Item 1. Financial Statements
CACI INTERNATIONAL INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Revenues |
|
$ |
1,583,980 |
|
|
$ |
1,551,918 |
|
|
$ |
4,560,656 |
|
|
$ |
4,480,135 |
|
Costs of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
|
1,022,181 |
|
|
|
1,000,235 |
|
|
|
2,970,370 |
|
|
|
2,887,300 |
|
Indirect costs and selling expenses |
|
|
402,227 |
|
|
|
369,015 |
|
|
|
1,114,310 |
|
|
|
1,071,826 |
|
Depreciation and amortization |
|
|
34,216 |
|
|
|
31,230 |
|
|
|
99,484 |
|
|
|
93,608 |
|
Total costs of revenues |
|
|
1,458,624 |
|
|
|
1,400,480 |
|
|
|
4,184,164 |
|
|
|
4,052,734 |
|
Income from operations |
|
|
125,356 |
|
|
|
151,438 |
|
|
|
376,492 |
|
|
|
427,401 |
|
Interest expense and other, net |
|
|
9,084 |
|
|
|
8,954 |
|
|
|
30,491 |
|
|
|
28,021 |
|
Income before income taxes |
|
|
116,272 |
|
|
|
142,484 |
|
|
|
346,001 |
|
|
|
399,380 |
|
Income taxes |
|
|
20,855 |
|
|
|
22,140 |
|
|
|
72,176 |
|
|
|
78,914 |
|
Net income |
|
$ |
95,417 |
|
|
$ |
120,344 |
|
|
$ |
273,825 |
|
|
$ |
320,466 |
|
Basic earnings per share |
|
$ |
4.08 |
|
|
$ |
4.83 |
|
|
$ |
11.67 |
|
|
$ |
12.81 |
|
Diluted earnings per share |
|
$ |
4.04 |
|
|
$ |
4.78 |
|
|
$ |
11.56 |
|
|
$ |
12.66 |
|
Weighted-average basic shares outstanding |
|
|
23,409 |
|
|
|
24,935 |
|
|
|
23,457 |
|
|
|
25,026 |
|
Weighted-average diluted shares outstanding |
|
|
23,616 |
|
|
|
25,166 |
|
|
|
23,687 |
|
|
|
25,307 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
3
CACI INTERNATIONAL INC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net income |
|
$ |
95,417 |
|
|
$ |
120,344 |
|
|
$ |
273,825 |
|
|
$ |
320,466 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(5,087 |
) |
|
|
440 |
|
|
|
(11,274 |
) |
|
|
21,946 |
|
Change in fair value of interest rate swap agreements,
net of tax |
|
|
17,361 |
|
|
|
6,467 |
|
|
|
24,999 |
|
|
|
11,363 |
|
Other comprehensive income, net of tax |
|
|
12,274 |
|
|
|
6,907 |
|
|
|
13,725 |
|
|
|
33,309 |
|
Comprehensive income |
|
$ |
107,691 |
|
|
$ |
127,251 |
|
|
$ |
287,550 |
|
|
$ |
353,775 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
4
CACI INTERNATIONAL INC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share data)
|
|
March 31, |
|
|
June 30, |
|
|
|
2022 |
|
|
2021 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
125,074 |
|
|
$ |
88,031 |
|
Accounts receivable, net |
|
|
857,181 |
|
|
|
879,851 |
|
Prepaid expenses and other current assets |
|
|
210,988 |
|
|
|
363,294 |
|
Total current assets |
|
|
1,193,243 |
|
|
|
1,331,176 |
|
Goodwill |
|
|
4,069,954 |
|
|
|
3,632,578 |
|
Intangible assets, net |
|
|
601,464 |
|
|
|
476,106 |
|
Property, plant and equipment, net |
|
|
187,363 |
|
|
|
190,444 |
|
Operating lease right-of-use assets |
|
|
332,844 |
|
|
|
356,887 |
|
Supplemental retirement savings plan assets |
|
|
100,298 |
|
|
|
102,984 |
|
Accounts receivable, long-term |
|
|
11,134 |
|
|
|
12,159 |
|
Other long-term assets |
|
|
80,449 |
|
|
|
70,038 |
|
Total assets |
|
$ |
6,576,749 |
|
|
$ |
6,172,372 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
30,625 |
|
|
$ |
46,920 |
|
Accounts payable |
|
|
218,026 |
|
|
|
148,636 |
|
Accrued compensation and benefits |
|
|
377,456 |
|
|
|
409,275 |
|
Other accrued expenses and current liabilities |
|
|
301,335 |
|
|
|
279,970 |
|
Total current liabilities |
|
|
927,442 |
|
|
|
884,801 |
|
Long-term debt, net of current portion |
|
|
1,823,240 |
|
|
|
1,688,919 |
|
Supplemental retirement savings plan obligations, net of current portion |
|
|
104,644 |
|
|
|
104,490 |
|
Deferred income taxes |
|
|
350,309 |
|
|
|
327,230 |
|
Operating lease liabilities, noncurrent |
|
|
332,338 |
|
|
|
363,302 |
|
Other long-term liabilities |
|
|
77,890 |
|
|
|
138,352 |
|
Total liabilities |
|
$ |
3,615,863 |
|
|
$ |
3,507,094 |
|
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; 42,817 shares
issued and 23,413 outstanding at March 31, 2022 and 42,676 shares
issued and 23,554 outstanding at June 30, 2021 |
|
|
4,282 |
|
|
|
4,268 |
|
Additional paid-in capital |
|
|
563,452 |
|
|
|
484,260 |
|
Retained earnings |
|
|
3,462,912 |
|
|
|
3,189,087 |
|
Accumulated other comprehensive loss |
|
|
(22,566 |
) |
|
|
(36,291 |
) |
Treasury stock, at cost (19,404 and 19,122 shares, respectively) |
|
|
(1,047,329 |
) |
|
|
(976,181 |
) |
Total CACI shareholders’ equity |
|
|
2,960,751 |
|
|
|
2,665,143 |
|
Noncontrolling interest |
|
|
135 |
|
|
|
135 |
|
Total shareholders’ equity |
|
|
2,960,886 |
|
|
|
2,665,278 |
|
Total liabilities and shareholders’ equity |
|
$ |
6,576,749 |
|
|
$ |
6,172,372 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
5
CACI INTERNATIONAL INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
|
2022 |
|
|
2021 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
$ |
273,825 |
|
|
$ |
320,466 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
99,484 |
|
|
|
93,608 |
|
Amortization of deferred financing costs |
|
|
1,712 |
|
|
|
1,743 |
|
Loss on extinguishment of debt |
|
|
891 |
|
|
|
— |
|
Non-cash lease expense |
|
|
51,449 |
|
|
|
57,800 |
|
Stock-based compensation expense |
|
|
23,085 |
|
|
|
23,841 |
|
Deferred income taxes |
|
|
2,813 |
|
|
|
(585 |
) |
Changes in operating assets and liabilities, net of effect of business acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
66,953 |
|
|
|
(18,826 |
) |
Prepaid expenses and other assets |
|
|
(27,227 |
) |
|
|
(27,068 |
) |
Accounts payable and other accrued expenses |
|
|
23,056 |
|
|
|
27,933 |
|
