CACI International Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2023, CACI’s fiscal 2024 first quarter. Comparisons are with the three months ended September 30, 2022, unless otherwise noted. Amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Revenue | $1.850 billion | $1.606 billion | +15.2% |
| Operating income | $137.3 million | $132.8 million | +3.4% |
| Operating margin | 7.4% | 8.3% | Down 0.9 percentage points |
| Net income | $86.0 million | $89.1 million | -3.5% |
| Diluted EPS | $3.76 | $3.76 | Flat |
| Operating cash flow | $70.1 million | $144.8 million | Down $74.8 million |
Revenue growth was primarily attributed to new awards and growth on existing programs. Department of Defense revenue increased 23.5% to $1.352 billion; federal civilian agency revenue declined 3.9% to $407.3 million. Domestic revenue was $1.795 billion and international revenue was $55.0 million.
Direct costs rose 20.6%, faster than revenue, and increased to 68.8% of revenue from 65.7%. Indirect costs and selling expenses fell to 21.9% of revenue from 23.8%, which management attributed to cost efficiencies. Interest expense and other, net, increased 57.9% to $25.6 million, primarily due to higher interest rates. The effective tax rate was 23.0%, versus 23.6%.
Cash and cash equivalents were $125.5 million at September 30, 2023, compared with $115.8 million at June 30, 2023. Current assets were $1.366 billion and current liabilities were $1.100 billion. Total debt carrying value, including current maturities, was approximately $1.789 billion, versus $1.696 billion at June 30. The company had $625 million outstanding on its $1.975 billion revolving facility and $1.171 billion outstanding on its term loan. The reported effective rate on facility borrowings, including swaps, was 4.92%; CACI was in compliance with its debt covenants.
Operating cash flow fell mainly because of unfavorable working-capital movements and lower cash received through its receivables-sale program. Investing cash use was $12.4 million, including $14.0 million of capital expenditures. Financing cash use was $45.6 million; CACI repurchased $140.4 million of stock for cash. The remaining authorization under the share repurchase program was $349.7 million.
Material changes and business indicators
Total backlog was $26.7 billion, up 7.2% from $24.9 billion a year earlier, including $4.2 billion of funded backlog. Remaining performance obligations were $10.3 billion; CACI expects to recognize approximately 44% within 12 months and 66% within 24 months. Backlog includes unexercised options and is not guaranteed to convert to revenue.
Contract-estimate changes increased pretax income by $2.4 million, or $0.08 per diluted share, compared with $5.7 million, or $0.18 per diluted share, in the prior-year quarter. Weighted-average diluted shares declined to 22.894 million from 23.678 million, while reported diluted EPS was unchanged.
Outlook, risks, and contingencies
The filing provides no specific revenue or earnings guidance. Management said cash, operating cash generation, available credit, and receivables-sale capacity should meet operating and other expected needs over the next 12 months. CACI expects the tax-law requirement to capitalize and amortize domestic research and development costs to reduce fiscal 2024 operating cash flow by $75.3 million; congressional action could change the impact, but is not assured.
Management described the federal budget environment as constructive for defense and national-security spending, while noting uncertainty around appropriations timing. Continuing resolutions or a government shutdown could delay program starts and contract awards. Other stated risks include procurement protests, competition for cleared personnel, contract performance, government audits, changing budgets and tax rules, interest-rate exposure, and foreign-currency movements. $1.1 billion of floating-rate debt was hedged with swaps; remaining variable-rate borrowings remain exposed. A 1 percentage-point rate change would have changed quarterly interest expense by approximately $1.8 million.
In the Al Shimari litigation, the district court denied CACI’s motions to dismiss in July 2023. CACI sought mandamus relief, which the plaintiffs opposed; the district court set a jury trial for April 15, 2024. Plaintiffs previously estimated compensatory damages of $6 million to $9 million and punitive damages of $23.5 million to $64 million. A separate Abbass action remained stayed. CACI said it is vigorously defending the cases and believes them to be without merit. The company stated that its ordinary-course legal matters are not expected to have a material adverse effect, based on current information.
Management concluded disclosure controls were effective as of September 30, 2023, and reported no material change in internal control over financial reporting. The filing reported no material changes to the risk factors in the most recent Form 10-K.
Important facts for investors to verify
- Whether revenue growth converts to improved margins, given direct costs grew faster than revenue and operating margin narrowed.
- Whether working-capital trends and receivables-sale activity support a recovery in operating cash flow.
- Debt levels, borrowing costs, covenant headroom, and exposure to interest-rate changes on unhedged borrowings.
- Execution and funding of backlog and remaining performance obligations, including the effect of options, appropriations delays, or contract changes.
- The actual fiscal 2024 cash-tax impact of R&D capitalization rules and any subsequent legislative or regulatory changes.
- Developments in the Al Shimari and Abbass cases, including the mandamus petition, trial schedule, and potential exposure.