CACI International Inc. — Form 10-Q
Reporting period: Quarter ended March 31, 2019 (CACI fiscal third quarter; nine months of fiscal 2019). The request metadata says “2018 Q3,” but the filing itself covers 2019 Q3.
Business context
CACI provides services and technology primarily to U.S. federal agencies. U.S. government customers generated 95.2% of revenue for the nine months. The Department of Defense accounted for 70.3% of quarterly revenue. During the period, CACI acquired the SE&A business unit, Mastodon Design, and LGS Innovations, expanding its engineering, communications, SIGINT, and cyber capabilities.
Financial performance
Amounts below are in U.S. dollars; financial statement amounts are rounded to millions.
| Metric | Three months ended March 31, 2019 | Year-over-year | Nine months ended March 31, 2019 | Year-over-year |
|---|---|---|---|---|
| Revenue | $1,265 million | +12.5% | $3,612 million | +9.5% |
| Operating income | $95 million | −9.4% | $297 million | +14.0% |
| Operating margin | 7.5% | 9.3% prior year | 8.2% | 7.9% prior year |
| Net income | $68 million | +5.7% | $216 million | −13.5% |
| Diluted EPS | $2.69 | $2.56 prior year | $8.50 | $9.88 prior year |
| Operating cash flow | Not separately provided for the quarter | — | $453 million | $251 million prior year |
- Quarterly revenue growth included $110.7 million from acquired businesses and $30.2 million of organic growth. Nine-month growth included $222.9 million acquired and $91.8 million organic.
- Quarterly operating margin declined as indirect costs rose, primarily from LGS acquisition-related costs; the prior-year quarter also benefited from stronger fixed-price contract performance. Nine-month margin improved on program performance and acquisitions.
- Nine-month net income fell despite higher operating income, mainly because the prior-year period included a favorable deferred-tax remeasurement. Effective tax rates were 18.7% in 2019 and (9.6)% in 2018 for the nine-month periods.
Liquidity, debt, and cash flow
- At March 31, 2019, cash was $93.8 million; current assets were $1,083 million and current liabilities were $702 million.
- Total debt principal was $1,768 million, including $903 million of term loans and $865 million drawn on the $1,500 million revolving facility. Debt carrying value was $1,758 million. The company reported compliance with financial covenants. Its effective borrowing rate, including swaps, was 3.53%.
- Nine-month operating cash flow increased by $202 million year over year. Management attributed the increase primarily to the receivables sale program; CACI sold $563.5 million of receivables, with $200 million outstanding at period-end. The program has a $200 million maximum.
- Investing cash outflow was $1,099 million, including $1,071 million for acquisitions. Financing cash inflow was $674 million, including net credit-facility borrowings of $694 million. Ending cash increased by $27.6 million.
- Management said cash, operating cash generation, available borrowings, and receivables sales should provide sufficient liquidity for the next 12 months. CACI also hedged $400 million of floating-rate debt; a 1 percentage-point rate change would have changed nine-month interest expense by approximately $4.3 million.
Material changes, outlook, and risks
- The LGS acquisition closed March 1 for approximately $759.5 million; preliminary allocation included $521.6 million goodwill and $147.7 million intangible assets. Its results contributed $32.8 million revenue and $1.3 million net income through March 31. Purchase-price allocations remain preliminary. CACI reported $11.3 million of acquisition-related expenses and $2.7 million of integration and restructuring costs.
- Remaining performance obligations were $6.7 billion, excluding unexercised options and certain IDIQ task orders; CACI expects approximately 72% to be recognized as revenue over the next year. Total backlog was $14.9 billion, including $2.9 billion funded. The filing cautions that backlog is not guaranteed revenue. No numerical company-wide financial guidance is provided.
- ASC 606 adoption increased nine-month reported revenue by $13.0 million and net income by $10.4 million versus the amounts calculated under prior guidance. The 2018 comparative period was not restated, limiting direct comparability.
- Risks include dependence on U.S. government spending and timely payments, contract protests and procurement delays, competition for cleared personnel, contract termination or non-renewal, acquisition integration, interest-rate changes, and government audit outcomes. The January 2019 shutdown had no material reported impact; management discussed possible payment delays if federal borrowing capacity were constrained.
- Legal proceedings include the Al Shimari case: the district court denied CACI’s motions in February and March 2019, and CACI appealed. Trial scheduling was cancelled pending the appeal. A related Abbass case remains stayed. Management said it believes the suits are without merit and is defending them; it assessed ordinary-course litigation liabilities as not expected to materially affect operations or liquidity.
- Government cost audits and tax examinations are ongoing; management said expected adjustments are not expected to be material and reserves are adequate. A new lease-accounting standard is expected to add material right-of-use assets and lease liabilities, without a material expected effect on cash flows or results.
Important facts for investors to verify
- How LGS, Mastodon, and SE&A perform after integration, and whether final acquisition valuations or related costs materially change.
- Debt levels, covenant headroom, interest-rate exposure, and refinancing or repayment needs as acquisition-related borrowings affect results.
- Whether backlog and remaining performance obligations convert to funded work and revenue on the expected timetable.
- How much operating cash flow reflects recurring collections versus receivables sales, and the costs and availability of that facility.
- Developments in the Al Shimari appeal, government contract audits, and tax examinations.