CACI International Inc. — Form 10-K Summary
Reporting-period note: The supplied filing is the annual report for the fiscal year ended June 30, 2021, filed August 17, 2021. It is not a 2020 Q4 filing; the figures below summarize FY2021 and, where available, its fourth quarter.
Business context
CACI provides technology and professional services primarily to U.S. government customers, supporting national security and government modernization. The business is heavily concentrated in federal contracts: 95.5% of FY2021 revenue came from U.S. government agencies, including 69.3% from the Department of Defense. International operations represented 2.9% of revenue.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $6.044 billion | $5.720 billion |
| Operating income | $539.5 million | $457.7 million |
| Operating margin | 8.9% | 8.0% |
| Net income | $457.4 million | $321.5 million |
| Diluted EPS | $18.30 | $12.61 |
| Operating cash flow | $592.2 million | $518.7 million |
| Cash and cash equivalents at year-end | $88.0 million | $107.2 million |
| Working capital | $446.4 million | $316.7 million |
| Debt principal outstanding | $1.743 billion | $1.414 billion |
Revenue grew 5.7%, with 5.0% organic growth; acquisitions contributed the balance. Net income rose 42.3%, benefiting in part from a lower effective tax rate: 8.4% versus 20.0%. FY2021 included a $56.2 million tax benefit associated with carrying back a federal net operating loss under the CARES Act. The filing reports total costs of revenue of $5.505 billion; direct costs were 65.0% of revenue in both years. Net margin increased to approximately 7.6% from 5.6%.
Operating cash flow increased 14.2%. Investing cash use was $426.6 million, including $356.3 million for acquisitions; capital expenditures were $73.1 million. The company repurchased $500 million of stock under an accelerated share repurchase agreement, financing the repurchase in part with net credit-facility borrowings of $329.1 million. Year-end debt included $945.0 million drawn on the revolver and $797.6 million on the term loan; net debt was approximately $1.655 billion. The credit facility matures June 30, 2024, and CACI reported compliance with its financial covenants. Management said available cash, operating cash generation, and borrowing capacity should meet needs over the next 12 months.
For FY2021 Q4, revenue was $1.564 billion versus $1.496 billion in FY2020 Q4; operating income was $112.1 million versus $133.7 million, while net income was $137.0 million versus $93.7 million. The filing does not clearly allocate the annual tax benefit to the quarter, so quarterly net-income comparability should be interpreted cautiously.
Changes, outlook, risks, and unusual items
- Revenue growth was led by increases of $186.0 million in DoD revenue and $117.9 million in federal civilian revenue. Technology revenue increased, while Expertise revenue declined modestly.
- Total backlog rose 12.0% to $24.2 billion; funded backlog was $3.3 billion. FY2021 contract awards totaled $9.2 billion, down 20.7%. Backlog includes unfunded amounts and unexercised options and is not guaranteed to convert to revenue. Separately, remaining performance obligations were $6.9 billion, of which CACI expected to recognize approximately 85% within a year.
- CACI acquired Ascent Vision Technologies for approximately $348.8 million in August 2020, expanding electro-optical/infrared, computer-vision, and counter-drone capabilities. The acquisition added $211.0 million of goodwill and $133.8 million of intangible assets.
- Management described the federal budget environment as stable and cited bipartisan support for defense and national security. The administration’s FY2022 budget proposal called for a 1.6% increase in aggregate defense spending from FY2021. CACI provided no numerical company-specific revenue or earnings guidance in the supplied text.
- COVID-19 mitigation measures, including reduced staffing in classified facilities, reduced billable hours on some programs. CARES Act provisions allowed billing for certain employees ready and able to work but unable to access facilities; support was extended through September 30, 2021. Management said COVID-19 had not significantly affected liquidity to date.
- Principal risks include reliance on federal spending and contract awards, funding delays and continuing resolutions, bid protests, contract termination or non-renewal, fixed-price cost overruns, hiring and security-clearance constraints, audits and compliance, cyber incidents, acquisition integration, and interest-rate exposure. $800 million of floating-rate debt was hedged; the company estimated a 1% rate change would affect annual interest expense by approximately $7.3 million.
- Two material legal matters described are the Al Shimari and Abbass detainee-abuse lawsuits. CACI said it is vigorously defending them and believes the claims are without merit. Al Shimari remained active following the Supreme Court’s June 2021 denial of CACI’s certiorari petition; CACI filed a motion to dismiss in July 2021. Management stated that losses on general legal matters were not expected to materially affect operations or liquidity.
- The annual goodwill impairment test found no impairment. The independent auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Confirm the intended period: this is FY2021, not a 2020 Q4 annual report; review the separate quarterly filing if FY2020 Q4 was intended.
- Assess how much of the $24.2 billion backlog is funded, and the timing and likelihood of converting unfunded backlog and options into revenue.
- Separate underlying earnings growth from the $56.2 million CARES Act-related tax benefit and evaluate the sustainability of the 8.4% effective tax rate.
- Review debt levels, the June 2024 facility maturity, covenant headroom, and the final settlement of the $500 million accelerated share repurchase.
- Monitor the status and potential exposure of the Al Shimari and Abbass cases, as well as outcomes of government contract audits.