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    CACI International Inc (CACI)

    Business Description

    CACI International Inc is a leading provider of expertise and technology solutions that support national security and government modernization efforts. The company specializes in delivering advanced capabilities in areas such as software development, data analytics, cybersecurity, and engineering to U.S. federal agencies, international governments, and commercial enterprises. CACI's offerings are tailored to enable mission-critical operations and enterprise modernization for its customers.

    1. Domestic Operations - Provides expertise and technology solutions for U.S. federal government agencies, including digital solutions, C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance), cybersecurity, space domain awareness, engineering services, enterprise IT, and mission support.

      • Digital Solutions - Modernizes enterprise applications and infrastructure.
      • C4ISR - Delivers advanced technology for command, control, communications, and ISR.
      • Cyber - Offers full-spectrum cybersecurity and cyberspace operations.
      • Space - Focuses on space domain awareness and decision support.
      • Engineering Services - Provides platform integration, modernization, and sustainment.
      • Enterprise IT - Implements secure enterprise IT solutions for federal agencies.
      • Mission Support - Supports intelligence, analytics, and global supply chain operations.

    2. International Operations - Offers expertise and technology solutions to international government and commercial customers, primarily in Europe, focusing on modernization and mission-critical support.

    3. Expertise - Delivers specialized talent in areas such as software development, data analytics, naval architecture, intelligence support, and network analysis to support enterprise and mission operations.

    4. Technology - Provides advanced technology solutions, including agile software development, artificial intelligence, electromagnetic spectrum capabilities, photonics, enterprise IT modernization, and multi-domain offerings for SIGINT, EW, and cyber operations.

    Q1 2025 Summary

    Initial Price$432.97June 29, 2024
    Final Price$499.96September 29, 2024
    Price Change$66.99
    % Change+15.47%

    What went well

    • CACI secured $3.3 billion in awards in Q1, representing a 1.6x book-to-bill, potentially trending towards the upper end of their guidance.
    • Strategic acquisitions of Azure Summit and Applied Insight enhance capabilities in SIGINT, electronic warfare, cyber, and IT modernization, opening doors to international markets including The Five Eyes, NATO, and Eastern Europe.
    • CACI is a leading provider of optical communication terminals, with mature, low-risk, U.S.-designed technology, on track to deliver 6-8 times the number of units compared to last year, addressing significant demand from government and prime contractors.

    What went wrong

    • Potential delays in government funding (e.g., extended Continuing Resolutions) may impact revenue growth, leading to deceleration compared to prior quarters.
    • Increased working capital requirements due to changes in business mix could pressure cash flow.
    • Margins may face pressure in the second half, potentially declining year-over-year by 10-20 basis points.

    Q&A Summary

    1. Revenue Guidance Deceleration
      Q: What's causing revenue growth to decelerate over the year?
      A: While we've had three straight quarters of over 10% growth, we consider various scenarios in our guidance. Factors like an extended continuing resolution could delay some software-defined tech awards. We're focusing on what we can control, and if we see additional volume or awards, we could trend towards the upper end of our guidance.

    2. Market Share Opportunity from Mynaric's Issues
      Q: Can you gain share due to Mynaric's production issues?
      A: We've had discussions with primes regarding this topic. Our optical communication terminals are proven, deployed, operational, and tested in various orbits. Customers consider our technology the most mature and lowest risk, being U.S. designed and manufactured. We're on track to deliver 6x to 8x the number of units compared to last year.

    3. Azure Summit Acquisition and Navy Contracts
      Q: How does Azure Summit impact your position on Navy contracts?
      A: Azure Summit is working on C increment F, the next stage of the below-deck signal suite on all U.S. Navy surface ships. They won this prime program, and the production run spans the next 4 to 6 years. Spectral builds on top of this, where Azure is a subcontractor to us. Over the next 10 years, signals intel and counter-UAS work for surface ships will come from the combination of CACI and Azure Summit.

