Original Source: FD (FAIR DISCLOSURE) WIRE
. David Dragics, CACI International, Inc., VP, Investor Relations . Jack London, CACI International, Inc., Chairman, President & CEO
. Paul Cofoni, CACI International, Inc., President, US Operations
. Steve Waechter, CACI International, Inc., CFO . Bill Fairl, CACI International, Inc., COO . Sandra Notardonato, Adams, Harkness, Analyst
. Tom Meagher, FBR, Analyst . Edward Caso, Wachovia Securities, Analyst . John Mahoney, BB&T, Analyst . Tim Quillin, Stephens Investment Bank, Analyst . Jason Kupferberg, UBS, Analyst . George Price, Legg Mason, Analyst . Laura Lederman, William Blair, Analyst . Cai von Rumohr, SG Cowen, Analyst . Eric Olbeter, Stanford Financial, Analyst . Cindy Shaw, Morris Cabot, Analyst . Julie Santoriello, Morgan Stanley, Analyst . James Bayer, Trusco Capital Management, Analyst
CAI reported total revenue of $423.1m and total net earnings of $19.1m for 1Q06. For 2Q06, revenue is expected to range between $415-425m and diluted EPS is expected to be between $0.69-0.72. For FY06, revenue is expected to be between $1.750-1.825b and diluted EPS is expected to range from $2.84-2.98.
A. Key Data From Call 1. 1Q06 total revenues = $423.1m. 2. 1Q06 GAAP net income = $19.1m. 3. 1Q06 DSO = 69 days. 4. FY06 revenue expectations = $1.750-1.825b. 5. 2Q06 revenue expectations = $415-425m.
6. FY06 net income expectations = $88.2-92.4m. 7. 2Q06 net income expectations = $21.3-22.3m. 8. FY06 diluted EPS expectations = $2.84-2.98.
9. 2Q06 diluted EPS expectations = $0.69-0.72. 10. Cash and equivalents at 09/30/05 = approx. $171m.
S1. 1Q06 Review (J.L.) 1. Highlights: 1. Total revenue was $423.1m.
2. Total net earnings was $19.1m. 3. Growth rate was 8.9%, which was entirely organic. 4. Contract awards reached an all-time high of $800m with about half of this being new business.
5. Contract funding orders also remained quite strong, a record
$477m. 6. CAI's 1Q06 performance combined with its ability to read the trend lines positions it for another record year in FY06 and to meet its long-term objective of recording $3b in revenue by the end of FY09. 2. Operational Strategy:
1. CAI's operational strategy has also proven beneficial to its
shareholders. 2. The Co.'s national security capabilities at CAI were also recently enhanced with the acquisition of National Security Research, Inc. 1. This strengthens the Co.'s high level of continuing solutions in command and control, homeland security, international security, and missile defense. 3. CAI intends to be an active acquirer this year. 1. The Co. continues to pursue both strategic, niche targets, as well as larger, broad-based opportunities that expand its skill sets and provides it far reach and access to new customers. 4. With its continued strong operating cash flow, available debt capacity, and its shelf registration last spring, CAI has ample liquidity to fully execute on its strategic plans. 5. CAI has just won a contract to support US Navy Organization directly involved in Katrina support. 1. This is the Co.'s $107m award with the Navy's Automatic Identification Technology (AIT) program. 2. AIT includes technologies like barcode and microchips for better inventory tracking and is being used by the Seabees to support recovery efforts from their base in Gulfport,
Mississippi. 6. Because the Co. serves its military customers wherever they are, it does not expect any negative impact from the base realignment and closure process. 7. The Co. sees positive impacts from the Defense Department's increasing focus on the warfighter. 8. In the global struggle, as well as home (Phonetic), CAI teams and technologies are taking a leadership position.
1. Several CAI clients rely on its DOCX system, which scans and
converts languages into electronic files, a machine translates them into English. 2. DOCX is helping deliver actionable intelligence with the speed necessary to make a difference.
S2. 1Q06 Financial Review (S.W.) 1. Highlights: 1. Effective 07/01/05, CAI was required to adopt the provision of FAS 123R in reporting its results. 2. Revenue was up 8.9%. 3. Federal business grew 8.7%, which was all organic and represented approx. 95% of total revenue. 4. On a trailing 12-month basis, organic growth was 12.5%. 5. GAAP net income was $19.1m, or $0.62 per diluted share, up 4.3% vs. the restated gap net income of $18.3m or $0.61 per diluted share in 1Q05. 1. Without the effect of expensing stock options in 1Q06, net income would have been $22.8m or $0.74 per diluted share. 2. This is a 15.5% increase over net income of $19.8m or $0.66 per diluted share in 1Q05. 6. Effective tax rate decreased to approx. 36%, down from 38.5% from 1Q05.
1. Largely attributable to the benefit associated with R&D credits realized by CAI. 2. These credits are generated primarily from activities of the AMS operations the Co. acquired in May 2004.
