CACI International Inc. Form 10-Q Summary
Business context and reporting period
This filing covers the three and nine months ended March 31, 2021, CACI’s fiscal third quarter and first nine months of fiscal 2021. The filing was signed April 22, 2021. CACI provides expertise and technology to U.S. government and other customers, principally in national security and government transformation. Approximately 70% of revenue was defense-related; the U.S. government remains the company’s primary market.
Financial performance
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $1.552 billion, up 5.9% year over year | $4.480 billion, up 6.1% |
| Operating income | $151.4 million, up 33.2% | $427.4 million, up 31.9% |
| Operating margin | 9.8%, versus 7.8% | 9.5%, versus 7.7% |
| Net income | $120.3 million, up 49.4% | $320.5 million, up 40.7% |
| Diluted EPS | $4.78, versus $3.16 | $12.66, versus $8.94 |
| Operating cash flow | Not provided for the quarter alone | $500.5 million, versus $357.8 million |
Quarterly revenue growth included 5.3% organic growth; nine-month growth included 5.2% organic growth, with the remainder attributed to acquisitions. Federal civilian revenue grew faster than DoD revenue: 12.3% and 3.5%, respectively, in the quarter; 11.1% and 4.2% over nine months. DoD generated 69.0% of nine-month revenue. Technology revenue increased year over year, while expertise revenue was comparatively flat.
For the nine months, investing cash outflow was $404.0 million, including $355.5 million for acquisitions; capital expenditures were $51.3 million. Financing cash outflow was $103.5 million. Cash was $105.6 million at March 31, 2021, down $1.6 million from June 30, 2020. Operating cash flow growth reflected higher net income, CARES Act payroll-tax deferrals and favorable working-capital changes, partly offset by lower net cash received through receivables sales.
Total debt was $1.829 billion principal ($1.822 billion net of discounts and issuance costs), up from $1.414 billion principal at June 30, 2020. Cash less principal debt was approximately negative $1.724 billion. The $2.438 billion secured credit facility included $1.020 billion drawn on its $1.500 billion revolver and $809.4 million outstanding on the term loan. The company reported covenant compliance and an effective borrowing rate of 1.97%, including interest-rate swaps. It hedged $800 million of floating-rate debt; a one-percentage-point interest-rate change would have affected nine-month interest expense by approximately $4.9 million.
Material changes and notable items
- Operating margins improved, which management attributed to strong program performance, lower-than-estimated costs on certain fixed-price contracts, and a higher proportion of technology revenue. Indirect costs declined as a share of revenue; depreciation and amortization increased due primarily to acquisitions.
- Interest expense declined year over year, reflecting lower average debt balances and interest rates. The nine-month effective tax rate rose to 19.8% from 18.2%; the quarterly rate fell to 15.5% from 19.1%, primarily due to research and development credits.
- CACI acquired Ascent Vision Technologies in August 2020 for approximately $348.8 million. The acquisition added electro-optical/infrared, computer-vision and counter-drone capabilities; preliminary purchase accounting included $211.0 million of goodwill and $133.8 million of intangible assets.
- On March 12, 2021, CACI paid $500 million under an accelerated share repurchase agreement and initially received approximately 1.7 million shares. Final share settlement is scheduled before the end of fiscal Q2 2022 and may involve additional share delivery or, in certain circumstances, cash or shares payable by CACI.
- Backlog was $22.3 billion, up 12.3% from a year earlier; funded backlog was $3.0 billion, up 1.3%. Quarterly contract awards were $1.6 billion. Remaining performance obligations were $6.7 billion; the company expected to recognize approximately 90% over the following 12 months. Backlog includes options and is not assured of conversion to revenue.
Outlook, risks and contingencies
Management described the federal budget environment as stable and cited bipartisan support for defense and national security investment. It noted that the administration’s top-line fiscal 2022 defense proposal was $753 billion, up 1.7% from fiscal 2021. The filing provides no specific company revenue, earnings or cash-flow guidance. CACI expected internally generated funds, cash and available borrowings to meet liquidity needs over the next 12 months.
Management said COVID-19 had not significantly affected liquidity, cash flows or capital resources to date, but classified-worksite access restrictions and social distancing reduced billable hours on some programs. CARES Act support for eligible hours was extended through September 30, 2021. Continuing resolutions, appropriations delays or shutdowns could delay program starts and awards. Other cited risks include dependence on government contracts and funding, bid protests and recompetes, audits, pricing and talent competition, contract execution, acquisition integration, changing tax rules, interest rates, foreign exchange and pandemic effects.
The company reported $10.7 million of quarterly and $36.6 million of nine-month pretax income benefit from estimate-at-completion contract adjustments. It recorded $28.9 million of unrecognized tax benefits, up from $8.8 million at June 2020; recognition would benefit the effective tax rate. Government cost audits remained ongoing, with management stating reserves were adequate and potential adjustments were not expected to be material. Management said ordinary-course legal matters were not expected to have a material adverse effect. Two previously disclosed lawsuits concerning alleged conduct in Iraq remained unresolved; one was stayed pending Supreme Court proceedings. CACI said it considered the suits without merit and was vigorously defending them. No material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether reported margin and earnings growth persists, and how much depends on contract estimate revisions, fixed-price performance and the acquired business.
- Conversion and funding of the $22.3 billion backlog, including the timing of awards, options, task orders and government appropriations.
- Debt, revolver availability, covenant headroom and exposure to floating interest rates following the acquisition and $500 million share repurchase.
- Cash-flow comparability, including the effects of CARES Act payroll-tax deferrals and receivables sales.
- Final settlement of the accelerated repurchase, integration and performance of Ascent Vision Technologies, and outcomes of tax, audit and litigation matters.