CACI International Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2022. Filed January 26, 2023. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Business context
CACI provides expertise and technology to U.S. government enterprise and mission customers, with domestic operations focused primarily on federal agencies. Approximately 70% of revenue is defense-related. The company said growth reflected existing programs, new awards, and contributions from fiscal 2022 acquisitions.
Financial performance
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Revenue | $1,649.4 | $1,485.8 | $3,255.2 | $2,976.7 |
| Operating income | $130.9 | $124.1 | $263.7 | $251.1 |
| Operating margin | 7.9% | 8.4% | 8.1% | 8.4% |
| Net income | $87.1 | $90.3 | $176.2 | $178.4 |
| Diluted EPS | $3.68 | $3.83 | $7.44 | $7.52 |
| Operating cash flow | Not separately stated | Not separately stated | $207.1 | $308.8 |
| Capital expenditures | Not separately stated | Not separately stated | $25.7 | $21.6 |
- Q2 revenue rose 11.0%; six-month revenue rose 9.4%. Q2 operating income increased 5.4%, but operating margin declined about 0.4 percentage points.
- Net income fell 3.5% in Q2 and 1.2% for the six months. Interest expense and other, net increased 81.1% in Q2 and 68.8% for the six months, primarily due to higher interest rates.
- Direct costs increased faster than revenue: 12.4% in Q2 and 10.4% for the six months. Direct costs were 66.3% and 66.1% of revenue, respectively, versus 65.6% and 65.4% in the comparable periods. Indirect costs as a share of revenue improved slightly.
- DoD revenue was $1,160.1 million in Q2, up 11.9%; federal civilian revenue was $399.8 million, up 7.5%. Commercial and other revenue increased 16.5% to $89.6 million.
Liquidity, debt and capital
- Cash was $114.7 million at December 31, 2022, essentially unchanged from June 30, 2022. Current assets were $1,175.2 million and current liabilities $981.6 million.
- Total debt principal was $1,574.4 million, compared with $1,742.7 million at June 30; debt net of issuance costs was $1,565.6 million. The company had $380 million drawn on its $1,975 million revolving facility and $1,194.4 million outstanding on its term loan. It reported compliance with debt covenants.
- $800 million of floating-to-fixed interest-rate swaps hedge part of floating-rate borrowings. The effective rate on credit-facility borrowings, including swaps, was 4.50%. Management estimated a 1-percentage-point rate fluctuation would change six-month interest expense by approximately $5.5 million.
- Six-month operating cash flow declined $101.7 million year over year, with higher tax payments and unfavorable working-capital timing partly offset by increased cash received from receivables sales. The company reported $42.2 million of net operating cash inflow from its receivables-sale program.
- The company estimated the FY2023 tax-law requirement to capitalize and amortize domestic R&D costs would reduce FY2023 operating cash flow by $95 million; $46 million of related estimated tax payments were included in second-quarter payments.
- On January 24, 2023, the board authorized repurchases of up to $750 million of common stock. This authorization followed the reporting date.
Backlog, outlook and risks
- Total backlog was $26.5 billion at December 31, up 10.0% from a year earlier; funded backlog was $3.2 billion. Remaining performance obligations were $8.6 billion, with approximately 47% expected to be recognized over the next 12 months and 67% over the next 24 months. Backlog includes options and is not assured to convert fully into revenue.
- No specific company revenue or earnings guidance was provided in the supplied filing text. Management described the federal budget environment as constructive, citing enacted FY2023 appropriations and expected continued investment in defense and national security, while noting that future spending and timing remain uncertain.
- Potential business risks include continuing resolutions and shutdowns, procurement delays and protests, contract competition and recompetes, government audits, and hiring and retaining cleared personnel. Floating-rate debt remains exposed to interest-rate changes.
- The company reported no material changes to the risk factors in its latest Form 10-K. It said routine legal proceedings and government-contract audit matters were not expected to materially affect its financial position, results or cash flows. In the Al Shimari litigation, plaintiffs estimated compensatory damages of $6.0–$9.0 million and punitive damages of $23.5–$64.0 million; the company is contesting the case and did not report a probable loss amount in the supplied text.
- Management said disclosure controls were effective at December 31, 2022, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth can translate into improved operating margins, given direct-cost pressure and acquisition-related costs.
- How higher borrowing costs affect earnings and cash flow, including the share of debt not hedged by swaps.
- The realized cash impact and any subsequent legislative or tax guidance concerning R&D cost amortization.
- Conversion and funding of backlog and remaining performance obligations, including the effect of contract options, protests, and award timing.
- Cash-flow quality and the ongoing role of receivables sales, which contributed $42.2 million of net cash inflow during the six-month period.
- Developments in the disclosed litigation and government audits, and use of the newly authorized $750 million repurchase capacity.