Caci International Inc.
Caci International Inc. details
CACI’s approximately 23,000 talented employees are vigilant in providing the unique expertise and distinctive technology that address its customers’ greatest enterprise and mission challenges. The Company's culture based on a good character, innovation, and excellence drives its success and earns recognition as a Fortune World’s Most Admired Company. As a member of the Fortune 1000 Largest Companies, the Russell 1000 Index, and the S&P MidCap 400 Index, the Company consistently deliver strong shareholder value.
Ticker:CACI
Employees: 22000
Filing
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Dec ember 31 , 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-31400
CACI International Inc
(Exact name of registrant as specified in its charter)
Delaware 54-1345888
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12021 Sunset Hills Road, Reston, VA 20190
(Address of principal executive offices)
(703) 841-7800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock CACI New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of January 12, 2023 , there were 23,508,119 shares outstanding of CACI International Inc’s common stock, par value $0.10 per share.
CACI INTERNATIONAL INC
PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Statements of Comprehensive Income 4
Condensed Consolidated Balance Sheets 5
Condensed Consolidated Statements of Cash Flows 6
Condensed Consolidated Statements of Shareholders’ Equity 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 2 1
Item 4. Controls and Procedures 22
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 1A. Risk Factors 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Mine Safety Disclosures 25
Item 5. Other Information 25
Item 6. Exhibits 26
Signatures 27
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
CACI INTERNATIONAL INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended Six Months Ended
Dec ember 31 , December 31,
2022 2021 2022 2021
Revenues $ 1,649,416 $ 1,48 5,778 $ 3,255,175 $ 2,976,676
Costs of revenues:
Direct costs 1,094,314 974,018 2,150,086 1,948,189
Indirect costs and selling expenses 388,303 354,977 770,384 712,083
Depreciation and amortization 35,932 32,676 71,035 65,268
Total costs of revenues 1,518,549 1,361,671 2,991,505 2,725,540
Income from operations 130 ,867 124,107 263,670 251,136
Interest expense and other, net 19,942 11,009 36,135 21,407
Income before income taxes 110,925 113,098 227,535 229,729
Income taxes 23,824 22,799 51,309 51,321
Net income $ 87 ,101 $ 90,299 $ 176,226 $ 178,408
Basic earnings per share $ 3.7 1 $ 3.86 $ 7.51 $ 7.60
Diluted earnings per share $ 3.68 $ 3.83 $ 7.44 $ 7.52
Weighted-average basic shares outstanding 23,506 23,399 23,463 23,48 0
Weighted-average diluted shares outstanding 23,676 23,598 23,677 23,722
See Notes to Unaudited Condensed Consolidated Financial Statements
3
CACI INTERNATIONAL INC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Three Months Ended Six Months Ended
Dec ember 31 , December 31,
2022 2021 2022 2021
Net income $ 87,101 $ 90,299 $ 176,226 $ 178,408
Other comprehensive income (loss):
Foreign currency translation adjustment 17,123 575 (366 ) (6,187 )
Change in fair value of interest rate swap agreements,
net of tax (1,516 ) 5,424 14,013 7,638
Other comprehensive income , net of tax 15,607 5,999 13,647 1,451
Comprehensive income $ 102,708 $ 96,298 $ 189,873 $ 179,859
See Notes to Unaudited Condensed Consolidated Financial Statements
4
CACI INTERNATIONAL INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Dec ember 31 , June 30,
2022 2022
ASSETS
Current assets:
Cash and cash equivalents $ 114,738 $ 114,804
Accounts receivable, net 868,629 926,144
Prepaid expenses and other current assets 191,811 168,690
Total current assets 1,175,178 1,209,638
Goodwill 4,063,834 4,058,291
Intangible assets, net 543,058 581,385
Property, plant and equipment, net 195,567 205,622
Operating lease right-of-use assets 301,012 317,359
Supplemental retirement savings plan assets 95,752 96,114
Accounts receivable, long-term 11,843 10,199
Other long-term assets 168,305 150,823
Total assets $ 6,554,549 $ 6,629,431
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt $ 30,625 $ 30,625
Accounts payable 270,768 303,443
Accrued compensation and benefits 345,779 405,722
Other accrued expenses and current liabilities 334,476 287,571
Total current liabilities 981,648 1,027,361
Long-term debt, net of current portion 1,534,961 1,702,148
Supplemental retirement savings plan obligations, net of current portion 103,512 102,127
Deferred income taxes 273,626 356,841
Operating lease liabilities, noncurrent 296,637 315,315
Other long-term liabilities 113,919 72,096
Total liabilities $ 3,304,303 $ 3,575,888
COMMITMENTS AND CONTINGENCIES
Shareholders’ equity:
Preferred stock $ 0.10 par value, 10,000 shares authorized, no shares issued or
outstanding — —
Common stock $ 0.10 par value, 80,000 shares authorized; 42,911 shares
issued and 23,508 outstanding at December 31, 2022 and 42,820 shares
issued and 23,416 outstanding at June 30, 2022 4,291 4,282
Additional paid-in capital 578,470 571,650
Retained earnings 3,732,107 3,555,881
Accumulated other comprehensive loss (17,429 ) (31,076 )
Treasury stock, at cost (19,404 and 19,404 shares, respectively) (1,047,328 ) (1,047,329 )
Total CACI shareholders’ equity 3,250,111 3,053,408
Noncontrolling interest 135 135
Total shareholders’ equity 3,250,246 3,053,543
Total liabilities and shareholders’ equity $ 6,554,549 $ 6,629,431
See Notes to Unaudited Condensed Consolidated Financial Statements
5
CACI INTERNATIONAL INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
December 31,
2022 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 176,226 $ 178,408
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 71,035 65,268
Amortization of deferred financing costs 1,126 1,147
Loss on extinguishment of debt — 891
Non-cash lease expense 34,909 33,943
Stock-based compensation expense 20,196 14,698
Deferred income taxes (48,320 ) (1,962 )
Changes in operating assets and liabilities, net of effect of business acquisitions:
Accounts receivable, net 55,518 72,650
Prepaid expenses and other assets (30,322 ) (24,701 )
Accounts payable and other accrued expenses 28,157 39,535
Accrued compensation and benefits (59,917 ) (89,752 )
Income taxes payable and receivable (5,110 ) 46,402
Operating lease liabilities (40,050 ) (34,169 )
Long-term liabilities 3,642 6,407
Net cash provided by operating activities 207,090 308,765
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (25,670 ) (21,632 )
Acquisition of businesses, net of cash acquired — (609,356 )
Other — 923
Net cash used in investing activities (25,670 ) (630,065 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under bank credit facilities 1,101,500 1,735,095
Principal payments made under bank credit facilities (1,269,813 ) (1,356,230 )
Payment of financing costs under bank credit facilities — (6,286 )
Proceeds from employee stock purchase plans 5,288 5,221
Repurchases of common stock (5,286 ) (4,995 )
Payment of taxes for equity transactions (13,269 ) (13,956 )
Net cash (used in) provided by financing activities (181,580 ) 358,849
Effect of exchange rate changes on cash and cash equivalents 94 (1,477 )
Net change in cash and cash equivalents (66 ) 36,072
Cash and cash equivalents at beginning of period 114,804 88,031
Cash and cash equivalents at end of period $ 114,738 $ 124,103
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for income taxes, net of refunds $ 100,400 $ 4,509
Cash paid during the period for interest $ 27,654 $ 19,042
Non-cash financing and investing activities:
Landlord sponsored tenant incentives $ 1,908 $ 1,178
Accrued capital expenditures $ 736 $ 813
