CACI's lessons from an uncertain market

In reiterating its guidance for fiscal 2013 and looking ahead to 2014, CACI International shows how current market conditions are forcing companies to adjust how they chase business, new and old.

When a company has its call with analysts about its financial guidance for the year, there is a lot of talk about numbers and the calculations that go into those numbers.

It’s no different for CACI International, which released its guidance for 2014 today. The company is on the cusp of finishing its fiscal 2013, which ends June 30.

The guidance that the company set in the third quarter is unchanged; it expects $3.65 billion to $3.75 billion in revenue, and $151 million to $157 million in net income.

The projection for fiscal 2014 is down slightly, with revenue expected to be $3.5 billion to $3.7 billion, and net income between $142 million to $152 million.

But the story behind the numbers, and how the current market conditions affect a company’s strategy, is something that interests me, so I jumped at the chance to talk to CEO Ken Asbury after the call.

“We took a lot of the learning from fiscal 2013 and applied it to our 2014 plan,” Asbury said.

The impact of an uncertain budget environment was the biggest lesson, particularly delays in contract awards and requests for proposals. The delay factor affects how a company projects revenue going forward and the timing of when it’ll realize that revenue, Asbury told me.

We also talked about what it means to be an incumbent today, and how that illustrates some fundamental ways the market has changed.

According to Asbury, about 65 percent of the CACI’s revenue going forward is accounted for on current contracts and has funding.

Another 10 percent is new business “where we’ll need to take business from someone else,” he said.

But 25 percent of the revenue will come from recompetes where CACI is the incumbent.

CACI projects that it will win 90 percent of its recompetes, but I asked Asbury about stories I’ve heard that being an incumbent isn’t the advantage it used to be.

He didn’t disagree.

“You have to think differently as an incumbent today,” he said. “You have to reset yourself, and if you do that, you should still have an advantage.”

That reset means getting in early and talking to your customers about their needs and how you can help reduce costs and increase efficiencies. And you do that before the contract is up for a recompete, Asbury said.

An advantage that challengers can have is that they are not constrained by the history of a project, and the relationship with the customer. As an outsider, they can come in and propose something new and different.

“Today, you have to act like that person who is unconstrained,” he said. “You have to have an earnest conversation with your customer. If you can’t do that, then you can be at a disadvantage.”

The current market conditions haven’t really changed the company’s overall strategy of focusing on winning recompetes, delivering to the customer, or operational excellence as Asbury called it, and being an strategic acquirer.

But the market conditions affect how the strategy is executed. Our incumbency conversation is one example. Delivery is another.

In the area of delivery, CACI is focused on affordability because that is highly valued by customers, so the company looks at program management, systems engineering, planning processes and other areas that impact affordability, Asbury said.

The company also has focused on its own internal costs, and has looked at facilities, merit increases (none are planned) and how bonuses and stock are granted. “We look at every element of spending,” he said.