Ross Wilkers

COMPANIES

How CACI sees slower, but eventual return to whatever normal looks like

What a return to normal or a “new normal” looks like for the government contractors after the COVID-19 pandemic remains uneven at best, despite vaccinations rolling out.

That is at least how CACI International sees it. Agency facilities still have occupancy reductions in place, travel restrictions remain active for government and industry, and procurement activity is also uneven too.

During CACI’s third quarter earnings call with investors Thursday, CEO John Mengucci gave this anecdote of how the company “saw a couple nice taskings come out recently,” but had “expected those to come out last June and (they) came out just now.” 

“In general, facilities have not fully reopened at the level we expected due to some of these densification concerns,” Mengucci said. “We saw the spike at the end of January, we saw another spike in March, so that continues to put pressure on us.”

Arlington, Virginia-based CACI thus slightly lowered its fiscal year 2021 revenue outlook to between $6 billion and $6.075 billion, down from the last guidance range of between $6.05 billion and $6.25 billion. Either way, that still suggests organic growth of 5 percent year-over-year.

Sales in the third quarter were up 5.9 percent over the prior year period to $1.5 billion, while the bottom line saw 29.9-percent improvement to $183.6 million adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). Adjusted EBITDA margin for the full year is anticipated to be nearly 11 percent.

Mengucci’s expectation is the factors he highlighted as still hanging over CACI and the market it participates in will lessen as vaccines continue to be given en masse.

“I do believe that tasking pressures will begin to lessen because as more of our customers in the functional areas come back to work, that's going to free those up,” Mengucci said.

One longer-term pressure that many in industry expect is on the federal budget given the trillions of COVID-19 stimulus spending and what that could potentially mean for defense funding.

The government fiscal year 2022 budget is not part of that dynamic given the Biden administration’s request for a 2-percent increase in defense spending to $753 billion, coupled with a 16-percent raise in non-defense spending to $769 billion.

Coupled alongside that is the plan for U.S. forces to withdraw from Afghanistan this year. Mengucci told analysts the company generates nearly 2 percent of annual sales from work in Afghanistan.

Whilst the appropriations process awaits in Congress, Mengucci said the budget request’s general priorities are in keeping with CACI's priorities as the U.S. presence wound down in Afghanistan over the past several years. Counterterrorism operations and what Russia and China present are among said priorities CACI has sought to align with.

“It gives a nice spending levels for our customers to continue investing in critical requirements, Mengucci said. “There is a focus on technology fielded at the speed of software, not hardware. As I'm reading portions of it, (it’s) just as much about bits and bytes than bombs and bullets."

"A lot of IT modernization priorities, a lot of new network build-outs, a lot of talk around where does the military and the like head where it pertains to 5G and I believe customers understand where they can spend and where the threats are," he added.

One case in point he highlighted on the non-defense side: the nearly $1 billion in funding put toward IT modernization as part of the $1.9 billion COVID economic relief package known as the American Rescue Plan signed into law in March.

“IT modernization from what we see is a priority, maybe whose time has finally come,” Mengucci said. “I'm very, very excited about the monies this administration is putting towards IT modernization, not only in the face of continuous cyber attacks, but in the face of COVID."

“In the face of that, it is in dire need of having further updates."

Technology modernization also goes hand-in-hand with how businesses and agencies think about an eventual return of workers to offices. A more distributed workforce seemingly requires a more robust technology backbone to support it including cybersecurity, Mengucci said.

“It’s a horrific, generational pandemic that we are all living through, but there will be a day when we come out of it. There are going to be some things that are forever changed, which I think are tailwinds to things that we do,” Mengucci said. “IT modernization, network security, how do we build networks out, that will be more of a plus-sign.” 

Shares in CACI were up around 1 percent in mid-afternoon trade after they were in the red during the morning session.

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 connect with him on LinkedIn.

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