CACI International Inc (CACI) 2003 Q3 法說會逐字稿

Good day, ladies and gentlemen you are on line for today's CACI International third quarter conference call. At this time we are still gathering additional participants and will be under way momentarily. Thank you for you patience and please remain on line.

Please stand by we are about to begin. Good day every one and welcome to the CACI International third quarter 2003 earnings conference call. Today's call is being recorded. For opening remarks and introductions I would like to turn the call over to the Director of Investor Relations, Mr. David Dragics. Please go ahead.

Thanks Jenny, and good morning ladies and gentlemen. I am Dave Dragics, Director of Investor Relations of CACI International. And, we are pleased that you are able to participate with us today and for those of you who are with us for the first time either by telephone or via the Internet we welcome you to this call.

Let's go to the first exhibit. As you know earlier this morning we released our third quarter and nine months fiscal year 2003 results and we hope the most of you had the opportunity to review our announcement and the results and they are summarized on this exhibit. As we have on the recent conference calls, we are including exhibits with our presentations and we hope that you will find them helpful in reviewing our financial results and trends in the discussions of our operations. And as we progress this morning we will make every effort to keep all of you on the same pages as we are.

Let's move to the next exhibit. Before we begin our discussion this morning I would like to make our customary but important statement regarding CACI's written/oral disclosures and commentary. And there will be statements in this call that do not address historical facts and as such do represent forward-looking statements under current law. These statements are subject to important factors that could cause actual results to defer materially from the statements made today. And the primary factors that could cause actual results to differ materially from those anticipated are listed at the bottom of this mornings earlier release as well as in the company's Securities and Exchange Commission filings. Our full safe harbor statement is on this slide and will also be incorporated as part of the transcript for this call. Now I would remind and refer those who might be listening to the replay of this call to view the full safe harbor statements there. So, let's turn to the next exhibit and to open up our discussion this morning here is Jack London, Chairman, President and CEO of CACI International.

Thank you Dave and good morning ladies and gentlemen. We welcome those of you who are new to CACI to our call this morning. We appreciate your interest and hope you will continue to follow our company. We are very pleased to report another record quarter for CACI and the record year to date performance. Our revenue for the third fiscal quarter of fiscal year 2003 was 222 million, an increase of 21 percent over the same quarter last year, and our net income was up to 11.5 million another record and a 33 percent increase over last year's third quarter.

We've continued to make strategic increase (ph) and growth focused acquisitions. This quarter we completed our acquisition of Applied Technology Solutions, ATS, which increases our support to national intelligence agencies. And just this morning we announced the pending acquisition of Premier Technology Group Incorporated, PTG. PTG will provide services to the intelligence community from a tactical forward deployed perspective and complements our national intelligence business. We are proud to have the employees of ATS as part of CACI and we look forward to welcoming the PTG employees during the month of May when that transaction will close. Let's o to the next exhibit please.

We remain confident in our ability to deliver information technology and communication services that support our nations need for homeland security, national defense and the intelligence community. This is a historic time for our nation and indeed for the world. United States and coalition forces have won a quite impressive victory over the repressive dictatorship of Saddam Hussein, and information technology and network operations have played a crucial and indispensable role in these efforts.

In this new defense era, government agencies are relaying increasingly on IT solutions like those provided by CACI. This is critical on the battlefield where information is a powerful weapon to be secured for our forces and denied to the enemy. The government looks to IT to achieve information superiority for our military.

Our armed forces depend on IT for logistic solutions that enhance troop readiness and deployment, and they count on IT to integrate communications networks and command and control infrastructures. CACI has a broad range of offerings and we continue to position our offerings in the national security and defense sector in support of homeland security as well. We provide knowledge management to help law enforcement agencies collect and organize data. We offer information assurance to protect that data and telecommunications for sharing it across high speed nets, and we continue to provide mission critical IT solutions at every level of federal activity to agencies right from US Customs Service, US Coast Guard, US Secret Service and Emigration & Nationalization Service. Our goal is to enable our government clients to work smarter and more effectively. Lets move to the next exhibit. With me today to discuss our operating results and to answer your questions are Ken Johnson, President of CACIs US operations, and Steve Waechter, our Chief Financial Officer, Greg Bradford, President of CACI Ltd in the UK is also on the line ready to answer any questions that you may have about our UK operations. As is our custom on these calls, we will discuss three principle items. First Steve Waechter will discuss the financial results. Second Ken Johnson will discuss our domestic operations and our outlook, and finally I'll have some closing comments and also discuss what we see ahead. After that we will open up the call your questions. Now, the first item on our agenda is our financial results, and here's Steve Waechter, our Chief Financial Officer to discuss this. Steve, over to you.

Thank you Jack, and good morning everyone. Excuse me my allergies are catching up on me here. Lets go to the next Exhibit number 7. As you know this morning we reported a record third quarter and nine months of revenue and earnings. Revenue for the quarter increased 21 percent to 222 million versus 182.8 million a year ago. Net income was a 11.5 million or 39 cents per diluted share up 33 percent over last year's 8.6 million or 33 cents per diluted share. Moving to the next Exhibit, federal government business had another solid quarter of growth up 23 percent this quarter and represented 93 percent of our overall revenue.

As we've noted in the last several quarters, internal growth for our federal business continues to be strong up 15 percent in the quarter. The company's overall internal growth rate was 14 percent in the quarter. This growth continues to be a combination of growth we are experiencing from the acquisitions we have made over the last five years in the operations that we've had in place prior to that. Commercial and state and local business was up 8 percent collectively from a year ago primarily as a result of commercial business acquired in the Condor transaction. Our United Kingdom operation reported 9.6 million in revenue in the quarter down 5 percent from last year. Pre tax margins, however, remained high, they were approximately 11 percent this quarter. As we noted in past calls our operations there continued to be affected by the lower demand for commercial IT services in the UK particularly in the telecommunications industry.