    4. Margins Outlook
      Q: What's the outlook for margins in the coming quarters?
      A: Historically, the second half has higher margins than the first. This pattern continues, albeit with a less pronounced disparity. We expect stronger margins in the second half, with the first half being somewhat flat from where we are today. Gross margin was flat year-over-year due to mix and better-margin technology areas.

    5. Impact of Election Year and Budget Delays
      Q: How could a longer continuing resolution affect your business?
      A: In election years, CRs often last longer. This can impact some of our shorter-cycle purchase order-based software product awards. However, customers have implemented IDIQs to allow larger bulk buys not constrained by new program concerns. We're confident that national security priorities will drive future budgets, and we have a $250 billion addressable market to support our growth.

    6. M&A Pipeline and Valuation
      Q: What's the outlook for M&A and valuations?
      A: We continue to see a strong pipeline with a robust set of opportunities. Valuation multiples have contracted slightly. We're committed to remaining patient and disciplined acquirers , focusing on areas like SIGINT, EW, cyber, space, and IT modernization.

    7. Counter-UAS Opportunities
      Q: Are there more counter-UAS opportunities in your pipeline?
      A: Yes, there's plenty of work in our pipeline. We expect to announce additional awards next quarter. Our focus is on countering Group 3 to 5 drones, which pose significant threats. We have a long-term growth path in counter-UAS.

    8. Working Capital and Cash Flow
      Q: How are working capital demands affecting cash flow?
      A: We continue to see working capital demand due to the changing nature of our portfolio and growing volume, especially with the Azure acquisition. Our business now requires some working capital for growth, such as inventory and work in process. This is factored into our cash guidance.

    9. Contract Mix Shift
      Q: Will there be changes in your contract mix?
      A: With Azure Summit, revenue from direct tech sales, mostly fixed-price contracts, will increase. We've also moved into a material phase on the EITaaS program, leading to higher time-and-material contracts. We expect T&M content to continue ramping.

    10. Win Rates and Strategy
      Q: How are your recent win rates compared to historical?
      A: We're very focused on recompete win rates, which are traditionally greater than 90%. For new business, our overall win rate is above 30-40%. We've maintained a book-to-bill ratio of 1 or above over the last 6 to 7 years , thanks to our "bid less and win more" strategy.

    Key Metrics

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    Executive Team

    NamePositionStart DateShort Bio
    John S. MengucciPresident and Chief Executive OfficerJuly 1, 2019John S. Mengucci has been President and CEO of CACI since July 1, 2019. He joined CACI in February 2012 and held roles such as COO and President of U.S. Operations. Previously, he was at Lockheed Martin.
    Jeffrey D. MacLauchlanExecutive Vice President, Chief Financial Officer, and TreasurerNovember 2022Jeffrey D. MacLauchlan has served as EVP, CFO, and Treasurer since November 2022. He was previously SVP, Finance at CACI and held roles at Rockwell Collins and Lockheed Martin.
    Gregory R. BradfordChief Executive, CACI Limited, and President, U.K. Operations2000Gregory R. Bradford has been Chief Executive, CACI Limited, and President, U.K. Operations since 2000. He joined CACI Limited in 1983 and held various leadership roles.
    DeEtte GrayPresident, U.S. OperationsJuly 30, 2024 (expected)DeEtte Gray will serve as President, U.S. Operations starting July 30, 2024. She previously held roles such as President, Business and IT Solutions, and President, U.S. Operations.
    Meisha LutseyPresident, Operations Support and ServicesJanuary 2021Meisha Lutsey has been President of Operations Support and Services since January 2021. She previously served as Senior Vice President at CACI from 2015 to 2021.
    J. William Koegel, Jr.Executive Vice President, General Counsel & SecretaryMarch 2014J. William Koegel, Jr. has been EVP, General Counsel & Secretary since March 2014. Before joining CACI, he was a partner at Steptoe & Johnson, where he worked from 1981 to 2014.

