TOP 100: CACI looking to 'break some glass' as it pursues more federal opportunities
- By Ross Wilkers
- Jun 07, 2017
With a pair of large acquisitions now behind it, CACI International has its eye on swimming upstream through organic growth and a shift its chief executive describes as “bid less… bid more.”
Arlington, Va.-based CACI’s acquisitions of Six3 Systems in 2013 and the former L-3 National Security Solutions last year altogether added almost $1.5 billion in sales to push the contractor’s annual revenue past $4 billion. And the contractor will look to buy again in the future, CEO Ken Asbury told Washington Technology.
CACI comes in at No. 9 in the 2017 Washington Technology Top 100 list on $3.4 billion in prime contracts during fiscal 2016.
The company expects to report $4.275 billion-$4.35 billion in total revenue for its 2017 fiscal year ending June 30 to show a 15-percent increase primarily on the NSS buy. Excluding NSS contributions, CACI forecasts a rough 3-percent organic sales decline from the prior year.
Part of that change in CACI’s revenue dynamic can be attributed to its transition away from staff- and labor-hour focused contracts primarily to support overseas contingency operations and particularly those in Afghanistan and Iraq.
In its place, Asbury said CACI seeks to chase fewer but more sizeable, longer-term contracts with a specialized technology service component. That shift puts CACI more in line with what he termed the “high-end, solutions-oriented” computer programming work it was founded upon in 1962.
The Six3 and NSS purchases added cybersecurity, signals intelligence and enterprise IT work among other areas to CACI along with added footprints in the intelligence community.
“I want to be in customers that recognize the value for the services you have and not treat everything as a commodity,” Asbury said. “We want things very complex that require really highly qualified people doing generally highly cleared and mission-essential kind of things.”
Long-term, CACI targets organic growth of 1 percent to 4 percent “above our addressable market” and margin improvement of 10-30 basis points, Asbury said.
“Where it comes from and how it comes is because we’ve slowly but surely begun to steadily shift to some portion of our portfolio having higher margins,” Asbury said. “I am not interested in chasing growth for the sake of growth… that’s not what’s going to drive our commitment to raise our margins.”
The more recent NSS acquisition looks to be paying off for CACI as of the last five reported quarters have seen more than $1 billion in contract awards and a trailing 12-month book-to-bill ratio of 1.5 over the previous four. Through NSS, CACI won a potential seven-year, $445.9 million contract last year to help run the Air Force Satellite Control network.
That contract dubbed “CAMMO” is an example Asbury offered of CACI’s strategy for more solutions-oriented work.
Any potential acquisition would be more of the “tuck-in” variety as CACI takes down its debt load to get more “dry powder,” Asbury said. CACI plans to bring its debt leverage down from 3.5 to 3.0 over the next year to be in position to buy, he added.
“There are some very clever, smaller companies out there we have our eye on right now,” Asbury said.
Against a backdrop of budget uncertainty, Asbury views CACI as insulated from the civilian cuts the Trump administration’s various budget outlines have proposed. CACI derived 28.4 percent of its $3.7 billion in fiscal 2016 revenue from civilian agencies, according to regulatory filings.
The contractor has in fact, Asbury said, “spent an awful lot of time” studying the implications of the White House’s priorities on its revenue profile.
“We’re not exposed to very many of the bill-paying programs if you look at how things are possibly going to shift to be able to fund a strengthened military, homeland security and intelligence community,” Asbury said. “We have great exposure to those areas… with a modest amount of work at the State Department. We’re not in EPA, Housing and Urban Development and those places.”
Emblematic of CACI’s shift to being a technology solutions-oriented company is its SkyTracker system, a product developed in-house to detect, identify and track adversarial unmanned aerial systems around electronic boundaries near sensitive locations.
SkyTracker is also intended to take control of a drone and fly it to another location via interference with the drone’s radio signals.
Asbury said CACI has recorded sales of SkyTracker to both government and commercial customers that “prefer not to be known.” CACI has also received interest from the critical infrastructure and border security markets, again from organizations Asbury said want to remain unnamed.
“Today it is used in two different configurations: it protects critical in-place infrastructure, and then there will be a mobile version of it for things that move around,” Asbury said. “We are using it overseas in support of our military.”
Asbury said company is currently only selling to U.S. customers but has seen interest from other countries in the “Five Eyes” intelligence alliance that includes the U.K., Canada, Australia and New Zealand.
CACI is one of four companies that hold a cooperative research-and-development agreement with the Federal Aviation Administration to work on counter-UAS technologies. That CRADA covers efforts to examine how to protect airports.
More recently, CACI made a pair of moves in its executive ranks as part of an ongoing shift away from staff augmentation and labor-focused services to solutions-oriented contract work with a technology element.
Chief Operating Officer John Mengucci had his role expanded to include new responsibilities over the contractor’s business development and acquisition functions among others. His other and now former role as U.S. operations president was taken up by former BAE Systems U.S. intelligence business lead DeEtte Gray.
That executive shuffle traces its roots to Mengucci’s arrival in 2012 and Asbury’s appointment one year later that led to an increased focus on business development and implementation of a market-focused strategy in 11 areas with a 12th in the works, Asbury said.
“We’ve reached the point of maturity in rolling out that strategy where we have really good leaders leading our individual markets and businesses those markets are in,” Asbury said.
Mengucci’s work to put the structure of CACI’s business development function in place helped put the company in position for its shift, Asbury said. Gray’s experience at BAE with how intelligence agencies use technology is also key for CACI’s efforts to position itself as a solutions provider, Asbury added.
The acquisitions, heightened BD focus and re-positioning toward different markets offered CACI a foundation for its shift and its new fiscal year starting July 1 will give a first glimpse of the contractor’s direction.
“I think what we’re doing now is it’s time to go break some glass,” Asbury said. “Don’t wait for the customer to build the requirement, help them build it, shape it, show them what can be done today.”
Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at firstname.lastname@example.org. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.