Moving to Exhibit 9, let us take a look at some of our key matrix, our operating margin in the quarter was 8 percent, that is the same as the third quarter of last year. Operating cash flow for the quarter was a strong 26.4 million and through the first nine months of this fiscal year, our operating cash flow is approximately 42 million, as compared to 38.9 million for all of fiscal year '02. Almost 90 percent of our revenue this quarter was earned as a [Inaudible] contractor. Year to date, about 87 percent of our revenue is [Inaudible] .

There was no significant change in the contract mix of our business. For the year-to-date, 68 percent of our revenue is from time and materials work, 17 percent from cost plus and 15 percent from fixed price work. In the next exhibit cash and marketable securities at the end of the quarter was approximately 108 million. Our days sales outstanding at the end June were 76 days, compared with 79 days a year ago. A debt of 9.7 million at the end of the quarter consistent [Inaudible] stable primarily related to our acquisitions.

We move to the next exhibit, what is our increased guidance for the full year for revenue, net income and basic and diluted earnings per share and for the final quarter of FY03. This increased guidance includes the pending acquisition of Premier Technology Group, that was included in this mornings release. We estimate that our revenue in the fourth quarter will range between 215 and 225 million and that income from continuing operations will range between 11.5 and 12.4 million. The revenue forecast for the fourth quarter includes approximately $6 to $7 million for the PTG and ATS acquisitions and is all set by anticipated lower pass-through revenues and slightly lower revenues in the UK. That's an estimated 13 to 18 percent increase in revenue and a 24 to 34 percent increase in income from continuing operations.

Our diluted earnings per share should be between 39 cents and 42 cents per share, up 23 to 32 percent respectively. We estimate that diluted weighted average shares for the fourth quarter will be 29.6 million. For all of FY03 we estimate that our revenue will range between 830 and 840 million, that's an estimated 22 to 23 percent increase in revenue from FY02. We estimate that income from continuing operations will be between 43 and 43.9 million, an increase of 35 to 37 percent over FY02.

And, our diluted earnings per share should be between a $1.46 and $1.49, up 18 to 20 percent respectively with diluted weighted average shares for the year estimated to be 29.5 million. For the full year we continue to estimate that our gross margins, which is revenue minus direct cost, will range between 38 to 39 percent and operating margins of 7.9 to 8.3 percent.

Well, we do not give out specific terms and conditions of our individual acquisitions. I believe it is important summarize our activities for the fiscal year. To date, we have acquired the assets of Condor's Technology, Government Solutions Division in August. We purchased all the stock of Acton Burnell in October. Purchased all the stock of Applied Technology Solutions in February and hopefully we will close on the purchase all the assets and selective liabilities of Premier Technology Group in May. The aggregate purchase price for these transactions is approximately $101 million.

The average operating margin rate for these companies is approximately 15 percent. The total anticipated purchase price is 6.4 times trailing 12 months operating margins or EBIT, earnings before interest and taxes. The total anticipated price to trailing 12 months revenue is just under 1 times at 0.96. The anticipated growth rate for the acquired companies ranges from 15 to 20 percent.

Not all the purchase price is upfront. In most cases we have retained 10 to 20 percent of the purchase price in escrow to protect against any indemnification claims we may have in the future. We don't anticipate any claims. Two of our acquisitions were asset purchases, and one of the stock transactions involved an S Corporation and we negotiated at 338 (h) (10) election which allows us to treat the transaction as if it were a purchase of assets, thereby allowing us to claim favorable tax treatment on the goodwill associated with the transaction.

We generally do not enter into earn-outs, which we believe are a very high risk and difficult to determine post-closing, since we integrated the business in CACI up in day one. The PTG transaction does have a payoff, it is related to specific milestones. Even though Dave mentioned the Safe Harbor statement at the beginning of this call, I want to again state that these projections are forward looking, and that listeners on the call and the readers of the transcript should be advised that our actual results may differ materially from the statements we are making today. That completes the financial overview, let me turn the discussion over to Ken, who will cover our domestic operations. Ken?

Thanks Steve, and good morning everyone. Let's go to Exhibit 12 please. As you can see from our results, the overall pace of our business was not adversely impacted by the drawn out budget process that ended in late February when the omnibus appropriations bill was passed and signed in to law. As you heard Steve mention, about 90 percent of our revenue this past quarter was derived from our role as a foreign contractor and as we noted in the release much of our work, both defense and non defense continues to be mission critical in nature.

As we have noted here on this call and in our meetings with many of you over the past several months, we continue to benefit from increased demand from a broad cross section of federal government customers. Highlighting that demand was our a higher levels of passing activity on major contracts such as [Inaudible] where we are directly supporting the war fighting, also our [Inaudible] contract in support of the department of justice continues to expand through increased tasking from new agencies such as the securities and exchange commission where we are providing support in their investigations of abuses of securities laws and regulations.

And our major communications customer, the defense information systems agency DISA as the primary communications vehicle in support of operations in the Middle East and around the world has required an increased level of effort. Much of our success in all these programs is attributable to our quick reaction capability that provides our customers with fast, timely technical responses from our technical teams throughout the company.

The next exhibit shows our revenue by service offerings for the quarter compared to FY '02. Systems and equation which includes our UK operations accounted for 46 percent of that revenue, engineering services 22 percent, managed network services 21 and knowledge management 11 percent of the revenue. Move to the next exhibit please. Our federal growth of 23 percent was fueled primarily by our systems integration line of business. Much of the effort was directed at responding to quick reaction requirements in direct support of our troops involved in Iraqi freedom.