Accrued compensation and benefits |
|
|
(84,466 |
) |
|
|
41,691 |
|
Income taxes payable and receivable |
|
|
201,112 |
|
|
|
10,102 |
|
Operating lease liabilities |
|
|
(54,575 |
) |
|
|
(55,274 |
) |
Long-term liabilities |
|
|
14,901 |
|
|
|
25,085 |
|
Net cash provided by operating activities |
|
|
593,013 |
|
|
|
500,516 |
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(38,742 |
) |
|
|
(51,273 |
) |
Acquisition of businesses, net of cash acquired |
|
|
(615,769 |
) |
|
|
(355,452 |
) |
Other |
|
|
923 |
|
|
|
2,744 |
|
Net cash used in investing activities |
|
|
(653,588 |
) |
|
|
(403,981 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from borrowings under bank credit facilities |
|
|
2,087,095 |
|
|
|
2,478,500 |
|
Principal payments made under bank credit facilities |
|
|
(1,965,386 |
) |
|
|
(2,062,690 |
) |
Payment of financing costs under bank credit facilities |
|
|
(6,286 |
) |
|
|
— |
|
Proceeds from employee stock purchase plans |
|
|
7,398 |
|
|
|
6,840 |
|
Repurchases of common stock |
|
|
(7,301 |
) |
|
|
(506,629 |
) |
Payment of taxes for equity transactions |
|
|
(14,685 |
) |
|
|
(19,567 |
) |
Net cash provided by (used in) financing activities |
|
|
100,835 |
|
|
|
(103,546 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(3,217 |
) |
|
|
5,366 |
|
Net change in cash and cash equivalents |
|
|
37,043 |
|
|
|
(1,645 |
) |
Cash and cash equivalents at beginning of period |
|
|
88,031 |
|
|
|
107,236 |
|
Cash and cash equivalents at end of period |
|
$ |
125,074 |
|
|
$ |
105,591 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash paid (refunds received) during the period for income taxes |
|
$ |
(146,985 |
) |
|
$ |
48,855 |
|
Cash paid during the period for interest |
|
$ |
27,298 |
|
|
$ |
25,405 |
|
Non-cash financing and investing activities: |
|
|
|
|
|
|
|
|
Landlord sponsored tenant incentives |
|
$ |
2,256 |
|
|
$ |
15,468 |
|
Accrued capital expenditures |
|
$ |
952 |
|
|
$ |
1,075 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements
6
CACI INTERNATIONAL INC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
(in thousands)
|
|
Common Stock
Shares Amount |
|
|
Additional
Paid-in
Capital |
|
|
Retained
Earnings |
|
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
|
Treasury Stock
Shares Amount |
|
|
Total CACI
Shareholders’
Equity |
|
|
Noncontrolling
Interest |
|
|
Total
Shareholders’
Equity |
|
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 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
95,417 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
95,417 |
|
|
|
— |
|
|
|
95,417 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
8,387 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,387 |
|
|
|
— |
|
|
|
8,387 |
|
Tax withholdings on restricted share
vestings |
|
|
7 |
|
|
|
1 |
|
|
|
(773 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(772 |
) |
|
|
— |
|
|
|
(772 |
) |
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,274 |
|
|
|
— |
|
|
|
— |
|
|
|
12,274 |
|
|
|
— |
|
|
|
12,274 |
|
Repurchases of common stock |
|
|
— |
|
|
|
— |
|
|
|
(130 |
) |
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
|
(2,176 |
) |
|
|
(2,306 |
) |
|
|
— |
|
|
|
(2,306 |
) |
Treasury stock issued under stock purchase
plans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9 |
) |
|
|
2,176 |
|
|
|
2,176 |
|
|
|
— |
|
|
|
2,176 |
|
Balance at March 31, 2022 |
|
|
42,817 |
|
|
$ |
4,282 |
|
|
$ |
563,452 |
|
|
$ |
3,462,912 |
|
|
$ |
(22,566 |
) |
|
|
19,404 |
|
|
$ |
(1,047,329 |
) |
|
$ |
2,960,751 |
|
|
$ |
135 |
|
|
$ |
2,960,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
|
|
42,663 |
|
|
$ |
4,266 |
|
|
$ |
570,176 |
|
|
$ |
2,931,766 |
|
|
$ |
(45,883 |
) |
|
|
17,432 |
|
|
$ |
(576,181 |
) |
|
$ |
2,884,144 |
|
|
$ |
135 |
|
|
$ |
2,884,279 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
120,344 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
120,344 |
|
|
|
— |
|
|
|
120,344 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
8,800 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,800 |
|
|
|
— |
|
|
|
8,800 |
|
Tax withholdings on restricted share
vestings |
|
|
9 |
|
|
|
1 |
|
|
|
(905 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(904 |
) |
|
|
— |
|
|
|
(904 |
) |
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,907 |
|
|
|
— |
|
|
|
— |
|
|
|
6,907 |
|
|
|
— |
|
|
|
6,907 |
|
Repurchases of common stock |
|
|
— |
|
|
|
— |
|
|
|
(100,032 |
) |
|
|
— |
|
|
|
— |
|
|
|
1,699 |
|
|
|
(402,177 |
) |
|
|
(502,209 |
) |
|
|
— |
|
|
|
(502,209 |
) |
Treasury stock issued under stock purchase
plans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9 |
) |
|
|
2,177 |
|
|
|
2,177 |
|
|
|
— |
|
|
|
2,177 |
|
Balance at March 31, 2021 |
|
|
42,672 |
|
|
$ |
4,267 |
|
|
$ |
478,039 |
|
|
$ |
3,052,110 |
|
|
$ |
(38,976 |
) |
|
|
19,122 |
|
|
$ |
(976,181 |
) |
|
$ |
2,519,259 |
|
|
$ |
135 |
|
|
$ |
2,519,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
273,825 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
273,825 |
|
|
|
— |
|
|
|
273,825 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
23,085 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
23,085 |
|
|
|
— |
|
|
|
23,085 |
|
Tax withholdings on restricted share
vestings |
|
|
141 |
|
|
|
14 |
|
|
|
(14,585 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14,571 |
) |
|
|
— |
|
|
|
(14,571 |
) |
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,725 |
|
|
|
— |
|
|
|
— |
|
|
|
13,725 |
|
|
|
— |
|
|
|
13,725 |
|
