Risk Factors Dashboard
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Risk Factors - CACI
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Item 1A. Risk Factors
CACI maintains a structured cybersecurity risk management and oversight program designed to mitigate risks to our systems and protect internal and customer data. We utilize diverse technologies, programs, and processes to continually assess, identify, and manage cybersecurity threats while embedding industry best practices across our information security operations. The CISO has extensive experience managing cybersecurity programs and technical risk and oversees prevention, detection, mitigation, and remediation efforts through regular reporting from our information security team, supplemented by specialized security technologies. We continuously monitor cybersecurity threats and evaluate our cybersecurity prevention measures through routine internal and independent audits, cybersecurity threat simulations, vulnerability assessments, and employee cybersecurity training. We continuously monitor cybersecurity threats and assess the robustness of our mitigation and prevention measures through routine internal and independent audits, threat simulations, vulnerability and penetration testing, and employee cybersecurity training. The program is designed to align with applicable industry standards, and we continuously invest in capabilities to protect our information assets.We also manage cybersecurity-related supply chain risks by working closely with subcontractors and suppliers. We require these partners to comply with applicable legal regulations, implement specific information security controls, and fulfill incident reporting obligations. We require them to comply with applicable laws and regulations, including implementing certain security controls and complying with certain reporting obligations. While we perform due diligence during onboarding and establish contractual safeguards, our practical ability to monitor third-party practices or completely prevent a compromise within vendor-controlled information systems, software, or networks remains inherently limited.Our Audit and Risk Committee (the Audit Committee ) maintains oversight responsibility for cybersecurity risks and incidents, including compliance with regulatory requirements, cooperation with law enforcement, and the associated impacts on our financial and operational risk profiles. The Audit Committee receives regular briefings from management regarding cybersecurity matters, including our posture, prevailing trends, and specific risks, and is updated on any material cybersecurity incidents should they occur. The Audit Committee reports its findings or recommendations to the full Board of Directors, as appropriate . To date, we have not identified any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business operations or financial condition. While we have taken significant steps to manage cybersecurity risks, there can be no assurance that these measures will completely prevent all potential incidents. While the Company has taken significant steps to manage cybersecurity risks, there can be no assurance that these measures will prevent all potential incidents. For additional discussion of our cybersecurity-related risks, see “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. For more information on our cybersecurity related risks, see Item 1A, Risk Factors of this Annual Report on Form 10-K.
You should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this Annual Report on Form 10-K and other documents we file with the SEC. The risks and uncertainties described below are those that we have identified as material but are not the only risks and uncertainties that we face. Our business is also subject to general risks and uncertainties, such as overall U.S. and non-U.S. economic and industry conditions including a global economic slowdown, geopolitical events, changes in laws or accounting rules, fluctuations in interest and exchange rates, terrorism, international conflicts, major health concerns including global pandemics, natural disasters, or other disruptions of expected economic and business conditions, that affect many other companies. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impact our business operations and liquidity.
Risks Related to our Business and Industry
We generate substantially all of our revenues from contracts with the federal government. If the federal government significantly decreased or ceased doing business with us, our business, prospects, financial condition, and operating results would be materially and adversely affected.
The federal government is our primary customer, with revenues from federal government contracts, either as a prime contractor or a subcontractor, accounting for 95.6% and 95.7% of our total revenues in fiscal 2026 and 2025, respectively. Specifically, we generated 53.6% and 53.5% of our total revenues in fiscal 2026 and 2025, respectively, from contracts with agencies of the Department of War (DoW). Specifically, we generated 75.4% and 74.4% of our total revenues in fiscal 2025 and 2024, respectively, from contracts with agencies of the DoD. We also generated 24.6% and 25.6% of our total revenues in fiscal 2026 and 2025, respectively, from contracts with the Intelligence Community (IC). We expect that federal government contracts will continue to be the primary source of our revenues for the foreseeable future. If we were suspended or debarred from contracting with the federal government or any significant agency in the IC or the DoW, if our reputation or relationship with government agencies was impaired, or if the government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our business, prospects, financial condition and operating results would be materially and adversely affected. If we were suspended or debarred from contracting with the federal government or any significant agency in the Intelligence Community (IC) or the DoD, if our reputation or relationship with government agencies was impaired, or if the government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our business, prospects, financial condition and operating results would be materially and adversely affected.
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Our business could be adversely affected by changes in spending levels or budgetary priorities of the federal government.
Because we derive substantially all of our revenues from contracts with the federal government, the success and development of our business will continue to depend on our successful participation in federal government contract programs.Because we derive substantially all of our revenues from contracts with the federal government, we believe that the success and development of our business will continue to depend on our successful participation in federal government contract programs. Actions taken by the federal government to address government budget deficits, the national debt, or prevailing economic conditions, including the use of continuing resolutions, delays or reductions in appropriations, or a federal government shutdown, may prevent us from performing on existing contracts, delay our ability to begin work on new awards, or require us to use our own funds to meet our customers’ desired delivery schedules. Although we perform due diligence on all service providers to identify potential cybersecurity risks and establish controls through onboarding procedures and contractual requirements, our ability to monitor the cybersecurity practices of our service providers and ensure that we can prevent or mitigate the risk of any compromise or failure in the information system, software, networks, and other assets owned or controlled by our vendors is limited. A lapse in appropriations, delays in the passage of annual budgets, or the use of continuing resolutions can postpone contract awards, slow program execution, interrupt customer decision making, or defer funding availability, even in periods where long-term spending levels remain stable. The duration, frequency, and severity of any such disruptions are unpredictable and could materially impact our financial results.
