CACI International Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2020 (CACI fiscal 2020 third quarter). The request metadata says “2019 Q3,” but the filing itself reports the period ended March 31, 2020.
Business context and financial performance
CACI provides expertise and technology to U.S. government enterprise and mission customers. The business is heavily dependent on federal contracts: U.S. government agencies accounted for 95.5% of revenue for the nine-month period. Approximately 70% of revenue comes from defense-related customers.
| Metric | Three months ended March 31, 2020 | Nine months ended March 31, 2020 |
|---|---|---|
| Revenue | $1.466 billion, up 15.9% year over year | $4.224 billion, up 16.9% |
| Organic revenue growth | 9.9% | 7.9% |
| Operating income | $113.7 million; 7.8% margin | $324.0 million; 7.7% margin |
| Net income | $80.6 million, up 18.2% | $227.7 million, up 5.6% |
| Diluted EPS | $3.16, versus $2.69 | $8.94, versus $8.50 |
| Operating cash flow | Not presented for the quarter | $357.8 million, versus $452.8 million |
For the nine months, operating margin declined from 8.2% to 7.7%. Direct costs fell as a share of revenue, but indirect costs and selling expenses rose to 25.6% of revenue from 23.8%, reflecting higher independent research and development, bid and proposal costs, acquisition-related labor and benefits. Interest expense increased 43.6% year over year for the nine-month period, primarily due to acquisition-related borrowing.
Liquidity, debt and capital
- At March 31, 2020, cash was $77.2 million; total current assets were $1.074 billion and current liabilities were $779.2 million.
- Debt principal was $1.521 billion ($1.512 billion carrying value), down from $1.676 billion principal at June 30, 2019. It comprised $856.3 million of term loans and $665.0 million drawn on the $1.5 billion revolver. The company reported covenant compliance.
- The effective borrowing rate, including interest-rate swaps, was 2.77%. Swaps hedged $800 million of floating-rate debt; remaining variable-rate debt remains exposed to rate changes.
- Nine-month operating cash flow decreased by $95.0 million, which management attributed primarily to a $199 million reduction in net cash received from its receivables-sale program, partly offset by strong receivables collections. DSO was 49 days, versus 57 days a year earlier.
- Cash used for acquisitions was $102.4 million and capital expenditures were $54.3 million during the nine months. Cash from operations and available borrowing capacity are identified as principal liquidity sources. Management said COVID-19 had not significantly affected liquidity or cash flows to date.
Changes, outlook and risks
- Growth reflected both organic expansion and acquisitions. CACI completed three strategic acquisitions in the second quarter for aggregate consideration of approximately $109 million; purchase accounting remained preliminary. The prior-year comparison included the LGS acquisition.
- COVID-19 mitigation measures reduced billable hours on certain programs where employees could not access facilities or work remotely. CACI estimated a third-quarter impact of approximately $10 million in revenue, $6 million in operating income and $4.5 million in net income. The CARES Act provides a mechanism to bill certain hours when employees are ready and able to work but cannot access required facilities; the company was working with customers to implement it.
- Backlog was $19.9 billion, including $3.0 billion funded. Remaining performance obligations were $6.3 billion; the company expected to recognize approximately 88% over the following 12 months. Backlog includes unexercised options and is not assured revenue.
- Management described federal defense and national-security budgets as favorable, but noted uncertainty around future appropriations, pandemic-related priorities, continuing resolutions, procurement delays and protests. The filing provides no specific financial guidance or revised full-year outlook.
- Key risks include dependence on U.S. government contracts, contract awards and performance, government audits and funding, competition for cleared personnel, acquisition integration, and the uncertain duration and effects of COVID-19. Management considered ordinary-course litigation and government contract audit exposures not expected to have a material adverse effect; two disclosed lawsuits remained ongoing, including the Al Shimari matter.
- Favorable estimate-at-completion adjustments increased pretax income by $8.3 million in the quarter and $32.1 million year to date. Adoption of lease accounting on July 1, 2019 added operating lease assets and liabilities to the balance sheet without affecting results or cash flows. A substantial interest-rate-swap fair-value loss reduced nine-month comprehensive income.
Important facts for investors to verify
- Whether COVID-19-related access restrictions, CARES Act billings and customer payment timing materially affect future revenue, margins and cash flow.
- Whether operating cash flow recovers, given the year-over-year decline and the role of receivables sales in liquidity.
- Debt levels, revolver availability, covenant headroom and sensitivity to floating interest rates.
- Conversion of funded and unfunded backlog and remaining performance obligations into awarded, funded work and revenue.
- Acquisition integration and final purchase-accounting values, as well as the sustainability of organic growth and margins.
- Developments in disclosed litigation, government audits and federal appropriations.