the strong cash flow characteristics of our business.

I’ll remind you again that we have a strong track record of successfully and quickly deleveraging after major acquisitions, which underscores our consistent financial performance, disciplined capital deployment and demonstrated access to capital.

As we have previously indicated, ARKA is accretive to both growth and margins. The acquisition of ARKA is just the latest example of our flexible and opportunistic capital deployment strategy and the evolution of our portfolio, which positions CACI to deliver long-term growth in free cash flow per share and additional shareholder value.

Slide 12 please. We’re pleased to increase our fiscal ’26 revenue and EBITDA margin guidance driven by the addition of ARKA and the strength of our organic margin performance. You’ll notice on the right-hand side of the chart, we’ve provided a breakdown of costs associated with the acquisition for transparency and your modeling purposes.

We now expect revenue to be between $9.5 billion and $9.6 billion. This represents total growth of 10.1% to 11.3%, which includes about 3.5 points of growth from acquisitions, including $150 million from ARKA. We’re increasing our fiscal ’26 EBITDA margin to the 11.8% to 11.9% range, underscoring our strong execution and evolving portfolio as well as contributions from ARKA.

Our full year margin outlook includes the impact of approximately $22 million of transaction costs related to the acquisition. Our updated FY ’26 adjusted net income guidance is between $615 million and $630 million. Adjusted net income reflects the after-tax impact of approximately $60 million of pretax transaction costs and higher interest expense, largely offset by stronger organic margin and ARKA’s earnings contribution. This yields full year adjusted EPS guidance of between $27.70 and $28.38 per share, which represents growth of 5% to 7% even as we absorb these costs.

And finally, we are reaffirming our free cash flow guidance of at least $725 million, even after absorbing nearly $50 million of transaction costs, interest expense and an increased investment in capital expenditures. As we consistently say, we see free cash flow per share as the ultimate value creation metric, and our FY ’26 guidance represents 65% growth in free cash flow per share over FY ’25.

Slide 13 please. Turning to forward indicators. All metrics continue to provide good long-term visibility into the strength of our business. Our third quarter book-to-bill of 0.9 times and our trailing 12-month book-to-bill of 1.2 times reflect good performance in the marketplace even with the multiple shutdowns and slow rebound in award decisions.

The trailing 12-month weighted average duration of our awards in Q3 continued to be just over six years. Our total backlog of $33.4 billion increased 6% year-over-year, while our funded backlog increased 19% over the same period. Both metrics reflect healthy organic growth even when normalizing for ARKA’s contribution of $835 million to total backlog and $422 million to funded backlog.

Additionally, ARKA has another $2 billion of noncompetitive franchise programs from which we expect to recognize revenue over time, but they don’t yet meet the regulatory criteria to be added to backlog. For fiscal year ’26, we now expect 98% of our revenue to come from existing programs with 1% each from recompetes and new business. Progress on these metrics reflects our continued strong operational performance and yields increased confidence in our outlook as we close out the year.

In terms of our pipeline, we have more than $4 billion of bids under evaluation, over 80% of which are for new business to CACI. We expect to submit another $22 billion in bids over the next two quarters with over 75% of those being for new business. We continue to have excellent visibility, are well positioned in a very constructive macro environment and remain very comfortable with our outlook, including our three-year targets.

In summary, we delivered another quarter of strong results. Our performance continues to demonstrate our differentiated position in the marketplace, which is further enhanced by our acquisition of ARKA. Our ongoing investment ahead of customer need enables us to win and execute high-value, enduring work that drives long-term growth, increased free cash flow per share and additional shareholder value.

And with that, I’ll turn the call back over to John.

John S. Mengucci — President and Chief Executive Officer

Thank you, Jeff. Let’s go to Slide 14, please. In closing, I want to emphasize what truly differentiates CACI. While let’s talk about adjusting to the changing market, we’re already delivering. We anticipated years ago that speed, software-defined solutions and mission proximity would define success for the long term in national security. And we positioned the company accordingly through deliberate investments and disciplined execution of our strategy.

This is all about expanding the limits of national security. It isn’t about chasing trends. Understanding where threats are evolving, where our customers’ hardest problems will be and building the capabilities to address them before they ask. That’s what’s allowed us to compete and win against a broader set of competitors.