Additionally, the federal government may also change its budgeting in response to evolving national security, technology, economic, or policy considerations. A significant decline in expenditures for programs in our addressable markets, or a reallocation of funds toward missions or capabilities we do not directly support, or a change in federal government contracting policies could cause federal agencies to decrease purchases under existing contracts, terminate contracts for convenience, or choose not to exercise options and impact our ability to win new awards.
For further discussion, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report on Form 10-K. For further discussion, refer to “Management’s Discussion and Analysis of Financial Condition & Results of Operations” in Part II of this Annual Report on Form 10-K.
Federal government contracts contain termination rights and numerous other provisions that are unfavorable to us.Federal government contracts contain numerous provisions that are unfavorable to us.
Federal government contracts contain provisions and are subject to laws and regulations that give the government rights and remedies, some of which are not typically found in commercial contracts, including allowing the government to:
•terminate contracts for convenience;
•cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;
•claim rights in systems and software developed by us;
•suspend or debar us from doing business with the federal government or with a governmental agency;
•impose fines and penalties and subject us to criminal prosecution; and
•control or prohibit the export of our data and technology.
If the government terminates a contract for convenience, we may recover only our incurred or committed costs, settlement expenses, and profit on work completed prior to the termination. If the government terminates a contract for default, we may be unable to recover even those amounts and instead may be liable for excess costs incurred by the government in procuring undelivered items and services from another source. Depending on the value of a contract, such termination could cause our actual results to differ materially and adversely from those anticipated.
Certain contracts also contain organizational conflict of interest (OCI) clauses that limit our ability to compete for or perform certain other contracts. OCIs arise any time we engage in activities that (i) make us unable or potentially unable to render impartial assistance or advice to the government; (ii) impair or might impair our objectivity in performing contract work; or (iii) provide us with an unfair competitive advantage. For example, when we work on the design of a particular system, we may be precluded from competing for the contract to develop and install that system. Depending upon the value of the matters affected, an OCI issue that precludes our participation in or performance of a program or contract could cause our actual results to differ materially and adversely from those anticipated.
As is common with government contractors, we have experienced and continue to experience occasional performance issues under certain of our contracts. Depending upon the value of the matters affected, a performance problem that impacts our performance of a program or contract could cause our actual results to differ materially and adversely from those anticipated and impair our prospects for future contract awards.
If we fail to establish and maintain important relationships with government entities and agencies, our ability to successfully bid for new business may be adversely affected.
To facilitate our ability to prepare bids for new business, we rely in part on establishing and maintaining relationships with officials of various government entities and agencies. These relationships enable us to provide informal input and advice to government entities and agencies prior to the development of a formal bid. We may be unable to successfully maintain our relationships with government entities and agencies, and any failure to do so may adversely affect our ability to bid successfully for new business and could cause our actual results to differ materially and adversely from those anticipated.
We derive significant revenues from contracts and task orders awarded through a competitive bidding process. If we are unable to consistently win new awards over any extended period, or if we face significant delays due to competitor protests, our business and prospects will be adversely affected. If we are unable to consistently win new awards over any extended period, our business and prospects will be adversely affected.
Our contracts and task orders with the federal government are typically awarded through a competitive bidding process. We expect that much of the business that we will seek in the foreseeable future will continue to be awarded through competitive bidding.
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Budgetary pressures and changes in the procurement process have caused many government customers to increasingly purchase goods and services through IDIQ contracts, GSA schedule contracts and other government-wide acquisition contracts. These contracts, some of which are awarded to multiple contractors, have increased competition and pricing pressure, requiring that we make sustained post-award efforts to realize revenues under each such contract. In addition, in consideration of the practice of agencies awarding work under such contracts that is arguably outside the intended scope of the contracts, both the GSA and the DoW have initiated programs aimed to ensure that all work fits properly within the scope of the contract under which it is awarded. The net effect of such programs may reduce the number of bidding opportunities available to us. Moreover, even if we are highly qualified to work on a particular new contract, we might not be awarded business because of the federal government’s policy and practice of maintaining a diverse contracting base.
This competitive bidding process presents a number of risks, including the following:
•we bid on programs before the completion of their design, which may result in unforeseen technological difficulties and cost overruns;
•we expend substantial cost and managerial time and effort to prepare bids and proposals for contracts that we may not win; and
•we may be unable to estimate accurately the resources and cost structure that will be required to service any contract we win.
In addition to the challenges of the bidding process, our business could be adversely affected by our competitors protesting major contract awards. Defending against these challenges can result in significant expenses and any such protest or challenge could lead to the resubmission of bids on modified specifications, an unfavorable modification, or the termination, reduction, or complete loss of an awarded contract. Changes in federal government budgetary priorities, such as for homeland security or to address global pandemics, or actions taken to address government budget deficits, the national debt, or prevailing economic conditions, could directly affect our financial performance. Even an unsuccessful bid protest could delay the initiation, startup, and funding of the work under these contracts and may cause our actual results to differ materially and adversely from those anticipated. In the event a bid protest is unsuccessful, the resulting delay in the startup and funding of the work under these contracts may cause our actual results to differ materially and adversely from those anticipated.
If we are unable to win particular multi-year contracts, we may be prevented from providing to customers services that are purchased under those contracts for a number of years. If we are unable to consistently win new contract awards over any extended period, our business and prospects will be adversely affected and that could cause our actual results to differ materially and adversely from those anticipated. In addition, upon the expiration of a contract, if the customer requires further services of the type provided by the contract, there is frequently a competitive rebidding process. There can be no assurance that we will win any particular bid, or that we will be able to replace business lost upon expiration or completion of a contract, and the termination or non-renewal of any of our significant contracts could cause our actual results to differ materially and adversely from those anticipated.