    Questions to Ask Management

    1. With three consecutive quarters of over 10% growth, what factors are causing you to anticipate a potential deceleration in growth for the remainder of fiscal '25 as implied by your guidance?
    2. How do you plan to manage the increasing working capital demands associated with the changing nature of your portfolio, particularly with the addition of Azure Summit and Applied Insight, which require more inventory and work-in-process?
    3. Given the competitive M&A environment and your focus on disciplined acquisitions, what specific gaps in capabilities or customer presence are you targeting, and how confident are you in finding suitable acquisition targets without overpaying?
    4. With the potential shift towards more fixed-price contracts due to acquisitions like Azure Summit, how do you plan to manage the risks associated with fixed-price contracts, and what impact do you expect this to have on your margins?
    5. Considering the rapid innovation in counter-UAS technologies, including high-powered microwaves, lasers, and interceptors, how does CACI plan to stay competitive and does the company feel the need to develop a more end-to-end system beyond its traditional focus on signals intelligence?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateJanuary 26, 2023
    End Date/DurationN/A
    Total additional amount$750 million
    Remaining authorization$337 million
    DetailsIncludes an Accelerated Share Repurchase (ASR) agreement for $250 million, completed in August 2023, and additional open market repurchases

    Past Guidance

    1. Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: FY 2025
    • Guidance:
      1. Revenue: $8.1 billion to $8.3 billion, representing growth of 8.6% to 11.3% (includes $75 million from organic performance and the balance from Applied Insight).
      2. EBITDA Margin: Toward the upper end of the high 10% range.
      3. Adjusted Net Income: $515 million to $535 million.
      4. Adjusted EPS: $22.89 to $23.78 per share.
      5. Free Cash Flow: At least $435 million.
      6. Azure Summit Acquisition: Guidance excludes the impact of Azure Summit, expected to close in Q2 FY25.

    2. Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Revenue: $7.9 billion to $8.1 billion, representing growth of 6% to 8.5%.
      2. EBITDA Margin: High 10% range.
      3. Adjusted Net Income: $505 million to $525 million.
      4. Adjusted EPS: $22.44 to $23.33 per share (based on 22.5 million diluted shares).
      5. Free Cash Flow: At least $425 million (equivalent to $18.89 per share, representing 11% growth).
      6. Revenue Composition: 84% from existing programs, 10% from recompetes, 6% from new business.
      7. Book-to-Bill Ratio: 1.9x trailing 12 months.
      8. Backlog: $32 billion (approximately 4 years of annual revenue).
      9. Bids Under Evaluation: $9 billion, with over 90% being new business.
      10. Future Bids: $14 billion expected over the next two quarters, with 80% being new business.
      11. Profitability Timing: Higher profitability expected in the second half of FY25.

    3. Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue: $7.5 billion to $7.6 billion, representing growth of 11.9% to 13.4% (organic growth of 11.3% to 12.8%).
      2. EBITDA Margin: High 10% range, specifically 10.7% (excluding $200 million of material sales in H1 FY24, which impacts margin by 30 basis points).
      3. Adjusted Net Income: $455 million to $465 million.
      4. Adjusted EPS: $20.13 to $20.58 per share.
      5. Free Cash Flow: At least $420 million (includes $40 million tax refund).
      6. Capital Expenditures (CapEx): About $80 million.
      7. Revenue Composition: 98% from existing programs, 1% each from recompetes and new business.
      8. Pipeline and Bids: $11 billion under evaluation (70% for new business); $15 billion expected in the next two quarters (90% for new business).
      9. Book-to-Bill Ratio: 1.5x trailing 12 months.
      10. Backlog: $29 billion (just under 4 years of annual revenue).

    4. Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue: $7.3 billion to $7.5 billion.
      2. EBITDA Margin: High 10% range (excluding $200 million of material sales in H1 FY24).
      3. Adjusted Net Income: $450 million to $465 million.
      4. Adjusted EPS: $19.91 to $20.58 per share.
      5. Free Cash Flow: At least $420 million.
      6. Diluted Share Count: Approximately 22.6 million shares.
      7. Interest Expense: Toward the lower end of $100 million to $105 million range.