CACI International Inc. — Form 10-Q Summary
Business context and period: CACI provides expertise and technology to U.S. government and other customers, with operations reported as domestic and international. This report covers the three months ended September 30, 2022 (fiscal Q1 2023); comparisons are with the three months ended September 30, 2021 unless noted. Amounts below are in millions except per-share data.
Financial performance and position
| Metric | Quarter ended Sep. 30, 2022 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $1,605.8 | $1,490.9 | +7.7% |
| Operating income / margin | $132.8 / 8.3% | $127.0 / 8.5% | Income +4.5% |
| Income before taxes | $116.6 | $116.6 | Nearly unchanged |
| Net income / net margin | $89.1 / 5.6% | $88.1 / 5.9% | +1.2% |
| Diluted EPS | $3.76 | $3.70 | +1.6% |
| Operating cash flow | $144.8 | $186.0 | Down $41.1 |
- Revenue growth was driven by existing programs, new awards, and fiscal 2022 acquisitions. DoD revenue rose 9.5%; federal civilian revenue rose 2.5%; commercial and other revenue rose 12.0%. Domestic operations generated $1,558.9 million of revenue; international operations generated $46.9 million.
- Operating costs rose 8.0%, faster than revenue. Direct costs were 65.7% of revenue versus 65.3%; indirect costs and selling expenses were 23.8% versus 24.0%. Higher interest expense—up 55.7% to $16.2 million, primarily from higher rates—offset operating-income growth, leaving pretax income essentially flat.
- Cash and cash equivalents were $136.6 million at September 30, versus $114.8 million at June 30, 2022. Operating cash flow was $144.8 million; capital expenditures were $12.8 million. Cash flow from operations declined from the prior-year quarter, reflecting higher income-tax payments, timing of operating liabilities, and lower net cash received from receivables sales.
- Debt principal was $1,637.0 million ($1,627.7 million carrying value net of discounts and issuance costs), including $1,202.0 million of term loans and $435.0 million drawn on the revolver. The company had a $3,200 million credit facility and reported covenant compliance. Its effective borrowing rate, including swaps, was 3.57%.
- Current assets were $1,126.0 million and current liabilities were $965.8 million at September 30 (current ratio approximately 1.17). The company said cash on hand, operating cash generation, available borrowings, and receivables sales should cover expected needs over the next 12 months.
Material changes, outlook, and risks
- Remaining performance obligations were $9.2 billion; CACI expected to recognize approximately 44% within 12 months and 62% within 24 months. Total backlog was $24.9 billion, up 4.2% from a year earlier, including $3.7 billion funded. Backlog includes unexercised options and is not assured to convert fully to revenue.
- Management described the defense and national-security budget environment as constructive, citing the global threat environment and proposed GFY23 defense-budget growth. A continuing resolution signed September 30 funded government operations through December 16, 2022 at prior-year levels; management cautioned that continuing resolutions can delay starts and awards. The filing provides no specific company revenue or earnings guidance.
- A tax-law change requires domestic research and development costs to be amortized rather than deducted when incurred. CACI estimated this would reduce fiscal 2023 operating cash flow by $95 million and increase net deferred tax assets by a similar amount. The company recorded a $19.8 million liability for unrecognized tax benefits and a corresponding deferred tax asset in the quarter.
- Interest-rate exposure remains: $800 million of floating-rate debt was hedged with swaps, and management estimated a one-percentage-point rate change would have changed quarterly interest expense on variable-rate debt by approximately $3.0 million. Other disclosed risks include dependence on U.S. government contracting and appropriations, procurement delays and protests, competition for cleared personnel, contract performance and audit outcomes, and COVID-related supply-chain or customer-access disruption.
- In the Al Shimari litigation, plaintiffs estimated compensatory damages of $6 million to $9 million and punitive damages of $23.5 million to $64 million; CACI’s motion to dismiss was under advisement after a September 2022 hearing. CACI said it believes the lawsuits are without merit; the filing states that ordinary-course claims are not expected to materially adversely affect the company.
- Aggregate net changes in contract estimates increased pretax income by $5.7 million ($0.18 per diluted share), compared with $2.8 million ($0.09 per share) a year earlier. No material goodwill impairment was reported.
Important facts for investors to verify
- Whether revenue growth converts into improved operating and net margins, given cost growth and higher interest expense.
- Cash conversion and working-capital trends, including the impact of tax-law R&D amortization and continued receivables-sale activity.
- Backlog funding, award timing, option exercise, and the effect of continuing resolutions or procurement delays on expected revenue.
- Floating-rate debt exposure, swap coverage, credit-facility covenant headroom, and refinancing or debt-repayment needs.
- Developments in the Al Shimari and Abbass cases, government contract audits, and other contingencies.