Our business may suffer if we or our employees are unable to obtain the security clearances or other qualifications needed to perform services for our customers.
Many of our federal government contracts require us to have security clearances and employ personnel with specified levels of education, work experience, and security clearances. Depending on the level of clearance, security clearances can be difficult and time-consuming to obtain. If we or our employees lose or are unable to obtain necessary security clearances, we may not be able to win new business and our existing customers could terminate their contracts with us or decide not to renew them. To the extent we cannot obtain or maintain the required security clearances for our employees working on a particular contract, we may not generate the revenues anticipated from the contract which could cause our results to differ materially and adversely from those anticipated.
If our subcontractors fail to perform their contractual obligations, our performance as a prime contractor and our ability to obtain future business could be materially and adversely impacted and our actual results could differ materially and adversely from those anticipated.
Our performance of government contracts may involve the issuance of subcontracts to other companies upon which we rely to perform all or a portion of the work we are obligated to deliver to our customers. A failure by one or more of our subcontractors to satisfactorily deliver on a timely basis the agreed-upon supplies, perform the agreed-upon services, or appropriately manage their vendors may materially and adversely impact our ability to perform our obligations as a prime contractor.
A subcontractor’s performance deficiency could result in the government terminating our contract for default. A default termination could expose us to liability for excess costs of re-procurement by the government and could have a material adverse effect on our ability to compete for future contracts and task orders. Depending upon the level of problem experienced, such problems with subcontractors could cause our actual results to differ materially and adversely from those anticipated.
The federal government’s appropriation process and other factors may delay the collection of our receivables, and our business may be adversely affected if we cannot collect our receivables in a timely manner.
We depend on the timely collection of our receivables to generate cash flow, provide working capital, pay debt, and support ongoing business operations.We depend on the collection of our receivables to generate cash flow, provide working capital, pay debt, and continue our business operations. If the federal government, any of our other customers, or any prime contractor for whom we are a subcontractor fails to pay or delays payment of their outstanding invoices for any reason, our financial condition and operating results could be materially and adversely affected. If the federal government, any of our other customers, or any prime contractor for whom we are a subcontractor fails to pay or delays the payment of their outstanding invoices for any reason, our business and financial condition may be materially and adversely affected.
The federal government may delay payment of invoices for several reasons, including lack of appropriated funds, delays in the budget or appropriations process, or other funding constraints. We are also subject to audits or oversight activities by the Defense Contract Audit Agency (DCAA) which has the authority to revoke our direct-billing privileges and contracting officers who may impose contractual withholdings, including those required under the Defense Federal Acquisition Regulations when a contractor’s business systems are found to have a material weakness. Prime contractors for whom we are a subcontractor may also experience cash-flow constraints or have limited financial resources, which increases the risk that payments due to us may be delayed or not paid in full. Some prime contractors for whom we are a subcontractor have significantly fewer financial resources than we do, which may increase the risk that we may not be paid in full or payment may be delayed.
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Difficulties collecting receivables for any reason can impair our ability to meet our financial obligations, increase our cost of capital, reduce our ability to invest in growth or new opportunities, and require us to obtain additional sources of liquidity on less favorable terms. If we are unable to collect receivables in the amounts or within the timeframes we expect, our actual results could differ materially and adversely from those anticipated, and our overall business performance could be negatively affected. If we are unable to consistently win new contract awards over any extended period, our business and prospects will be adversely affected and that could cause our actual results to differ materially and adversely from those anticipated.
The federal government may change its procurement or other practices in a manner adverse to us.
The federal government may change its procurement practices, or adopt new contracting rules and regulations, as a result of an increased focus on affordability, efficiencies, business systems and recovery of costs.The federal government may change its procurement practices, or adopt new contracting rules and regulations, such as those related to cost accounting standards. Any initiatives or changes to current procurement practices, including, but not limited to increased usage of fixed-price contracts, multiple-award contracts, small business set-aside contracts, new socio-economic requirements, or changes to the basis upon which it reimburses our compensation and other expenses or otherwise limit such reimbursements could have adverse effects on our business. In addition, although we continue to expand our portfolio of technology solutions, changes to service-based procurement practices may also adversely affect our performance. As new contracting methods could be costly or administratively difficult for us to satisfy, they could impair our ability to obtain new contracts or win re-competed contracts or adversely affect our future profit margin which could cause actual results to differ materially and adversely from those anticipated.
Specifically, certain federal agencies are increasingly using alternative or rapid acquisition pathways for emerging technologies, including flexible contracting approaches such as “other transaction authority” agreements. These acquisition methods differ from traditional FAR based processes and may involve requirements, such as participation by non‑traditional contractors or cost‑sharing obligations, that could limit our ability to qualify or compete effectively. If we are unable to adapt to these evolving procurement approaches or meet the associated eligibility, technical, or administrative requirements, we may be unable to pursue certain strategic opportunities in high‑growth areas. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional equity capital on terms that may be onerous or highly dilutive. As a result, our ability to capture new awards, expand into developing mission areas, or achieve expected levels of performance and growth could be adversely affected.
Our contracts and administrative processes and systems are subject to audits and cost adjustments by the federal government, which could reduce our revenues, disrupt our business, or otherwise adversely affect our operating results.