See Notes to Unaudited Condensed Consolidated Financial Statements
6
CACI INTERNATIONAL INC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Accumulated
Additional Other Total CACI Total
Common Stock Paid-in Retained Comprehensive Treasury Stock Shareholders’ Noncontrolling Shareholders’
Shares Amount Capital Earnings Income (Loss) Shares Amount Equity Interest Equity
Balance at September 30, 2022 42,826 $ 4,283 $ 579,511 $ 3,645,006 $ (33,036 ) 19,404 $ (1,047,329 ) $ 3,148,435 $ 135 $ 3,148,570
Net income — — — 87,101 — — — 87,101 — 87,101
Stock-based compensation expense — — 11,757 — — — — 11,757 — 11,757
Tax withholdings on restricted share
vestings 85 8 (12,679 ) — — — — (12,671 ) — (12,671 )
Other comprehensive income, net of tax — — — — 15,607 — — 15,607 — 15,607
Repurchases of common stock — — (143 ) — — 10 (2,496 ) (2,639 ) — (2,639 )
Treasury stock issued under stock purchase
plans — — 24 — — (10 ) 2,497 2,521 — 2,521
Balance at December 31, 2022 42,911 $ 4,291 $ 578,470 $ 3,732,107 $ (17,429 ) 19,404 $ (1,047,328 ) $ 3,250,111 $ 135 $ 3,250,246
Balance at September 30, 2021 42,710 $ 4,271 $ 561,688 $ 3,277,196 $ (40,839 ) 19,404 $ (1,047,329 ) $ 2,754,987 $ 135 $ 2,755,122
Net income — — — 90,299 — — — 90,299 — 90,299
Stock-based compensation expense — — 8,029 — — — — 8,029 — 8,029
Tax withholdings on restricted share
vestings 100 10 (13,536 ) — — — — (13,526 ) — (13,526 )
Other comprehensive income, net of tax — — — — 5,999 — — 5,999 — 5,999
Repurchases of common stock — — (213 ) — — 9 (2,310 ) (2,523 ) — (2,523 )
Treasury stock issued under stock purchase
plans — — — — — (9 ) 2,310 2,310 — 2,310
Balance at December 31, 2021 42,810 $ 4,281 $ 555,968 $ 3,367,495 $ (34,840 ) 19,404 $ (1,047,329 ) $ 2,845,575 $ 135 $ 2,845,710
Balance at June 30, 2022 42,820 $ 4,282 $ 571,650 $ 3,555,881 $ (31,076 ) 19,404 $ (1,047,329 ) $ 3,053,408 $ 135 $ 3,053,543
Net income — — — 176,226 — — — 176,226 — 176,226
Stock-based compensation expense — — 20,196 — — — — 20,196 — 20,196
Tax withholdings on restricted share
vestings 91 9 (13,115 ) — — — — (13,106 ) — (13,106 )
Other comprehensive income, net of tax — — — — 13,647 — — 13,647 — 13,647
Repurchases of common stock — — (325 ) — — 19 (4,961 ) (5,286 ) — (5,286 )
Treasury stock issued under stock purchase
plans — — 64 — — (19 ) 4,962 5,026 — 5,026
Balance at December 31, 2022 42,911 $ 4,291 $ 578,470 $ 3,732,107 $ (17,429 ) 19,404 $ (1,047,328 ) $ 3,250,111 $ 135 $ 3,250,246
Balance at June 30, 2021 42,676 $ 4,268 $ 484,260 $ 3,189,087 $ (36,291 ) 19,122 $ (976,181 ) $ 2,665,143 $ 135 $ 2,665,278
Net income — — — 178,408 — — — 178,408 — 178,408
Stock-based compensation expense — — 14,698 — — — — 14,698 — 14,698
Tax withholdings on restricted share
vestings 134 13 (13,812 ) — — — — (13,799 ) — (13,799 )
Other comprehensive income, net of tax — — — — 1,451 — — 1,451 — 1,451
Repurchases of common stock — — 70,761 — — 301 (75,756 ) (4,995 ) — (4,995 )
Treasury stock issued under stock purchase
plans — — 61 — — (19 ) 4,608 4,669 — 4,669
Balance at December 31, 2021 42,810 $ 4,281 $ 555,968 $ 3,367,495 $ (34,840 ) 19,404 $ (1,047,329 ) $ 2,845,575 $ 135 $ 2,845,710
See Notes to Unaudited Condensed Consolidated Financial Statements
7
CACI INTERNATIONAL INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 – Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of CACI International Inc and subsidiaries (CACI or the Company) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and include the assets, liabilities, results of operations, comprehensive income and cash flows for the Company, including its subsidiaries and ventures that are majority-owned or otherwise controlled by the Company. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. All intercompany balances and transactions have been eliminated in consolidation.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and amounts included in other current assets and current liabilities that meet the definition of a financial instrument approximate fair value because of the short-term nature of these amounts. The fair value of the Company’s debt outstanding as of December 31, 2022 under its bank credit facility approximates its carrying value. The fair value of the Company’s debt under its bank credit facility was estimated using Level 2 inputs based on market data of companies with a corporate rating similar to CACI’s that have recently priced credit facilities.
In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments and reclassifications (all of which are of a normal, recurring nature) that are necessary for the fair presentation of the periods presented. It is suggested that these unaudited consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s latest annual report to the SEC on Form 10-K for the year ended June 30, 2022. The results of operations for the three and six months ended December 31, 2022 are not necessarily indicative of the results to be expected for any subsequent interim period or for the full fiscal year.
Note 2 – Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The guidance in this ASU is optional and expedients may be elected over time, as reference rate reform activities occur through December 31, 2022. However, in December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, extending the sunset date under Topic 848 from December 31, 2022 to December 31, 2024 to align the temporary accounting relief guidance with the expected LIBOR cessation date of June 30, 2023. During the year ended June 30, 2020, CACI elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives consistent with past presentation. Application of these expedients assisted in preserving the Company's presentation of derivatives as qualifying cash flow hedges. The Company continues to evaluate this guidance and may apply other elections as relevant contract and hedge accounting relationship modifications are made during the course of the reference rate reform transition period .
Note 3 – Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the six months ended December 31, 2022 are as follows (in thousands):
Domestic International Total
Balance at June 30, 2022 $ 3,934,625 $ 123,666 $ 4,058,291
Goodwill acquired (1) 6,072 — 6,072
Foreign currency translation (188 ) (341 ) (529 )
Balance at December 31, 2022 $ 3,940,509 $ 123,325 $ 4,063,834
(1) Includes goodwill initially allocated to new business combinations as well as measurement period adjustments, when applicable. Purchase price allocations for all of the fiscal year 2022 acquisitions were complete as of December 31, 2022.
There were no impairments of goodwill during the periods presented.
8
Intangible Assets
Intangible assets consisted of the following (in thousands):
December 31, 2022 June 30, 2022
Gross carrying Accumulated Net carrying Gross carrying Accumulated Net carrying
value amortization value value amortization value
Customer contracts and related
customer relationships $ 656,249 $ (296,255 ) $ 359,994 $ 656,353 $ (275,538 ) $ 380,815
Acquired technologies 280,188 (97,124 ) 183,064 280,196 (79,626 ) 200,570
Total intangible assets $ 936,437 $ (393,379 ) $ 543,058 $ 936,549 $ (355,164 ) $ 581,385
Amortization expense related to intangible assets was $19.1 million and $38.2 million for the three and six months ended December 31, 2022, respectively, and $18.1 million and $35.6 million for the three and six months ended December 31, 2021, respectively.
Note 4 – Revenues and Contract Balances
Disaggregation of Revenues
The Company disaggregates revenues by contract type, customer type, prime vs. subcontractor, and whether the solution provided is primarily Expertise or Technology. These categories represent how the nature, amount, timing, and uncertainty of revenues and cash flows are affected.
