CACI Has Eyes On Growth Thanks To $550M Acquisition

Two months after it acquired the government services group of L-3 Communications Holdings, CACI said its integration into the company has exceeded expectations and is already adding contracts to the company’s pipeline.

However, because of the steep cost of the acquisition and later-than-expected contract awards, CACI has also narrowed its financial guidance for the rest of the year.

’This acquisition (of L-3 National Security Solutions) – the largest in our history – is performing brilliantly,’ President and CEO Ken Asbury said during a call with investors after the company’s quarterly earnings announcement Thursday morning.

[RELATED: CACI Says It’s Set To Ride Federal Growth Wave With Recent Acquisition]

’We bought a great company at a great price ($550 million), and we continue to see NSS bringing strong financial and strategic value to our business through substantial high-level past performance credentials and deeper, broader relationships with key customers,’ Asbury said,

However, before CACI purchased NSS, the L-3 segment was struggling. Its sales fell 19 percent in the first nine months of 2015, and operating income plummeted 50 percent, due, in part, to lower demand because of the U.S. military drawdown in Afghanistan and competitive pricing pressures, according to L-3.

However, during the acquisition announcement, CACI released a statement that it planned to improve the business by widening NSS’ margins by implementing synergies between CACI and its new addition.

On Thursday morning, CACI announced that it has succeeded in assisting NSS’ margins and is impressed by the ’above expectation’ performance NSS is now achieving, stating that the acquired entity is currently generating one-third of all CACI’s new contract awards, a figure that CACI believes will continue to increase quarter over quarter.

Arlington, Va.-based CACI -- No. 16 on CRN’s Solution Provider 500 list -- reported revenue following the addition of NSS at $977.3 million, up by 19.5 percent compared to the same quarter last year.

The company also reported double-digit growth in net income, up 17.2 percent to $34 million from the third quarter of 2015.

With business ramping up thanks to the addition of NSS, Asbury said CACI is in good position to grow, noting that he believes the federal market is ’resetting itself.’

Citing the Bipartisan Budget Act of 2015, which will guarantee more stability CACI’s federal customers in planning and allocating funds into 2017, Asbury said the federal market is realigning from a focus on contracts that are lowest in price to those that can deliver higher-value IT services at reasonable prices.

He said that change will continue to feed the competitive nature of the market, with the refocus on value allowing companies with broader capabilities to gain a better foothold in the market.

Citing examples, Asbury noted that although some contracts have not been awarded as early as the company expected, there has been a notable increase in operations and management (O&M) spending from the Department of Defense, a primary source of revenue. He also said the number of CACI’s own contract awards have increased in recent months and have seen a significant year-over-year increase.

’I believe that these are positive leading indicators for the market environment as a whole,’ he said.

However, even with the added business from NSS and a positive outlook, CACI lowered its outlook for the rest of the year.

It narrowed the top end of its revenue guidance by $100 million, moving the projection window to between $3.7 million and $3.9 million. On the earnings side, it also narrowed the top end of its spread by $3 million, to a window of $133 million and $140 million.

CACI stated that the cost of the NSS transaction, combined with substantial, late contract awards, has left the company’s organic growth closer to the lower end of its guidance.