Federal government agencies, including the DCAA and the Defense Contract Management Agency, routinely audit and investigate government contracts and government contractors’ administrative processes and systems.Federal government agencies, including the DCAA and the Defense Contract Management Agency (DCMA), routinely audit and investigate government contracts and government contractors’ administrative processes and systems. These agencies review our performance on contracts, pricing practices, cost structure, and compliance with applicable laws, regulations and standards. They also evaluate the adequacy of internal controls over our business systems, including our purchasing, accounting, estimating, earned value management, and government property systems. Any costs found to be improperly allocated or assigned to contracts will not be reimbursed, and any such costs already reimbursed must be refunded and certain penalties may be imposed. Moreover, if any of the administrative processes and systems are found not to comply with requirements, we may be subjected to increased government scrutiny and approval that could delay or otherwise adversely affect our ability to compete for or perform contracts or collect our revenues in a timely manner. Therefore, an unfavorable outcome of an audit by the DCAA or another government agency could cause actual results to differ materially and adversely from those anticipated. If a government investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeitures of profits, suspension of payments, fines, and suspension or debarment from doing business with the federal government. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Each of these results could cause actual results to differ materially and adversely from those anticipated.
Failure to maintain strong relationships with other contractors could result in a decline in our revenues.
We derive substantial revenues from contracts in which we act as a subcontractor or from teaming arrangements in which we and other contractors bid on particular contracts or programs. As a subcontractor or teammate, we often lack control over fulfillment of a contract, and poor performance on the contract could impact our customer relationship, even when we perform as required. We expect to continue to depend on relationships with other contractors for a portion of our revenues in the foreseeable future. Moreover, our revenues and operating results could differ materially and adversely from those anticipated if any prime contractor or teammate chose to offer directly to the customer services of the type that we provide or if they team with other companies to provide those services.
We may not realize the full value of the contracts included in our backlog, which could cause our future revenues and operating results to differ materially from those anticipated.We may not receive the full amounts authorized under the contracts included in our backlog, which could reduce our revenues in future periods below the levels anticipated.
Our total backlog consists of funded and unfunded amounts. Funded backlog represents the value of contracts for which funding has been appropriated less revenues previously recognized on these contracts. Funded backlog represents contract value for which funding has been appropriated less revenues previously recognized on these contracts. Unfunded backlog represents the estimated values that have the potential to be recognized into revenue from executed contracts for which funding has not yet been appropriated and unexercised contract options. Unfunded backlog represents estimated values that have the potential to be recognized into revenue from executed contracts for which funding has not been appropriated and unexercised contract options. Backlog is not a guarantee of future revenues, and the timing or amount of work ultimately performed may vary significantly from our estimates.
There are several reasons why our backlog may not convert into revenue as expected. Many of our federal government contracts include multi‑year performance periods that depend on annual Congressional appropriations, and unfunded work is subject to future funding decisions. A lack of appropriated funds, delays in the federal budget or appropriations process, or efforts to reduce federal spending could delay or preclude the government from funding work included in our backlog. In addition, the maximum contract value specified under a contract or task order is not necessarily indicative of the revenue we will ultimately realize under that contract.10The maximum contract value specified under a government contract or task order awarded to us is not necessarily indicative of the revenues that we will realize under that contract. For example, we perform significant work under multiple-award and IDIQ contract vehicles that do not require the government to order a minimum amount of goods or services and under which agencies may choose to obtain support from other contractors.
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Changes in mission priorities, procurement strategies, or program execution may also result in reductions in scope, fewer task order awards, or lower-than-anticipated ordering levels.
Backlog may also not be collected if a customer reduces, delays, or cancels planned work; elects not to exercise contract options; or shifts work to other contractors. Our estimates of unfunded backlog may prove inaccurate, and the timing and amount of revenue ultimately realized may differ materially from our expectations. If we do not receive the anticipated funding, if the government does not order work at expected levels, or if we are unable to perform or retain the work included in our backlog, our future revenues, cash flows, and operating results could be materially and adversely affected.
Employee misconduct, including security breaches, could result in the loss of customers and our suspension or debarment from contracting with the federal government.
We may be unable to prevent our employees from engaging in misconduct, fraud or other improper activities that could adversely affect our business and reputation. Misconduct could include the failure to comply with federal government procurement regulations, regulations regarding the protection of classified information, and legislation regarding the pricing of labor and other costs in government contracts. Many of the systems we develop involve managing and protecting information involved in national security and other sensitive government functions. A security breach in one of these systems could prevent us from having access to such critically sensitive systems. Other examples of employee misconduct could include timecard fraud and violations of the Anti-Kickback Act. The precautions we take to prevent and detect this activity may not be effective, and we could face unknown risks or losses. As a result of employee misconduct, we could face fines and penalties, loss of security clearance, and suspension or debarment from contracting with the federal government, which could cause our actual results to differ materially and adversely from those anticipated.
Our failure to attract and retain qualified employees, including our senior management team, could adversely affect our business.
