CACI International Inc. — Form 10-Q Summary
Business context and period. This filing covers the three months ended September 30, 2015, CACI’s first fiscal quarter of 2016, and compares results with the three months ended September 30, 2014. CACI is primarily a U.S. government services contractor: 93.5% of quarterly revenue came from U.S. government agencies. Domestic operations generated $785.7 million of revenue; international operations generated $36.8 million.
Financial performance and liquidity
| Metric | Q1 FY2016 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $822.4 million | $814.7 million | +0.9% |
| Operating income / margin | $64.5 million / 7.8% | $60.1 million / 7.4% | Income +7.4% |
| Income before taxes | $55.3 million | $51.0 million | +8.5% |
| Net income attributable to CACI | $33.8 million | $31.1 million | +8.6% |
| Diluted EPS | $1.37 | $1.29 | +6.2% |
| Operating cash flow | $78.5 million | $111.7 million | Down $33.3 million |
| Capital expenditures | $4.5 million | $3.4 million | — |
Operating margin improved mainly because of lower amortization and depreciation, growth in existing contracts, and FY2015 contract wins. Direct costs were 65.4% of revenue, versus 65.9%; indirect costs and selling expenses rose to 25.0% from 24.6%. Depreciation and amortization fell 14.1% to $14.8 million. The effective tax rate was 38.9%, compared with 38.8%.
Cash and cash equivalents were $29.0 million at September 30, down from $35.4 million at June 30, 2015. Accounts receivable was $547.0 million, down from $596.2 million; days sales outstanding improved to 58 from 61 a year earlier. Operating cash flow declined year over year, which management attributed primarily to payment timing affecting prepaids, accrued compensation, and accounts payable. Investing activities used $8.0 million, including $2.8 million paid for an acquisition; financing activities used $76.2 million, including net debt repayments.
At quarter-end, principal debt was $999.6 million ($993.9 million net of unamortized issuance costs), comprising $769.6 million of term loans and $230.0 million drawn on the revolving facility. The $850 million revolver had $0.4 million of letters of credit outstanding; the filing does not state a specific borrowing-availability figure. The effective borrowing rate, including swaps, was 3.1%. CACI reported compliance with its debt covenants. Management said cash, internally generated funds, and available bank borrowings should cover operating needs, capital expenditures, debt service, and working capital over the next 12 months.
Material changes and business developments
- Federal civilian revenue rose 8.2% to $225.4 million, driven by existing work and FY2015 awards. Department of Defense revenue declined 1.9% to $543.5 million, primarily because of lower material purchases associated with reduced Afghanistan requirements. DoD remained 66.1% of total revenue.
- On July 1, 2015, CACI’s U.K. subsidiary acquired Rockshore Group Ltd. for an initial purchase price of $5.5 million, with up to an additional $5.5 million earn-out tied to performance. The filing recorded $8.1 million of goodwill and $1.5 million of intangible assets; contingent consideration was valued at $4.9 million at quarter-end.
- Foreign currency translation and interest-rate swap fair-value changes contributed to a $7.4 million other comprehensive loss.
Outlook, risks, and contingencies
The filing provides no quantified revenue, earnings, or cash-flow guidance. Management noted reduced funding on some programs but did not expect cancellation of any major programs. A continuing U.S. government resolution funded operations through December 11, 2015; the Bipartisan Budget Act of 2015 raised discretionary spending caps for fiscal years 2016 and 2017. Management expected the budget environment to continue affecting contracts and task orders during FY2016.
Key business risks include federal budget reductions or shifting priorities, procurement delays and bid protests, contract termination or non-renewal, government audits, intense competition for cleared personnel, and acquisition integration. CACI reported ongoing DOJ inquiries relating to a contract and alleged billing under a GSA contract; it had accrued an estimate within a $0–$1.8 million range for one matter and no liability for the GSA matter because an unfavorable outcome was not considered probable. For a Virginia sales-and-use-tax audit, it accrued its best estimate within a $2.9–$5.2 million range. A German VAT audit had a reasonably possible loss range of $0–$3.2 million, with no amount accrued. The filing also describes pending litigation, including an appeal in the Al Shimari case; management said it was vigorously defending the cases and did not expect ordinary-course matters to materially harm operations or liquidity.
The company uses $600 million of interest-rate swaps to hedge floating-rate debt. Management estimated that a 1 percentage-point change in applicable rates would change quarterly interest expense by approximately $1.2 million. Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether federal civilian growth can offset continuing DoD reductions and the highly concentrated U.S. government customer exposure.
- Whether operating cash flow rebounds after the reported timing-related decline, and how working capital and collections develop.
- Debt repayment capacity, revolver availability, covenant headroom, and sensitivity to floating interest rates.
- FY2016 funding outcomes, contract protests and renewals, and the effect of budget changes on CACI’s programs.
- Developments in the DOJ inquiries, tax audits, litigation appeals, and Rockshore’s earn-out performance.