As we have indicated in the past, our expertise with a rapid prototyping and deployment in the area of electronic sensors and specialized communications continues to be in high demand. A couple of examples of that tasking are as follows; the delta wing support program. For the past year we've supported delta wing, a counter terrorism upgrade of the army's guardrail common sensor system under the defense emergency relief fund program CACI has become the delta wing source providing the army's military intelligence organizations with the unique asset and capability to exploit non traditional modern communication systems.

CACI has established a systems integration laboratory to support the rapid development test, repair and upgrade of the delta wing systems at Eatontown Facility in New Jersey. Second, the Carpet support program. Carpet is a ground-based intelligence collection system currently deployed with the101st Airborne Division, 3rd infantry division and the 82nd Airborne Division in support of Iraqi freedom. CACI engineers, logisticians and operational experts have been instrumental in all aspects of developing, testing, fielding and training this critical component of the army's ability to plan and execute combat operations in the war on terrorism.

In addition to systems integration, our engineering services line of business also made significant contributions to our overall quarterly growth due primarily to continued emphasis on readiness and preparedness. Our recent acquisition of Acton Burnell made substantive contributions to this business area. As Steve mentioned and as was the case last quarter, the majority of the growth in our operations has been from the organic side of the house with the DOD business growing about 19 percent internally. Let's move to the next exhibit please.

Our qualified pipeline of opportunities is about $4.3 billion. The mix of what we're looking at stays relatively constant at about 35 percent managed network services, 30 percent systems integration programs, 20 percent engineering services and about 15 percent knowledge management. This pipeline is comprised of prime and sub-contractor opportunities.

And as a result of the FY03 on the bus (ph) budget bills finally being signed into law late February, we are beginning to see a flow of requirements from several new and current customers. Overall, our focus on providing mission critical support to all of our customers particularly those who have key roles in national defense, the intelligence community and homeland security. We expect the fourth quarter will be a continuation of the trends we have been noting for the last several quarters. Jack, that concludes my remarks.

Thank you Ken and thank you Steve. It seems like we've had some very good news about our company and for our share holders here. Certainly, our third quarter was strong. We're clearly headed for yet another record year. Let's move to the next exhibit please.

This past quarter our revenue continued to grow at a very satisfying pace. Putting us on track, to finish fiscal year '03 over our 20 percent annual growth objective. Our profitability remains strong. Our third quarter operating margin was 8 percent, and our net after tax margin was 5.2 percent. Cash flow was strong. We're experiencing sustained growth. We've seen increased revenue in our core offerings, in the system integration, managed network services, engineering services and knowledge management areas.

For the quarter our C4ISR and network services offerings were strong. We continue to see success from our carefully crafted and strategically positioned mergers and acquisitions program. Our acquisitions are expanding CACI's client base, increasing our capabilities and synergistically making solid contributions to our bottom line. And we continue to look at a number of additional acquisition opportunities.

I'm proud to say that the CACI team is dedicated to the highest levels of ethical client support. I believe CACI employees are the best in the business and I thank them for their hard work and support. Our people keep firmly in mind that the clients they serve are entrusted with our nation's governance and protection as well as the preservation of freedom [Inaudible] .

And like everyone in America, we have turned our attention to a new theatre of conflict and a new era of war on terrorism. We're seeing that the courage of our troops in the field still make the critical difference between victory and defeat. But we're also seeing that IT and network communications technologies have played a vital role in reaching our military goals. I think President Bush put it best when he addressed employees at the Boeing F18 production facility in St. Louis last week. He said "more than ever before precision of our technology is protecting the lives of our soldiers and the lives of innocent civilians."

Next exhibit please. CACIs is delivering technology and supporting the coalition efforts in the Middle East. We have fielded teams in country to assist the US armed force in Bahrain, Kuwait and Iraq. We're also providing on-going operational support to the US Navy in the Gulf and in the theatre, and we'll continue to help all our federal clients carry out their vital missions. In February, the department of defense released it's proposed fiscal 2004 budget. A total of 379.9 billion, an increase of 15.3 billion from this year's budget. President Bush has also requested 59 billion in federal information technology funding for fiscal 2004, which is an increase of some 6.4 billion more than the initial 2003 request.

With the government's renewed focus on IT, CACI is well positioned for continued growth, and for our solutions is increasing. Our capabilities are expanding. Further, we see that we are well-positioned to support the DOD and Secretary Don Rumsfield's push toward the transformation of armed services to meet the asymmetric and widely dispersed threat profiles of the 21st century. The war on terrorism and the effort to checkmate rogue nations for weapons of mass destruction or nuclear proliferation will continue. Our goal for fiscal 2004 is our previously stated 20 percent growth rate, the combination of organic growth and acquisitions. And we are well on your way now to surpassing our goal of one billion sales and annual revenue by fiscal year 2005. We're going to achieve our goal while building greater shareholder value. So, at this point, we're ready to open our discussion to your questions so Jenny, I'll return it back over to you for our first question, please.

Thank you. Ladies and gentlemen, if you would like to ask a question at this time you may do so, by pressing the "*" key followed by the digit 1 on your touch-tone telephone. If you are on a speaker phone, please be sure your mute function is turned off to allow your signal to reach our equipment. We ask that you limit yourself to one question and one follow up question. And again that was *, 1. We'll take our first question from Tom Meagher with BB&T Capital Markets.

Yes, good morning. Congratulations on a solid quarter. Just a couple of quick house keeping and a question. You know, Ken, see my favorite question, I know you agonize over every quarter and that's the ...?

22.3, Tom.

How much was it?

22.3. if you don't know, Tom always wants to know what our major work was, DOJ work was.

There you go.

22.3 million.

And also Ken -- Steve, do you have the cash count was for the quarter?

Cash was 108 million.

Okay. And, any idea what the share count for '04 might be going forward?

29 --. for '04?

Yes, for '04 [Inaudible] quarter kind of thing?