Our continued success depends to a substantial degree on our ability to recruit and retain the technically skilled personnel we need to serve our customers effectively. Our business involves the development of tailored solutions for our customers, a process that relies heavily upon the expertise and services of our employees. Accordingly, our employees are our most valuable resource. Competition for skilled personnel is intense, and technology companies often experience high attrition among their skilled employees. There is a shortage of people capable of filling these positions and they are likely to remain a limited resource for the foreseeable future. Recruiting and training these personnel require substantial resources. Our failure to attract and retain technical personnel could increase our costs of performing our contractual obligations, reduce our ability to efficiently satisfy our customers’ needs, limit our ability to win new business, and cause our actual results to differ materially and adversely from those anticipated. In addition to attracting and retaining qualified technical personnel, we believe that our success will depend on the continued employment of our senior management team and its ability to generate new business and execute projects successfully.In addition to attracting and retaining qualified technical personnel, we believe that our success will depend on the continued employment of our senior management team and its ability to generate new business and execute projects successfully. Our senior management team is very important to our business because personal reputations and individual business relationships are a critical element of obtaining and maintaining customer engagements in our industry, particularly with agencies performing classified operations. The loss of any of our senior executives could cause us to lose customer relationships or new business opportunities, which could cause actual results to differ materially and adversely from those anticipated.
Our markets are highly competitive, and many of the companies we compete against have substantially greater resources.
The markets in which we operate include a large number of participants and are highly competitive. Many of our competitors may compete more effectively than we can because they are larger, better financed, and better known companies than we are. In order to stay competitive in our industry, we must also keep pace with changing technologies and customer preferences. If we are unable to differentiate our services from those of our competitors, our revenues may decline. In addition, our competitors have established relationships among themselves or with third parties to increase their ability to address customer needs. As a result, new competitors or alliances among competitors may emerge and compete more effectively than we can. There is also a significant industry trend towards consolidation, which may result in the emergence of companies which are better able to compete against us. The results of these competitive pressures could cause our actual results to differ materially and adversely from those anticipated.
Our quarterly revenues and operating results could be volatile due to the unpredictability of the federal government’s budgeting process and policy priorities.
Our quarterly revenues and operating results may fluctuate significantly and unpredictably in the future. In particular, if the federal government does not adopt, or delays adoption of, a budget for each fiscal year beginning on October 1, or fails to pass a CR, federal agencies may be forced to suspend our contracts and delay the award of new and follow-on contracts and orders due to a lack of funding. Further, the rate at which the federal government procures technology may be negatively affected following changes in presidential administrations and senior government officials. Therefore, period-to-period comparisons of our operating results may not be a good indication of our future performance.
Our quarterly operating results may not meet the expectations of securities analysts or investors, which in turn may have an adverse effect on the market price of our common stock.
An increase in the prices of goods and services could raise the costs associated with providing our services, diminish our ability to compete for new contracts or task orders and reduce customer buying power.
We may experience an increase in the costs in our supply and labor markets due to global inflationary pressures and other various geopolitical factors. We generate a portion of our revenues through various fixed-price and multi-year government contracts which anticipate moderate increases in costs over the term of the contract. With the current pace of inflation our standard approach to moderate annual price escalations in our bids for multi-year work may be insufficient to counter inflationary cost pressures.
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This could result in reduced profits, or even losses, as inflation increases, particularly for fixed-priced contracts and our longer-term multi-year contracts. In the competitive environment in which we operate as a government contractor, the lack of pricing leverage and ability to renegotiate long-term, multi-year contracts could reduce our profits, disrupt our business, or otherwise materially adversely affect our results of operations.
We may lose money or generate less than anticipated profits if we do not accurately estimate the cost of an engagement which is conducted on either a fixed-price or a time-and-materials basis.We may lose money or generate less than anticipated profits if we do not accurately estimate the cost of an engagement which is conducted on a fixed-price basis.
Fixed-price contracts require us to price our contracts by predicting our expenditures in advance. Fixed-price contracts require us to price our contracts by predicting our expenditures in advance. In addition, some of our engagements obligate us to provide ongoing maintenance and other supporting or ancillary services on a fixed-price basis or with limitations on our ability to increase prices. Many of our engagements are also on a time-and-materials basis. While these types of contracts are generally subject to less uncertainty than fixed-price contracts, to the extent that our actual labor costs are higher than expected, our actual results could differ materially and adversely from those anticipated. While these types of contracts are generally subject to less uncertainty than fixed-price contracts, to the extent that our actual labor costs are higher than the contract rates, our actual results could differ materially and adversely from those anticipated.
When making proposals for engagements on a fixed-price basis, we rely on our estimates of costs and timing for completing the projects. These estimates reflect our best judgment regarding our capability to complete the task efficiently. Any increased or unexpected costs or unanticipated delays in connection with the performance of fixed-price contracts, including delays caused by factors outside of our control, could make these contracts less profitable or unprofitable. From time to time, unexpected costs and unanticipated delays have caused us to incur losses on fixed-price contracts, primarily in connection with state government customers. On rare occasions, these losses have been significant. In the event that we encounter such problems in the future, our actual results could differ materially and adversely from those anticipated.
We use estimates in recognizing revenues, and changes in those estimates may adversely affect our financial results.
A significant portion of our revenue is recognized over time using a cost-input measure of progress, which requires us to make accurate estimates of total costs at completion and the fees to be earned on our contracts. Because of the technical complexity of the solutions and services we provide, as well as the extended duration of certain contracts, this estimation process is highly complex and requires significant management judgment. As contract performance progresses, we routinely adjust our initial estimates based on experience gained and newly available information, even when the scope of work under the performance obligation has not changed. If our underlying assumptions or estimates prove to be inaccurate, or if circumstances change, we may be required to make material adjustments to our revenue and profit margins. Such adjustments could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Our earnings and margins may vary based on the mix of our contracts and programs.