Disaggregated revenues by contract type were as follows (in thousands):
Three Months Ended Six Months Ended
December 31, 2022 December 31, 2022
Domestic International Total Domestic International Total
Cost-plus-fee $ 953,344 $ — $ 953,344 $ 1,888,090 $ — $ 1,888,090
Fixed-price 478,201 31,155 509,356 926,763 64,366 991,129
Time-and-materials 173,630 13,086 186,716 349,217 26,739 375,956
Total $ 1,605,175 $ 44,241 $ 1,649,416 $ 3,164,070 $ 91,105 $ 3,255,175
Three Months Ended Six Months Ended
December 31, 2021 December 31, 2021
Domestic International Total Domestic International Total
Cost-plus-fee $ 889,358 $ — $ 889,358 $ 1,783,071 $ — $ 1,783,071
Fixed-price 400,011 33,279 433,290 774,485 66,510 840,995
Time-and-materials 148,881 14,249 163,130 324,416 28,194 352,610
Total $ 1,438,250 $ 47,528 $ 1,485,778 $ 2,881,972 $ 94,704 $ 2,976,676
Disaggregated revenues by customer type were as follows (in thousands):
Three Months Ended Six Months Ended
December 31, 2022 December 31, 2022
Domestic International Total Domestic International Total
Department of Defense $ 1,160,060 $ — $ 1,160,060 $ 2,255,380 $ — $ 2,255,380
Federal Civilian agencies 399,768 — 399,768 823,855 — 823,855
Commercial and other 45,347 44,241 89,588 84,835 91,105 175,940
Total $ 1,605,175 $ 44,241 $ 1,649,416 $ 3,164,070 $ 91,105 $ 3,255,175
Three Months Ended Six Months Ended
December 31, 2021 December 31, 2021
Domestic International Total Domestic International Total
Department of Defense $ 1,037,014 $ — $ 1,037,014 $ 2,037,141 $ — $ 2,037,141
Federal Civilian agencies 371,897 — 371,897 785,561 — 785,561
Commercial and other 29,339 47,528 76,867 59,270 94,704 153,974
Total $ 1,438,250 $ 47,528 $ 1,485,778 $ 2,881,972 $ 94,704 $ 2,976,676
9
Disaggregated revenues by prime vs. subcontractor were as follows (in thousands):
Three Months Ended Six Months Ended
December 31, 2022 December 31, 2022
Domestic International Total Domestic International Total
Prime contractor $ 1,420,367 $ 40,472 $ 1,460,839 $ 2,827,821 $ 83,328 $ 2,911,149
Subcontractor 184,808 3,769 188,577 336,249 7,777 344,026
Total $ 1,605,175 $ 44,241 $ 1,649,416 $ 3,164,070 $ 91,105 $ 3,255,175
Three Months Ended Six Months Ended
December 31, 2021 December 31, 2021
Domestic International Total Domestic International Total
Prime contractor $ 1,292,529 $ 43,317 $ 1,335,846 $ 2,591,182 $ 86,223 $ 2,677,405
Subcontractor 145,721 4,211 149,932 290,790 8,481 299,271
Total $ 1,438,250 $ 47,528 $ 1,485,778 $ 2,881,972 $ 94,704 $ 2,976,676
Disaggregated revenues by expertise or technology were as follows (in thousands):
Three Months Ended Six Months Ended
December 31, 2022 December 31, 2022
Domestic International Total Domestic International Total
Expertise $ 725,503 $ 16,117 $ 741,620 $ 1,443,153 $ 32,670 $ 1,475,823
Technology 879,672 28,124 907,796 1,720,917 58,435 1,779,352
Total $ 1,605,175 $ 44,241 $ 1,649,416 $ 3,164,070 $ 91,105 $ 3,255,175
Three Months Ended Six Months Ended
December 31, 2021 December 31, 2021
Domestic International Total Domestic International Total
Expertise $ 668,209 $ 18,100 $ 686,309 $ 1,351,833 $ 37,522 $ 1,389,355
Technology 770,041 29,428 799,469 1,530,139 57,182 1,587,321
Total $ 1,438,250 $ 47,528 $ 1,485,778 $ 2,881,972 $ 94,704 $ 2,976,676
Changes in Estimates
Aggregate net changes in estimates for the three and six months ended December 31, 2022 reflected an increase to income before income taxes of $5.8 million ($0.18 per diluted share) and $ 11.5 million ($ 0.36 per diluted share), respectively, compared with $ 5.5 million ($ 0.17 per diluted share) and $8.2 million ($0.26 per diluted share), for the three and six months ended December 31, 2021 . The Company uses its statutory tax rate when calculating the impact to diluted earnings per share.
Revenues recognized from previously satisfied performance obligations were not material for the three and six months ended December 31, 2022 and 2021, respectively. The change in revenues generally relates to final true-up adjustments for estimated award or incentive fees in the period in which the customer’s final performance score was received or when it can be determined that more objective, contractually-defined criteria have been fully satisfied.
Remaining Performance Obligations
As of December 31, 2022, the Company had $8.6 billion of remaining performance obligations and expects to recognize approximately 47% and 67% over the next 12 and 24 months, respectively, with the remainder to be recognized thereafter.
10
Contract Balances
Contract balances consisted of the following (in thousands):
December 31, June 30,
Description of Contract Related Balance Financial Statement Classification 2022 2022
Billed and billable receivables Accounts receivable, net $ 753,254 $ 800,597
Contract assets – current unbilled receivables Accounts receivable, net 115,375 125,547
Contract assets – current costs to obtain Prepaid expenses and other current assets 5,186 5,167
Contract assets – noncurrent unbilled receivables Accounts receivable, long-term 11,843 10,199
Contract assets – noncurrent costs to obtain Other long-term assets 9,197 10,703
Contract liabilities – current deferred Other accrued expenses and current liabilities (110,227 ) (84,810 )
revenue and other contract liabilities
Contract liabilities – noncurrent deferred Other long-term liabilities (6,308 ) (7,552 )
revenue and other contract liabilities
During the three and six months ended December 31, 2022, we recognized $7.6 million and $58.1 million of revenues, respectively, compared with $ 13.6 million and $ 68.3 million of revenues for the three and six months ended December 31, 2021 , that was included in a previously recorded contract liability as of the beginning of the period.
Note 5 – Inventories
Inventories consisted of the following (in thousands):
December 31, June 30,
2022 2022
Materials, purchased parts and supplies $ 64,788 $ 57,407
Work in process 20,423 13,207
Finished goods 28,558 28,748
Total $ 113,769 $ 99,362
Inventories are stated at the lower of cost (average cost or first-in, first-out) or net realizable value and are included in prepaid expenses and other current assets on the accompanying consolidated balance sheets. Prior year amounts for work in process and finished goods have been revised.
Note 6 – Sales of Receivables
On December 22, 2022, the Company amended its Master Accounts Receivable Purchase Agreement (MARPA) with MUFG Bank, Ltd. (Purchaser), for the sale of certain designated eligible U.S. government receivables. The amendment extended the term of the MARPA to December 21, 2023. Under the MARPA, the Company can sell eligible receivables, including certain billed and unbilled receivables up to a maximum amount of $200.0 million. The Company’s receivables are sold under the MARPA without recourse for any U.S. government credit risk.
The Company accounts for receivable transfers under the MARPA as sales under ASC 860, Transfers and Servicing , and derecognizes the sold receivables from its balance sheets. The fair value of the sold receivables approximated their book value due to their short-term nature.
The Company does not retain an ongoing financial interest in the transferred receivables other than cash collection and administrative services. The Company estimated that its servicing fee was at fair value and therefore no servicing asset or liability related to these receivables was recognized as of December 31, 2022. Proceeds from the sold receivables are reflected in operating cash flows on the statement of cash flows.
11
MARPA activity consisted of the following (in thousands):
As of and for the Six Months Ended
December 31,
2022 2021
Beginning balance: $ 157,785 $ 182,027
Sales of receivables 1,460,825 1,361,521
Cash collections (1,418,648 ) (1,356,070 )
Outstanding balance sold to Purchaser: (1) 199,962 187,478
Cash collected, not remitted to Purchaser (2) (59,827 ) (49,166 )
Remaining sold receivables $ 140,135 $ 138,312
(1) For the six months ended December 31, 2022 and 2021, the Company recorded net cash inflows of $42.2 million and $5.5 million in its cash flows from operating activities, respectively, from sold receivables. MARPA cash flows are calculated as the change in the outstanding balance during the fiscal year.
(2) Includes the cash collected on behalf of but not yet remitted to Purchaser as of December 31, 2022 and 2021. This balance is included in other accrued expenses and current liabilities as of the balance sheet date.
