CACI International Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2014. Fiscal Q2 results are compared with the quarter ended December 31, 2013; balance-sheet figures are compared with June 30, 2014. Amounts below are in millions except per-share data.
Key financial results
| Metric | Q2 FY2015 | Q2 FY2014 | Six months FY2015 | Six months FY2014 |
|---|---|---|---|---|
| Revenue | $815.4 | $894.2 | $1,630.1 | $1,758.5 |
| Operating income | $47.5 | $66.5 | $107.6 | $127.6 |
| Operating margin | 5.8% | 7.4% | 6.6% | 7.3% |
| Net income attributable to CACI | $24.6 | $35.0 | $55.8 | $68.0 |
| Diluted EPS | $1.01 | $1.38 | $2.30 | $2.71 |
- Q2 revenue fell 8.8%; six-month revenue fell 7.3%. DoD revenue declined 15.7% and 13.1%, respectively, primarily due to Southwest Asia drawdown, lower subcontract costs and federal budget-related reductions. Federal civilian revenue rose, reflecting the Six3 Systems acquisition, OPM growth and other new business.
- Operating income and margin declined, which management primarily attributed to startup and ramp-up costs on the OPM contract. For the six months, higher indirect costs and acquisition-related amortization also weighed on results.
- Six-month operating cash flow was $93.3, versus $44.6 a year earlier. Investing cash outflow was $6.2, versus $843.7, largely because the prior-year period included the Six3 Systems acquisition. Financing used $119.4, primarily reflecting net credit-facility repayments.
- Cash was $30.9 at December 31, down from $64.5 at June 30. Debt principal was $1,169.9, including $41.6 current; the company reported $1,165.4 of debt net of issuance costs. Working capital was $288.2 and the current ratio was approximately 1.68.
Material changes and financial position
- DoD remained the largest customer category, at 67.2% of Q2 revenue, down from 72.7% a year earlier. Federal civilian agencies increased to 26.2% from 20.9%.
- International operations generated 4.4% of six-month revenue, versus 4.0% in the prior-year period. The filing states that 93.5% of current-period six-month revenue came from U.S. government agencies.
- The credit facility had $370.0 outstanding on the revolver, $10.3 on the swing line and $789.7 on the term loan. The effective rate on outstanding borrowings, including swaps, was 2.71%; $600.0 of floating-rate debt was hedged. The facility matures November 15, 2018. CACI reported compliance with financial covenants.
- Management said operating cash, available borrowings and cash on hand should fund operations, capital expenditures, debt service and working capital over the next 12 months.
Outlook, risks and unusual items
- No specific revenue, earnings or EPS guidance is provided in the supplied filing text. Management expected sequestration effects to continue through FY2015; some programs had reduced funding, but the company did not expect cancellation of any major programs. Government procurement delays and protests continued.
- Key risks include federal budget and funding changes, contract awards and recompetes, bid protests and termination rights, government audits, pricing competition, recruitment and retention of cleared staff, foreign-currency movements, interest-rate changes, and integration of acquisitions.
- Government-contract cost audits were ongoing; management said potential adjustments were not expected to materially affect financial position, results or cash flows and that it had accrued its best estimate. A DOJ civil False Claims Act investigation and a Defense Criminal Investigative Service subpoena remained matters under review. The company had accrued its estimate for the subpoena matter within a stated $0–$1.8 range and no liability for the DOJ matter because an unfavorable outcome was not considered probable.
- Other disclosed exposures include a Virginia sales/use-tax audit, for which $2.8–$4.8 was the estimated loss range and an accrual was recorded; German VAT exposure estimated at no more than $3.0, with no accrual because an unfavorable outcome was not considered probable; and litigation for which management believed an adverse material effect was unlikely. The filing also reported pending lawsuits related to alleged abuses in Iraq; CACI said it was vigorously defending them.
- Foreign-currency translation and interest-rate swaps reduced comprehensive income: six-month other comprehensive loss was $13.4, primarily reflecting a $12.6 currency translation loss. The new revenue-recognition standard was under evaluation; adoption was expected in FY2018, with the method not yet determined.
Important facts for investors to verify
- Whether DoD funding reductions and Southwest Asia drawdown persist, and how they affect revenue, subcontracting and contract mix.
- Whether OPM startup costs subside and operating margins recover as the contract ramps up.
- Cash conversion and receivables performance; reported days-sales outstanding was 67 days, unchanged year over year.
- Debt repayment capacity, covenant headroom, refinancing needs and exposure to variable interest rates.
- Developments in contract audits, investigations, tax matters and litigation, including any changes to accrued or reasonably possible losses.