Executive Summary / Key Takeaways

• Technology-Led Transformation Delivering Margin Expansion: CACI's decade-long pivot from 80% services to a software-defined technology leader is now bearing fruit, with Q1 FY26 EBITDA margins hitting 11.7% (up 120 bps YoY) and management confirming some technology pieces generate margins "north of 20%," fundamentally altering the earnings power profile versus traditional government services peers.

• Unprecedented National Security Funding Visibility: With 90% of revenue tied to defense and intelligence, CACI sits directly in the path of $150 billion in reconciliation funding (including $25 billion for Golden Dome) and a likely $1 trillion FY26 defense budget, providing multi-year revenue clarity that de-risks the growth story even amid government shutdowns.

• Competitive Moats Forged in Electronic Warfare: The company's $2 billion EW/Counter-UAS portfolio, anchored by battle-proven systems like Merlin (75 km detection range, hundreds of confirmed kills) and the TLS Manpack, creates switching costs and pricing power that competitors cannot replicate, as evidenced by 60% of Q1 FY26 awards being new business to CACI.

• Financial Discipline Meets Growth Investment: Despite aggressive M&A (Azure Summit for $1.31 billion) and share repurchases (15% of shares since FY21), CACI maintains modest leverage at 2.6x net debt/EBITDA, generates free cash flow conversion above 100% of net income, and has guided to at least $710 million in FY26 free cash flow—achieving its three-year target a year early.

• Execution Risk on Large Programs Is the Critical Variable: While the $34 billion backlog (nearly four years of revenue) provides stability, success hinges on flawless execution of flagship programs like the Navy's Spectral (milestone C in January/February 2026) and scaling optical communications terminal deliveries six-fold in 2025, where supply chain issues have already caused delays.

Setting the Scene: From Services Vendor to Mission Tech Platform

CACI International, founded in 1962 in Reston, Virginia, spent its first five decades as a traditional government services contractor. The company that exists today bears little resemblance to that legacy. Over the past decade, management deliberately shifted the portfolio to concentrate approximately 90% on national security, anticipating that defense and intelligence budgets would prove more resilient and better funded than federal civilian agencies. This foresight, which began taking shape seven to eight years ago, transformed CACI from an 80% services/20% technology mix into what CEO John Mengucci now calls a "mission tech/defense tech company" that leads in commercial agile software development and DevSecOps for the federal government.

This matters because it explains why CACI trades at a premium to traditional services peers. The company isn't bidding on labor-hour contracts; it's delivering software-defined systems that generate higher margins and create customer lock-in. The $280 billion total addressable market for national security IT is fragmented, with CACI holding an estimated 3-4% share—leaving substantial room for growth while maintaining pricing discipline. Unlike Leidos (LDOS) or Booz Allen (BAH), which maintain broader civilian exposure, CACI's 2019 decision to exit most federal civilian work (now just 6% of revenue) insulated it from the budget volatility that has plagued competitors like SAIC (SAIC) and Parsons (PSN), both of which have recently reported revenue declines.

The competitive landscape reveals CACI's unique positioning. Leidos generates $16-17 billion annually with superior scale but slower organic growth (7% vs. CACI's 5.5% in Q1). Booz Allen matches CACI's growth but carries higher debt-to-equity (4.18x vs. 0.80x) and lower margins. SAIC and Parsons are struggling with negative organic growth, making CACI's 11.2% Q1 revenue increase and 120 basis points of EBITDA margin expansion stand out sharply. CACI's strategy of investing ahead of customer need—spending company money to develop capabilities before contracts are awarded—creates a moat that pure services players cannot cross. When the Army needed a rapid-fielding mid-tier acquisition, CACI's TLS Manpack was ready because the company had already invested in the software-defined architecture. This positions CACI not as a vendor responding to RFPs, but as a strategic partner shaping requirements.

Technology, Products, and Strategic Differentiation: The Software-Defined Advantage

CACI's technology portfolio centers on software-defined systems that integrate signals intelligence, electronic warfare, and network modernization into unified platforms. The TLS Manpack exemplifies this approach: a single system that combines SIGINT collection, processing, exploitation, and electronic attack for dismounted soldiers. The Army's decision to increase the program ceiling to $500 million and add a vehicle-mounted option demonstrates how software-defined architectures create expansion opportunities that hardware-centric systems cannot match. For investors, this translates into higher lifetime contract values and better capital efficiency—development costs are incurred once, then scaled across multiple form factors.

