CACI International Inc (CACI) 2004 Q2 法說會逐字稿

Good day, everyone, and welcome to the CACI International second-quarter 2004 earnings conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Dave Dragics. Please go ahead, sir.

I am Dave Dragics, Vice President of Investor Relations of CACI International. And we are very pleased that you're able to participate with us today. 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.

As has been our custom on this call these calls, we are also including exhibits with our presentation, and we believe that will be helpful in reviewing our financial results and trends and with a discussion of our operation. As we progress this morning, we will make every effort to make keep all of you on the same page as we are. So let's go to the first exhibit.

As you know, yesterday after the market closed, we released our second quarter and six months fiscal year 2004 results. And we hope that most of you have had the opportunity to review our announcement and results. And they are summarized on this exhibit.

Moving to the next exhibit, before we begin our discussion this morning, I would like to make our customary but very important statement regarding CACI's written and oral disclosures and commentary. There will be statements in this call that do not address historical facts and as such, represent forward-looking statements under current law. These statements are subject to important factors that could cause actual results to differ materially from the statements made today. The primary factors that could cause actual results to differ materially from those anticipated are listed at the bottom of this morning's the earnings release, as well as in the Company's Securities and Exchange Commission filings. Our full Safe Harbor statement is included in this exhibit and should be incorporated as part of any transcript of this call.

Let's turn to the next exhibit, and to open up our discussion this morning, here's Jack London, Chairman, President and CEO of CACI International.

Thanks, Dave, and good morning, ladies and gentlemen. First, let me welcome many of you who are new to CACI and to our call this morning. We appreciate your interest and invite you to join us on future conference calls as well. Last evening after the market closed, we reported record results for the second quarter of fiscal year 2004. I'm very pleased to say that we accelerated the solid performance that we delivered in our first fiscal quarter. We experienced a 35 percent increase in profits and a 29 percent growth in revenue for the second quarter compared with the second quarter of last year. We also received over 390 million in contract awards. We expect to continue performing at these levels, bringing us ever closer to surpassing 1 billion in annual revenue by the end of this fiscal year. I might add that this is well ahead of our original June 2005 target. Steve Waechter and Ken Johnson will provide you with more details and additional information on this in a few moments.

This quarter, we saw continued momentum in our work relating to national security, intelligence and the war on terrorism. Our nation continues to face a serious threat of terror, not only in Iraq, but in many places around the globe. At CACI, we see it as our duty to do whatever we can, offer whatever services we have at our disposal, to help the nation's forces remain vigilant in their heroic efforts. I'm also pleased to report that CACI is also making considerable headway in certain non-defense markets, specifically, the human resources and health services arenas. You may recall the two prime contracts we announced early in the quarter supporting the DoD's health-care program, TRICARE. We also were awarded a major subcontract to support the DIMHRS, that is the Defense Integrated Military Human Resources system. We are also one of the awardees of the D/SIDDOMS III project, and that is the Defense Systems Integration, Design, Development, Operations and Maintenance Services contract, to provide IT support to the military health system. I think I speak for everyone at CACI when I say that we are very pleased and proud to be bringing new applications of our award-winning IT services to both civilian and defense agencies of the federal government. We closed the acquisition of C-CUBED Corp. in the second quarter, enhancing CACI's ties into the intelligence community. We're enthusiastic about this acquisition. With more than 400 highly skilled people many of whom hold high security clearances, our C4ISR capabilities have significantly increased. Overall, we believe that our record performance reflects our growing ability to meet the needs of our nation, our clients and our shareholders.

Let's move to the next exhibit and the next phase of our discussion. With me today, to discuss our operating results in more detail, and to join me in answering your questions are Ken Johnson, President CACI's U.S. 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 might have about our UK operations. As is our custom on these calls, we will discuss three principal items. First, Steve Waechter will discuss our financial results. Second, Ken Johnson will discuss our domestic operations and our outlook. Finally, I will have some closing comments and after that, we will open up the call to your questions, and we're looking forward to it. The first item on our agenda is the financial results summary. So here is Steve Waechter, our Chief Financial Officer. Steve, over to you.