Repurchases of common stock |
|
|
— |
|
|
|
— |
|
|
|
70,631 |
|
|
|
— |
|
|
|
— |
|
|
|
310 |
|
|
|
(77,932 |
) |
|
|
(7,301 |
) |
|
|
— |
|
|
|
(7,301 |
) |
Treasury stock issued under stock purchase
plans |
|
|
— |
|
|
|
— |
|
|
|
61 |
|
|
|
— |
|
|
|
— |
|
|
|
(28 |
) |
|
|
6,784 |
|
|
|
6,845 |
|
|
|
— |
|
|
|
6,845 |
|
Balance at March 31, 2022 |
|
|
42,817 |
|
|
$ |
4,282 |
|
|
$ |
563,452 |
|
|
$ |
3,462,912 |
|
|
$ |
(22,566 |
) |
|
|
19,404 |
|
|
$ |
(1,047,329 |
) |
|
$ |
2,960,751 |
|
|
$ |
135 |
|
|
$ |
2,960,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020 |
|
|
42,525 |
|
|
$ |
4,253 |
|
|
$ |
573,744 |
|
|
$ |
2,731,644 |
|
|
$ |
(72,285 |
) |
|
|
17,432 |
|
|
$ |
(576,181 |
) |
|
$ |
2,661,175 |
|
|
$ |
135 |
|
|
$ |
2,661,310 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
320,466 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
320,466 |
|
|
|
— |
|
|
|
320,466 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
23,841 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
23,841 |
|
|
|
— |
|
|
|
23,841 |
|
Tax withholdings on restricted share
vestings |
|
|
147 |
|
|
|
14 |
|
|
|
(19,500 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19,486 |
) |
|
|
— |
|
|
|
(19,486 |
) |
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
33,309 |
|
|
|
— |
|
|
|
— |
|
|
|
33,309 |
|
|
|
— |
|
|
|
33,309 |
|
Repurchases of common stock |
|
|
— |
|
|
|
— |
|
|
|
(100,065 |
) |
|
|
— |
|
|
|
— |
|
|
|
1,721 |
|
|
|
(406,564 |
) |
|
|
(506,629 |
) |
|
|
— |
|
|
|
(506,629 |
) |
Treasury stock issued under stock purchase
plans |
|
|
— |
|
|
|
— |
|
|
|
19 |
|
|
|
— |
|
|
|
— |
|
|
|
(31 |
) |
|
|
6,564 |
|
|
|
6,583 |
|
|
|
— |
|
|
|
6,583 |
|
Balance at March 31, 2021 |
|
|
42,672 |
|
|
$ |
4,267 |
|
|
$ |
478,039 |
|
|
$ |
3,052,110 |
|
|
$ |
(38,976 |
) |
|
|
19,122 |
|
|
$ |
(976,181 |
) |
|
$ |
2,519,259 |
|
|
$ |
135 |
|
|
$ |
2,519,394 |
|
7
CACI INTERNATIONAL INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. |
Basis of Presentation |
The accompanying unaudited 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 March 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. See Notes 10 and 15.
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, 2021. The results of operations for the three and nine months ended March 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 through December 31, 2022, as reference rate reform activities occur. 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.
In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in accordance with acquisition accounting. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company early adopted this standard in fiscal year 2022 and it did not have a material impact on our consolidated financial statements.
8
During the nine months ended March 31, 2022 CACI completed four acquisitions that provide mission and enterprise technology to sensitive government customers. Their capabilities include open source intelligence solutions, specialized cyber, satellite communications, multi-domain photonics technologies for free-space optical (FSO) communications, and commercial solutions for classified (CSfC) security technologies. The aggregate purchase consideration was approximately $609.7 million. The Company preliminarily recognized fair values of the assets acquired and liabilities assumed and allocated $444.6 million to goodwill and $180.6 million to intangible assets. The intangible assets consist of customer relationships of $98.4 million and technology of $82.2 million. The fair value attributed to intangible assets is being amortized on an accelerated basis over a range of approximately 15 to 20 years for customer relationships and over a range of approximately 5 to 10 years for technology. The fair value attributed to the intangible assets acquired was based on assumptions and other information compiled by management, including independent valuations that utilized established valuation techniques. Of the value attributed to goodwill and intangible assets, approximately $492.4 million is deductible for income tax purposes.
Note 4. |
Intangible Assets |
Intangible assets, net including those allocated on a preliminary basis, consisted of the following (in thousands):
|
|
March 31, |
|
|
June 30, |
|
|
|
2022 (1) |
|
|
2021 |
|
Intangible assets: |
|
|
|
|
|
|
|
|
Customer contracts and related customer relationships |
|
$ |
658,475 |
|
|
$ |
601,516 |
|
Acquired technologies |
|
|
280,358 |
|
|
|
198,273 |
|
Intangible assets |
|
|
938,833 |
|
|
|
799,789 |
|
Less accumulated amortization: |
|
|
|
|
|
|
|
|
Customer contracts and related customer relationships |
|
|
(266,260 |
) |
|
|
(276,498 |
) |
Acquired technologies |
|
|
(71,109 |
) |
|
|
(47,185 |
) |
Less accumulated amortization |
|
|
(337,369 |
) |
|
|
(323,683 |
) |
Total intangible assets, net |
|
$ |
601,464 |
|
|
$ |
476,106 |
|
|
(1) |
During the nine months ended March 31, 2022, the Company removed $40.9 million in fully amortized intangible assets. |
Intangible assets are primarily amortized on an accelerated basis over periods ranging from one to twenty years. The weighted-average period of amortization for all customer contracts and related customer relationships as of March 31, 2022 is 18 years, and the weighted-average remaining period of amortization is 15 years. The weighted-average period of amortization for acquired technologies as of March 31, 2022 is 10 years, and the weighted-average remaining period of amortization is 9 years.