Our third quarter and fiscal ’26 results to date demonstrate this differentiation in action. Strong organic growth, expanding margins, robust cash generation and the strategic addition of ARKA to further strengthen our position in the space domain. We’re executing our strategy, delivering for our customers and driving long-term shareholder value.

Before I turn the call over for questions, I want to congratulate NASA and the Artemis II crew on their historic achievement. I also want to recognize that both CACI and ARKA contributed critical technology that exemplifies the caliber and mission impact of our offerings. CACI’s optical communications technology enabled high-definition video and data transmission throughout the entire mission, while ARKA provided essential sensing technology on the SLS rocket to ensure a safe crew ascent. To both teams, thank you for your exceptional work on this landmark achievement for our nation’s space program.

As is always the case, our success is driven by our now 27,000 employees who are ever vigilant in expanding the limits of national security. To everyone on the CACI team, I am proud of what you do every day for our company and for our nation. And to our shareholders, I thank you for your continued support of CACI.

With that, Jeannie, let’s open the call for questions.

Question & Answers

Operator

[Operator Instructions] Your first question comes from the line of Jon Siegmann with Stifel Please go ahead.

Jonathan Siegmann — Analyst, Stifel

Good morning John and Jeff and George, thanks for taking my question. Congratulations on closing the transaction. Just a real quick one. Just with ARKA, maybe can you — and now that it’s all integrated under one leadership, can you scale how big your space exposure is today?

John S. Mengucci — President and Chief Executive Officer

Yes, Jon, thanks. Well, it’s definitely gotten larger. And not just in size, but frankly, in scale and just the absolute eye-watering capabilities that, that national asset brings in. Look, they — we don’t just use that national asset term loosely.

They’re a 62-year-old company. They’ve been at the forefront of technology developments since the Cold War, and outstanding track record of execution. We’ve talked to the majority of the satellite primes that utilize what ARKA provides in space and just outstanding feedback, a consistent partner, consistently delivering on schedule and within cost.

So what drives the growth of space business further, definitely Golden Dome, some of the backlog numbers that Jeff mentioned earlier. Just to have an asset that has another $2 billion of non-competitive sole-source franchise programs from which we’re going to continue to expect revenue from really does drive future growth. All in all, today, looking at space, you’re looking at greater than $1 billion worth of total business with future growth that we see coming forward when we get talking about fiscal year ’27.

Jonathan Siegmann — Analyst, Stifel

Appreciate that. And maybe I’ll just ask one, Jeff, on margins, because that was pretty impressive for the quarter. Previously, you made statements quantifying the difference between tech and expertise, which was helpful for us. Now that you’ve added the Super A’s, ARKA and Azure, is there any framework that we can think about of the relative margin differences between those two segments and any lumpiness or seasonality to keep in mind. Thank you very much.

Jeffrey D. MacLauchlan — Executive Vice President, Chief Financial Officer, and Treasurer

Yeah. Thanks, John. Look, you — I mean, you hit at an item that we’re probably not going to provide a lot more specificity about — around, at least at this point. But clearly, the addition of these significant technology franchises is important in the evolution of the portfolio we’ve been talking about for some time and the attendant margin expansion that comes with that. So I mean, you put your finger on something that we’re not quite ready to quantify, but the condition that you observe is clearly the case.

I would add relative to the second part of your question that, that does come with a certain amount of lumpiness in terms of margin. And you can see that a little bit when you do the algebra around the fourth quarter margin, where we had particularly strong margins this year or this quarter, we’re increasing our margin performance for the year, and you will quickly figure out that, that probably means some lumpiness in the fourth quarter that goes the other way, the way this quarter went the right way.

So this is a little bit of a — there is some variability around that, that you’ve noted. Overall, however, we clearly have embarked on this strategy with the expectation that margin continues to go up and to the right despite an occasional quarterly bounce.

John S. Mengucci — President and Chief Executive Officer

Yeah. And Jon, let me also add on the revenue side. The expected financial contribution over the next 12 months that we shared with you all in December is still accretive to revenue growth and margin. But on the revenue side, revenue is not going to be linear, folks. It’s a technology business. You make deliveries, you book revenue and you book profit.

