CACI International Inc. — Form 10-Q Summary
Business context and period: Fiscal 2021 first quarter, three months ended September 30, 2020, compared with the prior-year quarter. CACI provides expertise and technology to U.S. government and other customers, with domestic and international operations. Approximately 70% of revenue is defense-related.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Revenue | $1,459.5 million | $1,363.4 million | +7.0% |
| Income from operations | $134.4 million | $100.2 million | +34.2% |
| Operating margin | 9.2% | 7.3% | +1.9 percentage points |
| Net income | $93.6 million | $68.0 million | +37.8% |
| Diluted EPS | $3.67 | $2.66 | +$1.01 |
| Operating cash flow | $176.9 million | $103.2 million | +71.4% |
Net margin was 6.4%, versus 5.0% a year earlier. Management attributed revenue growth to 6.1% organic growth, with the balance from acquisitions. DoD revenue rose 7.1% to $1,004.2 million and federal civilian revenue rose 7.2% to $390.2 million. Technology revenue increased to $718.8 million from $641.0 million.
Cash and investment: Cash increased to $124.9 million from $107.2 million at June 30. Investing activities used $370.4 million, including $354.1 million paid for acquisitions; capital expenditures were $16.3 million. Cash from financing was $208.9 million, primarily reflecting net credit-facility borrowings of $209.3 million. Operating cash flow benefited from higher net income, $31.5 million of employer Social Security tax deferrals under the CARES Act, and other favorable working-capital changes. DSO was 47 days, compared with 53 days at September 30, 2019.
Liquidity and debt: Long-term debt carrying value was $1,614.3 million, including $790.0 million drawn on the $1.5 billion revolver and $832.8 million of term loans. The effective interest rate, including swaps, was 2.14%. CACI reported compliance with its debt covenants. It had $800 million of floating-to-fixed interest-rate swaps; a 1% interest-rate change would have altered quarterly interest expense by approximately $1.7 million. Management said cash, operating cash generation, receivables sales and available borrowing capacity should meet expected needs over the next 12 months.
Material changes and notable items
- Operating margin improved as costs of revenue remained nearly level as a share of sales and indirect costs fell to 24.3% of revenue from 26.2%. Management cited favorable delivery costs on certain fixed-price contracts and lower bid-and-proposal, travel and recruiting costs.
- Interest expense and other, net declined 40.6% to $10.0 million, primarily due to lower average debt balances and interest rates. The effective tax rate rose to 24.8% from 18.4%, mainly because the prior-year quarter benefited from the timing of excess stock-compensation tax benefits.
- CACI completed its August 11 acquisition of Ascent Vision Technologies for approximately $348.8 million. It preliminarily recorded $210.9 million of goodwill and $133.8 million of intangible assets. The acquired business specializes in electro-optical/infrared payloads, onboard computer-vision processing and counter-UAS solutions.
- Quarterly results included a $7.8 million pre-tax benefit from estimate-at-completion contract adjustments, compared with $6.5 million in the prior-year quarter.
Outlook, risks and contingencies
CACI reported $21.9 billion of total backlog at quarter-end, up 12.6% year over year, including $3.4 billion funded backlog, up 3.8%. Contract awards were $1.8 billion for the quarter. Remaining performance obligations were $7.0 billion; the company expects to recognize approximately 80% over the next 12 months. Backlog and performance obligations are not guaranteed revenue and may change through awards, modifications, deobligations or terminations. The filing provides no specific earnings or revenue guidance.
Management described the federal budget environment as favorable for defense and national security but noted uncertainty around FY2021 appropriations. A continuing resolution signed October 1, 2020 funded government operations through December 11 at prior-year levels; continuing resolutions can delay program starts and contract awards. COVID-19 had caused some reduced billable hours in classified settings because of distancing and shift arrangements. Management said the pandemic had not significantly affected liquidity to date, while noting potential future effects on business, cash flows and capital resources.
Key risks include reliance on U.S. government contracts and appropriations, procurement delays and protests, competition for cleared personnel, contract performance and cost-estimate risks, acquisition integration, interest-rate and foreign-currency exposure, and pandemic-related disruption. Government cost audits remain ongoing; management believes reserves are adequate and does not expect resulting adjustments to be material. The company disclosed litigation including Al Shimari and Abbass; management said it is defending the matters and believes the lawsuits are without merit. It stated there were no material changes to previously disclosed risk factors.
Investor verification priorities
- Track whether organic growth, margin expansion and favorable fixed-price contract performance continue; assess the contribution of contract estimate adjustments.
- Verify integration and performance of Ascent Vision Technologies, including the preliminary acquisition accounting and expected synergies.
- Monitor conversion of the $21.9 billion backlog and $7.0 billion remaining performance obligations into funded work and revenue.
- Review cash-flow comparability, including CARES Act tax deferrals and receivables-sale activity, and monitor debt levels and covenant headroom.
- Follow federal appropriations and COVID-19 effects on access to customer facilities, billable hours, contract awards and spending priorities.
- Monitor the Al Shimari and Abbass proceedings, government contract audits, and effective-tax-rate sensitivity to COLI investment gains or losses.