Amortization expense was $19.3 million and $54.9 million for the three and nine months ended March 31, 2022, respectively, and $17.0 million and $50.6 million for the three and nine months ended March 31, 2021, respectively. The estimated annual amortization expense as of March 31, 2022 was as follows (in thousands):
Fiscal year ending June 30, |
|
Amount |
|
2022 (remainder of year) |
|
$ |
19,209 |
|
2023 |
|
|
75,506 |
|
2024 |
|
|
72,035 |
|
2025 |
|
|
67,872 |
|
2026 |
|
|
60,242 |
|
2027 and thereafter |
|
|
306,600 |
|
|
|
$ |
601,464 |
|
9
The changes in the carrying amount of goodwill for the nine months ended March 31, 2022 are as follows (in thousands):
|
|
Domestic |
|
|
International |
|
|
Total |
|
Balance at June 30, 2021 |
|
$ |
3,491,747 |
|
|
$ |
140,831 |
|
|
$ |
3,632,578 |
|
Goodwill acquired (1) |
|
|
444,648 |
|
|
|
— |
|
|
|
444,648 |
|
Foreign currency translation |
|
|
(41 |
) |
|
|
(7,231 |
) |
|
|
(7,272 |
) |
Balance at March 31, 2022 |
|
$ |
3,936,354 |
|
|
$ |
133,600 |
|
|
$ |
4,069,954 |
|
|
(1) |
Includes goodwill initially allocated to new business combinations as well as measurement period adjustments, when applicable. |
Note 6. |
Revenues from Contracts with Customers |
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 |
|
|
Nine Months Ended |
|
|
|
March 31, 2022 |
|
|
March 31, 2022 |
|
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
Domestic |
|
|
International |
|
|
Total |
|
Cost-plus-fee |
|
$ |
889,624 |
|
|
$ |
— |
|
|
$ |
889,624 |
|
|
$ |
2,672,695 |
|
|
$ |
— |
|
|
$ |
2,672,695 |
|
Fixed-price |
|
|
468,116 |
|
|
|
35,058 |
|
|
|
503,174 |
|
|
|
1,242,601 |
|
|
|
101,568 |
|
|
|
1,344,169 |
|
Time-and-materials |
|
|
175,140 |
|
|
|
16,042 |
|
|
|
191,182 |
|
|
|
499,556 |
|
|
|
44,236 |
|
|
|
543,792 |
|
Total |
|
$ |
1,532,880 |
|
|
$ |
51,100 |
|
|
$ |
1,583,980 |
|
|
$ |
4,414,852 |
|
|
$ |
145,804 |
|
|
$ |
4,560,656 |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, 2021 |
|
|
March 31, 2021 |
|
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
Domestic |
|
|
International |
|
|
Total |
|
Cost-plus-fee |
|
$ |
905,774 |
|
|
$ |
— |
|
|
$ |
905,774 |
|
|
$ |
2,572,967 |
|
|
$ |
— |
|
|
$ |
2,572,967 |
|
Fixed-price |
|
|
424,580 |
|
|
|
32,519 |
|
|
|
457,099 |
|
|
|
1,245,278 |
|
|
|
86,456 |
|
|
|
1,331,734 |
|
Time-and-materials |
|
|
174,683 |
|
|
|
14,362 |
|
|
|
189,045 |
|
|
|
532,039 |
|
|
|
43,395 |
|
|
|
575,434 |
|
Total |
|
$ |
1,505,037 |
|
|
$ |
46,881 |
|
|
$ |
1,551,918 |
|
|
$ |
4,350,284 |
|
|
$ |
129,851 |
|
|
$ |
4,480,135 |
|
Disaggregated revenues by customer type were as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, 2022 |
|
|
March 31, 2022 |
|
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
Domestic |
|
|
International |
|
|
Total |
|
Department of Defense |
|
$ |
1,118,665 |
|
|
$ |
— |
|
|
$ |
1,118,665 |
|
|
$ |
3,155,806 |
|
|
$ |
— |
|
|
$ |
3,155,806 |
|
Federal Civilian agencies |
|
|
380,837 |
|
|
|
— |
|
|
|
380,837 |
|
|
|
1,166,398 |
|
|
|
— |
|
|
|
1,166,398 |
|
Commercial and other |
|
|
33,378 |
|
|
|
51,100 |
|
|
|
84,478 |
|
|
|
92,648 |
|
|
|
145,804 |
|
|
|
238,452 |
|
Total |
|
$ |
1,532,880 |
|
|
$ |
51,100 |
|
|
$ |
1,583,980 |
|
|
$ |
4,414,852 |
|
|
$ |
145,804 |
|
|
$ |
4,560,656 |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, 2021 |
|
|
March 31, 2021 |
|
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
Domestic |
|
|
International |
|
|
Total |
|
Department of Defense |
|
$ |
1,074,056 |
|
|
$ |
— |
|
|
$ |
1,074,056 |
|
|
$ |
3,091,126 |
|
|
$ |
— |
|
|
$ |
3,091,126 |
|
Federal Civilian agencies |
|
|
405,855 |
|
|
|
— |
|
|
|
405,855 |
|
|
|
1,186,068 |
|
|
|
— |
|
|
|
1,186,068 |
|
Commercial and other |
|
|
25,126 |
|
|
|
46,881 |
|
|
|
72,007 |
|
|
|
73,090 |
|
|
|
129,851 |
|
|
|
202,941 |
|
Total |
|
$ |
1,505,037 |
|
|
$ |
46,881 |
|
|
$ |
1,551,918 |
|
|
$ |
4,350,284 |
|
|
$ |
129,851 |
|
|
$ |
4,480,135 |
|
10
Disaggregated revenues by prime vs. subcontractor were as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, 2022 |
|
|
March 31, 2022 |
|
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
Domestic |
|
|
International |
|
|
Total |
|
Prime contractor |
|
$ |
1,373,045 |
|
|
$ |
46,760 |
|
|
$ |
1,419,805 |
|
|
$ |
3,964,227 |
|
|
$ |
132,983 |
|
|
$ |
4,097,210 |
|
Subcontractor |
|
|
159,835 |
|
|
|
4,340 |
|
|
|
164,175 |
|
|
|
450,625 |
|
|
|
12,821 |
|
|
|
463,446 |
|
Total |
|
$ |
1,532,880 |
|
|
$ |
51,100 |
|
|
$ |
1,583,980 |
|
|
$ |
4,414,852 |
|
|
$ |
145,804 |
|
|
$ |
4,560,656 |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, 2021 |
|
|
March 31, 2021 |
|
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
Domestic |
|
|
International |
|
|
Total |
|
Prime contractor |
|
$ |
1,358,423 |
|
|
$ |
43,210 |
|
|
$ |
1,401,633 |
|
|
$ |
3,935,661 |
|
|
$ |
119,835 |
|
|
$ |
4,055,496 |
|
Subcontractor |
|
|
146,614 |
|
|
|
3,671 |
|
|
|
150,285 |
|
|
|
414,623 |
|
|
|
10,016 |
|
|
|
424,639 |
|
Total |
|
$ |
1,505,037 |
|
|
$ |
46,881 |
|
|
$ |
1,551,918 |
|
|
$ |
4,350,284 |
|
|
$ |
129,851 |
|
|
$ |
4,480,135 |
|
Disaggregated revenues by expertise or technology were as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, 2022 |
|
|
March 31, 2022 |
|
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
Domestic |
|
|
International |
|
|
Total |
|
Expertise |
|
$ |
697,347 |
|
|
$ |
18,852 |
|
|
$ |
716,199 |
|
|
$ |
2,049,180 |
|
|
$ |
56,374 |
|
|
$ |
2,105,554 |
|
Technology |
|
|
835,533 |
|
|
|
32,248 |
|
|
|
867,781 |
|
|
|
2,365,672 |
|
|
|
89,430 |
|
|
|
2,455,102 |
|
Total |
|
$ |
1,532,880 |
|
|
$ |
51,100 |
|
|
$ |
1,583,980 |
|
|
$ |
4,414,852 |
|
|
$ |
145,804 |
|
|
$ |
4,560,656 |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, 2021 |
|
|
March 31, 2021 |
|
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
Domestic |
|
|
International |
|
|
Total |
|
Expertise |
|
$ |
745,440 |
|
|
$ |
18,979 |
|
|
$ |
764,419 |
|
|
$ |
2,184,449 |
|
|
$ |
52,929 |
|
|
$ |
2,237,378 |
|
Technology |
|
|
759,597 |
|
|
|
27,902 |
|
|
|
787,499 |
|
|
|
2,165,835 |
|
|
|
76,922 |
|
|
|
2,242,757 |
|
Total |
|
$ |
1,505,037 |
|
|
$ |
46,881 |
|
|
$ |
1,551,918 |
|
|
$ |
4,350,284 |
|
|
$ |
129,851 |
|
|
$ |
4,480,135 |
|
Changes in Estimates
The Company recognizes revenues on many of its fixed price, award fee, and incentive fee arrangements over time primarily using a cost-to-cost input method based on the ratio of costs incurred to date to total estimated costs at completion. The process requires the Company to use professional judgment when assessing risks, estimating contract revenues and costs, estimating variable consideration, and making assumptions for schedule and technical issues. The Company periodically reassesses its assumptions and updates its estimates as needed. When estimates of total costs to be incurred on a contract exceed total revenues, a provision for the entire loss on the contract is recorded in the period in which the loss is determined.