Let's go to the next exhibit on Page 6. Last evening, we reported record second-quarter and first half FY '04 revenue and earnings. Revenue for the second quarter increased 29 percent to $263 million versus $205 million year ago. Net income was $14.3 million or 48 cents per diluted share, up 35 percent over last year's $10.6 million or 36 cents per diluted share. We continue to experience good operating leverage with our net income growth rate exceeding our revenue growth rate.

Let me give you some more detail on some of these results, moving to the next exhibit on Page 7. Our federal government business grew 32 percent during the second quarter, and represented 94 percent of our total revenue. The internal growth rate of our federal business was almost 17 percent. For all of CACI, internal growth was 15 percent, well above the 10 to 12 percent range we forecast in our October guidance. This growth is coming from our core business, as well as from operations we've acquired and integrated over the past several years. Our United Kingdom operations reported 10.9 million in revenue, slightly ahead of the second quarter of last year. The pretax profit was 8.4 percent compared to 11.6 percent a year ago. Performance of our United Kingdom operations improved considerably in the quarter. This came about as a result of an improvement in our systems integration business and better sales of our higher-margin software products. We believe the demand for commercial IT services is showing signs of picking up, and we anticipate that our UK business will continue to improve over the next several quarters.

Moving to the next exhibit on Page 8, let's take a look at some of our key metrics, most of which were included in the financial exhibits in our press release. This was another very profitable quarter for us. Our operating margin was 8.8 percent compared to 8.2 percent in the second quarter of last year. As we indicated in our release, the growth in our operating margin was driven primarily by a favorable business mix and operational efficiencies. Our acquisitions also contributed favorably to the improvement, both from significant revenue growth and leverage of our infrastructure. Looking at a few other metrics, about 87 percent of our revenue this past quarter and for the year-to-date was earned as a prime contractor. year-to-date, 62 percent of our revenue came from time and materials work, 20 percent from cost-plus work and 18 percent from fixed-price contracts.

Moving to the next exhibit on Page Number 9, our working capital requirements increased rather significantly this quarter to support the start-up of several new contracts and some delays in receiving funding from our federal government clients. Additionally, operating cash flow was affected by the timing of vendor payments and tax payments. We pay our business partners or subcontractors in advance of billing our customers, which can create a timing delay between disbursements and receipts from our end customers. As you can see from this exhibit, historically, our cash flow for the first half is significantly lower than the rest of the year. We had negative operating cash flow for the first half of FY '04 of $12.9 million compared with a positive operating cash flow of $12.5 million in the year earlier half (ph). We continue to anticipate that operating cash flow to range between 70 and $80 million for the full fiscal year.

On the next exhibit on Page 10, the increase in our days outstanding was driven primarily by the start-up of work on several contracts, delays in receipt of funding from our customers on several contracts and receivables acquired with the acquisition of C-CUBED. Days outstanding at December 31st were 86 days compared with 77 days a year ago. We anticipate that the days sales outstanding will settle down in the 75 to 77-day range for the rest of the year. This exhibit also shows our cash and marketable securities and debt at December 31st.

The next exhibit on Page 11 contains our guidance for revenue, net income and diluted shares for the third and fourth quarters and full fiscal year 2004. As you may have noticed, this is the second time we've increased our guidance this fiscal year to reflect our accelerated growth. As you can see on this exhibit, we estimate that our revenue for the quarter will range between 278 and $288 million, an increase of 25 to 30 percent over the third quarter of fiscal year '03. Also for next quarter, we expect our operating margins to be in the 8.5 to 8.6 percent range. This compares favorably to last year's 8 percent. We anticipate that our net income will range between 14.7 and $15.3 million, 29 to 33 percent higher than a year ago. We expect diluted earnings per share to be between 49 and 51 cents, up 26 to 30 percent over the year earlier period. We believe that our internal growth for the third quarter will be in the range of 12 to 15 percent. Finally, we estimate the diluted weighted shares for the third quarter will be 30.2 million. For the full year, we now estimate that our revenue will be between 1.065 and $1.085 billion, 26 to 29 percent above fiscal year '03. We anticipate that net income for the year will be between 57.4 and $58.5 million, 28 percent to 31 percent higher than the 44.7 million we reported for fiscal year '03. Diluted earnings per share will range between $1.91 to $1.95, which represents an increase of 26 percent to 28 percent over the $1.52 reported last fiscal year. As you can see, this guidance compares favorably with our target of 20 percent overall growth achieved through the combination of organic and acquired growth.