Note 7 – Debt
Long-term debt consisted of the following (in thousands):
December 31, June 30,
2022 2022
Bank credit facility – term loans $ 1,194,375 $ 1,209,688
Bank credit facility – revolver loans 380,000 533,000
Principal amount of long-term debt 1,574,375 1,742,688
Less unamortized discounts and debt issuance costs (8,789 ) (9,915 )
Total long-term debt 1,565,586 1,732,773
Less current portion (30,625 ) (30,625 )
Long-term debt, net of current portion $ 1,534,961 $ 1,702,148
Bank Credit Facility
On December 13, 2021, the Company amended its credit facility (the Credit Facility) primarily to extend the maturity date, increase borrowing capacity, and improve pricing. As amended, the Company’s $3,200.0 million Credit Facility consists of a $1,975.0 million revolving credit facility (the Revolving Facility) and a $1,225.0 million term loan (the Term Loan). The Revolving Facility has subfacilities of $100.0 million for same-day swing line loan borrowings and $25.0 million for stand-by letters of credit.
The Revolving Facility is a secured facility that permits continuously renewable borrowings of up to $1,975.0 million. As of December 31, 2022, the Company had $380.0 million outstanding under the Revolving Facility and no borrowings on the swing line. The Company pays a quarterly facility fee for the unused portion of the Revolving Facility.
The Term Loan is a five-year secured facility under which principal payments are due in quarterly installments of $7.7 million through December 31, 2023 and $15.3 million thereafter until the balance is due in full on December 13, 2026. As of December 31, 2022, the Company had $1,194.4 million outstanding under the Term Loan.
The interest rates applicable to loans under the Credit Facility are floating interest rates that, at the Company’s option, equal a base rate or a Eurodollar rate plus, in each case, an applicable rate based upon the Company’s consolidated total net leverage ratio. As of December 31, 2022, the effective interest rate, including the impact of the Company’s floating-to-fixed interest rate swap agreements and excluding the effect of amortization of debt financing costs, for the outstanding borrowings under the Credit Facility was 4.50%.
The Credit Facility requires the Company to comply with certain financial covenants, including a maximum total leverage ratio and a minimum interest coverage ratio. The Credit Facility also includes customary negative covenants restricting or limiting the Company’s ability to guarantee or incur additional indebtedness, grant liens or other security interests to third parties, make loans or investments, transfer assets, declare dividends or redeem or repurchase capital stock or make other distributions, prepay subordinated indebtedness and engage in mergers, acquisitions or other business combinations, in each case except as expressly permitted under the Credit Facility. As of December 31 , 2022, the Company was in compliance with all of the financial covenants. A majority of the Company’s assets serve as collateral under the Credit Facility.
All debt issuance costs are being amortized from the date incurred to the expiration date of the Credit Facility.
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Cash Flow Hedges
The Company periodically uses derivative financial instruments as part of a strategy to manage exposure to market risks associated with interest rate fluctuations. The Company has entered into several floating-to-fixed interest rate swap agreements for an aggregate notional amount of $800.0 million which hedge a portion of the Company’s floating rate indebtedness. The swaps mature at various dates through 2028. The Company has designated the swaps as cash flow hedges. Unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The interest rate swap agreements are highly correlated to the changes in interest rates to which the Company is exposed. Realized gains and losses in connection with each required interest payment are reclassified from accumulated other comprehensive income or loss to interest expense. The Company does not hold or issue derivative financial instruments for trading purposes.
The effect of derivative instruments in the consolidated statements of operations and accumulated other comprehensive loss for the three and six months ended December 31, 2022 and 2021 is as follows (in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
2022 2021 2022 2021
Gain recognized in other comprehensive income $ 904 $ 2,194 $ 16,490 $ 1,186
Amounts reclassified to earnings from accumulated other
comprehensive loss (2,420 ) 3,230 (2,477 ) 6,452
Net current period other comprehensive (loss) income $ (1,516 ) $ 5,424 $ 14,013 $ 7,638
Note 8 – Legal Proceedings and Other Commitments and Contingencies
Legal Proceedings
The Company is involved in various claims, lawsuits, and administrative proceedings arising in the normal course of business, none of which, based on current information, are expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Government Contracting
Payments to the Company on cost-plus-fee and time-and-materials contracts are subject to adjustment upon audit by the Defense Contract Audit Agency (DCAA) and other government agencies that do not utilize DCAA’s services. The DCAA has completed audits of the Company’s annual incurred cost proposals through fiscal year 2021. The Company is still negotiating the results of prior years’ audits with the respective cognizant contracting officers and believes its reserves for such are adequate. Adjustments that may result from these audits and the audits not yet started are not expected to have a material effect on the Company’s financial position, results of operations, or cash flows and the Company has accrued its best estimate of potential disallowances. Additionally, the DCAA continually reviews the cost accounting and other practices of government contractors, including the Company. In the course of those reviews, cost accounting and other issues may be identified, discussed and settled.
Note 9 – Earnings Per Share
Earnings per share and the weighted-average number of diluted shares are computed as follows (in thousands, except per share data):
Three Months Ended Six Months Ended
December 31, December 31,
2022 2021 2022 2021
Net income $ 87,101 $ 90,299 $ 176,226 $ 178,408
Weighted-average number of basic shares outstanding
during the period 23,506 23,399 23,463 23,480
Dilutive effect of RSUs after application of treasury
stock method 170 199 214 242
Weighted-average number of diluted shares outstanding
during the period 23,676 23,598 23,677 23,722
Basic earnings per share $ 3.71 $ 3.86 $ 7.51 $ 7.60
Diluted earnings per share $ 3.68 $ 3.83 $ 7.44 $ 7.52
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Note 10 – Income Taxes
The Company is subject to income taxes in the U.S. and various state and foreign jurisdictions. Tax statutes and regulations within each jurisdiction are subject to interpretation and require the application of significant judgment. The Company is currently under examination by the Internal Revenue Service for fiscal years 2017 through 2021. The Company does not expect resolution of the examination to have a material impact on its results of operations, financial condition, or cash flows.
During fiscal year 2023, a provision of the Tax Cuts and Jobs Act of 2017 (TCJA) went into effect which eliminated the option to deduct domestic research and development costs in the year incurred and instead requires taxpayers to amortize such costs over five years. Although it is possible that Congress amends this provision of the TCJA, potentially with retroactive effect, we have no assurance that Congress will take any action with respect to this provision. For the three and six months ended December 31, 2022, the Company recognized a liability for unrecognized tax benefits and a corresponding deferred tax asset of $20.0 million and $39.8 million, respectively, related to the capitalization and amortization of research costs related to provisions of the TCJA becoming effective.
The Company’s effective income tax rate was 21.5% and 22.5% for the three and six months ended December 31, 2022, respectively, and 20.2% and 22.3% for the three and six months ended December 31, 2021, respectively. The effective tax rates for the three and six months ended December 31, 2022 and 2021 both benefited from the favorable impact of research and development credits and the amount of excess tax benefits related to stock-based compensation, and are partially offset by the unfavorable impacts of certain executive compensation.
Note 11 – Business Segments
The Company reports operating results and financial data in two segments: domestic operations and international operations. Domestic operations provide Expertise and Technology primarily to U.S. federal government agencies. International operations provide Expertise and Technology primarily to international government and commercial customers.
The Company evaluates the performance of its operating segments based on net income. Summarized financial information for the Company’s reportable segments is as follows (in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
2022 2021 2022 2021
Revenues:
Domestic $ 1,605,175 $ 1,438,250 $ 3,164,070 $ 2,881,972
International 44,241 47,528 91,105 94,704
Total revenues $ 1,649,416 $ 1,485,778 $ 3,255,175 $ 2,976,676
Net income:
Domestic $ 80,362 $ 83,407 $ 160,915 $ 165,104
International 6,739 6,892 15,311 13,304
Total net income $ 87,101 $ 90,299 $ 176,226 $ 178,408
Note 12 – Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures , establishes a framework for measuring fair value and categorizes the inputs used in measuring fair value as follows: observable inputs such as quoted prices in active markets (Level 1); inputs other than quoted prices in active markets that are observable, either directly or indirectly, or quoted prices that are not active (Level 2); and unobservable inputs in which there is little or no market data which requires development of assumptions that market participants would use in pricing the asset or liability (Level 3).