We generate revenue from a mix of cost reimbursable, time-and-materials, and fixed-price contracts, of which profit margins vary. Our earnings and margins may therefore change materially and adversely depending on the relative mix of contract types, the costs incurred in their performance, the achievement of other performance objectives, and the stage of performance at which the right to receive fees, particularly under incentive and award fee contracts, is finally determined. Our earnings and margins may therefore vary materially and adversely depending on the relative mix of contract types, the costs incurred in their performance, the achievement of other performance objectives, and the stage of performance at which the right to receive fees, particularly under incentive and award fee contracts, is finally determined.
Risks Related to our Acquisitions
We may have difficulty identifying and executing acquisitions on favorable terms and therefore may grow at a slower rate than we historically have grown.
One of our key growth strategies has been to selectively pursue acquisitions. Through acquisitions, we have expanded our base of federal government customers, increased the range of solutions we offer to our customers, and deepened our penetration of existing markets and customers. We may encounter difficulty identifying and executing suitable acquisitions. To the extent that management is involved in identifying acquisition opportunities or integrating new acquisitions into our business, our management may be diverted from operating our core business. Without acquisitions, we may not grow as rapidly as we historically have grown, which could cause our actual results to differ materially and adversely from those anticipated. We may encounter other risks in executing our acquisition strategy, including:
•increased competition for acquisitions may increase the costs of our acquisitions;
•our failure to discover material liabilities during the due diligence process, including the failure of prior owners of any acquired businesses or their employees to comply with applicable laws or regulations, such as the Federal Acquisition Regulation and health, safety, and environmental laws, or their failure to fulfill their contractual obligations to the federal government or other customers; and
•acquisition financing may not be available on reasonable terms or at all.
Each of these types of risks could cause our actual results to differ materially and adversely from those anticipated.
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We may have difficulty integrating the operations of any companies we acquire, which could cause actual results to differ materially and adversely from what we anticipated.
The success of our acquisition strategy will depend upon our ability to continue to successfully integrate any businesses we may acquire in the future. The integration of these businesses into our operations may result in unforeseen operating difficulties, absorb significant management attention and require significant financial resources that would otherwise be available for the ongoing development of our business. These integration difficulties include the integration of personnel with disparate business backgrounds, the transition to new information systems, coordination of geographically dispersed organizations, loss of key employees of acquired companies, and reconciliation of different corporate cultures. For these or other reasons, we may be unable to retain key customers of acquired companies. Moreover, any acquired business may fail to generate the revenues or net income we expected or produce the efficiencies or cost-savings we anticipated. Any of these outcomes could cause our actual results to differ materially and adversely from those anticipated.
We have substantial investments in goodwill and intangible assets as a result of prior acquisitions, and changes in future business conditions could cause these investments to become impaired, requiring substantial write-downs that would reduce our operating income.We have substantial investments in goodwill as a result of prior acquisitions, and changes in future business conditions could cause these investments to become impaired, requiring substantial write-downs that would reduce our operating income.
We evaluate the recoverability of goodwill amounts annually or when evidence of potential impairment exists. We evaluate the recoverability of goodwill amounts annually or when evidence of potential impairment exists. The annual impairment test is based on several factors requiring judgment. Principally, a decrease in expected reporting unit cash flows or changes in market conditions may indicate potential impairment of goodwill. We evaluate impairment for intangible assets with finite lives whenever events or changes in circumstances indicate that the carrying value may not be recoverable at the asset group level. If there is an impairment, we would be required to write down the amount of goodwill and intangible assets, which would be reflected as a charge against operating income. If there is an impairment, we would be required to write down the amount of goodwill, which would be reflected as a charge against operating income.
Risks Related to our Indebtedness
Our debt instruments impose certain restrictions on our ability to take certain actions which may have an impact on our business, operating results, and financial condition.
We have several debt instruments, including a senior secured credit facility (the Credit Facility), senior secured term loans (Term Loan B and Term Loan B-2), and senior unsecured notes (2033 Notes and 2033 Notes-2). These debt instruments impose certain operating and financial restrictions on us and require us to meet certain financial covenants. These restrictions may significantly limit or prohibit us from engaging in certain transactions, including:
•incurring or guaranteeing certain amounts of additional debt;
•paying dividends or other distributions to our stockholders or redeeming, repurchasing, or retiring our capital stock in excess of specific limits;
•making certain investments, loans, and advances;
•granting liens or other security interests to third parties, creating liens to secure indebtedness, and exceeding specific levels of liens on our assets;
•issuing or selling equity in our subsidiaries;
•selling certain assets currently held by us, including certain sale and lease-back transactions;
•prepaying certain subordinated indebtedness;
•amending or modifying certain agreements, including those related to indebtedness; and
•engaging in certain mergers, consolidations, or acquisitions.
The failure to comply with any of these covenants would cause a default under our debt instruments through cross-default provisions. A default, if not waived, could cause our debt to become immediately due and payable. In such situations, we may not be able to repay our debt or borrow sufficient funds to refinance it, and even if new financing is available, it may not contain terms that are acceptable to us.
We have been in compliance with all covenants since inception of the Credit Facility, Term Loan B, Term Loan B-2, 2033 Notes, and 2033 Notes-2.
We may incur additional indebtedness, which could impact our ability to service our debts.
The Credit Facility consists of a $2,000.0 million revolving credit facility (the Revolving Facility) and a $1,250.0 million term loan facility (the Term Loan). The Revolving Facility has sub-facilities of $150.0 million for same-day swing line loan borrowings and $25.0 million for stand-by letters of credit. The Credit Facility has an accordion feature that may provide additional borrowings. As of June 30, 2026, $660.0 million was outstanding under the Revolving Facility. The terms of our debt allow us to incur additional indebtedness from other sources so long as we satisfy the respective covenants. If new debt is added to our current debt levels, the risks related to our ability to service that debt could increase.