Aggregate net changes in estimates for the three and nine months ended March 31, 2022 reflected an increase to income before income taxes of $13.0 million ($0.40 per diluted share) and $21.2 million ($0.66 per diluted share), respectively, compared with $10.7 million ($0.31 per diluted share) and $36.6 million ($1.06 per diluted share), for the three and nine months ended March 31, 2021, respectively. 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 nine months ended March 31, 2022 compared to $0.7 million and $2.3 million for the three and nine months ended March 31, 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.
11
Remaining Performance Obligations
Remaining performance obligations (RPO) represent the expected revenues to be recognized for the satisfaction of remaining performance obligations on existing contracts. This balance excludes unexercised contract option years and task orders that may be issued underneath an Indefinite Delivery/Indefinite Quantity (IDIQ) vehicle until such task orders are awarded. The RPO balance generally increases with the execution of new contracts and converts into revenues as contractual performance obligations are satisfied. The Company continues to monitor this balance as it is subject to change from execution of new contracts, contract modifications or extensions, government deobligations, or early terminations.
As of March 31, 2022, the Company had $6.8 billion of RPO and expects to recognize approximately 90 percent over the next twelve months with the remainder to be recognized thereafter.
Note 7. |
Contract Balances |
Contract balances consisted of the following (in thousands):
|
|
|
|
March 31, |
|
|
June 30, |
|
Description of Contract Related Balance |
|
Financial Statement Classification |
|
2022 |
|
|
2021 |
|
Billed and billable receivables |
|
Accounts receivable, net |
|
$ |
720,032 |
|
|
$ |
763,921 |
|
Contract assets – current unbilled receivables |
|
Accounts receivable, net |
|
|
137,149 |
|
|
|
115,930 |
|
Contract assets – current costs to obtain |
|
Prepaid expenses and other current assets |
|
|
4,907 |
|
|
|
4,144 |
|
Contract assets – noncurrent unbilled receivables |
|
Accounts receivable, long-term |
|
|
11,134 |
|
|
|
12,159 |
|
Contract assets – noncurrent costs to obtain |
|
Other long-term assets |
|
|
10,925 |
|
|
|
9,584 |
|
Contract liabilities – current deferred
revenue and other contract liabilities |
|
Other accrued expenses and current liabilities |
|
|
(104,730 |
) |
|
|
(70,907 |
) |
Contract liabilities – noncurrent deferred
revenue and other contract liabilities |
|
Other long-term liabilities |
|
|
(7,906 |
) |
|
|
(6,837 |
) |
During the three and nine months ended March 31, 2022, the Company recognized $4.1 million and $72.4 million of revenues, respectively, compared with $4.2 million and $57.1 million of revenues for the three and nine months ended March 31, 2021, respectively, that was included in a previously recorded contract liability as of the beginning of the period.
Inventories consisted of the following (in thousands):
|
|
March 31, |
|
|
June 30, |
|
|
|
2022 |
|
|
2021 |
|
Materials, purchased parts and supplies |
|
$ |
55,050 |
|
|
$ |
52,615 |
|
Work in process |
|
|
16,307 |
|
|
|
11,353 |
|
Finished goods |
|
|
26,324 |
|
|
|
15,728 |
|
Total |
|
$ |
97,681 |
|
|
$ |
79,696 |
|
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. The Company periodically assesses its current inventory balances and records a provision for damaged, deteriorated, or obsolete inventory based on historical patterns and forecasted sales.
Note 9. |
Sales of Receivables |
On December 23, 2021, the Company amended its Master Accounts Receivable Purchase Agreement (MARPA) with MUFG Bank, Ltd. (the Purchaser), for the sale of certain designated eligible U.S. government receivables. The amendment extended the term of the MARPA to December 22, 2022. 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.
12
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 March 31, 2022. Proceeds from the sold receivables are reflected in operating cash flows on the statement of cash flows.
MARPA activity consisted of the following (in thousands):
|
|
As of and for the Nine Months Ended |
|
|
|
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Beginning balance: |
|
$ |
182,027 |
|
|
$ |
200,000 |
|
Sales of receivables |
|
|
2,041,215 |
|
|
|
2,048,585 |
|
Cash collections |
|
|
(2,065,575 |
) |
|
|
(2,058,725 |
) |
Outstanding balance sold to Purchaser: (1) |
|
|
157,667 |
|
|
|
189,860 |
|
Cash collected, not remitted to Purchaser (2) |
|
|
(17,491 |
) |
|
|
(76,388 |
) |
Remaining sold receivables |
|
$ |
140,176 |
|
|
$ |
113,472 |
|
|
(1) |
For the nine months ended March 31, 2022 and 2021, the Company recorded a net cash outflow of $24.4 million and a net cash outflow of $10.1 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 the Purchaser as of March 31, 2022 and 2021. This balance is included in other accrued expenses and current liabilities as of the balance sheet date. |
Long-term debt consisted of the following (in thousands):
|
|
March 31, |
|
|
June 30, |
|
|
|
2022 |
|
|
2021 |
|
Bank credit facility – term loans |
|
$ |
1,217,344 |
|
|
$ |
797,635 |
|
Bank credit facility – revolver loans |
|
|
647,000 |
|
|
|
945,000 |
|
Principal amount of long-term debt |
|
|
1,864,344 |
|
|
|
1,742,635 |
|
Less unamortized discounts and debt issuance costs |
|
|
(10,479 |
) |
|
|
(6,796 |
) |
Total long-term debt |
|
|
1,853,865 |
|
|
|
1,735,839 |
|
Less current portion |
|
|
(30,625 |
) |
|
|
(46,920 |
) |
Long-term debt, net of current portion |
|
$ |
1,823,240 |
|
|
$ |
1,688,919 |
|
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 March 31, 2022, the Company had $647.0 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 March 31, 2022, the Company had $1,217.3 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 leverage ratio. As of March 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 2.09 percent.