The financial instruments measured at fair value on a recurring basis consist of the following (in thousands):
December 31, June 30,
Financial Statement Fair Value 2022 2022
Description of Financial Instrument Classification Hierarchy Fair Value
Interest rate swap agreements Prepaid expenses and other Level 2 $ 1,305 $ 337
current assets
Interest rate swap agreements Other long-term assets Level 2 $ 37,126 $ 19,184
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The Company uses interest rate swap agreements to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves.
Note 13 – Subsequent Events
On January 24, 2023, CACI’s Board of Directors authorized the repurchase of up to $750.0 million of CACI’s outstanding common stock.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations is provided to enhance the understanding of, and should be read together with, our unaudited condensed consolidated financial statements and the notes to those statements that appear elsewhere in this Quarterly Report on Form 10-Q.
Information Relating to Forward-Looking Statements
There are statements made herein that do not address historical facts and, therefore, could be interpreted to be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are subject to risk factors that could cause actual results to be materially different from anticipated results. These risk factors include, but are not limited to, the following:
• our reliance on U.S. government contracts, which includes general risk around the government contract procurement process (such as bid protest, small business set asides, loss of work due to organizational conflicts of interest, etc.) and termination risks;
• significant delays or reductions in appropriations for our programs and broader changes in U.S. government funding and spending patterns;
• legislation that amends or changes discretionary spending levels or budget priorities, such as for homeland security or to address global pandemics like COVID-19;
• legal, regulatory, and political change from successive presidential administrations that could result in economic uncertainty;
• changes in U.S. federal agencies, current agreements with other nations, foreign events, or any other events which may affect the global economy, including the impact of global pandemics like COVID-19;
• the results of government audits and reviews conducted by the Defense Contract Audit Agency, the Defense Contract Management Agency, or other governmental entities with cognizant oversight;
• competitive factors such as pricing pressures and/or competition to hire and retain employees (particularly those with security clearances);
• failure to achieve contract awards in connection with re-competes for present business and/or competition for new business;
• regional and national economic conditions in the United States and globally, including but not limited to: terrorist activities or war, changes in interest rates, currency fluctuations, significant fluctuations in the equity markets, and market speculation regarding our continued independence;
• our ability to meet contractual performance obligations, including technologically complex obligations dependent on factors not wholly within our control;
• limited access to certain facilities required for us to perform our work, including during a global pandemic like COVID-19;
• changes in tax law, the interpretation of associated rules and regulations, or any other events impacting our effective tax rate;
• changes in technology;
• the potential impact of the announcement or consummation of a proposed transaction and our ability to successfully integrate the operations of our recent and any future acquisitions;
• our ability to achieve the objectives of near term or long-term business plans; and
• the effects of health epidemics, pandemics and similar outbreaks may have material adverse effects on our business, financial position, results of operations and/or cash flows.
The above non-inclusive list of risk factors may impact the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, other risk factors include, but are not limited to, those described in “Item 1A. Risk Factors” within our Annual Report on Form 10-K. The forward-looking statements contained in this Quarterly Report on Form 10-Q are as of the date of its filing.
Overview
The Company provides Expertise and Technology to Enterprise and Mission customers in support of national security and government modernization.
• Enterprise – CACI provides capabilities that enable the internal operations of a government agency.
• Mission – CACI provides capabilities that enable the execution of a government agency’s primary function, or “mission”.
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• Expertise – CACI provides Expertise to both Enterprise and Mission customers. For Enterprise customers, we deliver talent with the specific technical and functional knowledge to support internal agency operations. Examples include functional software development expertise, data and business analysis, and IT operations support. For Mission customers, we deliver talent with technical and domain knowledge to support the execution of an agency’s mission. Examples include engineering expertise such as naval architecture, marine engineering, and life cycle support; and mission support expertise such as intelligence and special operations support.
• Technology – CACI delivers Technology to both Enterprise and Mission customers. For both Enterprise and Mission, CACI provides: Software development at scale using open modern architectures, DevSecOps, and agile methodologies; and advanced data platforms, data operations and analyst-centric analytics including application of Artificial Intelligence and multi-source analysis. Additional examples of Enterprise technology include: Network and IT modernization; The customization, implementation, and maintenance of commercial-off-the-shelf (COTS) and enterprise resource planning (ERP) systems including financial, human capital, and supply chain management systems; and cyber security active defense and zero trust architectures. Additional examples of Mission technology include: Developing and deploying multi-domain offerings for signals intelligence, resilient communications, free space optical communications, electronic warfare including Counter-UAS, cyber operations, and Radio Frequency (RF) and 5G spectrum awareness, agility and usage. CACI invests ahead of customer need with research and development to generate unique intellectual property and differentiated technology addressing critical national security and government modernization needs.
Budgetary Environment
We carefully follow federal budget, legislative and contracting trends and activities and evolve our strategies to take these into consideration. On December 29, 2022, the President signed into law the omnibus appropriations bill that provided full-year funding for the government fiscal year (GFY) ending September 30, 2023 (GFY23). Of the total approximately $1.7 trillion in discretionary funding, approximately $858 billion was for national defense and approximately $773 billion was for nondefense, as well as an additional $47 billion of supplemental funding for Ukraine. The defense and nondefense funding levels represent increases of approximately 9.7% and 5.9%, respectively, over GFY22 enacted levels, which themselves were increases of 5.6% and 6.7%, respectively, over GFY21. While future levels of defense and nondefense spending are difficult to project, we believe that there continues to be bipartisan support for defense and national security-related spending, particularly given the heightened current global threat environment, including the conflict in Ukraine.
While we view the budget environment as constructive and believe there is bipartisan support for continued investment in the areas of defense and national security, it is uncertain when in any particular GFY that appropriations bills will be passed. During those periods of time when appropriations bills have not been passed and signed into law, government agencies operate under a continuing resolution (CR), a temporary measure allowing the government to continue operations at prior year funding levels.
Depending on their scope, duration, and other factors, CRs can negatively impact our business due to delays in new program starts, delays in contract award decisions, and other factors. When a CR expires, unless appropriations bills have been passed by Congress and signed by the President, or a new CR is passed and signed into law, the government must cease operations, or shutdown, except in certain emergency situations or when the law authorizes continued activity. We continuously review our operations in an attempt to identify programs potentially at risk from CRs so that we can consider appropriate contingency plans.
Market Environment
We provide Expertise and Technology to government enterprise and mission customers. Based on the analysis of an independent market consultant retained by the Company, we believe that the total addressable market for our offerings is approximately $260 billion. Our addressable market is expected to continue to grow over the next several years. Approximately 70% of our revenue comes from defense-related customers, including those in the Intelligence Community (IC), with additional revenue coming from non-defense IC, homeland security, and other federal civilian customers.
We continue to align the Company’s capabilities with well-funded budget priorities and took steps to maintain a competitive cost structure in line with our expectations of future business opportunities. In light of these actions, as well as the budgetary environment discussed above, we believe we are well positioned to continue to win new business in our large addressable market. We believe that the following trends will influence the USG’s spending in our addressable market:
• A stable-to-higher USG budget environment, particularly in defense and intelligence-related areas;
• Increased focus on cyber, space, and the electromagnetic spectrum as key domains for National Security;
• Increased spend on network and application modernization and enhancements to cyber security posture;
• Increased investments in advanced technologies (e.g., Artificial Intelligence, 5G), particularly software-based technologies;
• Increasing focus on near-peer competitors and other nation state threats;
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• Continued focus on counterterrorism, counterintelligence, and counter proliferation as key U.S. security concerns; and
• Increased demand for innovation and speed of delivery.