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Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.
Our business may not generate cash flow from operations sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional equity capital on terms that may be onerous or highly dilutive.
A change in control or fundamental change may adversely affect us.
The Credit Facility, Term Loan B, and Term Loan B-2 provide that certain change in control events will constitute a default.The Credit Facility and Term Loan B Facility provide that certain change in control events will constitute a default. The 2033 Notes and 2033 Notes-2 provide that upon the occurrence of certain change in control events accompanied by a ratings decline, the Company may be required to repurchase outstanding notes, in whole or in part, at a redemption price of 101% plus accrued and unpaid interest to the date of redemption. The 2033 Notes provide that upon the occurrence of certain change in control events accompanied by a ratings decline, the Company may be required to repurchase outstanding notes, in whole or in part, at a redemption price of 101% plus accrued and unpaid interest to the date of redemption.
Risks Related to our Operations
We must comply with a variety of laws and regulations, and our failure to comply could cause our actual results to differ materially from those anticipated.
We must observe laws and regulations relating to the formation, administration and performance of federal government contracts which affect how we do business with our customers and may impose added costs on our operations. These laws and regulations continue to evolve, and the federal government regularly updates or expands compliance obligations in areas such as cybersecurity, supply‑chain integrity, industrial security, cost accounting, and ethical conduct. Keeping pace with these changes requires ongoing investment in compliance processes, monitoring systems, training, and internal controls, and increases the complexity and cost of maintaining compliance across our business.
For example, the Federal Acquisition Regulation and the industrial security regulations of the DoW and related laws include provisions that:
•allow our federal government customers to terminate or not renew our contracts if we come under foreign ownership, control, or influence;
•require us to divest work if an OCI related to such work cannot be mitigated to the government’s satisfaction;
•require us to disclose and certify cost and pricing data in connection with contract negotiations; and
•require us to prevent unauthorized access to classified information, covered defense information, and controlled unclassified information.
Our failure to comply with these or other laws and regulations could result in contract termination, loss of security clearances, suspension or debarment from contracting with the federal government, civil fines and damages criminal prosecution, or other penalties, any of which could cause our actual results to differ materially and adversely from those anticipated.
Disruptions in our supply chain, including shortages of materials, components, or qualified suppliers, could impair our ability to perform on contracts and increase our costs, which could adversely affect our operating results.
We work with a network of suppliers and subcontractors to provide materials, hardware, software, and other critical components necessary to perform on our contracts, and disruptions, including shortages of specialized parts, supplier capacity constraints, transportation delays, labor shortages, or the financial instability of key vendors, could impair our ability to meet customer requirements. Geopolitical developments, export control restrictions, sanctions, cybersecurity incidents affecting suppliers, changes in trade policy, and evolving federal requirements related to supply chain security may further restrict the availability of qualified suppliers or increase our costs. In addition, certain programs require cleared suppliers or domestically sourced materials, and disruptions affecting these vendors may delay performance or require costly requalification of alternatives. If we are unable to obtain necessary materials or services on a timely and cost effective basis, we may experience performance delays, incur additional costs, or be unable to meet contractual obligations, any of which could materially and adversely affect our revenues, operating results, and customer relationships.
Systems failures, including cybersecurity incidents and other operational disruptions, may disrupt our business and have an adverse effect on our operating results.
Cybersecurity and Unauthorized Access
We rely on the confidentiality, integrity, and availability of our information systems, the systems of our third-party service providers, and the systems we operate for customers. Cybersecurity incidents, including malware, ransomware, phishing campaigns, credential compromise, and other unauthorized intrusions, could result in the loss, corruption, or exposure of data or disruptions to our operations or those of our customers. Consistent with industry trends, we continue to experience attempts to gain unauthorized access to our systems and information. Although past incidents have not had a material adverse impact and we actively invest in detection, response, and mitigation capabilities, the nature of these threats continues to evolve, and we cannot predict the impact of any future event. A significant cybersecurity incident could result in operational delays, remediation costs, reputational harm, legal or regulatory exposure, or the loss of current or future business.
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Operational, Infrastructure, and Other Non-Cyber Systems Failures
Our operations depend on the performance and reliability of our internal networks, data centers, communication systems, critical facilities, and utilities. Systems failures, including software defects, hardware malfunctions, third‑party service outages, natural disasters, power disruptions, or other physical or environmental events, could interrupt our ability to perform on customer contracts or conduct normal business operations. Our property and business interruption insurance may be inadequate to compensate us for all resulting losses. In addition, the systems and networks we maintain for our customers, even when designed with redundancy and resiliency features, may also experience failures or service interruptions. If these systems fail or are disrupted, we could face claims for damages, contract termination, or loss of revenue. Any such event could cause our actual results to differ materially and adversely from those anticipated. Any of these outcomes could cause our actual results to differ materially and adversely from those anticipated.
Customer systems failures could damage our reputation and adversely affect our operating results. Customer systems failures could damage our reputation and adversely affect our operating results.
We develop, integrate, maintain, support, or use systems that handle classified and sensitive U.S. government information, including intelligence and national-security data. While we have programs designed to protect such information and comply with all relevant privacy and security requirements, the threats that our clients face have grown more frequent and sophisticated. A security breach or system failure in a system that we develop, integrate, maintain or otherwise support could result in a loss of revenues, remediation costs, claims for damages or contract termination and our errors and omissions liability insurance may be inadequate to compensate us for all the damages that we might incur. Any such event could also cause serious damage to our reputation and prevent us from having access to or being eligible for further work on such sensitive systems for U.S. government customers. In addition, in order to provide services to our customers, we often depend upon or use customer systems that are supported by the customer or third parties.In addition, in order to provide services to our customers, we often depend upon or use customer systems that are supported by the customer or third parties. Any security breach or system failure in such systems could result in an interruption of our customers’ operations, significant delays under a contract, and a material adverse effect on our results of operations.