I think that reasonable, about two percent.

Okay.

... one to two percent.

Okay, and Ken just [Inaudible] if I could. You know, last year GIO convened a panel of government, industry and union representatives to take another look at [Inaudible] 76 policy that governs the outsourcing work to the private sector. You know, the [Inaudible] we're hearing is that O&B will release the updated revised version of A76 based on those recommendations here in the next couple of weeks. We're just curious to get your thoughts on what those revisions might be and what impact, if any, on the company or the sector?

Little on no impact on us as you know, Tom, because these A76 conversions are not the force in our line of business, and I'm [Inaudible] on the record where I've actually answered this question a couple of times over the last 90 days. Yours truly's opinion here is that A76 is broken. It doesn't need fixing, it needs replacing. Having said that, its not going to be replaced. It's going to be tinkered with at the margins and that there are going to be some changes made to it given that we don't involve ourselves a lot in the A76 part of the business [Inaudible] has no material impact on us but it does need a huge overhaul.

Okay. Thanks very much. I appreciate it.

You are welcome, Tom.

We will take our next question from Brent Anderfield with Piper Jaffray.

Good morning guys, and congratulations on the quarter.

Thank you Fred.

Thanks Fred.

Thanks Fred.

Steve, passover (ph) revenue in this quarter were they similar to the last couple of quarters or did you see an uptake and related to that, is there any reason to think that passover (ph) revenues might slow down in the June quarter. Thanks.

They were up slightly higher than what we anticipated. As you know, we came at 222 which was about 5 million higher than our, the guidance range that we gave out and again we didn't forecast that, again we kind of taken it out to you again in the fourth quarter and believe me that, its a reasonable estimate based on the best we know at this point in time.

Fred, if I could add, to the extent there is anybody new on the call, to buoy with this. We try to forecast those passover (ph) very, very conservatively and it's especially important in this war effort that were in because as Steve indicated not only were they up this quarter but they've been up sequentially over the last 2 or 3 quarters. At some point in time they're going level out. So, it really does us no good to get out too far in front of passover (ph) revenue they aren't terribly profitable for the corporation. So, we just continue to be very, very conservative and we are taking a quarter at a time as to what our expectations are.

We'll take our next questions from Laura Letterman with William Blair.

Yes. Thank you. Can you talk a little bit about acquisitions and the type of pricing you are seeing out there more recently and separately competition. Can you talk about how landscape is changing [Inaudible] different areas in which you could be thinking.

I have seen a continued emphasis in our market space on acquisitions. It seems like its been a little bit slow or may be a year or two ago. We have lots of opportunities. There are significant, I think, still a significant number of deals out there. I would like to emphasize that CACI's position and game plan if you will, or business strategy is focused on what we consider special strategic and synergistic acquisitions that will add technology or market space or customer relations, so its not a matter of simply finding ways to balk the company up.

We are really looking for those deals that will fit with what we are doing already and more importantly what we anticipate as being high demand and action priority needs going forward, that's the emphasis. I mentioned looking ahead in our business plan to consider the armed forces transformation strategy that's in place. We will be feeding into that potentially with our acquisitions where there is a number of things going on and all other services and we've been looking at recently. I'd like to let Steve take a crack at may be some prices aspects or what I think we have been competitive and certainly have been able to acquire companies in areas that have been significantly creative (ph) . By the way, I want to mention that we have had 21 successful transactions and now the potential for a 22nd one with PTG this morning. Steve may be could amplify.

Well I think the pricing clearly is, valuations have clearly increased with regard to I think some of the Intel companies that are out there, the National Intel. We have seen pricing pressures there. But we believe that there are a lot of properties available particularly in the systems Integration Engineering Services arena, and we think that they can be had at very reasonable multiples and [Inaudible] after post the PTG transaction which we anticipate sometime in May closing. We are going to have about $50 million of cash remaining on the balance sheet and we have a $185 million credit line. It is fully available to continue acquisition. So, we are still in the hunt, still looking, and again we are going to reasonable with our pricing. We are going to be fair with pricing but will not get over priced deals.

We will take our next question from Sandra Notardonato with A.H.& Hill.

Hi. I lost my train of thought here. Okay. I wanted to ask a question on the breakout between organic and acquisitive growth for next year. What do you think that is going to look like and do you think that you are going to be looking at making larger size acquisitions now that you are approaching a billion in revenue and potentially facing what is considered the large numbers?

Excellent question. We really are continuing to consider the growth profile, we are looking as I mentioned 20 percent plus compounded annual growth rates, what we have been able to sustain over the last half a dozen years or so and I am certain it will be our near term objective over the next couple of years, I would say. In terms of the break out or comparisons, we have been talking of for the last year or so in terms of 12 to 15 percent on the internal or organic growth objectives and five to eight percent for our acquired business profile. The combination brackets of course weave into the 20 percent I just mentioned. Mr T.G. Clive (ph) will be for the near term as I have already indicated and I think that we should be able to maintain this type of growth rate in the near future and anticipate doing so. Is there anything you want to add on that, Steve or Ken?

No, I think it's our point.

What about the other part of that question, looking at larger sized acquisitions. I think you guys have done a very good job and the size that you, for example announced today. What about some of the companies out there north of a $100 million. Are you starting to look at those and is that the plan for the future. So you do not have to make as many smaller sized acquisitions to meet the aquisition component of the growth strategy?

Well, this certainly is a consideration. Our view has been a strategic positioning, and if we can do that through larger companies, we will certainly anticipate doing so. We have no aversion whatever to looking at larger companies, and probably we will be doing so as we go along. We are in a position certainly with a balance sheet, if it can support the larger transaction, we have looked at a few. They have not seemed to fit what I think is the right potential future for CACI. Again this is not a [Inaudible] issue, I think it is a shareholder value and emphasis on the earnings potential that we see in these market spaces where we can add significant value and where we think it is going to be nice to priority in funding and sourcing going forward.

