CACI

CACI International Inc. 10-Q Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly and six-month periods ended December 31, 2003 (Fiscal Year 2004). CACI International Inc. provides information technology and communications solutions, primarily to U.S. federal agencies (Department of Defense and Federal Civilian Agencies), as well as commercial and state/local government clients. The company operates through two segments: Domestic and International.

Key Financial Metrics

Note: Amounts in millions unless otherwise noted. Debt consists of $2.1 million current and $0.6 million long-term notes payable. The company has an $185 million revolving credit facility with no borrowings outstanding as of Dec 31, 2003.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 28.8% ($58.8 million) for the quarter and 27.2% ($106.6 million) for the six months compared to the prior year. Growth was driven by acquisitions and increased demand from federal government customers.
• Profitability: Net income rose 34.6% for the quarter and 36.3% for the six months. Operating income increased 38.0% (quarter) and 38.9% (six months), aided by cost efficiencies and a favorable business mix.
• Cash Flow: Operating cash flow turned negative, using $12.9 million for the six months ended Dec 31, 2003, compared to providing $12.5 million in the prior year. This was due to increased working capital requirements for new contracts and slower collections from federal clients (Days Sales Outstanding increased from 77 to 86 days).
• Acquisitions: Acquisitions accounted for $28.5 million of the quarterly revenue growth. Notable recent acquisitions include C-CUBED Corporation (Oct 2003), Premier Technology Group (May 2003), and Applied Technology Solutions (Feb 2003).

Outlook, Risks, and Contingencies

• Guidance & Outlook: Management expects Days Sales Outstanding to improve to 75-77 days by June 30, 2004, potentially generating an additional $25-$30 million in operating cash flow. The company anticipates continued growth driven by national security and intelligence community support.
• Subsequent Event: On February 12, 2004, CACI signed an agreement to acquire CMS Information Services, Inc. for an estimated $25-$30 million. CMS reported $39 million in revenue for the year ended Dec 31, 2003.
• Legal Proceedings: The company is appealing a claim before the Armed Services Board of Contract Appeals (ASBCA) regarding a breach of contract by the Defense Information Systems Agency (DISA). A decision is expected before the end of calendar 2004; a favorable ruling could have a material impact on earnings.
• Contingencies:
  • Subcontract Exposure: Potential exposure of approximately $1.7 million related to a subcontract for directional finding units if volume targets are not met.
  • Tax Examination: Under examination by the State of Indiana regarding taxable presence from 1991-2000. Estimated exposure is $0 to $1.5 million.
• Risks: Key risks include dependence on U.S. government funding, competition for contracts, foreign currency fluctuations (approx. 4.1% of revenue from international ops), and the UK economic downturn affecting international operations.

Investor Verification Checklist

• Verify the timeline and expected cash flow impact of the pending CMS Information Services acquisition.
• Monitor the ASBCA appeal regarding the DISA contract breach for potential material earnings impact.
• Track the improvement in Days Sales Outstanding (DSO) to confirm the projected $25-$30 million cash flow recovery.
• Review the status of the Indiana tax examination and the subcontract price exposure ($1.7 million).
• Assess the sustainability of revenue growth given the 11.1% decline in Commercial revenue for the quarter.