So, unfortunately or fortunately, program schedules are really not congruent with quarter endpoints. So we can’t apologize for that. It’s very much like the rest of our technology business. So we’ll do our best to estimate quarter-to-quarter, but this is a full year business. We’ve said that a lot. And ARKA is a fantastic growth addition for us as we move forward.

Operator

Your next question comes from the line of John Godin with Citigroup. Please go ahead.

George Price — Senior Vice President of Investor Relations

John, are you there? Operator, let’s move onto the next question.

Operator

Your next question comes from the line of Gavin Parsons with UBS. Please go ahead.

Gavin Parsons — Analyst, UBS

Thank you. Morning, John, you talked about this a bit, but maybe it’s kind of a two-part question on the bookings environment. It seems like the submits are building really nicely, but that’s not converting to the pipeline. So I guess what are you seeing there? And then second, on kind of funding. I think if I exclude ARKA, your funded backlog was up high single digits. So is the funding environment still behaving better even if the award environment maybe isn’t? Thanks.

John S. Mengucci — President and Chief Executive Officer

Yeah. Gavin, thanks. So let’s unpack that. Look, we continue to see excellent visibility, a strong pipeline. We see a really constructive macro forecast as we look forward. Let me just start with, we’re in the right places. We’re investing ahead of need in the right capabilities. We’re able to deliver them faster and more efficiently. That’s exactly what the administration wants.

But it’s safe to say we’re not a short-term hand-to-mouth business. We’ve got a large and growing backlog, as you mentioned, nearly $34 billion, which I’ll add is up 7% year-over-year. Funded backlog up 19% year-over-year and a healthy trailing 12-month book-to-bill of 1.2 times. So — and the last thing I’d like to share is because I enjoy this statistic, a weighted average duration of backlogs on a rolling basis are greater than six years as we get through Q3.

So funding trends, customer demand and a potential $1.5 trillion GFY ’27 budget, which includes reconciliation funding. That definitely continues to support what we’re looking at going forward. So, we’ve talked about the fact that there’s a number of short-term factors behind the slower reward decision-making, and we could spend the rest of the day and probably be 50:50 on reasons why there’s a lot of money in budget. That doesn’t mean there’s an awful lot of planning.

Reconciliation funds are multiyear money. But at the end of the day, I can sum all that up by saying awards are lumpy. I like what our plan is, I like the pipeline, I like the bids submitted. And over the next couple of quarters, I fully believe that the government will go back to the days of awarding most programs within 100 or 300 days of when they plan [indecipherable] and we’ll continue to move forward.

But at the end of the day, we’re not a hand-to-mouth business. We are growing just fine, and we will continue to grow and we’ll get through this awards trough, and we’ll continue to deliver. Jeff?

Jeffrey D. MacLauchlan — Executive Vice President, Chief Financial Officer, and Treasurer

Gavin, I would add to that. You noted the funded backlog increase. The organic piece of that is 10%. I would also note that the sluggishness that we’ve seen in the acquisition and award structure, and this is underscored by the backlog statistic we just used, we have not experienced in the administrative part of the contract administration. So the government is, by and large, funding programs.

They’re paying bills, they’re processing invoices. Payment offices are working. The sluggishness in the awards mechanism has not translated into that side of the government.

Gavin Parsons — Analyst, UBS

Thanks guys. Okay. And a long shot here, but guidance implies growth accelerates in 4Q and you’ve got some pretty easy comps this year. So any early thoughts on if kind of the exit growth rate can continue into next year?

Jeffrey D. MacLauchlan — Executive Vice President, Chief Financial Officer, and Treasurer

Yeah. We do see growth accelerating in the fourth quarter, which has always been the plan. And when I referred to the fact that we were seeing the growth acceleration we expected in the third, that was part of that. But I would also encourage you to keep John’s comments in mind relative to the fact that the business is managed really to the year. And we have customers that have rhythmic buying patterns. Different times of year, they buy differently.

And we typically have strong fourth quarter — strong second half and particularly fourth quarter, which we see again this year. But I would encourage you to not think about that as an exit rate for the year. If you look over time at the distribution of our margin and revenue growth, you’ll see that back-end weighted trend. And that don’t — I’d encourage you to not extend that into ’27 as we close out ’26.