13
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 March 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.
The aggregate maturities of long-term debt at March 31, 2022 were as follows (in thousands):
Twelve months ending March 31, |
|
|
|
|
2023 |
|
$ |
30,625 |
|
2024 |
|
|
38,281 |
|
2025 |
|
|
61,250 |
|
2026 |
|
|
61,250 |
|
2027 |
|
|
1,672,938 |
|
Principal amount of long-term debt |
|
|
1,864,344 |
|
Less unamortized discounts and debt issuance costs |
|
|
(10,479 |
) |
Total long-term debt |
|
$ |
1,853,865 |
|
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 nine months ended March 31, 2022 and 2021 is as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Gain (loss) recognized in other comprehensive income |
|
$ |
14,761 |
|
|
$ |
2,945 |
|
|
$ |
15,947 |
|
|
$ |
757 |
|
Amounts reclassified to earnings from accumulated other
comprehensive loss |
|
|
2,600 |
|
|
|
3,522 |
|
|
|
9,052 |
|
|
|
10,606 |
|
Net current period other comprehensive income |
|
$ |
17,361 |
|
|
$ |
6,467 |
|
|
$ |
24,999 |
|
|
$ |
11,363 |
|
Note 11. |
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.
14
Government Contracting
Payments to the Company on cost-plus-fee and T&M 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 2020. The Company is still negotiating the results of prior years’ audits with the respective cognizant contracting officers and believe 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 12. |
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 |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net income |
|
$ |
95,417 |
|
|
$ |
120,344 |
|
|
$ |
273,825 |
|
|
$ |
320,466 |
|
Weighted-average number of basic shares outstanding
during the period |
|
|
23,409 |
|
|
|
24,935 |
|
|
|
23,457 |
|
|
|
25,026 |
|
Dilutive effect of RSUs after application of treasury
stock method |
|
|
207 |
|
|
|
231 |
|
|
|
230 |
|
|
|
281 |
|
Weighted-average number of diluted shares outstanding
during the period |
|
|
23,616 |
|
|
|
25,166 |
|
|
|
23,687 |
|
|
|
25,307 |
|
Basic earnings per share |
|
$ |
4.08 |
|
|
$ |
4.83 |
|
|
$ |
11.67 |
|
|
$ |
12.81 |
|
Diluted earnings per share |
|
$ |
4.04 |
|
|
$ |
4.78 |
|
|
$ |
11.56 |
|
|
$ |
12.66 |
|
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 the resolution of these examinations to have a material impact on its results of operations, financial condition or cash flows.
The Company’s total liability for unrecognized tax benefits as of March 31, 2022 and June 30, 2021 was $46.0 million and $31.5 million, respectively. During the quarter, the Company recognized an increase in the liability for unrecognized tax benefits related to an increase in research and development tax credits. The $46.0 million unrecognized tax benefit at March 31, 2022, if recognized, would positively impact the Company’s effective tax rate.
The Company’s effective income tax rate was 17.9 percent and 20.9 percent for the three and nine months ended March 31, 2022, respectively, and 15.5 percent and 19.8 percent for the three and nine months ended March 31, 2021, respectively. Increases in the effective income tax rate were primarily due to the fact that comparative periods include additional research and development credits for prior year tax filings.
On January 1, 2022, a provision of the Tax Cuts and Jobs Act of 2017 went into effect which eliminates the option to deduct domestic research and development costs in the year incurred and instead requires taxpayers to amortize such costs over five years. The House Ways and Means Committee has proposed tax legislation to delay the effective date of this change to 2026, but it is uncertain whether the proposed delay will ultimately be enacted into law. If no new legislation is passed, the provision would go into effect for the Company’s fiscal year 2023 and is expected to decrease cash flows from operations and increase net deferred tax assets by a similar amount. The Company is currently evaluating the potential impact on cash flows from operations.
Note 14. |
Business Segment Information |
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.
15
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 |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
1,532,880 |
|
|
$ |
1,505,037 |
|
|
$ |
4,414,852 |
|
|
$ |
4,350,284 |
|
International |
|
|
51,100 |
|
|
|
46,881 |
|
|
|
145,804 |
|
|
|
129,851 |
|
Total revenues |
|
$ |
1,583,980 |
|
|
$ |
1,551,918 |
|
|
$ |
4,560,656 |
|
|
$ |
4,480,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
87,543 |
|
|
$ |
113,536 |
|
|
$ |
252,647 |
|
|
$ |
301,594 |
|
International |
|
|
7,874 |
|
|
|
6,808 |
|
|
|
21,178 |
|
|
|
18,872 |
|
Total net income |
|
$ |
95,417 |
|
|
$ |
120,344 |
|
|
$ |
273,825 |
|
|
$ |
320,466 |
|
Note 15. |
Fair Value of Financial Instruments |
ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
The Company’s financial assets and liabilities recorded at fair value on a recurring basis are categorized based on the priority of the inputs used to measure fair value. The inputs used in measuring fair value are categorized into three levels, as follows:
|
• |
Level 1 Inputs – unadjusted quoted prices in active markets for identical assets or liabilities. |
|
• |
Level 2 Inputs – unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. |
|
• |
Level 3 Inputs – amounts derived from valuation models in which unobservable inputs reflect the reporting entity’s own assumptions about the assumptions of market participants that would be used in pricing the asset or liability. |
The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and June 30, 2021, and the level they fall within the fair value hierarchy (in thousands):
|
|
|
|
|
|
March 31, |
|
|
June 30, |
|
|
|
Financial Statement |
|
Fair Value |
|
2022 |
|
|
2021 |
|
Description of Financial Instrument |
|
Classification |
|
Hierarchy |
|
Fair Value |
|
Interest rate swap agreements |
|
Other long-term assets |
|
Level 2 |
|
$ |
9,112 |
|
|
$ |
— |
|
Interest rate swap agreements |
|
Other accrued expenses and
current liabilities |
|
Level 2 |
|
$ |
390 |
|
|
$ |
1,028 |
|
Interest rate swap agreements |
|
Other long-term liabilities |
|
Level 2 |
|
$ |
671 |
|
|
$ |
24,838 |
|
Changes in the fair value of the interest rate swap agreements are recorded as a component of accumulated other comprehensive income or loss.