Okay. Your next question from Cynthia Houlton with RBC capital markets.

Good morning. Just a walk back through what is going to happen with the June quarter given the acquisition, inclusion and a slightly lower expectation on the pass through. Then you also mentioned revenue from the UK down. Could you walk us through that a little bit, looks like from our estimate, looking at those numbers we just want to make sure we understand the puts and takes on that.

Yeah, this is Steve, Cynthia. We estimate on ATS and PTG somewhere in the low end of our range, we set about 6 million of the upper end of that range, about 7 million is what we would anticipate on the plus upside. On the downside we basically negated that at 6 to 7 percent on pass-throughs and on the upper end of the range we are saying our UK operations which did about 9.5 million this quarter could be down around 9 million. So, they have running about 10, as you know, over the quarters. So we are in the high end of taking it down about a million bucks. Since he may have said 6 to 7 percent negating the pass-throughs.

...the remaining 6 to 7 million.

7 million I apologize if I said that.

Okay.

Is that all.

Yeah, it does. But the other question we have is that historically it seems like the June quarter tends to be a pretty material-up quarter. Is that historically in the past been mostly pas-through that you don't think you will see this year. We [Inaudible] trends if we look at prior years of the March to June.

Yeah, Cynthia, there are a couple of things that play here. We have obviously been very conservative in what we have estimated and if you look at the last four or five quarters, just look at the upper range and look at the revenue that was delivered. The one think that hasn't happened in past June quarters is that we haven't been at the end of a war. So that's a fairly a dramatic change that we are going to face this June 30 that we haven't faced any June 30 since I have been around here. So I think its just the conservative nature of our forecasting and the fact that the bottom line, it doesn't make a substantive contribution to the overall enterprise values so rather than get out too far ahead of ourselves, we just soon under promise and then hopefully over-deliver as we have for the last several quarters.

I think the guidance reflects our best thinking right now. I would point out in the area of the operational activity with Iraqi Freedom. We are obviously not in the bullets and beans and black oil and gasoline business, we're in the technology business and the sustained emphasis and interest is going to continue. In fact if anything, I would see the network services potentially increasing its activity in the country. And I was over there in Bahrain back in February and they were anticipating that time the potential for further communications networks being instituted and implemented in the country. So there is a continuing activity for the line of business we are in, post combat operations, and we have endeavored and I think to give the investment community a reasonable profile of our expectations and I think our guidance reflects that.

Okay. The next question from Mark Jordan with AG Edwards.

Good morning gentlemen. Just following through a little bit on some of the previous questions, you did mention that your pass-through revenues were sort of higher than normalized to the first three quarters, and also that there may have been a little bit of in net pass upper benefits that's on the extraordinary side related to Iraqi Freedom. If you were to look at the revenue guidance for this year, could you estimate how much that number has been inflated by what we call sort of non normal revenue level?

I would not anticipate that there is anything that would be, I guess, materially abnormal from the standpoint of what might be otherwise considered kind of a nonrecurring. We see a sustained emphasis in areas of interest in the technology we are serving and I think that's the crucial factor plus the companies we have been acquiring, one of the criteria that the team reviews is the growth opportunities for these organizations especially in a synergistic or within the CACI family, if you will, being a part of the larger company to be able to broaden its offering scope, so I don't think that those hurts the pass through aspect or the temporary aspect of the Iraqi freedom is implying to wind up impinging our future opportunities but may be Ken will like to add a thought or two here.

And Mark, the one thing that I would add that makes it, just say, this is not dumping the question at all because it's a great question. The thing that's difficult is to determine where the significant increases or I shouldn't even say significant, the substantive increases in pass through had been occurring as a result of this war on terrorism that we've been engaged in now, post 09/11 and what if any additional increases occurred as result of a Iraqi freedom, that's kind of transparent. It's very difficult to tell where one starts and one stops and this war on terrorism is going to continue, it's something that will sustain through the reconstruction of Iraq and on into the future. So, I think it just behooves us to be a little bit cautious about forecasting pass through revenue but we have no reason to believe because we got this huge [Inaudible] as a result of Iraqi freedom which we didn't, that will stop. It's just that we don't have a good sense. We don't have a great forecasting mechanism or a good barometer on how long that will continue and where it will happen and the kinds of pass throughs that will occur.

Okay. Related to the PTG acquisition, did you ever state what the actual cost of that transaction was or should we imply it's roughly 60 million because you said post deal, you would have about 50 million in cash in the bank?

No, I don't imply anything really. The transaction hasn't closed yet. We are anticipating a close in May. We are paying a range similar to what we paid in the past for transactions, similar to what I gave you is kind of the composite there and that's kind of roughly, a rough number throughout there so, I know, we want to wait obvious rounding off at that kind of numbers to give you a rough idea that we have plenty of cash.

There are several reasons we don't disclose has been, it's the rare exception that whenever that we will disclose the terms of the transaction prior to the actual closing because things can in the final aspect of due diligence be changed a bit, we simply want to retain little bit of proprietary consideration in the final negotiations while posing the deal, which is the best interest of the shareholders as well.

We'll take our next question from Bill Loomis .

Hi, thanks. Good quarter guys.

Thanks Bill.

On, Steve, just first one the, when you talked about all your acquisitions, you gave a multiple of EBIT, a lot of times we used a multiple EBITDA. Do you happen to have the EBITDA number?

I do not have that handy, Bill and then most of these companies don't have a lot of DA.

Okay.

Okay. It proceeds very low. EBIT and the EBITDA are very close.

We're probably going to be the emphasizing metric in any case Bill.

We need to be careful with that metric because it's not a GAAP measure anymore so, we probably can move operating margins.

