CACI International Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended June 30, 2016; the filing also reports fourth-quarter results. This is not a calendar-year 2015 filing. CACI provides information technology solutions and services, primarily to U.S. government customers.
Financial performance and liquidity
| Metric | FY2016 | FY2015 | Change |
|---|---|---|---|
| Revenue | $3.744 billion | $3.313 billion | +13.0% |
| Operating income / margin | $264.8 million / 7.1% | $236.4 million / 7.1% | +12.0% operating income |
| Net income attributable to CACI | $142.8 million | $126.2 million | +13.2% |
| Diluted EPS | $5.76 | $5.17 | +$0.59 |
| Operating cash flow | $242.6 million | $226.9 million | +$15.7 million |
| Capital expenditures | $20.8 million | $17.4 million | +$3.4 million |
| Cash and cash equivalents | $49.1 million | $35.4 million | +$13.7 million |
| Working capital | $356.7 million | $266.4 million | +$90.2 million |
Net margin was 3.8%, broadly unchanged from FY2015. Operating cash flow less capital expenditures was approximately $221.7 million, versus $209.4 million in FY2015. Current assets were $921.8 million and current liabilities $565.2 million at year-end.
Principal debt under the credit facility was $1.473 billion ($1.456 billion carrying value after issuance costs), up from $1.074 billion in FY2015; cash was $49.1 million. Debt consisted of $1.033 billion in term loans and $440 million drawn on the revolver. The facility matures June 1, 2020; the company reported covenant compliance. Interest-rate swaps covered $900 million of floating-rate debt. A 1 percentage-point rate change was estimated to affect annual interest expense by about $6.4 million.
Material changes and fourth-quarter results
- FY2016 revenue growth was largely acquisition-driven, especially the February 2016 acquisition of L-3 National Security Solutions (NSS). Organic revenue decreased 0.8%, primarily due to contract completions.
- NSS contributed $427.2 million of revenue and $18.8 million of net income from acquisition through year-end. CACI paid approximately $550 million at closing, funded with additional borrowing. FY2016 included $7.3 million of acquisition-related expenses and $3.9 million of integration and restructuring costs.
- Federal civilian revenue rose 19.6% to $1.063 billion; DoD revenue increased 10.0% to $2.439 billion, but declined 3.1% excluding acquired revenue. U.S. government customers generated 93.5% of total revenue, including 65.1% from DoD.
- Fourth-quarter revenue was $1.114 billion, compared with $865.5 million a year earlier; operating income was $81.1 million versus $75.1 million, net income attributable to CACI was $43.6 million versus $41.4 million, and diluted EPS was $1.75 versus $1.68. NSS was acquired during the third quarter, so comparisons include acquisition effects.
- Backlog at June 30, 2016 was $11.0 billion, including $2.3 billion funded. During a fourth-quarter review, CACI reduced reported unfunded backlog by $2.1 billion and funded backlog by $400 million for awards or funding it judged unlikely to convert to revenue. Despite these adjustments, total backlog was up 14.7% from $9.6 billion a year earlier. CACI expected most funded backlog to produce revenue in FY2017.
Outlook, risks, and unusual items
- No numerical FY2017 revenue or earnings guidance is provided in the filing. Management expected federal budget constraints and contract-award delays to continue into government FY2017, while identifying demand in areas such as cybersecurity, cloud computing, mobile applications, data analytics, and intelligence services.
- Key exposure is concentration in federal contracting: funding changes, sequestration, continuing resolutions or shutdowns, contract termination or nonrenewal, bid protests, and intense competition may affect awards, revenue, and cash collection. Government contract audits and compliance requirements also create potential financial and operational risks.
- Other material risks include fixed-price execution and cost-estimation risk, employee recruitment and retention, cybersecurity incidents, acquisition integration, and substantial goodwill ($2.585 billion). CACI reported no goodwill impairment in its FY2016 annual assessment.
- Two lawsuits concerning alleged treatment of Iraqi detainees remained disclosed; CACI said it was vigorously defending them and believed them without merit. The company also disclosed government investigations/audits and tax matters, including a Virginia sales-and-use-tax audit with an accrued estimate within a $3.0–$5.3 million range, and a German VAT matter with reasonably possible losses estimated at $0–$3.9 million. Management did not expect the described contract audits to have a material financial effect.
- FY2016 net income included a $1.2 million tax benefit from early adoption of share-based-payment accounting guidance. CACI paid no cash dividend and said it did not intend to do so at that time.
Important facts for investors to verify
- How much future growth is organic versus attributable to NSS and other acquisitions, and whether acquired businesses meet expected performance and integration targets.
- Whether backlog—particularly unfunded backlog—converts into funded orders and revenue; the company cautions that backlog is not assured revenue.
- Federal budget developments, recompete outcomes, protests, contract reductions, and any effects on DoD and civilian-agency demand.
- Debt repayment capacity, covenant headroom, floating-rate exposure, and cash conversion as acquisition-related borrowings are serviced.
- Developments in disclosed litigation, government audits/investigations, and tax contingencies; assess any subsequent filings for changes in estimates or outcomes.