Note 16. |
Accelerated Share Repurchase |
On March 12, 2021, the Company entered into an accelerated share repurchase agreement (ASR Agreement) with JPMorgan Chase Bank, National Association (JPMorgan). Under the ASR Agreement, the Company paid $500.0 million to JPMorgan and received an initial delivery of 1.7 million shares of common stock which became treasury shares. During the nine months ended March 31, 2022, the ASR Agreement was completed and an additional 0.3 million shares of common stock were received which became treasury shares. In total, 2.0 million shares were repurchased at an average price per share of $253.47.
16
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; |
• |
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. This includes digital solutions (e.g., business systems, agency-unique agency-enabling applications, investigative solutions) and enterprise information technology (IT) including networks, infrastructure, IT systems and support. |
17
• |
Mission – CACI provides capabilities that enable the execution of a government agency’s primary function, or “mission”. This includes mission support, engineering services, C4ISR (command and control, communications, intelligence, surveillance, and reconnaissance) and cyber operations for land, air, sea, and space domains. |
• |
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, informed by Expertise, 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 March 15, 2022, the President signed the into law the omnibus appropriations bill that provides full-year funding for the government fiscal year ending September 30, 2022 (GFY22). Of the total approximately $1.5 trillion in discretionary funding, approximately $782 billion is for national defense and approximately $730 billion is for nondefense. These defense and nondefense funding levels represent increases of 5.6% and 6.7%, respectively, over GFY21 enacted levels. GFY22 defense spending in fact increased both over the President’s GFY22 budget request and the National Defense Authorization Act (NDAA) passed by Congress on December 27, 2021. Defense spending has generally increased over the last several years, and given the current global threat environment, including the conflict in Ukraine, this trend is likely to continue in GFY23. In fact, the President’s initial GFY23 budget proposal calls for an increase in aggregate defense spending of approximately 4% from GFY22 levels. In addition, funding for intelligence programs, including Military Intelligence Programs (MIP) and National Intelligence Programs (NIP), as well as cybersecurity-related programs, is also projected to increase in both GFY22 and GFY23.
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). On September 30, 2021, the President signed a CR, a temporary measure allowing the government to continue operations through December 3, 2021 at prior year funding levels. A second CR was signed on December 3, 2021 that funded government operations through February 18, 2022, and a third CR was signed on February 18, 2022 to fund government operations until the final omnibus bill was passed and signed.
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.
Impact of COVID-19
We continue to take steps to mitigate the impact of COVID-19 on our employees and our business. The impact of the continued spread of COVID-19 on our business will depend on future developments, which are uncertain and cannot be predicted, as well as other known factors outside our control. The surge of the Omicron variant of COVID-19, for example, resulted in increased positive cases broadly, including within the employee base of some of our government customers. As a result, some of our government customers have limited in-person meetings, reduced access to customer facilities, and seen impacts to the normal operation of their business. We continue to work with our customers to implement appropriate risk mitigation efforts and alternative work arrangements, as necessary. The surge of Omicron and other COVID-19 variants, both in and outside the U.S., also continues to be one of many reasons for continued supply chain shortages.
18
Market Environment
Across our addressable market, 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 $240 billion. Our addressable market is expected to continue to grow over the next several years. Approximately 70 percent 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; |
• |
A shift in focus from readiness toward increased capabilities, effectiveness, and responsiveness; |
• |
Increased focus on cyber, space, and the electromagnetic spectrum as key domains for National Security; |
• |
Increased investments in advanced technologies (e.g., Artificial Intelligence, 5G), particularly software-based technologies; |
• |
Balanced focus on enterprise cost reductions through efficiency, with increased spend on network and application modernization and enhancements to cyber security protections; |
• |
Increasing focus on near-peer competitors and other nation state threats; |
• |
Continued focus on counterterrorism, counterintelligence, and counter proliferation as key U.S. security concerns; and |
• |
Increased USG interest in faster contracting and acquisition processes. |
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.
19
Results of Operations for the Three and nine Months Ended March 31, 2022 and 2021
The following table provides our results of operations (in thousands):
|
|
Dollar Amount |
|
|
|
|
|
|
|
|
|
|
Dollar Amount |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Change |
|
|
March 31, |
|
|
Change |
|
|
|
2022 |
|
|
2021 |
|
|
Dollar |
|
|
Percent |
|
|
2022 |
|
|
2021 |
|
|
Dollar |
|
|
Percent |
|
Revenues |
|
$ |
1,583,980 |
|
|
$ |
1,551,918 |
|
|
$ |
32,062 |
|
|
2.1% |
|
|
$ |
4,560,656 |
|
|
$ |
4,480,135 |
|
|
$ |
80,521 |
|
|
1.8% |
|
Costs of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
|
1,022,181 |
|
|
|
1,000,235 |
|
|
|
21,946 |
|
|
2.2% |
|
|
|
2,970,370 |
|
|
|
2,887,300 |
|
|
|
83,070 |
|
|
2.9% |
|
Indirect costs and selling expenses |
|
|
402,227 |
|
|
|
369,015 |
|
|
|
33,212 |
|
|
9.0% |
|
|
|
1,114,310 |
|
|
|
1,071,826 |
|
|
|
42,484 |
|
|
4.0% |
|
Depreciation and amortization |
|
|
34,216 |
|
|
|
31,230 |
|
|
|
2,986 |
|
|
9.6% |
|
|
|
99,484 |
|
|
|
93,608 |
|
|
|
5,876 |
|
|
6.3% |
|
Total costs of revenues |
|
|
1,458,624 |
|
|
|
1,400,480 |
|
|
|
58,144 |
|
|
4.2% |
|
|
|
4,184,164 |
|
|
|
4,052,734 |
|
|
|
131,430 |
|
|
3.2% |
|
Income from operations |
|
|
125,356 |
|
|
|
151,438 |
|
|
|
(26,082 |
) |
|
(17.2)% |
|
|
|
376,492 |
|
|
|
427,401 |
|
|
|
(50,909 |
) |
|
(11.9)% |
|
Interest expense and other, net |
|
|
9,084 |
|
|
|
8,954 |
|
|
|
130 |
|
|
1.5% |
|
|
|
30,491 |
|
|
|
28,021 |
|
|
|
2,470 |
|
|
8.8% |
|
Income before income taxes |
|
|
116,272 |
|
|
|
142,484 |
|
|
|
(26,212 |
) |
|
(18.4)% |
|
|
|
346,001 |
|
|
|
399,380 |
|
|
|
(53,379 |
) |
|
(13.4)% |
|
Income taxes |
|
|
20,855 |
|
|
|
22,140 |
|
|
|
(1,285 |
) |
|
(5.8)% |
|
|
|
72,176 |
|
|
|
78,914 |
|
|
|
(6,738 |
) |
|
(8.5)% |
|
Net income |
|
$ |
95,417 |
|
|
$ |
120,344 |
|
|
$ |
(24,927 |
) |
|
(20.7)% |
|
|
$ |
273,825 |
|
|
$ |
320,466 |
|
|
$ |
(46,641 |
) |
|
(14.6)% |
|
Revenues. The increase in revenues for the three and nine months ended March 31, 2022, as compared to the three and nine months ended March 31, 2021, was primarily attributable to revenues from the four acquisitions completed in fiscal year 2022.
