CACI International Inc. — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2011, ended December 31, 2010; comparisons are to the corresponding 2009 periods. CACI provides professional services and IT solutions, primarily to U.S. government agencies; about 95% of revenue came from U.S. government contracts in both six-month periods.
Financial performance
| Metric | Three months ended Dec. 31, 2010 | Year-over-year change | Six months ended Dec. 31, 2010 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $867.3 million | +11.7% | $1,701.2 million | +12.2% |
| Operating income | $59.4 million | +25.2% | $111.5 million | +19.3% |
| Operating margin | 6.8% | 6.1% prior year | 6.5% | 6.2% prior year |
| Net income attributable to CACI | $33.2 million | +27.6% | $61.9 million | +24.0% |
| Diluted EPS | $1.08 | $0.85 prior year | $2.00 | $1.64 prior year |
- Six-month operating cash flow was $69.3 million, versus $67.1 million a year earlier. Investing cash outflow was $136.2 million, including $126.4 million for acquisitions; financing cash outflow was $141.6 million.
- Cash fell to $46.7 million at December 31 from $254.5 million at June 30, 2010. Accounts receivable was $564.4 million; days sales outstanding were 58, compared with 62 at December 31, 2009.
- Debt principal was $450.0 million at December 31: $300.0 million of convertible notes and a $150.0 million term loan. Reported debt, net of unamortized discount, was $408.0 million. The new $750 million credit facility includes a $600 million revolver, undrawn at quarter-end, and CACI reported covenant compliance.
Changes and drivers
- DoD revenue rose 13.9% in the quarter and 14.3% for six months, accounting for most revenue growth. Management attributed gains to organic growth, increased tasking and acquisitions; the quarter also benefited from award-fee timing.
- Six-month revenue from existing operations grew 10.2%; acquired revenue was $30.3 million. Federal civilian revenue rose 2.7%, while state and local revenue fell 26.4% and remained less than 1% of total revenue.
- Indirect costs and selling expenses declined as a share of revenue, supporting margin improvement. Direct costs rose faster than revenue in the six-month comparison, and depreciation and amortization increased, partly reflecting acquired intangibles.
- On November 1, CACI acquired TechniGraphics and Applied Systems Research for combined consideration of $127.5 million. The businesses contributed $8.7 million in revenue through December 31; $95.0 million was allocated to goodwill and $36.8 million to intangible assets.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is stated in the provided filing text. Management said cash, internally generated funds and available borrowings should meet operating, debt-service and working-capital needs over the next 12 months.
- Management highlighted uncertainty around federal budgets and continuing resolutions, government contract awards and protests, funding priorities, contract terminations, competition for cleared personnel, and acquisition integration. Management said risk factors were not materially changed from the prior annual report.
- The company entered a new secured credit facility in October 2010, replacing its prior facility. Floating-rate debt exposes interest expense to rate changes; management estimated a 1-percentage-point rate change would have changed six-month interest expense by about $0.9 million.
- Government contract audits and legal matters remain contingencies. CACI disputes a DCMA determination concerning allocation of legal costs related to Iraq investigations and intends to appeal; it accrued its best estimate within a $0–$2.9 million range. A separate questioned-cost matter carries an accrued estimate within a $0–$3.4 million range. Management did not expect audit adjustments or the described legal matters to have a material adverse effect, but outcomes are unresolved.
- Abu Ghraib-related litigation continued, including pending Supreme Court certiorari petitions and an appeal under advisement. CACI said it is vigorously defending the cases and believes them without merit. The filing also reports ongoing tax examinations and $6.7 million of unrecognized tax benefits.
- Quarterly effective tax rate was 37.5% (35.3% prior year); six-month rate was 37.7% (36.7%). Management noted non-taxable gains on corporate-owned life insurance affected the rates and future gains or losses could cause fluctuation.
Important facts for investors to verify
- Whether DoD revenue growth, award-fee timing and high tasking volumes persist, and how concentrated revenue remains in federal government work.
- Cash conversion and working-capital trends, particularly receivables, alongside the large cash decline associated with acquisitions and financing activity.
- Acquisition integration and performance, including the acquired businesses’ contribution and the valuation of goodwill, intangibles and contingent consideration.
- Credit-facility covenant headroom, floating-rate exposure, and the cash obligations and potential dilution associated with the 2014 convertible notes and related warrants.
- Developments in contract audits, Iraq-related litigation and tax examinations, including whether recorded estimates remain adequate.