John S. Mengucci — President and Chief Executive Officer

But if I added a comment about ’27, I would encourage you to look forward to us continuing to deliver growth, driving revenue, driving margins, driving free cash flow. And again, we wouldn’t say that, but we weren’t very comfortable with our three-year targets.

Jeffrey D. MacLauchlan — Executive Vice President, Chief Financial Officer, and Treasurer

Yeah, the momentum in the business that you see is real.

Operator

Your next question comes from the line of Gautam Khanna with TD Cowen. Please go ahead.

Gautam Khanna — Analyst, TD Cowen

Good morning guys. How’re you doing? I was just wanted to follow up on that last question. So, I remember last quarter, you kind of explained the Q4 sequential ramp that’s expected, JTMS and some other programs. I’m curious, though, why wouldn’t those continue to be at a very high rate exiting the June quarter into the September quarter? Is there anything onetime with those specific contracts that are driving so much of the sequential growth that tapers off? And then I just wanted to get your broad perspectives on the fiscal ’27 budget request and how that might benefit CACI in what parts of the business?

Jeffrey D. MacLauchlan — Executive Vice President, Chief Financial Officer, and Treasurer

So why don’t I take the first part of that — thanks, Gautam, and let John take the second part, the broader budget question. I would refer you back to the discussions that we’ve had about the different ramp profiles. And there are a couple of things that are happening in the fourth quarter and the sequence from third to fourth. One is that we have a number of programs that ramp in sort of — have sort of a bimodal growth rate. And one of the patterns that I talked about is a lot of these large agile software programs have an initial phase that is planning the second phase.

And so there’s acceleration and then a leveling off and then a reacceleration. We’re working through those phases right now on ITAS and to a lesser extent NCAPS. We very much are in that mode for JTMS. And the other thing I would point out is that we do have — in a number of the technology areas, we do have customer communities that are particularly heavier buyers at different times of year, often with increased activity in the fourth quarter of our fiscal year.

And then the final variable is that we have a number of items where we’re in the early stages of activities that are driving investment for future growth that is another variable in that mix. So the real answer is it’s a portfolio. And while mix sometimes feels like a handy explanation, there really are three or four substantive conditions that are in play here, and they come together from time to time with the outcomes that we try to suggest to you to expect.

John S. Mengucci — President and Chief Executive Officer

On the second part of your question around the ’27 budget, look, larger budgets never hurt. We would rather have larger budgets than shrinking ones. But as I’ve said many, many times, we’re going to pay much more attention to where the funds are flowing under the surface. But what we see in the President’s budget request looks very positive.

The J-Books, I think, came out earlier this week. So we’ll be able to garner much more details from those as we build our fiscal ’27, ’28 and ’29 plans. We’re a $300 billion TAM, and we’re roughly a $10 billion company. So, there’s plenty of room for us to go grow. We firmly believe that the electronic warfare and the counter-UAS areas, both in Department of War and in DHS show great promise.

We’re having all the right meetings and planning sessions and doing the right things we need to do and making the right investments in internally so that we can meet those market needs. Space, really good on both the classified space programs. We are really — we are very strong in those future budgets, especially those that are in the FY 2027 plan. C5ISR and then IT modernization, both bringing in AI and doing network modernization.

So, very supportive of where we’re going ahead. As I always say, more importantly, is where the money is going, and we believe they’re all going in the right spots that will drive future growth for the company in ’27 and beyond. Thanks so much, Gautam.

Gautam Khanna — Analyst, TD Cowen

Thank you.

Operator

Your next question comes from the line of Scott Mikus with Melius Research. Please go ahead.

Matthew Marottolo

Good morning. This is Matt Marottolo, on for Scott Mikus. Good morning. Congrats on Milestone C on Spectral. So as that program moves into LRIP and eventually into full rate production, are there any challenges that you foresee or investments that need to be made to support the production ramp? And then how should we think about the margin benefit as it moves into production? Thank you.

John S. Mengucci — President and Chief Executive Officer

Yeah. Thanks. So, look, we’re extremely proud about where the Spectral program is. That was a long road for us to achieve victory there and done an outstanding setting job with it. So we did achieve and — I’m sorry, we did receive Milestone C. We are just beginning the LRIP portion. In the October, November time frame, we’ll be looking at sort of delivery zero, which is what we will begin delivering some of the systems.