The following table summarizes revenues by customer type with related percentages of revenues for the three and nine months ended March 31, 2022 and 2021, respectively (in thousands):
|
|
Dollar Amount |
|
|
|
|
|
|
|
|
|
|
Dollar Amount |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Change |
|
|
March 31, |
|
|
Change |
|
|
|
2022 |
|
|
2021 |
|
|
Dollar |
|
|
Percent |
|
|
2022 |
|
|
2021 |
|
|
Dollar |
|
|
Percent |
|
Department of Defense |
|
$ |
1,118,665 |
|
|
$ |
1,074,056 |
|
|
$ |
44,609 |
|
|
4.2% |
|
|
$ |
3,155,806 |
|
|
$ |
3,091,126 |
|
|
$ |
64,680 |
|
|
2.1% |
|
Federal Civilian Agencies |
|
|
380,837 |
|
|
|
405,855 |
|
|
|
(25,018 |
) |
|
(6.2)% |
|
|
|
1,166,398 |
|
|
|
1,186,068 |
|
|
|
(19,670 |
) |
|
(1.7)% |
|
Commercial and other |
|
|
84,478 |
|
|
|
72,007 |
|
|
|
12,471 |
|
|
17.3% |
|
|
|
238,452 |
|
|
|
202,941 |
|
|
|
35,511 |
|
|
17.5% |
|
Total |
|
$ |
1,583,980 |
|
|
$ |
1,551,918 |
|
|
$ |
32,062 |
|
|
2.1% |
|
|
$ |
4,560,656 |
|
|
$ |
4,480,135 |
|
|
$ |
80,521 |
|
|
1.8% |
|
• |
DoD revenues includes services and products provided to the U.S. Army, our single largest customer, where our services focus on supporting readiness, tactical military intelligence, and communications systems. DoD revenues also includes contracts with the U.S. Navy and other DoD agencies. |
• |
Federal civilian agencies’ revenues primarily includes services and products 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 includes services and products 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 nine months ended March 31, 2022, as compared to the three and nine months ended March 31, 2021, was primarily attributable to the four acquisitions completed in fiscal 2022. As a percentage of revenue, direct costs were 64.5 percent and 65.1 percent for the three and nine months ended March 31, 2022, respectively and 64.5 percent and 64.4 percent for the three and nine months ended March 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 nine months ended March 31, 2022, as compared to the three and nine months ended March 31, 2021, was primarily attributable to the four acquisitions completed in fiscal year 2022 and to an increase in fringe benefit, conference, and travel expenses. As a percentage of revenue, indirect costs and selling expenses were 25.4 percent and 24.4 percent for the three and nine months ended March 31, 2022, respectively and 23.8 percent and 23.9 percent for the three and nine months ended March 31, 2021, respectively.
Depreciation and Amortization. The increase in depreciation and amortization for the three and nine months ended March 31, 2022, as compared to the three and nine months ended March 31, 2021, was primarily attributable to intangible amortization from the four acquisitions in fiscal year 2022.
20
Interest Expense and Other, Net. The increase in interest expense and other, net for the three and nine months ended March 31, 2022, as compared to the three and nine months ended March 31, 2021, was primarily attributable to higher average outstanding debt balances and the write-off of unamortized deferred financing costs related to the December 13, 2021 Credit Facility amendment.
Income Tax Expense. The income tax provisions represent an effective tax rate of 17.9 percent and 20.9 percent for the three and nine months ended March 31, 2022, respectively and 15.5 percent and 19.8 percent for the three and nine months ended March 31, 2021, respectively. Increases in the effective income tax rates were primarily due to the fact that the comparative periods included additional research and development credits for prior year tax filings.
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 March 31, 2022, the Company had total backlog of $23.5 billion, compared with $22.3 billion a year ago, an increase of 5.4 percent. Contract awards were $1.2 billion for the three months ended March 31, 2022. Funded backlog as of March 31, 2022 was $2.8 billion, compared with $3.0 billion a year ago, a decrease of 6.7 percent. The total backlog consists of remaining performance obligations (see Note 6) 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 9) and available borrowings under our Credit Facility (as defined in Note 10) 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 March 31, 2022, we had $647.0 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 March 31, 2022, $1,217.3 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 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.
21
A summary of the change in cash and cash equivalents is presented below (in thousands):
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Net cash provided by operating activities |
|
$ |
593,013 |
|
|
$ |
500,516 |
|
Net cash used in investing activities |
|
|
(653,588 |
) |
|
|
(403,981 |
) |
Net cash provided by (used in) financing activities |
|
|
100,835 |
|
|
|
(103,546 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(3,217 |
) |
|
|
5,366 |
|
Net change in cash and cash equivalents |
|
$ |
37,043 |
|
|
$ |
(1,645 |
) |
Net cash provided by operating activities increased $92.5 million for the nine months ended March 31, 2022, when compared to the nine months ended March 31, 2021, primarily as a result of a $195.8 million reduction in cash paid for income taxes, partially offset by a $52.5 million benefit in the prior year from deferrals of employer related social security taxes under the CARES Act compared to a payment of $46.5 million in the current year.
Net cash used in investing activities increased $249.6 million for the nine months ended March 31, 2022, when compared to the nine months ended March 31, 2021, primarily as a result of a $260.3 million increase in cash used in acquisitions of businesses partially offset by a $12.5 million reduction in capital expenditures.
Net cash provided by financing activities increased $204.4 million for the nine months ended March 31, 2022, when compared to the nine months ended March 31, 2021, primarily as a result of a $499.3 million reduction in repurchases of common stock, partially offset by a $294.1 million decrease in net borrowings 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, 2021.
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 nine months ended March 31, 2022 would have fluctuated by approximately $9.1 million.
Approximately 3.2 percent and 2.9 percent of our total revenues during the nine months ended March 31, 2022 and 2021, respectively, were 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 March 31, 2022, we held a combination of euros and pounds sterling in the U.K. and the Netherlands equivalent to approximately $65.6 million. This allows us to better utilize our cash resources on behalf of our foreign subsidiaries, thereby mitigating foreign currency conversion risks.
22