CACI International Inc (CACI) Q1 2027 earnings review
CACI raises its full-year outlook, though underlying sales growth slows
CACI International, a technology and defense contractor to the U.S. government, widened its profit margins and booked heavy new orders even as its underlying sales growth cooled. Total sales rose 8%, while sales from businesses owned a year ago grew 2% and EBITDA margin reached 13.3%, well above the mid-11% plan. Chief executive John Mengucci raised the full-year sales and profit outlook, which by our math leaves revenue growth stepping up to 14% over the rest of the year.
| Sales from businesses owned a year ago | +2.1% total revenue +8.2% to $2.47B |
|---|---|
| EBITDA margin | 13.3% planned mid-11%; 11.7% a year ago |
| Funded backlog | $6.2B +14.8% from a year ago; book-to-bill 2.0x |
| Full-year revenue outlook | Raised $50M middle of the range: 12.9% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because funded backlog and profit margins both beat the company's plan at the start of the fiscal year. A $4.8 billion quarter for contract awards and a jump in fixed-price technology work backed up the higher outlook after a slow fourth quarter for bookings. One caution: total backlog barely grew from a year ago, and higher interest and amortization costs from the ARKA deal held standard accounting profit growth to 4%.
The question now is whether underlying sales can speed up enough in the second half to replace the ARKA acquisition boost once it turns a year old in March. If new defense awards convert quickly into revenue, CACI meets its second-half ramp; if total backlog stays flat, growth slows sharply next year. Second-quarter underlying sales growth and funded backlog will tell.
🐂 Bull Case
Technology and Fixed-Price Mix Lifted the Margin
CACI is shifting toward selling software and electronics under fixed-price contracts, where it keeps any cost savings, though that shift also raises the risk of cost overruns on space hardware. Chief executive John Mengucci credited a "software-defined approach" for a strong start to the year, and operating profit before depreciation and amortization (EBITDA) reached 13.3% of revenue against a mid-11% plan.
- Direct costs (labor and materials tied to contracts): 64.6% of sales, down 3.1 percentage points from a year ago by our math
- Indirect costs and selling expenses (overhead and bidding): 22.2% of sales, up 1.5 percentage points by our math
- Fixed-price revenue: $821.8 million, up 34.4% to 33.2% of total sales
- Technology revenue: $1.45 billion, up 11.4% to 58.6% of total sales
Lower direct contract costs paid for higher overhead and lifted the operating margin by 0.7 percentage points to 10.0%, because ARKA, the space sensor business acquired in March, and fixed-price technology programs carry higher gross margins. What to watch: second-quarter EBITDA margin on the next earnings release. A drop below 12% would show this quarter's 13.3% reading came from one-off hardware delivery timing rather than a lasting shift.
Contract Wins and Funded Backlog Picked Up
Funded backlog is the portion of government contracts for which Congress has already set aside money. Mengucci pointed to a "large and growing backlog" as he raised the full-year revenue outlook by $50 million, after fourth-quarter contract wins had dipped to 0.6 times quarterly sales.
The defense contractor booked $4.8 billion of awards in the first quarter, or 2.0 times the revenue it billed, with 61% from new work. Funded backlog rose 14.8% from a year ago to $6.2 billion, adding $800 million from June by our math, led by $1.2 billion booked on a U.S. Central Command award to "turn information into actionable insight" and $1.2 billion for Army Special Operations.
What to watch: funded backlog in the second-quarter release, after the September government funding rush fades. A sequential drop of more than $1 billion would show that first-quarter funding merely pulled orders forward before the October federal budget deadline.
Positives this quarter didn't test
Three standing growth drivers got qualitative milestones in the press release without new financial figures to test them, as CACI highlighted its "continued transformation into a technology-first national security company."
- Fast-track government buying (Other Transaction Authority contracts): no quarterly award figure disclosed; the conference call or filing will show whether rapid technology orders kept pace.
- Counter-drone systems (SkyValor and Merlin): the U.S. Army added $153 million to an unmanned systems contract ceiling, but product sales and orders under the $500 million border defense contract were not broken out.
- Electronics factory expansion: the contractor opened a 61,000-square-foot center in Rochester, New York, quadrupling its manufacturing space, and won a spot on a 15-vendor Space Force testing contract; second-half Navy deployments will test factory output.
🐻 Bear Case
Underlying Growth Slowed While the Plan Steepens
"Our first quarter results represent a strong start to fiscal year 2027, highlighted by revenue and EBITDA growth," Mengucci said. Total revenue rose 8.2% to $2.47 billion, but most of that increase came from the ARKA acquisition rather than businesses CACI owned a year ago.
- Sales growth from businesses owned a year ago: 2.1%, down from 11.6% in the fourth quarter and 5.5% a year earlier
- Rest-of-year total revenue growth implied by the full-year outlook: 14.4% by our math
- Total backlog: $34.0 billion, up 0.3% from $33.9 billion a year ago
- Expertise revenue (staffing and operational support): up 3.9% to $1.03 billion, while cost-plus-fee contracts shrank 5.5%
The full-year outlook still counts on about $500 million of acquired ARKA revenue, which stops adding to year-over-year growth after March, so underlying sales must speed up in the second half even though total backlog barely grew over the past year. What to watch: underlying sales growth in the second-quarter release. Another reading near 2% would leave the company reliant on unbooked second-half wins to meet its $10.8 billion midpoint.