On the investment side, as my prepared remarks stated, we invested long ahead of the award of that program to make certain that the brains of that system, which is looking at multiple antenna feeds and looking at all of the known threats and really providing a great AI baseline for naval combatant ships. So we’ve performed those investments.

We have also continued capex investments in our production facility in Melbourne, where we are rolling out both C — and the Spectral program. We’ve — and we’ve continued to invest in this program, driving, frankly, long lead item purchases slightly ahead of Milestone C so that we could take that timeline in between C and when we can deliver the first system down.

It is an absolute proof point for us on our focus on excellent execution. It’s a new large type program for us, but a great partnership with the Navy, coupled with the right funding timing allows us to deliver to the well over 100 ships that are in the U.S. Navy fleet today.

Matthew Marottolo

Perfect. Thank you guys. I’ll stick to one question.

John S. Mengucci — President and Chief Executive Officer

Thank you. Thanks.

Operator

Your next question comes from the line of Seth Seifman with JPMorgan. Please go ahead.

Christopher Barbero

Good morning guys, this is Rocco, on for Seth. How should we think about ARKA impacting margins moving forward? You mentioned that quarter-to-quarter margins can be lumpy from the technology side of the business, but is the 11.6% that’s implied for next quarter the right way to think about kind of the lower end of the new company margins post these deals?

Jeffrey D. MacLauchlan — Executive Vice President, Chief Financial Officer, and Treasurer

Yeah. The ARKA contribution in the fourth quarter is pretty consistent with our expectations. John mentioned the fact that this is a delivery and mix business and very much not linear. We gave some indication of margin in the December 22 call. But I would — I’d point out that within any particular quarter, around that average, you may see — we may see 3 to 4 point swings in any particular quarter. So I would — I don’t know if I’m getting exactly to the question that you asked.

The ARKA expectation for the fourth quarter, is well aligned with our expectation when we made that announcement. The organic business mix will be a softer quarter when you do that math.

Christopher Barbero

Right. That makes sense. And then what type of directed energy capability does ARKA bring to CACI? And have they been filled at this point?

John S. Mengucci — President and Chief Executive Officer

They bring a portion of directed energy, things we can’t talk about on the line. Yes, it’s a new capability for us. We’re not in the directed energy business prior. And I think we’ll be able to talk more on that in the quarters to come. I do want to touch back on your earlier question. Look, ARKA is a long-term play for us. It’s probably one of the strongest acquisitions that we’ve done in terms of both doubling down on capabilities and customer relationships.

And frankly, us owning and growing a price space business in a market that’s going to see valuations of those with such a strong space portfolio grow in the years to come. We’ve been able to do that all inside of a company that covered down on our transition and our interest costs and still delivering $725 million of free cash flow. So we’re in the very early innings. We just got through an integration on April 1.

I think we’re still in the month of April. So in the first 20 or so days, we’ve gotten a lot done. And Andreas, who is running the combination of ARKA’s business and our space business is already making a major impact as to how we can continue to grow in space.

Operator

Your next question comes from the line of Tobey Sommer with Truist Securities. Please go ahead.

Tobey Sommer — Analyst, Truist Securities

Thank you. If I think about the business from a really high level, mission tech expertise, etc., is it fair to think of mission tech and a mix shift of 2 to 3 points per year because of faster growth as well as, generally speaking, applying more capital on acquisitions in that direction?

Jeffrey D. MacLauchlan — Executive Vice President, Chief Financial Officer, and Treasurer

Yes. I think, Tobey, that’s broadly right. It’s a hard thing to generalize, but the condition you observe is certainly true, and it’s — you’re on the right vector to be sure.

Tobey Sommer — Analyst, Truist Securities

And with respect to counter-UAS, I was wondering if you could characterize what the experience in the war so far has meant to the opportunities that you see in front of you and maybe how that has impacted customer conversations and decision-making.