The Counter-UAS portfolio, generating approximately $2 billion in annual revenue, showcases CACI's differentiation. Merlin, the latest detect-and-defeat system, offers non-kinetic capabilities with 75-kilometer detection range—far exceeding competitors' 1-3 kilometer capabilities. Management's pointed commentary that "if you have a Counter-UAS solution, you say it does and it does so much and it doesn't, at the end of the day, somebody dies" highlights why battle-proven performance matters. CACI has hundreds of confirmed kills in theater and over 5,000 systems deployed globally, creating a validation loop that new entrants cannot replicate. This matters for margins because customers pay premium prices for proven reliability, and for growth because the drone threat is escalating both abroad and domestically, driving demand for Golden Dome funding.

Network modernization represents another technology moat. CACI is implementing software-defined networks and Commercial Solutions for Classified (CSfC) across seven federal programs, including Army CIPRAMOD and Air Force EITaaS . The company's ARCON technology —a commercial product developed ahead of customer need—recently received NSA authorization, positioning CACI to operationalize classified networks in 2026. This matters because network modernization is a "foundational dependency" for DoD priorities like NGC2 ; without modern networks, command-and-control initiatives cannot function effectively. CACI's first-mover advantage in software-defined networking creates a multi-year revenue stream as agencies must upgrade legacy infrastructure.

The photonics business, while smaller, demonstrates CACI's ability to scale advanced manufacturing. Having delivered 25 optical communications terminals operating in space—including 10 for SDA transgeo tracking —the company expects to increase delivery volume six-fold in 2025. Supply chain issues have caused delays, but management remains confident in hitting goals. For investors, this represents both execution risk and margin opportunity: successful scaling could establish CACI as a key supplier for Space Force's enterprise space terminal program, a $200-300 million annual market for up to three vendors, with additional upside from Golden Dome.

Financial Performance & Segment Dynamics: Evidence of Strategic Success

CACI's Q1 FY26 results provide clear evidence that the technology pivot is working. Revenue increased 11.2% to $2.29 billion, with 5.5% organic growth driven by new contract awards and on-contract expansion. The EBITDA margin of 11.7% represents a 120 basis point year-over-year improvement, driven by strong program execution and the timing of higher-margin software-defined technology deliveries. This margin expansion validates management's claim that technology work generates superior returns—Jeffrey MacLauchlan confirmed that some technology pieces have margins "north of what you mentioned" when analysts implied incremental margins over 20%.

The segment mix reveals the transformation's depth. Technology revenue reached $1.30 billion in Q1, while Expertise (services) contributed $986.89 million. More importantly, technology work is increasingly purchased through commercial-like purchase orders rather than large multi-year vehicles, allowing faster turnaround and better cash flow. This shift impacts working capital management—days sales outstanding were 56 days in Q1, with Azure Summit adding about 4 days due to legacy contract billing terms that CACI can optimize over time. The ability to sell software-defined systems as products rather than services fundamentally improves the business model's economics.

Cash flow performance underscores the strategy's durability. Q1 FY26 generated $143 million in free cash flow, with management guiding to at least $710 million for the full year, implying free cash flow per share growth of over 60%. The company achieved 100% free cash flow conversion of adjusted net income a year ahead of target, driven by optimizing Azure's facility utilization and reducing Spectral production CapEx. This demonstrates that growth investments are generating returns quickly, and that management can flex capital spending without compromising program delivery. With modest leverage of 2.6x net debt to trailing EBITDA and no borrowings on a $1.975 billion revolver, CACI has ample capacity for the technology-focused M&A pipeline that MacLauchlan described.

The balance sheet reflects disciplined capital allocation. Since FY21, CACI has repurchased 15% of outstanding shares while completing 12 acquisitions, including Azure Summit for $1.31 billion and Identity E2E for $58.9 million. The $1 billion offering of 6.75% senior unsecured notes was substantially oversubscribed, providing flexibility at a time when higher interest rates increase borrowing costs—each 1% rate fluctuation impacts variable-rate debt interest expense by approximately $2.5 million quarterly. This indicates CACI can access capital markets on favorable terms even while maintaining leverage in its target 2.5-3.0x range, preserving optionality for accretive acquisitions.

