CACI touts enterprise IT push in bid strategy

CACI International’s acquisition last year of the former L-3 National Security Solutions business gave the Arlington, Va.-based contractor an increased footprint into a crowded government enterprise IT market.

The deal also marked a step in CACI’s pivot away from lower-margin staffing work awarded through pass-through material purchases. In its place, CACI eyes more complex jobs involving specialized services for large technology integration projects at agencies and specifically those in the intelligence community.

Company executives reiterated that shift to investors during CACI’s third quarter earnings call Thursday and said a majority of its $10.1 billion in projected bids they expect to submit over the next two quarters through June are in that direction.

“Business systems, enterprise IT, intelligence services and intell systems and support are actually very heavily weighted in (what) we expect to submit by June,” Chief Operating Officer John Mengucci told analysts on the call.

Going back to CACI’s 2013 buy of Six3 Systems, CACI leaders have spoken of their desire to leave behind commoditized service jobs related to conflict or humanitarian events worldwide and focus the portfolio on more technology-focused, “solutions”-type work with higher margins.

This shift for CACI is developing as many of areas in government technology services fell subject to price pressures at agencies during an era of stagnating budgets. That trend came in conjunction with the emergence of commercial companies in the IT market that created a more crowded and competitive marketplace, which also create pricing pressure.

Those pressures led to drove down margins at many large contractors and led them to reconsider how their services businesses fit into the portfolio. L3 Technologies got out first through its sale of the NSS business last year, then Lockheed Martin followed suit through its divestiture of the IS&GS business to Leidos.

“Enterprise IT is still going to be a more commoditized and price-pressured market for federal pure-plays,” Joey Cresta, public sector market analyst at Technology Business Research, told Washington Technology.

Even in that backdrop, Cresta said, the $550 million CACI paid for NSS added $1 billion in revenue over the first year “alone helps to justify the investment.”

“Scale isn’t the end-all, be-all, but it does help generate efficiencies that help companies compete more effectively,” Cresta said. “CACI has demonstrated its ability to bid on and win larger deals since the acquisition. It all comes down to how profitable they can be delivering on those.”

CACI’s third quarter bookings would seemingly indicate progress on that front as the company booked a record $1.4 billion in contract awards. Five straight quarters have seen contract awards of more than $1 billion, the company told investors.

The type of pass-through contracts at CACI that once held a great share in its portfolio are no longer “in our lexicon” as it seeks to get “both enduring and more profitable things,” Mengucci told analysts.

“Going forward that's going to be less how we invest and we'll invest more in higher solution and higher margin businesses,” Mengucci added.

The end game for CACI’s pivot, CEO Ken Asbury said to investors, is “bid less to bid more” on complex jobs and continue being selective on where to go.

“Some have chosen to be elsewhere. Ours is going to be in the core decision analysis pieces of the Department of Defense and the intelligence community as our principal place,” Asbury said. “Also, wherever the government needs to be more efficient in how they do their hiring, financial management and supply chain management are also enduring pieces that have to be modernized over a long period of time.”

Shares in CACI have traded up 9 percent since Wednesday’s close after the contractor lifted its full-year revenue outlook to $4.275-$4.35 billion from the prior $4.15 billion-$4.3 billion range. CACI also boosted earnings expectations to $6.25-$6.49 per share from the previous $6.18-$6.45 forecast.

Third quarter revenue of $1.09 billion topped Wall Street’s consensus $1.04 billion forecast as earnings of $1.61 per share exceeded analysts’ expectations of $1.47 EPS.