You gave DOD organic growth as well as civil organic growth?

Hold on one second. I got to get my right page here and with ...

I would like to just mention while we are looking at the figure, we are working with the Department of State, the FAA elements of the homeland security including coast guard, so there is an interesting profile of our work with what we might call civil, as well the OJ (ph) , but a lot of this work really is in the security related or national security and defense posture. Did you have the numbers, Steve?

Yeah, I do. On a year to date basis, the numbers are about 18 percent for DOD, 22 percent for civilian. In the current quarter it was down, the DOD was 95 percent for civilians, the civilian was down because I mentioned previously the DOJ was 22 million versus 26 a year ago.

We'll take our next question from John Mahoney at Raymond James.

Hi John.

Hi, guys. Nice quarter.

Thanks John.

Thank you.

Just a follow up on kind of the same thing. How would you characterize your organic growth this quarter and for the nine months excluding these pastures, and also did I understand you correctly that the delta between what's your expecting in [Inaudible] this quarter and in the fourth quarter is $6 million , and if that's correct, what is the size of the quarterly [Inaudible] right now?

Well, Steve will talk on the second part. Let me talk about the organic growth. We couldn't be more enthusiastic and bullish about the organic growth. John, as you know, we're at the trailing end of that [Inaudible] continuing resolution which is clearly the longest that's been in the business since I've been doing this back in 1974. So the fact that we're able to grow the enterprises at 14 percent organically, the entire corporation, given what's going on in commercial IT and given what's going on in the state and local business. We're just delighted. So, we believe that that notion of 17 percent for the nine months given our goal of 12 to 15 percent, we're just happy as [Inaudible] John. waechter: John, this is Steve. First, I don't know if I understand your question but secondly, I don't think I have the information here but if we want to take it off line I'd more than happy to follow-up with you ...

What was in the end, John? What were you asking please?

Sir, you can resignal for me.

Hello?

John, again if you could press "*,1". Mr. Mahoney, you're line is open.

Hi.

Sorry, John.

I want to clarify the $6 million you mentioned, that's a delta between what you experienced in [Inaudible] this quarter or what you may be wont' get next quarter and what's the total amount of hardware of [Inaudible] ?

We don't give out the total [Inaudible] revenues because that would give people an indication of what our direct label multiples are and so forth but it's in that range, we believe as we look at the numbers and roll it out it up, that 6 to 7 is just not going to happen right now on the sub-contract [Inaudible] and what you see the ODC line and other direct cause so basically a [Inaudible] $6 million to $7 million less than what we had this quarter.

Okay. So, let me ask you this question. Would this be a fair characterization that next year you get the benefits of aniversarying the full acquisitions throughout all of next fiscal year. But maybe you won't realize [Inaudible] revenue and the total around 15 or is it going to be 20?

Well, let me say. I think it's premature to look at it. We're in the process right now going through our plans. I think we'll have better guidance for you with regard to that as we go forward. We do have some programs that may require significant [Inaudible] and Ken's looking at that now as he goes through the budgets. We've won some new contracts during the last year that has significant [Inaudible] and we just need to -- we need to analyze all that.

Right, okay. So, you don't want the investment community to back out to past the revenues as if they are not going to occur more, because it sounded earlier in the call that because of Iraqi Freedom we have had an unusual situation that won't continue, that's not okay.

That's definitely not John, in fact ... [Inaudible] . The factor is come into the system.

Okay thanks a lot.

They come in a couple of flavors. We passed through subcontractor revenue where people are providing or subs are providing services. We forecast that with a fairly high degree of fidelity, its when we are passing through hardware or a sub contractor of ours has a large hardware passed through that, that becomes a little more difficult to forecast.

I might may one point here that I think bears on our longer range strategic plan. We are in the process of going through some strategic reviews with the objective of looking at the participating more toward a tier one provider of integrated services which obviously will incorporate more prime contracts for CACI with a different profile of subcontractor and vendor support. So we are going to continue to look at this, but its part of the process of moving toward a tier one player. Jamie?

We will take our next question from Cindy Shaw with SoundView.

Thanks, nice quarter guys. A couple of questions. It sounds like we had several moving parts this quarter one, the Iraqi Freedom situation helped, and that sounds like that is going to continue. I was wondering if it is going to continue at a similar level in the future quarters as it did in the March quarter and then of course on the flip side what we had was some delays on the civilian side, I am wondering if you are starting to see flow, if you feel like you are going to get a more normalized June quarter, maybe a better than normal June quarter because of the hold ups in the March quarter, how that is going to play out and then looking a little further down, to Department of Homeland Security. I was actually speaking with Steve Cooper a couple of days ago and Dr. London, he said I should ask you about it this.

All right.

He said that in particular for khaki (ph) and that he used to work for you all, he should know. Its going to be more of a 2004 benefit than a 2003 benefit in terms of opportunities there, if you could comment on that please?

I would be delighted to. Yes, Steve was with our firm a number of years ago and still remains a good friend and colleague and I have seen him as well. Really challenging opportunities and a lot of work ahead for that organization. I think we are in a position and none the less Ken in a moment here to speak to further, we already have a significant meaningful working with the US customs service for example, secret service and we also have the arrangement and the Rescue 21 for the United States Coast Guard, but I am absolutely positive we will be in a position to respond to those requirements and I think that in the TSA area, we are also participating in some opportunities and business are coming down stream, but maybe for a little emphasis, I will pass it over to Ken.

