CACI International Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2012 (first quarter of fiscal 2013); comparison is with the three months ended September 30, 2011. Amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q1 FY2013 | Q1 FY2012 | Change |
|---|---|---|---|
| Revenue | $931.2 | $924.4 | +0.7% |
| Operating income | $64.7 | $75.7 | -14.4% |
| Operating margin | 7.0% | 8.2% | -1.2 percentage points |
| Net income attributable to CACI | $35.7 | $42.1 | -15.3% |
| Diluted EPS | $1.49 | $1.41 | +5.7% |
| Operating cash flow | $67.7 | $56.1 | +$11.6 |
Revenue growth was principally acquisition-driven: acquired revenue was $36.5 million, while revenue from existing operations declined 3.2%, or $29.7 million. U.S. government agencies generated 94.5% of revenue. DoD revenue fell 3.8% to $705.1 million, largely reflecting reduced Southwest Asia activity; federal civilian revenue increased 30.3% to $174.7 million. International segment revenue was $33.0 million, compared with $27.7 million.
Profitability weakened as costs rose faster than revenue. Direct costs were 69.3% of revenue versus 68.7%; indirect costs and selling expenses were 22.3% versus 21.7%. The prior-year quarter included a commercial product sale that generated $10.1 million of operating income. Interest expense and other, net increased 21.1% to $6.8 million, primarily due to higher debt. The effective tax rate was 38.1%, down from 39.9%. EPS increased despite lower net income, alongside a substantial reduction in weighted-average shares following repurchases.
Cash, liquidity and debt
- Cash was $48.6 million at September 30, 2012, up from $15.7 million at June 30; working capital was $236.0 million, versus $200.9 million.
- Operating cash flow was $67.7 million. Investing activities used $49.2 million, including $43.0 million for acquisitions and $5.9 million for capital expenditures. Financing activities provided $14.1 million, including $136.1 million in net credit-facility borrowings and $124.4 million of stock repurchases.
- Debt principal totaled $699.9 million; reported debt carrying value was $678.7 million after unamortized discount. Cash-adjusted reported debt was approximately $630.1 million. Long-term debt increased from $539.5 million at June 30, primarily reflecting revolving borrowings.
- At quarter-end, the credit facility totaled $750 million, including a $600 million revolver and $150 million term loan; $263 million was drawn on the revolver. On October 26, after quarter-end, CACI increased revolver capacity by $150 million to $750 million. The company reported compliance with its financial covenants.
Material developments, outlook and risks
- CACI acquired Delta Solutions and Technologies on July 2 for total consideration of $46.3 million. The acquisition added $12.6 million of quarterly revenue; $30.3 million was allocated to goodwill and $8.0 million to intangible assets.
- The company provided no specific earnings or revenue guidance in the supplied filing text. Management said a continuing resolution was scheduled to expire March 31, 2013, and sequestration was scheduled for January 2, 2013. The impact was uncertain; management was assessing program exposure and did not expect cancellation of major programs.
- Other stated risks include federal budget reductions or delays, contract protests and procurement delays, contract terminations or non-renewals, small-business set-asides, government audits and investigations, competition for cleared and skilled staff, acquisition integration, and interest-rate and foreign-exchange exposure.
- Variable-rate debt creates interest-rate sensitivity: a one-percentage-point rate change would have changed quarterly interest expense by approximately $1.0 million. $100 million of floating-to-fixed swaps were scheduled to become effective July 1, 2013.
- Contingencies include a Defense Criminal Investigative Service subpoena, for which the company accrued its best estimate within a stated $0.8–$1.8 million range; a DOJ False Claims Act investigation, with no liability accrued because an unfavorable outcome was not considered probable; and German VAT audits with estimated reasonably possible losses of $1.5–$3.5 million, also unaccrued. The DCMA cost-allocation dispute was settled, with the agency assessing the cost impact as immaterial. Management said other ordinary-course legal matters and the Abu Ghraib-related matter were not expected to have a material adverse financial effect.
- The quarter included $124.4 million of share repurchases. CACI repurchased 2.0 million shares in July at an average $56.01 per share, completing the remaining authorization under its 4-million-share program.
Important facts for investors to verify
- Whether acquired revenue can offset ongoing declines in existing operations, particularly in DoD and Southwest Asia-related work.
- How sequestration, continuing-resolution delays, procurement protests and federal spending priorities affect awards, funding and contract options.
- Debt levels, borrowing capacity, covenant headroom, floating-rate exposure and the cash demands of the $300 million convertible notes due in 2014.
- Updates and potential financial exposure from the government investigations and German VAT matter; the filing’s stated estimates and probability assessments may change.
- Whether margin pressure persists after excluding the prior-year product-sale comparison, and whether cash generation remains sufficient alongside acquisitions and repurchases.