AP News, October 4th, 2007
Outside the Beltway, most people likely have never heard of CACI International Inc., a 45-year-old information technology services company that competes against Lockheed Martin Corp., Northrop Grumman Corp. and other defense giants for government contracts.
Like its much-larger rivals, CACI has benefited from increased demand for its services as the war in Iraq has dragged on and the company has begun to focus more on providing intelligence services. Nearly 30 percent of the company's $2 billion annual revenue comes from work it does for agencies like the Central Intelligence Agency and the National Security Agency.
Paul Cofoni, the Arlington, Va.-based company's president and chief executive, wants to increase that share to 50 percent the next few years by acquiring smaller companies with technologies and expertise the government wants to fight the global war on terror.
"The money is going to get moved to support the threat," Cofoni said in an interview with The Associated Press. "Nowhere in the dialogue is that we are going to slash the defense budget as it was slashed at the end of the Cold War. Could that happen? Yes, (but) my bet is not before we have secured our nation from terrorism."
Cofoni's plan is to strengthen CACI's market position through acquisitions.
On Wednesday, CACI said it plans to buy Columbia, Md.-based Dragon Development Corp., a provider of engineering and technical services to the intelligence community. Eight days earlier, CACI announced plans to buy Arlington, Va.-based intelligence firm Athena Innovative Solutions from New York-based Veritas Capital. Nearly all of Athena's 600 employees hold top-secret security clearances.
"We've had a strong focus in this area right along," Cofoni said. "All we're doing is taking what we are already doing well, and saying, 'You know what this is going to be even more important going forward, and we better get better at it.'"
The Dragon and Athena deals are expected to close in November, and by year-end, Cofoni, 58, says CACI will acquire at least one more intelligence or security specialty companies that each have annual revenue between $50 million to $250 million.
Cofoni says the strategy, forged by his predecessor, J.P. "Jack" London, will help the company meet its $250 million a year top-line revenue growth target, excluding organic growth and government contract wins.
On Sept. 25, CACI also snagged a $48 million contract to provide computer forensic services to the Securities and Exchange Commission.
But the contract win and the Athena acquisition weren't enough to persuade Wall Street analysts by late Wednesday to revise earnings forecasts.
"While the company is well positioned longer term with major contract vehicles, we expect growth to remain sluggish this year," William R. Loomis, a Stifel Nicolaus & Co. analyst, wrote in a recent note to clients, maintaining his earnings estimate and a "Hold" rating.
For fiscal 2008, the company projects earnings of $2.50 to $2.80 a share on revenues of $2.05 billion to $2.15 billion. Analysts, on average, expect earnings of $2.68 per share on revenue of $2.11 billion, according to a Thomson Financial survey.
CACI recently acquired two other companies, including Vienna, Va.-based Wexford International Group, a consulting firm that provides training for soldiers to detect explosive devices, in June for $115 million, and it paid $40.5 million for Fairfax, Va.-based Institute for Quality Management Inc., another intelligence consulting firm.
Investors still seem concerned about analysts' warnings that integrating the acquisitions could trim CACI's profit margins for the next couple of years.
The stock is trading around $51 a share after plunging from a 52-week high of $62.02 in January after CACI lowered its earnings-per-share guidance for the year.
London ran CACI for nearly 25 years before relinquishing the reins to Cofoni three months ago. The former Naval officer increased the company's revenue fivefold in 10 years. Under London, CACI acquired 36 companies, eight of which specialized in intelligence services, such as the $49 million acquisition of Premier Technology Group Inc. and the $415 million purchase of American Management Systems Inc.'s Defense and Intelligence Group.
Cofoni may not admit it but he likely wants to best his former boss' track record. Even the possibility of Democrats regaining the White House in next year's presidential election won't hinder achieving his goals, he says.
Congress and the president may "differ about whether we should be fighting the war in Iraq or erecting walls along the Texas border, but nobody is arguing that we need less intelligence or less homeland security, Democrats or Republicans," Cofoni said.