John S. Mengucci — President and Chief Executive Officer

Yes, Tobey, thanks. So look, let’s start off with where we are in the counter-UAS market. We’re already in government inventory. We’ve been doing this for a couple of decades. Merlin is our family of counter-UAS systems. It is part of our broader $2 billion EW portfolio. And we do continue to expect growth from counter-UAS. And the foundational part of this is that we’ve actually — we are able to sell it under two different vectors under FAR Part 12, FAR Part 15.

So we can meet the administration’s priorities. We’re in place for world events and the like. We are currently providing counter-UAS to all four of the armed services. We’re in active discussions or negotiations with 16 other agencies and organizations across the federal government. And we already have, as I talked about in my prepared remarks, a system that’s already been fully deployed on the southern border. So as you all know, it’s our practice of anything competitive. We’re not going to provide details, but we will absolutely be more than willing to share those details on the next quarterly call and in incremental press releases as we go forward.

On the international front, as an update, since our last call, we are now very active working sales in theater through the U.S. Army, Task Force 59, JIATF 401 and CENTCOM for mobile counter-UAS units. We’re getting kits prepared to support testing against one-way attack drones, and those are all the ones that have been in the news over the recent quarter. We have built established relationships with resellers to give us access into the Saudi, the Kuwait and the Qatari markets through their ministries of defense.

They’re all at various stages of the process. But you should expect those folks to be on board within 45 days, and we have to work through the exportability issues. So, we are very strong in this market. We’ve talked about this for quite a long time. Current events are driving stronger demand and as well as the 17 countries we’ve already delivered the EW2. So strong market, well-funded in the U.S. through both reconciliation bills, adding billions to our TAM, which is what moved us to the $300 billion level and really strong interest, both domestically as you look at counter-UAS for Golden Dome as well as other initiatives like the Eastern flaying drone walls.

So a lot of positive work here, putting the right dollars of investments in and you saw the capex is up slightly. Half of that was to ARKA, half of that goes through our EW portfolio, and we are full speed ahead in how we want to grow this market.

Tobey Sommer — Analyst, Truist Securities

Thank you very much.

John S. Mengucci — President and Chief Executive Officer

Thanks Tobey. You bet.

Operator

Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead, Sheila.

Sheila Kahyaoglu — Analyst, Jefferies

Hi, good morning guys. Just one question for me. Great stuff on the funded backlog growing, John, despite the environment. Maybe just honing in on your Civil business, still solid growth there, up 7%. What are you seeing? And how do we think about major program drivers within Civil into fiscal ’27?

Jeffrey D. MacLauchlan — Executive Vice President, Chief Financial Officer, and Treasurer

Yeah. There are a couple of things going on in Civil, Sheila. You can see the modest DHS headwinds, but you can also see the NASA NCAPS ramp. I mean those would be the principal drivers of the change that you see.

Sheila Kahyaoglu — Analyst, Jefferies

Okay, great. Thank you.

Operator

Your next question comes from the line of David Strauss with Wells Fargo. Please go ahead.

Joshua Korn

Hi, good morning, this is Josh Korn, on for David. I wanted to follow up on the broader defense budget question. So I saw a note in the slides that the reconciliation funding is starting to flow through. So I was wondering if there’s any way you could quantify, I guess, to what extent your programs benefit from the base budget versus the reconciliation benefit from last year? And then any thoughts on what that might look like for 2027?

John S. Mengucci — President and Chief Executive Officer

Yeah. So, the majority of what we do and what we have been able to grow through is in the base budget. It will continue to be in the base budget because we have selectively decided in our seven markets to go after areas that are traditionally funded within the base. On the reconciliation funding, we have seen those start to flow. They’re really going to be very prevalent in Golden Dome as well as border security. We’ve seen some additional funding show up there. We’re doing a lot of AI-based object tracking tech as well as additional spend in our counter-UAS area where we are currently modernizing the Space Force critical infrastructure through reconciliation funding.

Again, you can directly tie that to things in the Golden Dome area. In the intelligence world, we continue to enhance what we do in the left-of-launch area around situational awareness. And then in IT modernization, we have a lot of large enterprise systems that we’re looking to try to make common across the Department of War. So if the Army has a picture perfect enterprise system doing X, we are pushing to have that same solution be used through the rest of the Department of War.