Outlook, Management Guidance, and Execution Risk

CACI's FY26 guidance—revenue of $9.2-9.4 billion (6.6-8.9% growth), EBITDA margin in the mid-11% range, and free cash flow of at least $710 million—reflects confidence despite the government shutdown that began October 1, 2025. Management reaffirmed guidance based on three factors: 92% of revenue coming from existing programs, a $34 billion backlog representing nearly four years of revenue, and the essential nature of national security work that continues during shutdowns. This de-risks the investment thesis—unlike civilian contractors, CACI's core business is insulated from political dysfunction.

The shutdown's impact has been minimal. John Mengucci reported "de minimis revenue impact" in the single-digit millions, expected to be recovered within the fiscal year, while acknowledging "modest impacts from slower award decisions and administrative pace." The 26% year-over-year increase in funded backlog to $5.4 billion may reflect customers preparing essential programs for shutdown scenarios, providing additional visibility. This demonstrates that CACI's strategic focus on national security creates resilience that peers lack—SAIC and Parsons have both cited funding delays as headwinds.

Reconciliation funding represents a significant upside catalyst. The One Big Beautiful Bill Act provides $150 billion for defense (including $25 billion for Golden Dome) and $170 billion for border security, available regardless of appropriations or shutdowns. While none of Q1 performance was directly identified as reconciliation funding, management sees "early indications" of planning activities focused on DHS modernization and DoD left-of-launch situational awareness. This creates a backstop to FY26 guidance—if normal appropriations are delayed, reconciliation funds can fill the gap, particularly for Counter-UAS and intelligence programs where CACI is positioned to capture share.

International expansion offers another growth vector. CACI now sells to 15 NATO countries and is assessing demand in seven others, with Eastern European allies showing particular interest in SIGINT, EW, and Counter-UAS technology. The shift from Foreign Military Sales to direct commercial sales signals maturing relationships and higher margins. This diversifies revenue beyond U.S. government budgets and leverages proven technology in new markets—though at just 3.4% of total revenue currently, the impact is modest but growing.

Execution risk centers on two large programs. The Navy Spectral program must achieve milestone C in January/February 2026 to freeze the design and begin deliveries in calendar 2026. Azure Summit's integration is proceeding well, with blended leadership and aligned agile development, but any delay would push revenue recognition. Similarly, scaling optical communications terminal deliveries six-fold in 2025 requires resolving supply chain issues that have already caused delays. These factors represent the difference between achieving the high end of guidance versus the low end—successful execution could drive upside, while missteps would pressure margins and confidence.

Risks and Asymmetries: What Could Break the Thesis

Government concentration, while a strategic advantage, remains the primary risk. Approximately 96% of revenue comes from U.S. federal agencies, with 78% from defense-related customers. The "termination for convenience" clauses standard in government contracts mean multi-billion-dollar programs can be canceled with minimal notice. While CACI's national security focus provides resilience, a major shift in defense priorities or a peace dividend scenario would disproportionately impact growth. This creates binary risk—CACI's valuation premium assumes continued budget growth, making it vulnerable to geopolitical de-escalation in ways that diversified contractors like Leidos are not.

The Al Shimari case, where a jury reached a $42 million judgment in November 2024, represents legal overhang. CACI is vigorously defending and has recognized no liability in financial statements, but an adverse final ruling could impact cash flow and reputation. More broadly, government audits by DCAA could result in adjustments, though management believes reserves are adequate. Legal and audit risks are asymmetric—upside is limited to zero impact, while downside could be material and unpredictable.

Competition is intensifying in CACI's sweet spots. Leidos and Booz Allen are both investing heavily in AI and cyber, while traditional defense primes like Lockheed Martin (LMT) eye software-defined capabilities. Management noted "a little uptick in the number of protests," which they view as an early sign of desperation among competitors. This could pressure win rates and margins—CACI has walked away from price shootouts, but if larger competitors bundle software with hardware platforms, CACI's standalone position could be challenged. The company's refusal to engage in LPTA procurements protects margins but may limit addressable market.