We believe that our customers' use of lowest price/technically acceptable (LPTA) procurements, which contributed to pricing pressures in past years, has moderated, though price still remains an important factor in procurements. We also continue to see protests of major contract awards and delays in USG procurement activities. In addition, many of our federal government contracts require us to employ personnel with security clearances, specific levels of education and specific past work experience. Depending on the level of clearance, security clearances can be difficult and time-consuming to obtain and competition for skilled personnel in the information technology services industry is intense. Additional factors that could affect USG spending in our addressable market include changes in set-asides for small businesses, changes in budget priorities as a result of the COVID-19 pandemic, and budgetary priorities limiting or delaying federal government spending in general.
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Results of Operations for the Three and Six Months Ended December 31, 2022 and 2021
The following table provides our results of operations (in thousands):
Dollar Amount Dollar Amount
Three Months Ended Six Months Ended
December 31, Change December 31, Change
2022 2021 Dollar Percent 2022 2021 Dollar Percent
Revenues $ 1,649,416 $ 1,485,778 $ 163,638 11.0% $ 3,255,175 $ 2,976,676 $ 278,499 9.4%
Costs of revenues:
Direct costs 1,094,314 974,018 120,296 12.4% 2,150,086 1,948,189 201,897 10.4%
Indirect costs and selling expenses 388,303 354,977 33,326 9.4% 770,384 712,083 58,301 8.2%
Depreciation and amortization 35,932 32,676 3,256 10.0% 71,035 65,268 5,767 8.8%
Total costs of revenues 1,518,549 1,361,671 156,878 11.5% 2,991,505 2,725,540 265,965 9.8%
Income from operations 130,867 124,107 6,760 5.4% 263,670 251,136 12,534 5.0%
Interest expense and other, net 19,942 11,009 8,933 81.1% 36,135 21,407 14,728 68.8%
Income before income taxes 110,925 113,098 (2,173 ) (1.9)% 227,535 229,729 (2,194 ) (1.0)%
Income taxes 23,824 22,799 1,025 4.5% 51,309 51,321 (12 ) (0.0)%
Net income $ 87,101 $ 90,299 $ (3,198 ) (3.5)% $ 176,226 $ 178,408 $ (2,182 ) (1.2)%
Revenues . The increase in revenues for the three and six months ended December 31, 2022, as compared to the three and six months ended December 31, 2021, was primarily attributable to growth on existing programs, new contract awards, and revenues from the acquisitions completed in fiscal year 2022.
The following table summarizes revenues by customer type with related percentages of revenues for the three and six months ended December 31, 2022 and 2021, respectively (in thousands) :
Dollar Amount Dollar Amount
Three Months Ended Six Months Ended
December 31, Change December 31, Change
2022 2021 Dollar Percent 2022 2021 Dollar Percent
Department of Defense $ 1,160,060 $ 1,037,014 $ 123,046 11.9% $ 2,255,380 $ 2,037,141 $ 218,239 10.7%
Federal Civilian Agencies 399,768 371,897 27,871 7.5% 823,855 785,561 38,294 4.9%
Commercial and other 89,588 76,867 12,721 16.5% 175,940 153,974 21,966 14.3%
Total $ 1,649,416 $ 1,485,778 $ 163,638 11.0% $ 3,255,175 $ 2,976,676 $ 278,499 9.4%
• DoD revenues include Expertise and Technology provided to various Department of Defense customers.
• Federal civilian agencies’ revenues primarily include Expertise and Technology provided to non-DoD agencies and departments of the U.S. federal government, including intelligence agencies and Departments of Homeland Security, Justice, Agriculture, Health and Human Services, and State.
• Commercial and other revenues primarily include Expertise and Technology provided to U.S. state and local governments, commercial customers, and certain foreign governments and agencies through our International reportable segment.
Direct Costs . The increase in direct costs for the three and six months ended December 31, 2022, as compared to the prior year periods, was primarily attributable to the increased revenues and a higher volume of materials and other direct costs. As a percentage of revenue, direct costs were 66.3% and 66.1% for the three and six months ended December 31, 2022, respectively and 65.6% and 65.4% for the three and six months ended December 31, 2021, respectively. Direct costs include direct labor, subcontractor costs, materials, and other direct costs.
Indirect Costs and Selling Expenses . The increase in indirect costs and selling expenses for the three and six months ended December 31, 2022, as compared to the prior year periods, was primarily attributable to the incremental costs of running the businesses acquired in fiscal year 2022 and an increase in fringe benefit expenses. As a percentage of revenue, indirect costs and selling expenses were 23.5% and 23.7% for the three and six months ended December 31, 2022, respectively and 23.9% and 23.9% for the three and six months ended December 31, 2021, respectively.
Depreciation and Amortization . The increase in depreciation and amortization for the three and six months ended December 31, 2022, as compared to the prior year periods, was primarily attributable to depreciation from the Company’s higher average property and equipment and intangible amortization from the acquisitions in fiscal year 2022.
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Interest Expense and Other, Net . The increase in interest expense and other, net for the three and six months ended December 31, 2022 , as compared to the prior year periods , was primarily attributable to higher interest rates on outstanding debt.
Income Tax Expense . The Company’s effective income tax rate was 21.5% and 22.5% for the three and six months ended December 31, 2022, respectively, and 20.2% and 22.3% for the three and six months ended December 31, 2021, respectively. The effective tax rates for the three and six months ended December 31, 2022, and 2021 both benefited from the favorable impact of research and development credits and the amount of excess tax benefits related to stock-based compensation , and are partially offset by the unfavorable impacts of certain executive compensation.
Contract Backlog
The Company’s backlog represents value on existing contracts that has the potential to be recognized into revenues as work is performed. The Company includes unexercised option years in its backlog and excludes the value of task orders that may be awarded under multiple award indefinite delivery/indefinite quantity (“IDIQ”) vehicles until such task orders are issued.
The Company’s backlog as of period end is either funded or unfunded:
• Funded backlog represents contract value for which funding has been appropriated less revenues previously recognized on these contracts.
• Unfunded backlog represents estimated values that have the potential to be recognized into revenue from executed contracts for which funding has not been appropriated and unexercised priced contract options.
As of December 31, 2022, the Company had total backlog of $26.5 billion, compared with $24.1 billion a year ago, an increase of 10.0%. Funded backlog as of December 31, 2022 was $3.2 billion. The total backlog consists of remaining performance obligations (see Note 4) plus unexercised options.
There is no assurance that all funded or potential contract value will result in revenues being recognized. The Company continues to monitor backlog as it is subject to change from execution of new contracts, contract modifications or extensions, government deobligations, early terminations, or other factors. Based on this analysis, an adjustment to the period end balance may be required.
Liquidity and Capital Resources
To date, COVID-19 has not had a significant impact on our liquidity, cash flows or capital resources. However, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future.
Existing cash and cash equivalents and cash generated by operations are our primary sources of liquidity, as well as sales of receivables under our MARPA (as defined and discussed in Note 6) and available borrowings under our Credit Facility (as defined in Note 7) described below.
The Company has a $3,200.0 million Credit Facility, which consists of a $1,975.0 million Revolving Facility and a $1,225.0 million Term Loan. The Revolving Facility is a secured facility that permits continuously renewable borrowings and has subfacilities of $100.0 million for same-day swing line borrowings and $25.0 million for stand-by letters of credit. As of Dec ember 31 , 2022, we had $380 .0 million outstanding under the Revolving Facility and no borrowings on the swing line.
The Term Loan is a five-year secured facility under which principal payments are due in quarterly installments of $7.7 million through December 31, 2023 and $15.3 million thereafter until the balance is due in full on December 13, 2026. As of December 31, 2022, $1,194.4 million was outstanding under the Term Loan.
The interest rates applicable to loans under the Credit Facility are floating interest rates that, at our option, equal a base rate or a Eurodollar rate plus, in each case, an applicable margin based upon our consolidated total net leverage ratio.
