Ross Wilkers

COMPANY OUTLOOK

Inside CACI's post-CSRA growth strategy

So where does CACI International go now after it failed to wrestle CSRA away from eventual buyer General Dynamics?

The answer to that as executives explained during CACI’s third quarter earnings call Thursday morning is keeping to its self-touted approach of being one of the federal market’s leading strategic integrators.

“We don’t have a list of priorities related to big or small,” CEO Ken Asbury said. “We’re not going to buy scale for scale’s sake, we will not buy revenue. We’re going to exercise inside of our market strategy, how to fill gaps, how to get into new customers and how to find the enduring parts of the market that we are not in yet.”

CACI is seeing an increase in potential acquisition targets, Asbury said. And the company’s more recent history suggests a willingness to undertake larger transformational deals “if it made sense across the board,” he told analysts.

CACI’s $820 million acquisition of Six3 Systems in 2013 and the $550 million purchase of the former L3 National Security Solutions business in 2016 are examples, along with its public bid to entice CSRA away from General Dynamics.

So where could CACI look to acquire?

“If I were to prioritize things we are doing, it is in the digital signal processing area, it is in agile software. We have a lot of cyber assets today. We are manufacturing our own cyber assets at the same time,” Asbury said.

The Defense Department’s priorities of where it will allocate the spending increases received in the March omnibus spending bill could tip where CACI might look. The company has moved in recent years to recast itself as a “solutions” company and grow its portfolio of large technology integration work.

In particular, the Pentagon is pushing for more innovation from the commercial technology arena and looking to improve its intelligence data environment.

“CACI would do well to acquire a systems integrator, potentially a federal subsidiary of a commercial-led company, with strong relationships with cloud and next-generation technology partners to improve its market position,” Technology Business Research public sector IT analyst Joey Cresta wrote in a research note for clients Thursday.

There is room for CACI to buy again with its net debt ratio at 2.5 times earnings before interest, taxes, depreciation and amortization expenses -- a key metric used to measure how many years it takes for a company to pay down debt at its current annual EBITDA.

“We’re in a very good position and we have some dry powder… if the right opportunity presents itself and it meets (our) criteria we’ll execute on it,” Asbury said.

“If we find the right combination of companies or a company to fill a number of those gaps, that’s where we will pull the trigger and do something.”

With all that said regarding acquisitions, Asbury said CACI’s first priority is to invest in its business for organic growth. And the company is in the midst of a winning streak on that front with five straight quarters of organic sales increases excluding acquired revenue.

Third quarter revenue of $1.12 billion -- level with Wall Street analyst expectations -- was 3.5 percent higher than the prior year period with 2.7 percent of that organic. CACI held to its revenue guidance of $4.4 billion-$4.5 billion for its current 2018 fiscal year ending June 30.

During the second half of the previous calendar year, CACI acquired a pair of U.K-based IT services businesses in Spargonet and Mapmechanics.

CACI also made a roughly $53 million acquisition on Nov. 22 of last year, as disclosed in its first quarter 10-Q regulatory filing. The company acquired is merely described in the filing as a “business in the United States” with no details on customers and technologies.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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