Our operations involve several risks and hazards, including potential dangers to our employees and to third parties that are inherent in aspects of our federal business (e.g., counterterrorism training services). If these risks and hazards are not adequately insured, it could adversely affect our operating results.
Our federal business includes the maintenance of global networks and the provision of special operations services (e.g., counterterrorism training) that require us to dispatch employees to various countries around the world. These countries may be experiencing political upheaval or unrest, and in some cases war or terrorism. It is possible that certain of our employees will suffer injury or bodily harm, or be killed or kidnapped in the course of these deployments. We could also encounter unexpected costs for reasons beyond our control in connection with the repatriation of our employees. Any of these types of accidents or other incidents could involve significant potential claims of employees and third parties who are injured or killed or who may have wrongful death or similar claims against us.
We maintain insurance policies that mitigate against risk and potential liabilities related to our operations. This insurance is maintained in amounts that we believe are reasonable. Our insurance coverage may not be adequate to cover those claims or liabilities, however, and we may be forced to bear significant costs from an accident or incident. Substantial claims in excess of our related insurance coverage could cause our actual results to differ materially and adversely from those anticipated.
Our failure to adequately protect our confidential information and proprietary rights may harm our competitive position.
Our success depends, in part, upon our ability to protect our proprietary information. Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter misappropriation of our proprietary information. In addition, we may be unable to detect unauthorized use of our proprietary information in order to take appropriate steps to enforce our rights. If we are unable to prevent third parties from infringing or misappropriating our proprietary information, our competitive position could be harmed and our actual results could differ materially and adversely from those anticipated.
We face additional risks which could harm our business because we have International Operations.
We conduct the majority of our International Operations in the U.K. and the Netherlands. Our International Operations are subject to risks associated with operating in a foreign country. These risks include fluctuations in the value of the British pound and the Euro, longer payment cycles, changes in foreign tax laws and regulations, and unexpected legislative, regulatory, economic or political developments.
In addition, differences in business practices, labor environments, data protection obligations, and legal or regulatory requirements may increase our cost of compliance or limit our ability to expand certain offerings abroad. Unexpected changes in local laws, government policies, or geopolitical conditions could delay program execution, result in increased operating expenses, or reduce the profitability of our international work. If any of these events occur, our actual results could differ materially and adversely from those anticipated. Each of these results could cause actual results to differ materially and adversely from those anticipated.
Our integration of artificial intelligence and related technologies subjects us to operational and regulatory risks, and our failure to effectively manage these risks could have a material adverse effect on our financial results.
We use AI and machine learning technologies in certain solutions we provide to customers and in aspects of our internal operations, which requires robust governance, secure data environments, and continuous innovation. Due to the technical complexity of these emerging technologies and the highly sensitive nature of our national security and enterprise IT contracts, developing and deploying AI systems is highly complex and involves significant judgment.
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Adjustments to our technological approach, security protocols, and compliance frameworks are often required as AI capabilities rapidly evolve, new vulnerabilities or algorithmic biases are discovered, and government regulations, such as executive orders and agency specific directives, are established, even though the core objectives of the performance obligation may not have changed. Flaws in underlying algorithms, vulnerabilities to data poisoning, unpredictable system outputs, or a failure to adapt to evolving federal procurement standards could necessitate costly remediation efforts, result in a loss of competitive advantage, or damage our professional reputation. Such outcomes could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
In addition, competitive dynamics in the AI marketplace are evolving quickly. Rapid advancements by existing competitors, new entrants, or commercial technology firms may outpace our internal development efforts or reduce the value of certain offerings. We may also face challenges recruiting and retaining personnel with specialized skills needed to develop, test, secure, and maintain AI‑enabled systems. If we are unable to adapt to changes in AI technologies, comply with emerging regulatory requirements, or meet customer expectations for responsible and secure AI, our ability to deliver solutions, win new business, or achieve expected financial and operational results could be adversely affected.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
Our cybersecurity program is integrated into our enterprise risk management framework. The program is primarily managed by our Chief Information Security Officer (CISO), who coordinates cross-functional internal and external resources. The CISO is responsible for establishing procedures to monitor potential cybersecurity risks, identify cybersecurity incidents, implement mitigation measures, report breaches, and maintain our overall information security infrastructure.
As a government contractor, we align our cybersecurity program with National Institute of Standards and Technology frameworks and comply with applicable U.S. government cybersecurity regulations. Our information systems infrastructure is routinely assessed by government agencies, and our network undergoes independent, third-party penetration testing biannually.
We maintain a formalized incident response plan to address potential cybersecurity events promptly and effectively. The CISO leads our Cybersecurity Incident Response Team, which coordinates the execution of this plan and associated response processes. Under these policies, cybersecurity events are evaluated, ranked by severity, and prioritized for escalation to our Executive Incident Assessment Committee. The response plan outlines specific procedures for containment, investigation, affected-party notification, and corrective actions to prevent future occurrences. The plan includes procedures for investigating and containing incidents, notifying affected parties, and implementing corrective actions to prevent future occurrences.
Board of Directors Oversight
Cybersecurity Threats
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