Deal Debt and Tax Timing Weigh on Cash
CACI borrowed to buy ARKA in March, and it measures its headline profit per share by excluding the resulting accounting charge for acquired customer relationships and technology (intangible amortization). That measure rose 11.8% to $7.66, whereas standard accounting profit per share rose 3.7% to $5.84.
Net interest expense jumped 58.6% to $73.2 million and intangible amortization rose 50.7% to $54.3 million. Free cash flow fell 6.6% to $133.5 million as the company tied up cash in working capital, yet it paid down $66.7 million of net debt and reduced net debt by $153.1 million from June to $4.56 billion by our math.
By our math, the unchanged $900 million full-year free cash flow floor requires 29.4% growth over the rest of the year and leans on $155 million of expected tax benefits and refunds. What to watch: operating cash flow and tax refund receipts in the second-quarter filing. A delay in the $40 million tax refund would slow debt paydown.
Risks this quarter didn't answer
Three standing risks could not be tested from the first-quarter press release alone.
- Federal budget delays after October 1: the first quarter ended September 30, before the new government fiscal year began; second-quarter awards and civilian agency sales (already down 3.7% this quarter) will show any funding slowdown.
- Debt ratio including a full year of ARKA profit (pro-forma net leverage): not stated in the release after sitting at 3.7 times in June; the conference call commentary will show whether the company remains on pace for its low-3s target by June 2027.
- Abu Ghraib legal verdict: the release gave no update on the $42 million judgment; the quarterly filing's legal footnote will show if the company recorded a reserve.
💲 Other KPIs
Sales to the Department of War grew 14.8% from a year ago and made up 54.8% of total revenue, up from 51.5% a year earlier. That strength offset a 3.7% decline in federal civilian agency sales to $396.4 million and slow 2.6% growth in intelligence community work.
Uncollected customer bills rose 21.4% from a year ago by our math, outpacing the 8.2% revenue increase. Days sales outstanding — the average time CACI waits to collect cash after billing, excluding its receivables sale program — rose to 59 days from 55 days in the fourth quarter and 56 days a year ago, which weighed on first-quarter cash flow.
The average diluted share count rose 0.7% from a year ago and sat in line with the 22.3 million full-year plan. The national security group spent $4.4 million on stock buybacks during the quarter to cover employee share plans, directing its remaining cash toward paying down acquisition debt.
🔮 Guidance
Raised. CACI lifted both ends of its full-year sales plan by $50 million, putting the middle of the range at 12.9% growth by our math (about 7.7% from businesses owned a year ago). By our math, that leaves 14.4% total revenue growth for the rest of the year, up from 8.2% in the first quarter, as second-half program ramps kick in.
Raised. The middle of the range moved up $5 million to $750 million, or 13.4% growth from last year by our math, after first-quarter profit excluding intangible amortization beat internal margin plans. By our math, the outlook calls for 13.6% growth over the rest of the year. Standard accounting net income is planned at $579–599 million, up 9.9% at the middle of the range.
Raised. Management added $0.22 per share to the outlook on an unchanged 22.3 million share count, pointing to 12.7% growth at the middle of the range by our math. That implies 13.0% growth over the rest of the year, compared with 11.8% in the first quarter. Standard accounting profit per share is planned at $25.96–26.86.
Unchanged. The plan keeps the floor for operating cash flow (excluding the receivables sale program) at $1,015 million and capital spending at $115 million, leaving at least $900 million of free cash flow, or 22.4% growth by our math. Because first-quarter cash flow fell 6.6%, the rest of the year must grow at least 29.4% by our math, aided by $155 million of planned tax refunds and research tax credits.
❓ Key Questions
What drove the 13.3% first-quarter EBITDA margin?
First-quarter EBITDA margin beat the mid-11% plan by 1.8 percentage points, yet the full-year profit raise was only $5 million. Investors need to know how much came from ARKA hardware delivery timing that will reverse in the second or third quarter.
Why did total backlog stall while funded backlog jumped?
Funded backlog grew 14.8% to $6.2 billion and quarterly contract wins reached $4.8 billion, but total backlog rose only 0.3% from a year ago to $34.0 billion. Management did not disclose whether older multi-year contracts expired or were reduced.
Where did pro-forma net leverage finish in September?
The company reduced net debt by $153 million in the quarter to $4.56 billion by our math, but the release did not update the 3.7x pro-forma leverage ratio from June. That figure tracks progress toward the low-3s target by June 2027.
Why did federal civilian sales turn negative this quarter?
Revenue from federal civilian agencies fell 3.7% from a year ago after growing nearly 20% in the fourth quarter. Management did not state whether contract completions or agency budget caution drove the drop.