CACI International Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2022, filed April 28, 2022. This is fiscal 2022 third quarter; the request metadata’s “2021 Q3” does not match the filing period. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless noted.
Business context and financial performance
CACI provides expertise and technology to U.S. government and international customers, principally for national security and government modernization. The Department of Defense generated about 70.5% of quarterly revenue; the U.S. Army is its largest customer.
| Metric | Q3 FY22 | Q3 FY21 | Nine months FY22 | Nine months FY21 |
|---|---|---|---|---|
| Revenue | $1,584.0 million | $1,551.9 million | $4,560.7 million | $4,480.1 million |
| Operating income | $125.4 million | $151.4 million | $376.5 million | $427.4 million |
| Net income | $95.4 million | $120.3 million | $273.8 million | $320.5 million |
| Diluted EPS | $4.04 | $4.78 | $11.56 | $12.66 |
| Operating margin, calculated | 7.9% | 9.8% | 8.3% | 9.5% |
| Net margin, calculated | 6.0% | 7.8% | 6.0% | 7.2% |
Cash flow and liquidity: Nine-month operating cash flow was $593.0 million, versus $500.5 million; capital expenditures were $38.7 million, versus $51.3 million. Cash at March 31 was $125.1 million. Current assets of $1,193.2 million exceeded current liabilities of $927.4 million by $265.8 million. The company attributed stronger operating cash flow primarily to lower income-tax cash payments, including a prior-year comparison affected by CARES Act payroll-tax deferrals.
Debt: Long-term debt, including current maturities, was $1,853.9 million net of discounts and issuance costs ($1,864.3 million principal), compared with $1,735.8 million at June 30, 2021. Net debt was approximately $1,728.8 million. The $3.2 billion secured credit facility included a $1.975 billion revolver, of which $647 million was drawn, and a term loan with $1,217.3 million outstanding. The company reported covenant compliance. Its effective borrowing rate, after interest-rate swaps, was 2.09% at quarter-end.
Material changes versus comparable periods
- Revenue rose 2.1% for the quarter and 1.8% for the nine-month period, primarily reflecting four fiscal 2022 acquisitions. Quarterly DoD revenue increased 4.2%, while federal civilian revenue declined 6.2%.
- Operating income fell 17.2% for the quarter and 11.9% for nine months; net income declined 20.7% and 14.6%, respectively. Costs grew faster than revenue, with indirect costs and selling expenses increasing 9.0% in the quarter and 4.0% year to date. Management cited acquisitions and higher fringe benefits, conference, and travel costs; acquisition-related amortization also increased.
- Four acquisitions had aggregate purchase consideration of approximately $609.7 million. Preliminary purchase accounting added $444.6 million to goodwill and $180.6 million to intangible assets.
- Acquisition spending drove investing cash outflows to $653.6 million, versus $404.0 million in the prior-year period. The company ended the period with $37.0 million more cash than at the beginning, compared with a $1.6 million decrease in the prior-year period.
- Total backlog reached $23.5 billion, up 5.4% from a year earlier; funded backlog was $2.8 billion, down 6.7%. Contract awards were $1.2 billion for the quarter.
Outlook, commentary, risks, and unusual items
- The filing provides no specific company earnings or revenue guidance. Management described the government budget environment as constructive: the FY22 omnibus provided approximately $782 billion for national defense, and the President’s initial FY23 proposal sought an approximately 4% increase in aggregate defense spending. Appropriations timing and future spending remain uncertain. Management expected to recognize approximately 90% of the $6.8 billion remaining performance obligations balance within 12 months; this measure excludes unexercised options and certain potential IDIQ task orders.
- Management cited ongoing COVID-19 effects, including customer facility access and meeting limitations and supply-chain disruption. Risks also include government procurement delays, continuing resolutions, contract protests or terminations, budget changes, audits, competition for cleared personnel, contract performance, acquisition integration, and foreign currency and interest-rate exposure.
- Contract estimate changes increased pretax income by $13.0 million in the quarter and $21.2 million for nine months. These estimates are judgmental and can change as contract costs, schedules, and incentive fees are reassessed.
- The company had $800 million of floating-to-fixed interest-rate swaps; remaining variable-rate debt remains exposed to rate changes. Management estimated a 1 percentage-point rate fluctuation would have changed nine-month interest expense by approximately $9.1 million.
- A tax-law provision requiring amortization of domestic R&D costs rather than immediate deduction may reduce operating cash flow and increase deferred tax assets if not delayed by legislation. The company was evaluating the impact. Its unrecognized tax benefits were $46.0 million, up from $31.5 million; IRS examinations cover fiscal years 2017–2021.
- In the Al Shimari litigation, plaintiffs estimated compensatory damages of $6.0–$9.0 million and punitive damages of $23.5–$64.0 million. CACI said it was defending the proceedings and believed the lawsuits were without merit. Management stated that other ordinary-course legal proceedings were not expected to materially affect financial position, results, or cash flows.
- Management said available cash, operating cash generation, and borrowing capacity should fund operations and obligations for the next 12 months. Disclosure controls were reported effective, with no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether revenue growth from recent acquisitions converts into sustained operating income and margin improvement, given the reported cost growth and earnings declines.
- Acquisition integration, final purchase-price allocations, and the effect of added debt, goodwill, and amortization.
- Cash conversion and working-capital trends, including the role of tax payments, receivables sales, and customer payment timing.
- Backlog quality and funding: total backlog includes options, while funded backlog declined year over year; neither guarantees future revenue.
- Floating-rate debt exposure, covenant headroom, and the consequences of higher rates or refinancing requirements.
- Developments in government appropriations, contract awards and protests, COVID-related operational constraints, R&D tax legislation, and material litigation.