So, I mean, a lot of nice funding. And whether it’s RDT&E or in procurement versus O&M, it doesn’t quite matter to us. We’re always doing modernization through sustainment, which is a large use of O&M funding. And clearly, as our business continues to evolve, we’ll see increasing amounts of RDT&E funding. So really well funded to close out 2026 and just as nicely funded as we go forward in fiscal year ’27.

Joshua Korn

Great, thank you.

John S. Mengucci — President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Mariana Perez Mora with Bank of America. Please go ahead.

Alexander Preston

Hey guys, this is Alex Preston, on for Mariana this morning. How are you? I just wanted to go back to NASA and the Civil side real quick, given the sort of budget fluctuations there in FY ’27, right? Obviously, the request calls for, again, pretty significant cuts year-over-year. But there’s also this shift towards exploration away from pure science. So there’s a bit of a dynamic there. I’m just curious if you had any sort of broad puts and takes on that budget request and where you see CACI and ARKA playing within that context? Thanks.

John S. Mengucci — President and Chief Executive Officer

Yeah. So, I guess we’re on both sides of that, right, Alex. Let’s start with NASA NCAPS first. We continue to successfully ramp that program. We’re receiving very high praise from our customer. So what we’re deploying there is a commercial agile scale delivery model to really standardize and centralize software development across NASA. So very similar to what we have done with Customs and Border Patrol on Beagle.

So, the way to think about that work in terms of budgets and administration priorities, we’re reducing software development times. We’re increasing efficiency. We’re bringing administrative systems across NASA into compliance with the plethora of federal reporting requirements. And we’ve met all key metrics, and we’re supporting, I think 800 to 900 different applications and platforms.

There’s no impact to the work that we are doing. But you should see that by driving commonality and moving NASA and their software development frameworks forward closer to the way that commercial companies do their software development practice as well as CACI, it’s going to generate cost savings across the organization.

And nice thing for us, it supports the theme of NASA wanting to reduce their reliance on outside headcount and push those dollars more into mission, which is fantastic for us as we look at our space business. So it is the organization that really is taking full advantage of what we’re doing in one part of our business, driving agile software development practices and putting DevSecOps in place, that’s been saving the organization money.

And the even sweeter news is we’re on the receiving end of that as we look at what we do in space. So very much aligned, not a funding threat to where we’re going on NCAPS and how that will continue to ramp to support ’27 growth rates.

Alexander Preston

Great, thank you. Really appreciate the color.

Operator

Your next question comes from the line of John Godyn with Citigroup. Please go ahead.

Jeremy Jason

Hi, this is Jeremy Jason, on for John Godyn. Thank you for squeezing me in. So I just wanted to ask, as we think about these complex sort of technical solutions transitioning from development to production like Spectral, I kind of wanted your take on what your outlook today is for the scalability of these technologies across different customers and upcoming budget cycles. And could that, in theory, be sort of affected by a potential blue wave? Thanks.

John S. Mengucci — President and Chief Executive Officer

Yeah. The nice thing — I’ll take your last comment first. The beautiful thing of being an investor in CACI is a number of years back when we set this company on its next course, we spent a lot of time looking strategically at the kind of markets we wanted to support and the parts of the federal government we are going to be very focused on. Mark my words, it’s no accident that we’re focused on national security, which is DoD, the intelligence community and DHS, all, dot, dot, dot, which are fully — have bipartisan support.

Blue waves, red waves, purple waves, doesn’t much matter to where we’re doing things. We’re in very critical areas that the government tomorrow morning will not decide to just turn off. So first and foremost, that’s where we’re at. So if we talk about systems that we’re out there doing, counter UAS, Spectral, work we’re doing in agentic AI, those are all things that scale wonderfully as we move forward.

Our optical communication terminals beyond the 2 and 4 watt proliferated LEO systems to very exquisite systems. So Spectral, its scale and scalability is to deliver the baseline we’ve agreed upon to over — well over 100 combatant ships and then move into the FMS side of where Spectral goes. On top of the FMS work is all the topside antenna work that we and the Army believes should be the next phase of Spectral, so we can secure even more signals from those topside antennas and be able to drive processing improvements that will protect ships not only from missiles, but also from drones.

