How CACI plans to spend its tax cut

The new tax reform legislation widely anticipated as a boon for government services companies gives CACI International additional runway for reinvestment in employees, company executives said Thursday.

Speaking on CACI's second quarter earnings call, CEO Ken Asbury said he and his leadership team are working out more specifics, but the company wants to put more investments into programs for employees such as career development activities and workforce certifications.

That move aims to bring back talent into the federal services market, which Asbury said is being driven into commercial sectors due to items such as the security clearance backlog and sequestration. It does not mean CACI has “got to get rates lower” on bids for contracts, he said.

“We want to create CACI as an employer of choice in a downward labor market,” Asbury told analysts. That approach means employees are “not coming in for one contract but an enhanced career environment,” he said.

“We could give out bonuses to our current employees… I would rather create a career experience that is really rewarding for folks inside of service to the federal government that is very distinct. I think that’s a better investment than simply flowing it to lower rates,” Asbury said.

The tax benefits will also evidently not flow to any dividend payments or stock repurchases. CACI traditionally has never paid dividends and is one of two publicly-held government services companies that do not. The other is Engility Corp., which doesn't pay dividends because of debt covenant agreements for its credit facilities.

Arlington, Va.-based CACI expects its federal income tax rate to come down to 21 percent versus 35 percent. And a look at its updated bottom line guidance shows a glimpse of what they have to work with for its reinvestments.

With tax reform in place, CACI expects profit of $277 million-$283 million in its current fiscal year versus its prior $171 million-$179 million outlook. Operating cash should also increase annually by $30 million. CACI projects operating cash this fiscal year to total $300 million compared to the $281 million recorded in its 2017 fiscal year ended June 30.

For CACI’s second quarter, profit tripled to $142.8 million or $5.66 earnings per share. Excluding the impacts of tax reform, profit was up 19.1 percent to $50.5 million or $2.00 per share. Revenue climbed 2.9 percent to $1.09 billion, compared to last year’s second quarter.

That exceeded the Wall Street analyst consensus forecasts of $1.68 earnings per share -- also excluding tax reform impacts -- on $1.08 billion in revenue.