CACI International Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter and nine months ended March 31, 2018 (CACI fiscal 2018 third quarter), not 2017 Q3 as stated in the request metadata. Dollar figures below are in millions unless noted.
Business context and results
CACI provides information technology, mission, and professional services, primarily to U.S. government customers. U.S. government agencies generated 93.5% of revenue for the nine months, compared with 93.8% a year earlier.
| Metric | Three months ended March 31, 2018 | Year-over-year change | Nine months ended March 31, 2018 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $1,124.1 | +3.5% | $3,297.8 | +2.5% |
| Operating income | $104.8 | +55.8% | $260.4 | +19.9% |
| Operating margin | 9.3% | 6.2% prior year | 7.9% | 6.8% prior year |
| Net income | $64.5 | +59.8% | $249.3 | +108.8% |
| Diluted EPS | $2.56 | $1.61 prior year | $9.88 | $4.77 prior year |
Financial position and cash flow
- Nine-month operating cash flow was $254.5, up from $216.5. Management attributed the increase primarily to the timing of vendor payments and receivable collections. DSO was 62 days, versus 58 days at March 31, 2017.
- Capital expenditures were $31.8; cash used for acquisitions was $50.4. Investing activities used $82.2, and financing activities used $183.3, including net debt repayments of $151.0. Cash declined $9.6 from June 30, 2017 to $56.0.
- At March 31, 2018, principal debt was $1,092.9 ($1,083.9 net of issuance costs), compared with $1,243.9 principal at June 30, 2017. The company had $154.5 drawn on its revolving facility and $938.4 outstanding on term loans. The effective interest rate, including swaps, was 3.46%; CACI reported covenant compliance.
- Current assets were $953.3 and current liabilities were $627.7. The filing reports $820.0 of current accounts receivable.
Drivers, changes, and unusual items
- Management cited improved performance on fixed-price and fixed-unit-price contracts, higher award and one-time incentive fees, and product sales as drivers of revenue and operating-margin growth. DoD revenue rose 6.7% in the quarter and 5.0% for nine months, led by intelligence and technology-support work. Federal civilian revenue declined 6.5% and 4.3%, respectively, mainly due to lower material sales and customer requirements.
- Nine-month net income includes a substantial tax benefit: the effective tax rate was negative 9.6%, versus 33.7% a year earlier. CACI reported a $98.0 net reduction in tax expense from the Tax Cuts and Jobs Act for the nine months, increasing diluted EPS by $3.88. The tax accounting remained provisional; the filing says the cumulative impact of adopting the new revenue standard had not yet been quantified.
- During the period, CACI acquired three businesses for aggregate consideration described in the notes of approximately $69.6, including the U.S. acquisition’s contingent and deferred consideration. The acquisitions added $33.5 to goodwill. The company also paid $11.6 of contingent consideration related to prior acquisitions.
Outlook, risks, and contingencies
- No numerical earnings or revenue guidance is provided. Management said cash, available borrowings, and internally generated funds should cover operations, customary capital expenditures, debt service, and working-capital needs for the next 12 months. It expected FY2018 effects from the government’s omnibus funding legislation to continue.
- Management highlighted government budget and procurement uncertainty, award protests and delays, contract termination or nonrenewal, competition for cleared personnel, audit outcomes, and acquisition-integration risks. Interest-rate exposure remains on unhedged variable-rate debt; $800.0 of debt was covered by swaps. The filing estimates a 1 percentage-point rate change would affect nine-month interest expense by approximately $2.9.
- Government contract audits were ongoing; management believed reserves were adequate and did not expect a material effect. A separate government investigation had reached an agreement in principle, with a binding settlement still being negotiated; the accrued estimate was within a stated $0–$2.0 range. CACI said pending litigation was without merit and was vigorously defended.
- After quarter-end, on May 3, 2018, CACI amended its credit agreement, extending maturity to June 30, 2023, reducing interest margins by 25 basis points at each pricing level, and increasing revolving capacity from $850 to $1.1 billion.
Most important facts for investors to verify
- Separate underlying operating improvement from the unusually large, provisional tax benefit in nine-month earnings and EPS.
- Track receivable collections and working-capital timing, given the higher DSO and the company’s explanation for cash-flow growth.
- Review post-amendment debt pricing, maturity, repayment schedule, covenant headroom, and remaining floating-rate exposure.
- Monitor government funding and contract awards, audit and legal resolutions, and the quantified revenue-recognition transition adjustment when available.