The Credit Facility requires us to comply with certain financial covenants, including a maximum total leverage ratio and a minimum interest coverage ratio. The Credit Facility also includes customary negative covenants restricting or limiting our ability to guarantee or incur additional indebtedness, grant liens or other security interests to third parties, make loans or investments, transfer assets, declare dividends or redeem or repurchase capital stock or make other distributions, prepay subordinated indebtedness and engage in mergers, acquisitions or other business combinations, in each case except as expressly permitted under the Credit Facility. Since the inception of the Credit Facility, we have been in compliance with all of the financial covenants. A majority of our assets serve as collateral under the Credit Facility.
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During fiscal year 2023, a provision of the TCJA went into effect which eliminated the option to deduct domestic research and development costs in the year incurred and instead requires taxpayers to amortize such costs over five years. Although it is possible that Congress amends this provision, potentially with retroactive effect, we have no assurance that Congress will take any action with respect to this provision. Based on the law as currently enacted, the provision is expected to decrease fiscal year 2023 cash flows from operations by $95.0 million and increase net deferred tax assets by a similar amount . During the second quarter of fiscal year 2023, the Company’s estimated federal and state income tax payments included $46.0 million related to this provision. The actual impact will depend on the amount of research and development costs the Company will incur during fiscal year 2023 and whether new guidance and interpretive rules are issued by the U.S. Treasury, among other factors
A summary of the change in cash and cash equivalents is presented below (in thousands):
Six Months Ended
December 31,
2022 2021
Net cash provided by operating activities $ 207,090 $ 308,765
Net cash used in investing activities (25,670 ) (630,065 )
Net cash (used in) provided by financing activities (181,580 ) 358,849
Effect of exchange rate changes on cash and cash equivalents 94 (1,477 )
Net change in cash and cash equivalents $ (66 ) $ 36,072
Net cash provided by operating activities decreased $101.7 million for the six months ended December 31, 2022, when compared to the six months ended December 31, 2021, as a result of a $95.9 million increase in cash paid for income taxes, $49.7 million in net unfavorable changes in operating assets and liabilities driven by the timing of vendor payments, partially offset by a $36.7 million increase in cash received from the Company's MARPA.
Net cash used in investing activities decreased $604.4 million for the six months ended December 31, 2022, when compared to the six months ended December 31, 2021, primarily as a result of a $609.4 million decrease in cash used in acquisitions of businesses partially offset by a $4.0 million increase in capital expenditures.
Net cash used in financing activities increased $540.4 million for the six months ended December 31, 2022, when compared to the six months ended December 31, 2021, primarily as a result of a $540.9 million increase in net payments under our Credit Facility.
We believe that the combination of internally generated funds, available bank borrowings, and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund on-going operations, customary capital expenditures, debt service obligations, share repurchases, and other working capital requirements over the next twelve months. In the future we may seek to borrow additional amounts under a long-term debt security. Over the longer term, our ability to generate sufficient cash flows from operations necessary to fulfill the obligations under the Credit Facility and any other indebtedness we may incur will depend on our future financial performance which will be affected by many factors outside of our control, including worldwide economic and financial market conditions.
Critical Accounting Policies
There have been no significant changes to the Company’s critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended June 30, 2022.
Off-Balance Sheet Arrangements and Contractual Obligations
We have no material off-balance sheet financing arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The interest rates on both the Term Loan and the Revolving Facility are affected by changes in market interest rates. We have the ability to manage these fluctuations in part through interest rate hedging alternatives in the form of interest rate swaps. We have entered into floating-to-fixed interest rate swap agreements for an aggregate notional amount of $800.0 million related to a portion of our floating rate indebtedness. All remaining balances under our Term Loan, and any additional amounts that may be borrowed under our Revolving Facility, are currently subject to interest rate fluctuations. With every one percent fluctuation in the applicable interest rates, interest expense on our variable rate debt for the six months ended December 31, 2022 would have fluctuated by approximately $5.5 million.
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Approximately 2.8 % and 3. 2 % of our total revenue s during the six months ended December 31, 2022 and 20 2 1 , respectively, w ere derived from our international operations headquartered in the U.K. Our practice in our international operations is to negotiate contracts in the same currency in which the predominant expenses are incurred, thereby mitigating the exposure to foreign currency exchange fluctuations. It is not possible to accomplish this in all cases; thus, there is some risk that profits will be affected by foreign currency exchange fluctuations. As of December 31, 2022 , we held a combination of euros and pounds sterling in the U.K. and the Netherlands equivalent to approximately $ 58.2 million. This allows us to better utilize our cash resources on behalf of our foreign subsidiaries, thereby mitigating foreign currency conversion risks.
Item 4. Controls and Procedures
As of the end of the three-month period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitation, judgments used in decision making, assumptions about the likelihood of future events, the soundness of internal controls, and fraud. Due to such inherent limitations, there can be only reasonable, and not absolute, assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud, or in making all material information known in a timely manner to appropriate levels of management.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were operating and effective at Dec ember 31 , 2022.
The Company reports that no changes in its internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended December 31, 2022.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Al Shimari, et al. v. L-3 Services, Inc. et al.
Reference is made to Part I, Item 3, Legal Proceedings in the Registrant’s Annual Report on Form 10-K for the year ended June 30, 2022 for the most recently filed information concerning the suit filed in the United States District Court for the Southern District of Ohio. The lawsuit names CACI International Inc, CACI Premier Technology, Inc. and former CACI employee Timothy Dugan as Defendants, along with L-3 Services, Inc. Plaintiffs seek, inter alia, compensatory damages, punitive damages, and attorney’s fees.
In 2015, Defendant CACI Premier Technology, Inc. moved to dismiss Plaintiffs’ claims based upon the political question doctrine. On June 18, 2015, the Court issued an Order granting Defendant CACI Premier Technology, Inc.’s motion to dismiss, and on June 26, 2015 entered a final judgment in favor of Defendant CACI Premier Technology, Inc.
On July 23, 2015, Plaintiffs filed a Notice of Appeal of the district court’s June 2015 decision. On October 21, 2016, the Court of Appeals vacated and remanded the District Court’s judgment with instructions for the District Court to make further determinations regarding the political question doctrine. The District Court conducted an initial status conference on December 16, 2016. On June 9, 2017, the District Court dismissed Plaintiff Rashid without prejudice from the action based upon his inability to participate. On July 19, 2017, CACI Premier Technology, Inc. filed a motion to dismiss the action on numerous legal grounds. The Court held a hearing on that motion on September 22, 2017, and denied the motion pending issuance of a written decision. On January 17, 2018, CACI filed a third-party complaint naming the United States and John Does 1-60, asserting claims for contribution, indemnification, exoneration and breach of contract in the event that CACI Premier Technology, Inc. is held liable to Plaintiffs, as Plaintiffs are seeking to hold CACI Premier Technology, Inc. liable on a co-conspirator theory and a theory of aiding and abetting. On February 21, 2018, the District Court issued a Memorandum Opinion and Order dismissing with prejudice the claims of direct abuse of the Plaintiffs by CACI personnel (Counts 1, 4 and 7 of the Third Amended Complaint) in response to the motion to dismiss filed by CACI on July 19, 2017, and denying the balance of the motion to dismiss. On March 14, 2018, the United States filed a motion to dismiss the third party complaint or, in the alternative, for summary judgment. On April 13, 2018, the Court held a hearing on the United States’ motion to dismiss and took the matter under advisement. The Court subsequently stayed the part of the action against John Does 1-60.
On April 13, 2018, the Plaintiffs filed a motion to reinstate Plaintiff Rashid, which CACI opposed. On April 20, 2018, the District Court granted that motion subject to Plaintiff Rashid appearing for a deposition. On May 21, 2018, CACI filed a motion to dismiss for lack of subject matter jurisdiction based on a recent Supreme Court decision. On June 25, 2018, the District Court denied that motion. On October 25, 2018, the District Court conducted a pre-trial conference at which the District Court addressed remaining discovery matters, the scheduling for dispositive motions that CACI intends to file, and set a date of April 23, 2019 for trial, if needed, to start. On December 20, 2018, CACI filed a motion for summary judgment and a motion to dismiss based on the state secrets privilege. On January 3, 2019, CACI filed a motion to dismiss for lack of subject matter jurisdiction. On February 15, 2019, the United States filed a motion for summary judgment with respect to CACI’s third-party complaint. On February 27, 2019, the District Court denied CACI’s motion for summary judgment and motions to dismiss for lack of subject matter jurisdiction and on the state secrets privilege. On February 28, 2019, CACI filed a motion seeking dismissal on grounds of derivative sovereign immunity.
