CACI International Inc. — Form 10-Q Summary
Period: Quarter and nine months ended March 31, 2017; filed May 5, 2017. Although the request labels this “2016 Q3,” the filing covers CACI’s fiscal 2017 third quarter.
Financial performance
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | 2017: $1,086.4 million; 2016: $977.3 million (+11.2%) | 2017: $3,217.2 million; 2016: $2,630.2 million (+22.3%) |
| Operating income / margin | 2017: $67.3 million / 6.2%; 2016: $63.7 million / 6.5% | 2017: $217.2 million / 6.8%; 2016: $183.7 million / 7.0% |
| Net income | 2017: $40.4 million; 2016: $34.1 million (+18.3%) | 2017: $119.4 million; 2016: $99.2 million (+20.4%) |
| Diluted EPS | 2017: $1.61; 2016: $1.38 | 2017: $4.77; 2016: $4.01 |
| Operating cash flow | Not provided for the quarter | 2017: $216.5 million; 2016: $189.4 million |
For the nine-month period, revenue growth was driven chiefly by the L-3 National Security Solutions (NSS) acquisition and other acquisitions. Excluding acquired revenue, organic revenue declined 1.2%, primarily because of reduced customer requirements. Third-quarter organic revenue increased 1.8% excluding acquired revenue.
Cash flow from investing was an outflow of $20.8 million, versus $600.9 million in the prior-year period, which included $587.8 million of acquisition payments. Capital expenditures were $34.9 million versus $13.2 million, largely reflecting renovation of the Chantilly, Virginia facility. Financing activities used $189.1 million, compared with $412.6 million provided in the prior-year period. Cash increased to $54.4 million from $49.1 million at June 30, 2016.
Financial position and liquidity
- At March 31, 2017, total debt principal was $1,294.4 million, comprising $992.4 million of term loans and $302.0 million drawn on the revolver. Debt carrying value, net of issuance costs, was $1,280.9 million.
- The secured credit facility totals $1,981.3 million and matures June 1, 2020. The $850 million revolving facility had approximately $548 million undrawn, before considering the $0.4 million letter of credit. CACI reported compliance with its financial covenants.
- Debt declined from $1,472.8 million principal at June 30, 2016. The effective interest rate, including swaps, was 3.42%. $900 million of floating-rate debt was hedged with swaps; management estimated a 1 percentage-point rate move would change nine-month interest expense by approximately $4.5 million.
- Accounts receivable was $726.3 million, down from $803.8 million at June 30, 2016. Days sales outstanding was 58 days, compared with 64 days at March 31, 2016, attributed to stronger collections.
Management expects operating cash generation, available borrowings, and cash on hand to support operations, capital expenditures, debt service, and working capital needs for at least the next 12 months.
Material changes and management commentary
- NSS, acquired February 1, 2016, materially increased reported revenue. Nine-month DoD revenue rose 20.4%, but declined 2.2% excluding acquired revenue; federal civilian revenue rose 27.7%, or 1.9% excluding acquired revenue.
- Operating margins narrowed year over year in both reported periods. Management cited facility-reduction and lease-termination costs and long-term incentive compensation; acquisition-related expenses in the prior-year periods partly offset these pressures.
- Interest expense increased 29.7% for the nine months, primarily due to debt incurred to fund NSS. Higher amortization and depreciation also reflected NSS-related intangible assets and equipment.
- The nine-month effective tax rate was 33.7%, versus 36.1% in 2016. Current-period taxes benefited from non-taxable corporate-owned life insurance gains and R&D credits, including credits recognized for fiscal 2016 and 2017. Management noted the rate could fluctuate with future COLI gains or losses.
Outlook, risks, and contingencies
- The filing provides no formal numerical revenue, earnings, or cash-flow guidance. Management reported reduced funding on some programs, but did not expect cancellation of any major programs. At filing, Congress had passed an omnibus measure funding the U.S. government through September 2017, which the President was expected to sign.
- Key business risks include federal budget and procurement changes, continuing resolutions or sequestration, contract protests and delays, re-competes and termination rights, audit outcomes, competition for cleared and skilled personnel, and successful integration of acquisitions.
- Government contract audits were ongoing, including DCAA reviews of incurred-cost submissions and an intelligence-agency review of selected direct costs. Management considered reserves adequate and did not expect audit adjustments to materially affect financial position, results, or cash flows.
- A government investigation related to a contract subpoena has an accrued estimated exposure within a stated range of $0–$3.9 million. CACI had not accrued a liability for a separate DOJ civil False Claims Act investigation, as it did not consider an unfavorable outcome probable.
- In the Al Shimari litigation, an appeals court vacated and remanded a prior dismissal for further consideration; a related Abbass case remained stayed. CACI said it was vigorously defending the cases and considered them without merit. Management stated that other lawsuits and proceedings were not expected to have a material adverse effect.
- Adoption of the new revenue recognition standard is planned for July 1, 2018 using a modified retrospective approach. CACI expected changes to the timing of some award/incentive fees and certain fixed-price contract revenue; the cumulative equity adjustment was still being quantified.
Important facts for investors to verify
- How much of future reported growth is attributable to acquisitions versus organic demand, particularly as nine-month organic revenue declined.
- Whether margins recover as facility-reduction and incentive-compensation costs change, and how NSS integration affects profitability and cash generation.
- Debt repayment, revolver usage, covenant headroom, and exposure to floating interest rates as the June 2020 facility maturity approaches.
- Government budget execution, contract awards and protests, audit developments, and the status and potential exposure of disclosed legal matters.
- The eventual financial and process impact of ASC 606 adoption, and the effect of COLI gains and R&D credits on the tax rate.