CACI International Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended June 30, 2022, compared primarily with fiscal 2021. The request metadata says “2021 Q4,” but the supplied filing is the FY2022 annual report, not a quarterly filing.
Business context
CACI provides expertise and technology to U.S. and international government and commercial customers, with work spanning defense, intelligence, federal civilian agencies, cybersecurity, IT modernization, engineering, and mission support. Domestic Operations generated 96.9% of FY2022 revenue. The federal government generated 94.8% of revenue, including 69.8% from the Department of Defense.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $6.203 billion | $6.044 billion | +2.6% |
| Operating income | $496.3 million | $539.5 million | -8.0% |
| Operating margin | 8.0% | 8.9% | Down 0.9 percentage points |
| Net income | $366.8 million | $457.4 million | -19.8% |
| Diluted EPS | $15.49 | $18.30 | Lower |
| Operating cash flow | $745.6 million | $592.2 million | +$153.3 million |
| Capital expenditures | $74.6 million | $73.1 million | +$1.4 million |
| Cash and cash equivalents | $114.8 million | $88.0 million | +$26.8 million |
Operating cash flow less capital expenditures was approximately $671.0 million, versus $519.1 million in FY2021. Operating cash flow benefited substantially from a $264.2 million reduction in cash income taxes paid; the prior year also included a CARES Act payroll-tax deferral benefit.
Revenue growth was attributed primarily to four FY2022 acquisitions, with aggregate purchase consideration of approximately $612.2 million. Costs rose faster than revenue: total costs of revenue increased 3.7%. Direct costs were 65.3% of revenue versus 65.0%, and indirect costs and selling expenses were 24.5% versus 24.0%.
Income tax expense was $87.8 million, compared with $42.2 million, and the effective tax rate rose to 19.3% from 8.4%. The prior-year rate was unusually low, primarily due to tax-method changes and the resulting federal net operating loss carryback benefit. Interest expense and other, net increased to $41.8 million from $39.8 million.
At year-end, principal debt was $1.743 billion: $1.210 billion under the term loan and $533.0 million under the revolver. Cash was $114.8 million. The credit facility matures December 2026; its effective interest rate, including swaps, was 2.59% at June 30, 2022. CACI reported compliance with its financial covenants and had $800 million of floating-to-fixed interest-rate swaps.
Material changes and outlook
- Total backlog was $23.3 billion, down 3.7% from $24.2 billion; funded backlog was $3.2 billion. Separately, remaining performance obligations were $8.2 billion, with management expecting approximately 50% to be recognized within 12 months and 73% within 24 months. Backlog includes unexercised options and is not assured revenue.
- Technology revenue increased to $3.334 billion from $3.071 billion; expertise revenue declined to $2.869 billion from $2.973 billion.
- Cash used in acquisitions increased to $615.5 million from $356.3 million. Goodwill reached $4.058 billion; management reported no goodwill impairment and stated that reporting-unit fair values significantly exceeded carrying values.
- Management described the federal budget environment as constructive, citing enacted FY2022 funding increases and expected growth in defense, intelligence, cybersecurity, and modernization priorities. It noted that continuing resolutions can delay new starts and awards. The filing provides no specific company revenue or earnings guidance.
- If Congress did not defer, modify, or repeal the required amortization of domestic research and development costs, management expected the provision to reduce FY2023 operating cash flow by approximately $95 million and increase net deferred tax assets by a similar amount.
- Management flagged inflation, labor and supply-chain constraints, contract-award protests, and recruiting and retention challenges. Fixed-price and multiyear contracts may be less able to absorb cost increases; 29.4% of FY2022 revenue came from fixed-price contracts.
Risks, contingencies, and unusual items
- High customer concentration exposes results to federal budget priorities, appropriations delays, contract options and terminations, competitive bidding, and government audits. The top ten revenue-producing contracts represented 35.7% of revenue.
- Two long-running lawsuits concerning alleged detainee abuse in Iraq remained unresolved. CACI said it was vigorously defending them and believed the claims were without merit. In Al Shimari, plaintiffs estimated compensatory damages of $6.0 million to $9.0 million and punitive damages of $23.5 million to $64.0 million; the filing does not establish a probable loss amount.
- Interest-rate exposure remains on unhedged variable-rate debt; management estimated a 1-percentage-point rate change would alter annual interest expense by approximately $12.3 million. The filing also discusses transition from LIBOR to a replacement benchmark.
- Goodwill and intangible assets together represented 70.0% of total assets, making valuations and future cash-flow assumptions relevant to impairment risk.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal control were effective at June 30, 2022.
Most important facts for investors to verify
- Whether acquired businesses deliver sufficient growth and returns to support acquisition spending and the $4.058 billion goodwill balance.
- Whether margins stabilize after FY2022 operating costs grew faster than revenue, particularly amid inflation and fixed-price contract exposure.
- Conversion of the $23.3 billion backlog and $8.2 billion remaining performance obligations into funded, recognized revenue, including the effect of options, task orders, and appropriations.
- Future cash generation and debt service capacity, including the potential FY2023 tax-related cash-flow reduction and variable-rate borrowing exposure.
- Developments in the Al Shimari and Abbass litigation, government contract audits, and any related financial contingencies.