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 readers of the transcript should be advised that our actual results may differ materially from the statements we're making today.

That completes the financial overview, and now here's Ken Johnson, who will cover our domestic operations.

Let's go to exhibit number 12, please. Our domestic operations in the second quarter have continued to grow mainly as a result of accelerated stamping on several of the new contract awards that we announced last quarter. Additionally, we've experienced expansion on many of our continuing contracts. The overall operational tempo has continued at a strong pace because, as everyone knows, there are lots of things happening around the world with our customers. Our domestic operations grew organically by about 16 percent in the quarter. A significant portion of that growth is directly attributable to the previously discussed new contracts. Please note that we have achieved these results even though a few of those recent contract awards are not yet fully staffed. Given customer and prime contractor assurances, however, we remain very bullish regarding the future prospects for these contracts once typical contract start-up inertia is overcome. That notwithstanding, staffing in our domestic operations in the quarter, including the acquisition of C-CUBED, increased about 654 people from approximately 6,150 at the end of September to just over 6800 at the end of December. And the trend of revenue growth coming from our national security clientele for both national and military intelligence customers continues. Similar to last quarter, well over two-thirds of the 32 percent increase in DoD revenue came from higher levels of C4ISR work for customers such as the Army's Communications Electronics Command, or CECOM and the Intelligence Security Command or INSCOM. Tactical military intelligence organizations deployed around the world in both the surface and air areas of the United States Navy. Growth in our federal civilian agency revenue came from new and current contracts across many clients and agencies. We generated approximately $27.9 million in revenue from the Department of Justice. And as in the past, the large majority came from the DoJ Mega 2 contract. This work is involved in major tobacco litigation as well as work for the Securities and Exchange Commission and projects for several other unnamed government agencies. More important, revenue from other federal civilian agencies, such as VA, customs and intelligence clients continue to increase. This quarter, almost two-thirds of that revenue was from agencies other than the Justice Department. So we are very pleased with our progress in these growing areas.

We also celebrated a significant milestone with regard to work we do for our customers through GSA or the General Services Administration schedules. This past quarter, we passed the $1 billion mark in total funding for work required under those schedules over the past many years. As you know, the ability of customers to complete more timely procurements through the use of these scheduled vehicles is a benefit for the department or agency using them, and less costly to industry and government because of the shorter time involved. We share this celebratory milestone with you because we believe it clearly illustrates our ability to successfully adapt to the changes in the government acquisition landscape.

Moving to the next exhibit, here is a recap of the revenue we generated from our federal, commercial and state and local customers through our service offerings. These percentages are approximate. Systems integration work, which as you know, includes our UK operation, still represents over 50 percent of our revenue. Engineering services in the 21 to 23 percent range. Network services represent between 14 and 16 percent of our revenue; and knowledge management is approximately 10 percent.

Now let's move to the next exhibit. Let's take a look at our pipeline of qualified opportunities. When we spoke with you in October, we were looking at about $5 billion of business in our pipeline. Right now, that figure is approximately $6.4 billion. Because of the beginning of the new government fiscal year in October, we experienced the typical seasonal pace of new RFPs during the quarter. Those new solicitations, especially those coming from the federal civilian agencies whose appropriations have not been passed and signed into law, slowed when compared to the July to September period, the last quarter of the government's previous fiscal year. As one might expect, given which appropriations bills have been passed into law, we anticipate that we will continue to see the overall growth trend of our DoD and intelligence community customers continue at the pace we have seen. We expect our organic growth rate to continue to be in the 12 to 15 percent range during the third quarter. And we expect acquisitions, which we are also growing nicely, to fuel overall growth well above the 20 percent long-term growth target. So regardless of the pace of new solicitations, and the questions surrounding federal civilian agency appropriations, I think you can see from the guidance that Steve outlined that we expect to be very busy and continue to grow during the remainder of the fiscal year. We are very optimistic about the second half of our of FY '04 as we continue to increase the depth and breadth of our footprint across the federal landscape. The awards we received in the second quarter, which approximate $390 million in contract awards, 45 to 50 percent of which are new contract relationships, present increased growth opportunities in the months and years ahead. Overall, we believe we are extremely well positioned to extend our growth and profitability trends to the remainder of the fiscal year and into FY '05. Jack, that concludes my remarks.