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On March 22, 2019, the District Court denied the United States’ motion to dismiss on grounds of sovereign immunity and CACI’s motion to dismiss on grounds of derivative sovereign immunity. The District Court also granted the United States’ motion for summary judgment with respect to CACI’s third-party complaint. On March 26, 2019, CACI filed a Notice of Appeal of the District Court’s March 22, 2019 decision. On April 2, 2019, the U.S. Court of Appeals for the Fourth Circuit issued an Accelerated Briefing Order for the appeal. On April 3, 2019, the District Court issued an Order cancelling the trial schedule and holding matters in abeyance pending disposition of the appeal . On July 10, 2019, the U.S. Court of Appeals for the Fourth Circuit heard oral argument in Spartanburg, South Carolina on CACI’s appeal. On August 23, 2019, the Court of Appeals issued an unpublished opinion dismissing the appeal. A majority of the panel that heard the appeal held that rulings denying derivative sovereign immunity are not immediately appealable even where they present pure questions of law. The panel also ruled, in the alternative, that even if such a ruling was immediately appealable, review was barred because there remained disputes of material fact with respect to CACI’s derivative sovereign immunity defenses. The Court of Appeals subsequently denied CACI’s request for rehearing en banc. CACI then filed a motion to stay issuance of the mandate pending the filing of a petition for a writ of certiorari. On October 11, 2019, the Court of Appeals, by a 2-1 vote, denied the motion to stay issuance of the mandate . CACI then filed an application to stay issuance of the mandate with Chief Justice Roberts in his capacity as Circuit Justice for the U.S. Court of Appeals for the Fourth Circuit. After CACI filed that application, the Court of Appeals issued the mandate on October 21, 2019, returning jurisdiction to the district court. On October 23, Chief Justice Roberts denied the stay application “without prejudice to applicants filing a new application after seeking relief in the district court.” CACI then filed a motion in the district court to stay the action pending filing and disposition of a petition for a writ of certiorari. On November 1, 2019, the district court granted CACI’s motion and issued an Order staying the action until further order of the court. On November 15, 2019, CACI filed a petition for a writ of certiorari in the U.S. Supreme Court. On January 27, 2020, the U.S. Supreme Court issued an Order inviting the Solicitor General to file a brief in the case expressing the views of the United States. On August 26, 2020, the Solicitor General filed a brief recommending that CACI’s petition for a writ of certiorari be held pending the Supreme Court’s disposition of Nestle USA, Inc. v. Doe, cert. granted, No. 19-416 (July 2, 2020), and Cargill, Inc. v. Doe, cert. granted, No. 19-453 (July 2, 2020). The United States’ brief recommended that if the Supreme Court’s decisions in Nestle and Cargill did not effectively eliminate the claims in Al Shimari , then the Supreme Court should grant CACI’s petition for a writ of certiorari . On June 17, 2021, the Supreme Court issued its decision in the Nestle and Cargill cases, holding that the allegations of domestic conduct in the cases were general corporate activity insufficient to establish subject matter jurisdiction. As a result, the Supreme Court remanded the cases for dismissal. On June 28, 2021, the Supreme Court denied CACI’s petition for a writ of certiorari.
On July 16, 2021, the District Court granted CACI’s consent motion to lift the stay of the action, and ordered the parties to submit status reports to the District Court by August 4, 2021. On July 23, 2021, CACI filed a motion to dismiss the action for lack of subject matter jurisdiction based on, among other things, the recent Supreme Court decision in the Nestle and Cargill cases. On August 4, 2021, the parties submitted status reports to the District Court.
On September 10, 2021, the Court conducted a hearing on CACI’s motion to dismiss for lack of subject matter jurisdiction and took the motion under advisement. The Court issued an Order directing the plaintiffs to provide the Court with a calculation of specific damages sought by each plaintiff. In response, plaintiffs advised the Court that, if the case is tried, they do not intend to request a specific amount of damages.
On October 1, 2021, the plaintiffs filed an estimate of compensatory damages between $6.0 million and $9.0 million ($2.0 million to $3.0 million per plaintiff) and an estimate of punitive damages between $23.5 million and $64.0 million.
On July 18, 2022, CACI filed a second motion to dismiss for lack of subject matter jurisdiction based on recent decisions by the Supreme Court. On September 16, 2022, the District Court conducted a hearing on that motion and took the matter under advisement.
Abbass, et al v. CACI Premier Technology, Inc. and CACI International Inc, Case No. 1:13CV1186-LMB/JFA (EDVA)
Reference is made to Part I, Item 3, Legal Proceedings in the Registrant’s Annual Report on Form 10-K for the year ended June 30, 2022 for the most recently filed information concerning the suit filed in the United States District Court for the Eastern District of Virginia. The lawsuit names CACI International Inc and CACI Premier Technology, Inc. as Defendants. Plaintiffs seeks, inter alia, compensatory damages, punitive damages, and attorney’s fees.
Since the filing of Registrant’s report described above, the case remains stayed pending the outcome in the Al Shimari appeal.
We are vigorously defending the above-described legal proceedings, and based on our present knowledge of the facts, believe the lawsuits are completely without merit.
On September 13, 2021, the Court issued an Order directing plaintiffs’ counsel to file a report advising the Court of the status of each plaintiff, and indicating that any plaintiff whom counsel is unable to contact may be dismissed from the action. On October 4, 2021, plaintiffs’ counsel filed a memorandum stating that the action was brought by forty-six plaintiffs, and that plaintiffs’ counsel was in contact with many of the plaintiffs but needed additional time to provide the Court with a final report. On October 4, 2021, the Court entered an Order extending plaintiffs’ response to October 25, 2021. On October 25, 2021, plaintiffs’ counsel filed a memorandum stating that he was in communication with 46 plaintiffs or their representatives.
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Item 1A. R isk Factors
Reference is made to Part I, Item 1A, Risk Factors, in the Registrant’s Annual Report on Form 10-K for the year ended June 30, 2022. There have been no material changes from the risk factors described in that report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides certain information with respect to our purchases of shares of CACI International Inc’s common stock:
Maximum Number of
Total Number Total Number of Shares Purchased As Part of Shares that May Yet Be
of Shares Average Price Publicly Announced Purchased Under the
Period Purchased Paid Per Share Programs Plans or Programs
October 2022 10,064 $ 262.22 1,312,738 187,262
November 2022 — — — —
December 2022 — $ — — —
Total 10,064 1,312,738
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
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Item 6. Exhibits
Incorporated by Reference
Exhibit No. Description Filed with this Form 10-Q Form Filing Date Exhibit No.
10.1 Amendment No. 4 to the Master Accounts Receivable Purchase Agreement dated December 28, 2018, among CACI, International Inc, CACI, Inc.-Federal, certain subsidiaries from time to time party thereto, MUFG Bank, Ltd., as Administrative Agent, and certain purchasers from time to time party thereto 8-K December 28, 2022 10.1
31.1 Section 302 Certification John S. Mengucci X
31.2 Section 302 Certification Jeffrey D. MacLauchlan X
32.1 Section 906 Certification John S. Mengucci X
32.2 Section 906 Certification Jeffrey D. MacLauchlan X
101.INS XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CACI International Inc
Registrant
Date: January 26, 2023 By: /s/ John S. Mengucci
John S. Mengucci
President,
Chief Executive Officer and Director
(Principal Executive Officer)
Date: January 26, 2023 By: /s/ Jeffrey D. MacLauchlan
Jeffrey D. MacLauchlan
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: January 26, 2023 By: /s/ Travis B. Johnson
Travis B. Johnson
Senior Vice President, Corporate Controller
and Chief Accounting Officer
(Principal Accounting Officer)
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