Yeah, Cindy, let me take them one at a time. First of all the Iraqi Freedom, I think what we are guiding to is that we don't have the ability to continue to forecast what kind of hardware pass-throughs where we have to send equipment over to the theatre and in fact I would have you believe that its probably not as likely that during the reconstruction phase that we'll do the same amount of censor kind of work, where we will build devices and sent them in [Inaudible] . Now the services part of the business, we intend to continue to provide the level of service and in fact, there is some potential for growth in the services part of the business, support again, leading the wars is the same thing as going into war, to the other gentleman that I answered the question. You go from the war on terrorism, you continue this war on terrorism and you move into this campaign called Iraqi Freedom, you exit Iraqi Freedom and you are moving back into that same war on terrorism that actually was a single threat all away through the engagement.

So, we believe the level of activity that we are going to have as a result of the clients we serve and the solutions that we build and the technology that we offer will continue to on the pace that we are at, which is why Jack indicated that this notion of 20 percent compound annual growth rate in kind of, we are sticking to our guns on a going forward basis. So, I don't see any big down turn with a possible exception of some equipment as Steve pointed out, equipment kind of pass throughs. In terms of the growth in the civilian sector, Steve gave you some numbers here, but this down turn in the litigation support, the justice budget really had a little or nothing to do with the continuing resolution. We said that earlier and I would like to reaffirm the notion. There is a little down turn in our justice revenue, our mega revenue is around the same. But, our overall justice revenue is down a little bit because there was a slow down in the [Inaudible] program, a large program that's occurred here in town, but we are going to pick that backup, because we are at training contractor on that.

There was a brief hiatus because the hardware providers and the software providers were a little slow in uptake. They have now caught back-up and we will start providing that training to the Department of Justice on this major [Inaudible] program. So we have not even seen any slow down as result of the continued resolution in the civilian part of our business. So, we believe that, that's going to continue at the pace that we have been growing at and I think Jack very accurately answered the emphasis in the things that we have got going in the Department of Homeland Security, which was, I think was a third part of the question.

Right, thanks very much.

Thank you.

You are welcome.

We will take our next question from Mollie Sandusky with Friedman, Billings, Ramsey.

Good morning. I apologize if you guys have gone on with this already, but could you break out the DOD and non-DOD business?

It's in the, in your chart under press release, Mollie. We break out the revenues, if you look on the last of that --.

Okay, great, thanks. That's fine.

It will give you the revenues splits by DOD, federal, civilian, etc.

Okay, and then on the civilian side, I mean, a few of the people has been talking about seeing kind of this wave building of, you know, opportunities coming through given the continuing resolutions in kind of the next may be 30 to 60 days, are guys seeing that at all?

Mollie, please I need you to repeat that one, would you? I apologize.

Sure, no problem. A few of your competitors have sort of talked about giving the situation with a continuing resolution about how there is kind of a wave building of, you know, some business from the civilian agencies, that should be coming through within the next 60 to 90 days, do you guys see that happening at all?

Well, what we prophesied at the outset here, there was a slow down in the issuance of requirements in the forum of new RFP's. The GSA part of our business, the transaction part of our business was very strong through the CR's and now basically what we are seeing is, we are seeing some of these new requirements manifested in RFP's. We are very hopeful that on a going forward basis that will continue to sustain the kind of growth that we have had, but because we have seen no slow down, we don't think that there is a huge bubble in the system like some of our other competitors have forecast. What we do see is that the requirement are now accelerating to the point where 3, 6, 9 months down the road, assuming that we are successful on responding to these requirements appropriately, that that will have may be a little bit of an increase.

Also seeing that that backlog of opportunities, the four plus billion deals out there is an indication of the interest in moving these kinds of programs forward perhaps at a greater pace. And certainly we position to be taking a serious look at many of these opportunities.

We will take our next question from Barbara Coffey at Jefferies.

Hi, mine sort of goes off the previous questions, it's a supplemental that has just been signed. Are there opportunities in that that you guys believe you can address and about how long do you expect it to take for that money to slow to the agencies and up to the contractor?

Supplementals.

Yes.

Typically what we talk about the whenever is the budget release or assignment or a signature on one of these things, it takes 60 to 90 days. In this particular case mostly that's not going to flow to us. The Department of Homeland Security money that's in there is largely going to be aimed at first responders. The defense money that's aimed at that is pay and allowances and as Jack pointed out, bulletin bombs. So, we weren't depend upon it nor do we see it coming in our direction. But it will probably take the recipients of that 60 to 90 days to get it.

And, are you saying the department -- I have been reading the Department of Homeland Defense has quite a bit of money. They have yet to start spending. Are you seeing sort of ways of RFPs and contract coming out of the Department of Homeland Defense?

We are actually seeing a little bit of an increased activity in terms of requirements being generated out of DHS, as you know they are looking very closely, ONB is insuring that the requirements that they issue that there is no substantive overlap, given there is not a lot of new money in there, and that is one of the things that's been recognized, I think, by almost all, in fact, all of our analysts. It is a consolidation of those 22 agencies budgets, so ONB has been very rigorously looking at the release of requirements to ensure that there is not a redundancy or an overlap in the requirement. So there has been a little slowness in there and we are now starting to see some of those programs issue, either out of customs or out of PSA or hopefully out of out of INS here in the not too distant future, but it is slow in this, I think as somebody else mentioned in a discussion with Steve Cooper (ph) . He expects that to manifest itself in '04 and '05 and I think the appropriately so.

We will go next to a follow up of questions from Tom Meagher of BB&T Capital Markets.

Yes, thanks again. I just [Inaudible] strategic question and I couldn't and Steve, maybe you're the guy to answer this. Given the popular is the GSA schedules. GSA has proposed reducing the industrial funding fee associated the schedule from one percent to 0.75 percent, beginning effect of next year. Their reduction on the fee has to reflected on GSAs scheduled prices as I understand it. My understanding is they have also proposed allowing vendors to keep the 0.25 percent difference for one quarter to compensate everybody for the cost of adjusting their scheduled contract. According to ITA their position is it is going to cause guys like you a lot more than 0.25 percent a quarter to make those changes and as such that I guess they want to extend that coverage to the life of a task or typically expiring within a year. I just want to kind of, get your thoughts on does that have any impact on the company going forward in any way?