In the counter-UAS area, we have been scaling up production capabilities in Sterling and in Melbourne to be able to deliver Merlin. It’s a tough supply chain. Right now, there is a lot of people buying flat-panel radars. But what differentiates us there, frankly, and how we enhance it going forward is the software capability of that system. So it’s not so much of always having to update hardware. And whether this is fly-by-wire drones, one-way attack drones, cellular drones, you name it, we’ve already seen them all over the planet. So we are more than able to scale forward from that position as well.

And we can talk a lot about optical communication terminals and everything else we’ve done in the tech area, but they all follow that common theme, right? You need to understand mission so that you can deliver. We hear a lot about AI and how that’s going to move different parts of our business forward. Frankly, AI without mission is like a car without gas. It’s great to look at. You really can’t do much with it. So we’ve been able to scale AI use throughout a lot of what we do, and we’re looking forward to driving growth further in fiscal year ’27.

Operator

Your next question comes from the line of Jan Engelbrecht with Baird. Please go ahead.

Jan-Frans Engelbrecht — Analyst, Baird

Good morning John, Jeff and George. Congrats on another good quarter. Just I wanted to talk about the ARKA and legacy CACI space portfolio. And I was just wondering sort of is there an ability to sort of — I wouldn’t say sort of cross-sell, but like how do you combine those capabilities into sort of a solution for the customer?

John S. Mengucci — President and Chief Executive Officer

Yeah. Thanks, Jan-Frans. Probably the most prolific revenue synergy we have is going to be on the ground processing side, where ARKA already has authorizations to operate agentic AI solutions and a number of different mission models that allow them to process and find different things in the geo stream. We are just as adept on the SIGINT side, but we have not moved to agentic AI on that side. We’re just beginning to have customer meetings given that we just got everything integrated.

So there are revenue synergies there that haven’t even begun that will allow us to move the intelligence community further down the path that we know that they want to move towards, which is getting to higher-level multi-end solutions. The other area that we’re already connecting is, “Hey, how do we go about building larger scale optical communication terminals?” Say larger ones or ones of the same size that need to push a terabit of data through versus 2 to 4 meg.

ARKA is a 60-plus year space company. We are a six plus year space company in the world of optics. So there’s a lot of synergies already taking place there. We’re looking at different ways that we can get through production. We’re looking at different ways we can do engineering. So there’s just so much more we can be doing for the folks who build satellites and the customers who absolutely need information from those missions. So, really excited about what the future brings for us.

Jan-Frans Engelbrecht — Analyst, Baird

Thanks, John, very helpful. And then a quick follow-up, if I may. Just if we look at FY ’27, and you’ve obviously got great visibility into this business, it’s close to four years of annual revenue in the backlog. But any sort of large multiyear contracts that you bid on, sort of multibillion dollar contracts that you expect to be adjudicated in FY ’27 or any sort of notable recompetes that we should look out for in the next 12 months?

John S. Mengucci — President and Chief Executive Officer

Yeah. I think on the new business front, we’re always — we always have a number of multibillion-dollar things that are rumbling around at different stages. Do we have some jobs that are over $1 billion that are going to be awarded in fiscal year ’27? Absolutely so. And frankly, we were looking at some of those to be awarded towards the end of 2026. But, clearly we’re not there, but we’ll be able to report on how ’26 wrapped up, and how they go forward within 2027.

On the recompete front, this was — this year, 2026 has been a really large year for us. As I think Jeff mentioned during his prepared remarks, we’re already greater than 90% on the recompete front. And what’s just as exciting is the fact that future recompetes that were to come up in the first quarter or so of ’27 have already been extended by 18 to 20, 24 months, which is really a great way to win recompetes, right, just to never have to bid on them.

You only get there when customers recognize the areas that we’re in, the importance of national security of the areas that we’re in and the level of performance we’ve had. So thanks for the follow-up.

Operator

That concludes our Q&A session. I will now turn the conference back over to John Mengucci for closing remarks.

John S. Mengucci — President and Chief Executive Officer

Thanks, Jeannie, and thank you for your help on today’s call. We really want 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, and Jeff MacLauchlan and George Price and Jim Sullivan are available after today’s call. So please stay healthy, and all my best to you and your families. This concludes our call. Thank you, and have a fantastic day.

Operator

[Operator Closing Remarks]