CACI International Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended June 30, 2019. The filing also reports unaudited fourth-quarter results. Although the request references 2018 Q4, this filing covers FY2019; FY2018 is the prior-year comparison.
Business context and reporting period
CACI provides information technology, intelligence, cyber, communications, logistics and other mission services, primarily to U.S. government customers. It reported approximately 22,100 employees. The federal government generated 95.3% of FY2019 revenue, including 70.0% from the Department of Defense (DoD). CACI completed several acquisitions, notably LGS Innovations and Mastodon Design, expanding its signals intelligence, cyber and electronic warfare capabilities.
Financial performance
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $4,986.3 million | $4,467.9 million | +11.6% |
| Operating income | $377.9 million | $340.7 million | +10.9% |
| Operating margin | 7.6% | 7.6% | Broadly unchanged |
| Net income | $265.6 million | $301.2 million | -11.8% |
| Diluted EPS | $10.46 | $11.93 | -12.3% |
| Operating cash flow | $555.3 million | $321.5 million | +$233.8 million |
Revenue growth included $394.1 million of acquired revenue; management attributed organic growth primarily to DoD contracts. DoD revenue rose 15.1%, federal civilian revenue increased 5.1%, and commercial and other revenue was nearly flat. Cost-reimbursable contracts represented 55.4% of revenue, fixed-price 29.4%, and time-and-materials 15.2%.
FY2019 net income fell despite higher operating income, principally because FY2018 included an estimated $103.3 million, or $4.09 per diluted share, of tax benefits associated with the Tax Cuts and Jobs Act. FY2019’s effective tax rate was 19.0%, compared with a tax benefit rate of 0.8% in FY2018. The FY2019 adoption of ASC 606 increased reported revenue by $10.5 million and net income by $9.1 million versus the prior accounting standard.
Fourth quarter: Revenue was $1,373.9 million, operating income $81.1 million, net income $50.0 million, and diluted EPS $1.96. Compared with FY2018 Q4, revenue increased from $1,170.1 million, operating income from $80.3 million, net income decreased from $51.8 million, and diluted EPS decreased from $2.05.
Cash flow, debt and liquidity
Operating cash flow was $555.3 million, including $192.5 million of cash-flow benefit from receivables sold under the MARPA facility. The company sold $1.1 billion of receivables during the year. Days sales outstanding improved to 54 from 60. Investing cash use was $1.128 billion, including $1.083 billion for acquisitions; financing provided $579.6 million, principally through net borrowing.
At June 30, 2019, cash was $72.0 million, working capital was $339.8 million, and total debt principal was $1.676 billion ($891.5 million term loan and $785.0 million revolver). Debt principal increased from $1.073 billion a year earlier. The credit facility matures June 30, 2024; CACI reported compliance with its financial covenants and had $715 million of unused revolving capacity. A $900 million notional amount of interest-rate swaps hedged part of its floating-rate debt. Management said available cash, operating funds and borrowings should cover needs for the next 12 months.
Material changes, outlook and risks
- Acquisition spending increased substantially; FY2019 cash paid for acquisitions was $1.083 billion. Goodwill rose to $3.336 billion, and management reported no goodwill impairment in its annual test.
- Total backlog was $16.9 billion, including $2.9 billion funded. Remaining performance obligations, which exclude unexercised options and unawarded IDIQ task orders, were $6.2 billion; CACI expected to recognize approximately 77% over the following year. Backlog is not guaranteed revenue and remains subject to funding, options, modifications and termination.
- No formal company revenue or earnings guidance is provided in the supplied filing text. Management described the addressable market as approximately $221 billion and cited favorable defense and intelligence funding, cyber, space and advanced-technology priorities as potential opportunities. Congress’s 2019 budget law raised defense spending caps for government FY2020 and FY2021; final allocations were still pending at the filing date.
- The 35-day federal shutdown during FY2019 did not materially affect results. Continuing resolutions, future shutdowns, budget changes, procurement delays and bid protests remain risks.
- Other key risks include dependence on U.S. government contracts and competitive awards, contract funding and termination rights, fixed-price cost overruns, skilled labor and clearance availability, cybersecurity and system failures, subcontractor performance, acquisition integration, and floating-rate debt.
- Two material litigation matters concern alleged treatment of Iraqi detainees. In Al Shimari, trial proceedings were held in abeyance pending an appeal; CACI said it was vigorously defending the claims and believed them without merit. The Abbass case was stayed pending related appellate proceedings. Management stated that the broader legal matters were not expected to materially affect operations or liquidity.
- The company has never paid a cash dividend and said it did not intend to do so at that time. Management and the auditor concluded internal control over financial reporting was effective; the assessment excluded LGS and Mastodon, which represented 21.9% of assets and 3.1% of revenue.
Investor facts to verify
- Separate organic growth from acquired revenue and track whether the acquired businesses deliver expected results and integration benefits.
- Assess debt repayment capacity and cash generation excluding the temporary cash-flow benefit from receivables sales; review remaining revolver availability and interest-rate exposure.
- Confirm the conversion, funding and timing of backlog and remaining performance obligations, especially unfunded contracts, options and IDIQ opportunities.
- Monitor federal appropriations, procurement delays, award protests, contract concentration and the continued share of DoD and federal revenue.
- Follow the Iraqi detainee litigation and any developments that could change the company’s assessment of legal exposure.