CACI International Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended March 31, 2015 (CACI fiscal 2015 third quarter), with nine-month results through that date. This differs from the request metadata “2014 Q3.” Financial amounts below are in millions of dollars unless stated otherwise.
Business context and reporting period
CACI provides information technology, engineering, intelligence, and other services, primarily to U.S. government agencies. U.S. government contracts generated 93.6% of revenue in the first nine months of fiscal 2015. Domestic operations accounted for most revenue; international operations generated $107.4 million in the nine-month period.
Financial performance
| Metric | Three months ended Mar. 31, 2015 | Prior-year quarter | Nine months ended Mar. 31, 2015 | Prior-year period |
|---|---|---|---|---|
| Revenue | $817.8 | $900.4 | $2,447.9 | $2,658.8 |
| Operating income | $53.7 | $60.5 | $161.3 | $188.2 |
| Operating margin | 6.6% | 6.7% | 6.6% | 7.1% |
| Net income attributable to CACI | $29.0 | $30.8 | $84.8 | $98.8 |
| Diluted EPS | $1.18 | $1.19 | $3.49 | $3.89 |
| Operating cash flow | Not separately presented | Not separately presented | $190.4 | $146.3 |
For the nine months, capital expenditures were $13.1 million. Cash declined to $33.6 million from $64.5 million at June 30, 2014, principally as CACI repaid credit-facility borrowings. Net cash used in financing was $207.2 million, including $203.5 million of net credit-facility repayments.
At March 31, 2015, total debt principal was $1,082.0 million (carrying value $1,077.7 million), comprising $779.3 million of term loans and $302.7 million of revolving and swing-line borrowings. The effective interest rate, including swaps, was 2.9%. CACI had $600 million of floating-to-fixed interest-rate swaps and reported compliance with credit-facility financial covenants. Total current assets were $696.7 million and current liabilities were $453.4 million.
Material changes versus prior comparable periods
- Quarterly revenue declined 9.2%; nine-month revenue fell 7.9%. The main driver was lower Department of Defense revenue, down 18.0% for the quarter and 14.7% for the nine months, reflecting budget-related reductions, lower subcontractor costs, and the Southwest Asia drawdown.
- Federal civilian revenue increased 21.6% in the quarter and 13.9% over nine months, supported by the Office of Personnel Management contract, Six3 Systems, and other new business. Quarterly DoD revenue was $538.3 million; federal civilian revenue was $229.6 million.
- Nine-month operating margin fell to 6.6% from 7.1%. Management cited OPM startup and ramp-up costs, higher indirect and fringe costs associated with Six3, and government budget reductions. Lower subcontractor and other direct costs partly offset these pressures.
- Nine-month interest expense and other, net declined 7.7%, primarily reflecting maturity of the convertible notes, partly offset by higher debt associated with the Six3 acquisition.
- Other comprehensive loss was $23.2 million for the nine months, including a $19.2 million foreign-currency translation loss and losses on interest-rate swaps.
Outlook, risks, contingencies, and unusual items
- No specific revenue or earnings guidance is provided in the supplied filing text. Management expected sequestration effects to continue through fiscal 2015, reported reduced funding on some programs, and did not expect cancellation of any major programs. It noted that sequestration could return at full levels in the government’s fiscal 2016 if spending limits were unchanged.
- Management said internally generated cash, available bank borrowings, and cash on hand should fund operations, customary capital expenditures, debt service, and working capital for the next 12 months. This outlook depends in part on future operating performance and factors outside CACI’s control.
- On April 22, 2015, after quarter-end, CACI amended its credit agreement, extending facility maturity to June 1, 2020 and revising certain leverage, amortization, and swing-line terms. On April 1, 2015, it acquired LTC Engineering Associates; the filing reports LTC’s 2014 revenue as $16 million.
- In April 2015, CACI received a preliminary software-vendor audit finding concerning past license usage and maintenance. The claim remained under review, and the company could not reasonably estimate potential losses.
- Government-contract audits and investigations include DCAA incurred-cost audits for fiscal 2009 and 2010 and a SIGAR audit of two Afghanistan task orders. CACI stated that expected adjustments were not expected to be material. It had accrued its best estimate for a separate investigation, with a stated estimated range of zero to $1.8 million; it had not accrued a liability for a DOJ False Claims Act investigation, as an unfavorable outcome was not considered probable.
- Other disclosed matters include a German VAT audit, with reasonably possible losses estimated at no more than $3.0 million, and a Virginia sales-and-use-tax audit for which CACI accrued its estimate within a $2.8–$4.8 million range. The filing also describes ongoing litigation and states that the company is defending the cases.
- Risks include government budget and procurement changes, contract protests and termination rights, audit outcomes, competition for cleared personnel, pricing pressure, interest-rate and foreign-currency movements, and acquisition integration. Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the intended reporting period: this filing covers the quarter ended March 31, 2015, not 2014 Q3.
- Track DoD funding and contract activity, OPM contract profitability, and whether startup costs and indirect-cost pressures ease.
- Review cash conversion, receivables and days-sales outstanding, available revolving capacity, debt repayment, and compliance with credit covenants after the April 2020 maturity extension.
- Monitor the software-license claim, government audits and investigations, and tax and litigation contingencies for changes in estimated exposure.
- Assess the effects of sequestration and fiscal 2016 appropriations, as well as integration and contribution from the LTC acquisition.