CACI International Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2012 (CACI fiscal 2012 third quarter), compared with the same periods in 2011. The filing’s period is 2012 Q3, notwithstanding the request metadata’s “2011 Q3.” Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless stated otherwise.
Business context and results
CACI provides professional services and information technology solutions, primarily to U.S. government customers. U.S. government agencies generated 94.6% of revenue in the first nine months of fiscal 2012. The company completed four acquisitions during that period for combined consideration of approximately $187 million.
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue, 2012 vs. 2011 | $928.0M vs. $913.4M; +1.6% | $2,825.6M vs. $2,614.6M; +8.1% |
| Operating income, 2012 vs. 2011 | $72.8M vs. $61.8M; +17.8% | $223.1M vs. $173.3M; +28.7% |
| Operating margin | 7.8% vs. 6.8% | 7.9% vs. 6.6% |
| Net income attributable to CACI | $40.9M vs. $36.4M; +12.2% | $124.1M vs. $98.3M; +26.2% |
| Diluted EPS | $1.45 vs. $1.16 | $4.37 vs. $3.16 |
Financial position, cash flow, and liquidity
- Cash and working capital: Cash was $48.9M at March 31, 2012, down from $164.8M at June 30, 2011. Working capital was $301.0M, versus $334.9M.
- Operating cash flow: $144.8M for the nine months, compared with $145.7M in 2011. Investing cash use was $193.7M, principally reflecting acquisitions; financing cash use was $66.9M. Cash declined by $115.9M over the period.
- Receivables: Accounts receivable was $669.3M, up from $573.0M at June 30, 2011. Days sales outstanding was 63, versus 54 a year earlier. Management cited discontinued prompt-pay discounts and payment delays tied to negotiations and funding realignments with three customers; it expected these issues to be resolved before fiscal year-end.
- Debt: Long-term debt carrying value was $573.3M, including $300.0M of convertible notes and $300.6M principal borrowed under the bank facility. The company had $160.0M drawn on its $600.0M revolving facility; the facility’s effective borrowing rate was 1.74%. The notes mature in 2014 and bank facility in 2016. CACI reported compliance with its credit covenants.
- Capital returns: CACI paid $209.7M for four million shares under an accelerated share repurchase arrangement. Final settlement and effective purchase price remained undetermined at quarter-end.
Material changes and management commentary
- Quarterly revenue growth was modest: acquired revenue of $28.1M was partly offset by a 1.5% decline in revenue from existing operations. DoD revenue fell 2.3%, primarily because of lower other direct costs related to reduced activity in Southwest Asia; federal civilian revenue grew 23.1%.
- For the nine months, revenue from existing operations increased 5.1%, with additional growth from acquisitions. DoD revenue rose 6.8% and federal civilian revenue rose 13.3%. A $12.0M commercial product sale also contributed to year-to-date growth.
- Operating margin improved in both periods. Management attributed the increase to a more favorable direct-cost mix and better-than-expected profitability on a large fixed-price contract; the nine-month result also benefited from the product sale. Quarterly indirect costs rose to 22.5% of revenue from 21.0%.
- Management estimated its addressable market at approximately $230–$250B after reviewing DoD strategy and budget plans. The filing provides no specific company revenue or earnings guidance.
Outlook, risks, contingencies, and unusual items
- Management said operating cash generation, available credit, and cash on hand should fund operations, capital expenditures, debt service, and working capital needs over the next 12 months. It cautioned that longer-term cash generation depends on factors outside its control.
- Risks include constrained federal spending, potential sequestration and budget reductions beginning in government fiscal 2013, contract award protests and procurement delays, contract terminations or non-renewals, competition for cleared personnel, and integration of acquisitions. The company noted that government customers accounted for most revenue.
- On April 9, 2012, the Department of Justice notified CACI of an investigation into possible False Claims Act violations involving billing under a GSA contract. A separate Defense Criminal Investigative Service subpoena sought contract documents. CACI had accrued no liability for either matter, stating an unfavorable outcome was not considered probable based on its then-current knowledge.
- A DCMA dispute over allocation of certain Iraq-related legal costs was on appeal; CACI had accrued its best estimate within a potential range of zero to $2.9M. A German VAT audit had no accrued liability; estimated reasonably possible losses were $1.5M–$3.5M.
- The Al Shimari Abu Ghraib-related case remained under consideration by the Fourth Circuit sitting en banc. CACI said it was vigorously defending the case and believed it lacked merit. Other related cases had been dismissed.
- On April 5, 2012, CACI entered into floating-to-fixed swaps on $100M of variable-rate debt, effective July 2013 through July 2017. Management cited federal investigations, government audits, and contract and budget uncertainty among forward-looking risks.
Important facts for investors to verify
- Whether elevated receivables and 63-day DSO improved as management expected, and whether customer funding and payment delays were resolved.
- How much reported growth and margin improvement was attributable to acquisitions, the fixed-price contract, and the one-time $12.0M product sale.
- Final settlement terms and effective price of the accelerated share repurchase, and the effect of repurchases on cash, debt, and diluted shares.
- Developments in the DOJ and DCIS matters, the DCMA appeal, German VAT audit, and Al Shimari litigation, including any change in estimated exposure or accruals.
- Federal budget and sequestration outcomes, contract award timing, and compliance with credit-facility covenants as debt and liquidity needs evolve.