CACI International Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2010 (CACI fiscal Q1 2011). Unless stated otherwise, financial amounts below are in millions of dollars. Comparisons are with the three months ended September 30, 2009.
Business context
CACI provides professional services and information technology solutions, primarily to U.S. government customers. Government agencies generated approximately 95% of revenue in both periods. The company reports domestic and international segments; domestic operations accounted for $805.7 million of current-quarter revenue and international operations $28.2 million.
Financial performance and liquidity
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Revenue | $834.0 | $739.5 | +12.8% |
| Income from operations | $52.1 | $46.0 | +13.2% |
| Operating margin | 6.2% | 6.2% | Unchanged |
| Net income attributable to CACI | $28.7 | $23.9 | +20.1% |
| Diluted EPS | $0.92 | $0.78 | +17.9% |
| Operating cash flow | $8.0 | $50.9 | Down $42.9 |
Direct costs rose to 70.7% of revenue from 69.1%; indirect costs and selling expenses declined to 21.5% from 23.2%. Depreciation and amortization was $13.1 million, up 17.3%. Interest expense and other, net declined 19.7% to $5.8 million, primarily reflecting lower rates and term-loan prepayment. The effective tax rate was 37.8%, versus 38.1%.
At September 30, cash and equivalents were $110.1 million, down from $254.5 million at June 30. Current assets were $707.5 million and current liabilities $500.5 million. Debt principal was $450.1 million: $150.1 million under the bank term loan and $300.0 million of convertible notes. Reported debt carrying value, net of unamortized discount, was $405.2 million. The notes mature in 2014; the term loan was classified as current and due in 2011 under the then-existing facility. No revolving-facility borrowings or letters of credit were outstanding at quarter-end.
Material changes and unusual items
- Revenue growth was principally driven by DoD work, up 14.7% to $656.5 million. Existing operations grew 10.8%; acquired revenue contributed $15.0 million. Federal civilian revenue increased 2.7%, while state and local revenue fell 42.1% and remained below 1% of total revenue.
- Operating cash flow fell to $8.0 million, which management attributed primarily to the timing of vendor payments. Days sales outstanding was 59, unchanged year over year.
- The company prepaid $128.2 million of term-loan principal and repurchased approximately 0.4 million shares for $16.8 million during the quarter. Cash used in financing activities was $144.5 million.
- On October 21, 2010, after quarter-end, CACI replaced its prior credit facility with a five-year secured facility comprising a $600 million revolver and a $150 million term loan, with a $200 million expansion feature.
- On November 1, 2010, CACI acquired TechniGraphics and Applied Systems Research for combined consideration of approximately $127.5 million.
- Foreign-currency translation contributed $4.9 million to comprehensive income. Remeasurement of acquisition-related contingent consideration increased the liability by $1.7 million during the quarter.
Outlook, risks and contingencies
Management said cash on hand, internally generated funds and available bank borrowings were expected to meet operating, capital expenditure, debt-service and working-capital needs for the next 12 months. The filing provides no numerical revenue or earnings guidance. Longer-term cash generation depends on future performance and conditions outside the company’s control.
Key risks identified include U.S. government budget and funding changes, contract protests and termination, recompete and new-award competition, small-business set-asides, pricing pressure, and recruiting and retaining cleared personnel. CACI also cited economic weakness, acquisition integration, foreign-exchange and interest-rate exposure, government audits, and contingent-consideration valuation. Management reported the company was in compliance with the former credit facility’s covenants through its termination.
Various lawsuits and government-contract audits are pending. The company is defending Abu Ghraib-related litigation and believes the claims are without merit. Management stated that general legal matters and the Iraq investigations were not expected to have a material adverse effect. DCAA audits include a subcontract cost dispute for which the company estimated potential exposure from zero to $3.4 million and accrued its best estimate. Disclosure controls were assessed as effective at a reasonable-assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether operating cash flow recovered after the quarter, given the sharp decline attributed to vendor-payment timing.
- Utilization, pricing and profitability of the DoD-led revenue growth, and the sustainability of the 6.2% operating margin.
- Post-quarter borrowing, covenant headroom and liquidity under the replacement credit facility, including the impact of the acquisitions.
- Integration results and purchase accounting for the two acquisitions, including contingent consideration and any related costs.
- Developments in Abu Ghraib-related litigation, DCAA audits and the estimated contract-cost exposure.
- The timing of the $150.1 million bank term-loan obligation and the company’s ability to meet the $300 million convertible-note principal obligation at maturity.