No, I do not believe so. I do not know why these people are talking about the cost side of it being at extreme, but we do not see a major impact.

Okay, thanks very much, I appreciate it.

We will go next, a followup question from Bill Loomis with Legg Mason.

Hi, thanks. Really two questions, one, first on what was the free cash flow in cap ex in the quarter 2 as we look at the different revenue groups sequentially now, where do you see DOD civilian, commercial and state local going from third quarter to fourth quarter?

Let me give you the cash flow answer to that and I will maybe differ again on the pieces of this. I have on a year-to-date basis bills. So probably 40.4 million was the operative cash flow and 41.4 million was the combined operating cash flow from operating activities and 5.7 million was the cap ex on a year-to-date basis.

Okay.

And Bill you want a DOD commercial and civilian, kind of look at quarter to quarter.

Yes, sequentially I assume that DOD won't have that bigger sequential increase because you are not assuming significant amount of pass-throughs.

Yeah, you know if the pass-through happens to occur then quarter to quarter will look good. I don't have a good sensitivity to the exact numbers but I would expect that it will continue to grow at the rate and pace it is growing. We obviously are looking at a lot more opportunity inside of the defense sector, we are starting to see RFP's manifested in the civilian business and the task order part of that business picking up a little bit. On the commercial side it's kind of flat I think. We obviously are not building much of any business. We do a little bit here in the States and Gregg (ph) is flat up a little or down a little. So I think you will see the commercial kind of stay steady quarter to quarter.

And PTG's mostly defense.

PTG is almost exclusively defense.

And what was ATG's mix.

ATS [Inaudible] .

Okay, as you categorize and would you put some National Intel (ph) and civil or what's the breakup.

In civil I think they both are civil.

The ATS is all civil. It's national intelligence but it would fall into our civilian. That is where we book it.

And once again, ladies and gentlemen, if you would like to ask a question you may do so by pressing the '*' key followed by the digit '1' on your touch-tone phone. We will take our next question from Randy [Inaudible] with First Albany.

Good morning guys, how are you?

Good morning.

london" Good morning.

Just to follow up on PTG. Surfing their Web site it looked like they had a mix of government and commercials, I was wondering what sort of a split is there, also wanted to know what their unique skills that was in, and on the service sort of dead reactions it looks like a creative ballistic (ph) state if you had any comment on that.

I would like to start off by saying the objective of the acquisition with PTG was a strategic positioning. We have growing significant business in the national intelligence community, the positioning with PTG puts into our portfolio a forward deployed tactical armed services support dimension, but it's all in the intelligence community in a broader sense of the word. In terms of civilian I don't know exactly what was meant, because there was no significant commercial side.

There is no.

And virtually little of any civilian federal side. I dont know if there is any at all, but the important point I think is the almost 90 percent of the employees of PTG have higher level security clearances and you can read between the lines in terms of the kinds of things that we will be doing with that organization. It's very complementary and part of I think of a interesting plan that we are putting in place.

But the business has a much higher margin than your existing business and I was wondering how accretive that cost would be to the number of next year?

We haven't given out the guidance for next year and I would, I guess hold back until we number one, first close the transaction at that point of time as we get close and be more appropriate I think to look forward and give you hopefully some better guidance at that juncture.

We have every expectation that we will move towards the closing mid-May as anticipated but obviously as you can understand we are still in the process of due diligence and finishing the job up. I might emphasize that we are very eagerly looking and then enthusiastically looking at our strategic positioning for this coming year. There has certainly been a lot of changes in the business landscape over the last year. We recognized that. We think there is some real priority opportunities that we are well positioned for and our aquisition strategy will be moving to take advantage of those niche place where we already have a presence. PTG falls right in line with that.

We will take our next question from Colin Gillis with RBC Capital Markets.

Yes sir, hello everyone. Just a quick follow up. I want talk about GSA. Do we have a percent of revenue form GSA schedules for the quarter?

It's about 28 percent.

Okay, great. And then how about head counts into the quarter?

It is right around 6,000, a little more than 6,000.

Okay. Any idea of what percent of those will have security clearances?

I doubt, is going to be consistent. I think we said about 80 percent of them, the past 75 to 80 percent of them have clearances. We have about 250, 260 or so in the UK and I clearly they don't have the clearances but the remaining piece of that 75 to 80 percent have some level of clearance.

I would add that in a special clearances area we have somewhere around 5 to 600, I believe, a special departmentalized, so it's a growing presence and footprint in that important aspect of the intelligence community market.

We'll add about 360 people with, when we conclude the PTG [Inaudible] as Jack indicated you know, 80 to 90 percent of those people have clearances also.

And ladies and gentlemen, if there are no further questions at this time, I would like to turn the conference back over to the speakers for any additional or closing comments.

Okay. Thank you, Jenny. We sure appreciate your help and I want to extend our appreciation thanks to all the callers in the, your answers to the questions this morning. We think we provided hopefully a significant amount of information in your participation in the call this morning and a clear picture of the results and certainly our expectations going forward.

Next quarter will be participating in several conferences as we do, a common practice would be in New York and Boston, among other places and we look forward to seeing you and some of you and bring you up to date on the company and what we are into and as always if you are coming to Washington area we would like to arrange a meeting please contact David Dragics, our investor relations director and he will obviously be in touch and help you. We are also aware that some of you may have other questions you like to discuss so as our custom our team would be available about 15 to 20 minutes to take your calls or any questions you may have after this call concludes. So, again ladies and gentlemen , thank you very much for your participation and your interest in CACI and that concludes our conference call for the third quarter. Thank you very much.

Once again, ladies and gentlemen, thank you for your participation. You may now disconnect at his time.