2. Key Income Statement, Balance Sheet & Operating Metrics: 1. GAAP operating margin was 7.9% vs. 8.6% in the restated 1Q05. 2. Non-cash charges related to the expensing of stock options were approx. 1.4% of revenue in 1Q06, vs. 0.6% in 1Q05. 3. Operating margins was 9.3% vs. 9.2% in 1Q05. 4. Operating cash flow was $38.2m, up 89% over 1Q05. 5. The Co. increased its cash position by $38m in 1Q06, giving it approx. $171m in cash and equivalents at 09/30/05. 6. Outstanding debt was $345.5m (Phonetic) at the end of 1Q06. 7. DSO at the end of 1Q06 was 69, down 14 days from 1Q05.
3. Contract Metrics: 1. Approx. 83% of revenue was earned as a prime contractor. 2. For 1Q06: 1. 55% of revenue came from time and materials work. 2. 26% from cost reimbursable. 3. 19% from fixed price work. 4. UK Operations: 1. UK operation reported $13.9m of revenue during 1Q06, 12% more than the $12.4m reported in 1Q05. 2. Pretax margin was 8.1% vs. 5.5% in 1Q05.
3. Effective 10/01/05, UK operation acquired Tech Computer Office
Ltd. (TCO). 1. TCO owns a priority suite of resource management software known as OfficeBase, which it primarily provides to UK local
and central government. 2. UK operation has historically been a commercial based business and this acquisition is part of the Co.'s ongoing strategy of creating a more diversified commercial and government business in the UK. 3. TCO is projected to generate $7m in revenue in its first full year with CAI and is expected to be accretive. 5. 2Q06 Outlook: 1. Revenue is expected to range between $415-425m. 2. Operating income is expected to range between $37.5-39.0m. 3. Operating margin is expected to range from 9.0-9.2%.
4. Net income is expected to range from $21.3-22.3m. 5. Diluted EPS is expected to be between $0.69-0.72. 6. Diluted weighted avg. shares is expected to be `31.1m`. 6. FY06 Outlook: 1. Revenue is expected to be between $1.750-1.825b. 2. Net income is expected to be between $88.2-92.4m. 3. Diluted EPS is expected to range from $2.84-2.98. 4. Fully diluted shares are expected to be approx. `31.1m`.
S3. 1Q06 Domestic Operations (P.C.) 1. Highlights: 1. CAI had another solid qtr. of contract funding orders, a record amount of contract awards, and the pipeline of qualified opportunities continued to grow. 2. During 1Q06, the Co. responded to its customers and its employees as a result of Hurricane Katrina, and helped its customers to return to an operational mode as quickly as
possible. 2. Key Operating Metrics: 1. Performance during 1Q06 continued to be driven by the Co.'s mission-critical support of the Army, the Navy, and the intelligence community. 1. Contract funding orders totaled $477m. 2. On a trailing four qtr. basis, the Co. received over $1.8b in contract funding orders.
2. Revenue from DOD customers increased almost 11%. 1. Driven primarily by the Co.'s support to the Army, the warfighter, and to the Navy through Seaporte contract. 3. Intelligence revenue grew by 22% and represented 27% of total revenue. 4. Federal civilian revenue was up 3%, driven by the Co.'s work with the Veterans Benefit Administration. 3. Business Development Metrics:
1. 1Q06 was a record one for CAI in the dollar volume of awards
received, approx. $800m worth. 1. 38% higher than 1Q05.
2. About 50% of this amount is for new orders. 3. $150m of these awards was from the intelligence community. 4. The largest award in 1Q06 was with the Navy's Program Executive Office for Littoral and Mine Warfare. 1. This $188m contract consolidates consulting work being done by CAI and other contractors all under the leadership
of CAI. 2. CAI will be consulting with the Program Executive Officer
and all of his program managers on the design, development, production, and support of Littoral and Mine Warfare equipment.
4. Proposal Activity: 1. CAI currently has $1.7b of proposals submitted and under evaluation by the government. 1. The Co. expects that over 60% of these will be awarded between now and March 2006. 2. Anticipates submitting over $4b in additional proposals in this same period. 3. Expects that over 50% of these proposals will be for $100m or more as it continues to pursue larger and more significant opportunities. 2. The Co.'s pipeline of qualified opportunities stood at more than $14b at the end of Sept. 1. The majority of these opportunities, again, are greater than $100m.
S4. Closing Comments (J.L.) 1. Highlights: 1. The Co.'s management goal for FY06 remains to grow 12-15% organically and 5-8% through acquisitions. 2. The Co.'s long-term goal is to reach $3b in annual revenue by FY09.
QUESTION AND ANSWER SUMMARY
OPERATOR: Thank you, sir.
And we'll go first to Sandra Notardonato.
SANDRA NOTARDONATO, ANALYST, ADAMS, HARKNESS: A couple of questions. First of all, is TCO in the numbers? And if maybe Steve, you could address the decline in gross margins? I want to get my last question on here as well. Just trying to understand if new awards were so strong at 800 million, your contract funding has been 1.8 billion over the next four quarter -- over the last four quarters, why are we seeing the decline potentially sequentially in the next quarter? Why didn't we make up for that DOD and DOJ business that seemed to go away? …