CACI International Inc. — Q1 FY2019 Form 10-Q
Business context and period: Quarter ended September 30, 2018, compared with the three months ended September 30, 2017. CACI provides government-focused information technology, mission, and professional services; 95.2% of quarterly revenue came from U.S. government agencies. The filing was signed November 2, 2018.
Key financial results
| Metric | Q1 FY2019 | Q1 FY2018 | Change |
|---|---|---|---|
| Revenue | $1,165.9 million | $1,085.8 million | +7.4% |
| Operating income | $99.6 million | $67.3 million | +48.0% |
| Operating margin | 8.5% | 6.2% | +2.3 percentage points |
| Net income | $78.8 million | $42.0 million | +87.5% |
| Diluted EPS | $3.10 | $1.67 | +$1.43 |
| Operating cash flow | $83.1 million | $79.7 million | +4.3% |
Net margin was 6.8%, versus 3.9%. Revenue growth included $44.4 million from acquisitions and $35.7 million of organic growth. DoD revenue rose 12.4%, led by acquired work and organic intelligence and network-support growth; federal civilian revenue fell 4.7%. Management attributed operating-margin improvement to program performance, higher award fees, acquisitions, and lower indirect costs as a share of revenue. Interest expense and other, net declined 21.0% to $8.9 million, primarily reflecting lower debt balances.
Liquidity, debt, and capital resources
At September 30, cash and equivalents were $75.5 million, accounts receivable was $945.6 million, and current liabilities were $622.0 million. Long-term debt was $1,096.2 million net of discounts and issuance costs, including $180.0 million drawn on the revolver and $926.7 million on the term loan. The effective interest rate, including swaps, was 3.39%. CACI had $1.1 billion of revolving capacity, was compliant with its financial covenants, and had $700 million of floating-to-fixed interest-rate swaps. A 1% rate change would have changed quarterly interest expense on variable-rate debt by approximately $1.0 million.
Operating cash flow was $83.1 million; investing activities used $99.7 million, including $90.0 million paid for an acquisition; financing activities provided $26.2 million. Cash increased $9.3 million during the quarter. Days sales outstanding was 67 days, versus 64 days a year earlier. Management said cash, internally generated funds, and available borrowings should meet operating and other requirements for the next 12 months.
Material changes and unusual items
- Revenue-standard adoption: CACI adopted ASC 606 on July 1, 2018 using the modified retrospective method; prior-year comparisons remain under ASC 605. ASC 606 increased reported Q1 revenue by $7.2 million and net income by $5.3 million. On an ASC 605-adjusted basis, current-quarter revenue was $1,158.7 million, approximately 6.7% above the prior-year reported figure.
- Acquisition: On August 15, CACI acquired certain assets of CSRA’s systems engineering and acquisition support business for $84.0 million plus a preliminary $6.0 million working-capital adjustment. The purchase-price allocation is provisional; finalization is expected by Q1 FY2020.
- Taxes: The effective tax rate fell to 13.1% from 25.0%, reflecting the lower U.S. federal rate under the Tax Cuts and Jobs Act, a one-time $2.2 million benefit from reducing the provisional transition-tax liability, and other items including COLI gains and excess stock-compensation tax benefits. The company cautioned that the rate may fluctuate.
- Contract outlook: Remaining performance obligations were $5.7 billion, excluding unexercised options and certain potential IDIQ task orders; approximately 80% was expected to be recognized as revenue over the next year. Total backlog was $13.0 billion, of which $2.7 billion was funded. Backlog is not assured revenue and can change through awards, modifications, deobligations, or terminations.
Management commentary, risks, and contingencies
No numerical full-year earnings or revenue guidance is provided in the supplied filing text. Management highlighted federal appropriations uncertainty: a continuing resolution funded some agencies through December 7, 2018, and a funding gap could cause a shutdown and affect contract work. Other risks include budget-priority changes, procurement delays and bid protests, contract termination or non-renewal, competition for cleared staff, and acquisition integration. Government cost audits were ongoing; management considered reserves adequate and did not expect material effects. The company reported ongoing litigation including Al Shimari, with a trial date set for April 23, 2019 if needed; it said it was vigorously defending the cases and believed them without merit. Management stated disclosure controls were effective at September 30, 2018.
Important facts for investors to verify
- Assess reported growth and earnings against the quantified ASC 606 effects and the un-restated prior-year accounting basis.
- Track collections, receivables, and DSO, which rose to 67 days, alongside operating cash flow.
- Review the acquisition’s final working-capital adjustment, purchase-price allocation, and contribution to growth and margins.
- Distinguish funded backlog from total backlog and remaining performance obligations; neither guarantees future revenue.
- Monitor federal appropriations and shutdown developments, the effective tax rate as one-time benefits roll off, and the status of material litigation and government audits.