DOGE initiatives , while currently impacting only $1 million of revenue, could expand. John Mengucci noted seven contracts with potential impact totaling $3 million annually, but the full scope of efficiency reviews remains unknown. If DOGE pushes aggressive contract consolidation or forces recompetes at lower price points, CACI's growth trajectory could suffer. The market has priced in minimal disruption—any expansion of DOGE's scope would create downside surprise.

Acquisition integration risk is real despite current success. Azure Summit's $1.31 billion price tag represents 15% of CACI's market cap, and while early results are strong ($300 million Navy award shortly after closing), cultural and operational integration challenges often emerge 12-18 months post-close. The photonics business requires scaling manufacturing six-fold while maintaining quality. CACI's growth strategy depends on successful M&A—missteps would force a reliance on slower organic growth and could impair the balance sheet.

Valuation Context: Premium for Differentiation

At $617.10 per share, CACI trades at 27.25 times trailing earnings and 22.25 times free cash flow, with an enterprise value of $16.70 billion representing 16.42 times EBITDA. These multiples are elevated versus traditional government services peers—Leidos trades at 17.86 times earnings and 12.32 times EBITDA, while Booz Allen trades at 12.72 times earnings and 10.49 times EBITDA. The valuation premium reflects CACI's technology differentiation and superior growth trajectory, but also creates downside risk if execution falters.

The price-to-sales ratio of 1.54x sits between Leidos (1.41x) and Booz Allen (0.88x), but CACI's gross margin of 32.63% and operating margin of 9.28% (TTM) are competitive with Leidos (17.61% gross, 11.97% operating) and superior to SAIC (11.97% gross, 7.86% operating). The key differentiator is margin trajectory—CACI's Q1 FY26 operating margin of 12.1% (implied from EBITDA margin of 11.7%) shows expansion while peers face pressure. This supports the thesis that technology-led growth is structurally more profitable than services-led growth.

Balance sheet strength provides a valuation floor. With net debt to EBITDA of just 2.6x, $444 million in cash, and no revolver borrowings, CACI has the flexibility to weather downturns and invest in growth. The company's return on equity of 13.14% and return on assets of 6.31% lag Leidos (29.29% ROE, 9.49% ROA) but reflect CACI's lower leverage and higher investment in R&D. This indicates CACI is sacrificing short-term ROIC for long-term competitive positioning—a trade-off that makes sense given the technology moats being built.

Free cash flow yield of approximately 4.5% ($710 million guided FCF on $13.63 billion market cap) is reasonable for a growth company, but the 60% growth in FCF per share expected in FY26 is exceptional. This demonstrates that CACI's technology investments are converting to cash quickly, validating the capital allocation strategy and providing downside protection through potential accelerated buybacks if the stock weakens.

Conclusion: A Mission Tech Company at an Inflection Point

CACI International has successfully transformed from a commoditized government services provider into a software-defined mission technology platform with durable competitive advantages in electronic warfare, counter-drone systems, and agile software delivery. The company's 11.7% EBITDA margin in Q1 FY26, expanding technology portfolio with margins "north of 20%," and $34 billion backlog provide tangible evidence that this strategic pivot is working. Trading at a premium to traditional peers, CACI's valuation reflects its unique positioning in the $280 billion national security market, where bipartisan funding support and $150 billion in reconciliation funding create multi-year visibility.

The investment thesis hinges on two critical variables: flawless execution of flagship programs like Navy Spectral and scaling optical communications terminal deliveries, and successful integration of technology acquisitions while maintaining the agile culture that wins new business. The minimal impact from government shutdowns and DOGE reviews demonstrates the resilience of CACI's national security focus, but the 96% government concentration remains a binary risk should defense priorities shift.

For investors, CACI represents a rare combination of growth, margin expansion, and cash generation in a defensive end market. The company's ability to generate over $1.6 billion in free cash flow over three years while repurchasing 15% of shares and completing strategic acquisitions validates its capital allocation discipline. The key question is whether CACI can sustain its technology differentiation as larger competitors awaken to the software-defined opportunity. If execution remains strong, the current valuation premium will compress through earnings growth; if missteps emerge, the premium will evaporate quickly. The next 12 months—spanning Spectral's milestone C, Golden Dome funding ramp-up, and six-fold scaling of photonics deliveries—will determine which path unfolds.