Thank you, Ken, and thank you, Steve, also, for your updates. Let's move to the next exhibit. We've successfully completed the first half of our fiscal year '04 with outstanding and (indiscernible) results. We've increased our profitability and accelerated our business growth. Our position is a major IT provider in the defense, intelligence and federal civilian markets is strong.

Earlier this week, the President of United States delivered his State of the Union Speech. And in it, he stressed that America's focus on Homeland Security and the War on Terror must continue. The dangerous is not behind us. I think it's clear that the work (indiscernible) performs for our government and our troops will continue to be of greatest importance. We sure the President's belief that the government's greatest responsibility is the active defense of the American people. Our core capabilities provide critical tools that Homeland Security and law enforcement personnel need to remain vigilant in America's defense. CACI solutions for intelligence, systems integration, network communication, engineering and logistics and knowledge management all have application to these specific efforts. The week after next, we will see how these priorities are structured when we see the President's proposed budget for the government's fiscal year 2005 and when it is released.

Besides national defense, we believe there will be a continued focus on government transformation and seeking ways to operate and to deliver services to citizens more efficiently. To meed these needs, CACI offers in-demand solutions for financial management systems and government streamlining. These are areas in which CACI excels, and which we believe there will be continued and increasing opportunities for CACI support.

As we look ahead, we must remember that our country here at home still faces the threat of terrorist attacks as well as being it (ph) abroad. I believe the only way to defeat this threat is through strengthened vigilance. This requires precise intelligence gathering and network communications and collaborative efforts. Our nation's ability to provide those capabilities will have a tremendous effect on the security of both our troops and our citizens. We at CACI intend to be an active participant in this extremely critical area of our national defense and infrastructure systems.

At CACI, we have a strategic plan in place. It has been extremely successful and continually matching CACI's core offerings to national priorities, quarter after quarter, and year after year. We believe we will surpass the $1 billion in annual revenue by the end of this fiscal year and be ahead of our original projections and goal of doing so by June 2005. As always, we embrace the highest ethical standards and integrity in everything we do. We continue to deliver on our legacy and our credo of quality client service and best value through our technologies, our services and our people. And we will continue to build shareholder value.

So at this point, we are ready to open up our discussion to your questions and we're looking forward to them. So Peter, I will turn it over to you to bring in our first question, if you would, please.

(OPERATOR INSTRUCTIONS). Muir (ph) Uceles (ph), SG Cowen.

Good morning and congratulations on a great quarter.

Thank you, very much.

Just a quick clarification, I am a little confused by the exhibit. Are the national agency customer base included in your Fed civil number, or in the DoD number?

They are actually both sides. We distinguish that national intelligence community and we report it in some of it, in both categories.

Is there anything at all you can say about how you decide what goes where?

I don't want to get into a lot of detail about this because of the sensitivity of these customer relationships. But as you know, if you looked at it short (ph), the government is pretty open about the national intelligence community. There are intelligence agencies that are very specifically not aligned with the Department of Defense and don't spend similar kinds of money. And then there are those that are very, very clearly aligned with the DoD. And we attempt to treat those that way and put those in both of those buckets.

One follow-up question, at the risk of sounding excessively demanding, given the strength of the results, is there any prospect for kind of a broad realignment of your 12 to 15 percent organic growth target range going forward, given just how strong things have been to-date?

In a sense of realignment, we actually do -- the guidance will be where we manifest that if we decide to do so. I have our strategic plan over the next few years calls for an organic growth rate that's between between 12 to 15 percent. I don't see any reason at the current moment to change that, although we are always looking to accelerate our performance.

Julie Santoriello, Morgan Stanley.

I'm wondering if you could just drill down a little bit more on the working capital issues. In particular, you had mentioned a decrease in DSOs. And guess aside from C-CUBED, part of that seems to be coming from delays in funding at the Federal government level. I was wondering if you could help us understand that a little bit further?

It's kind of a mix, and I put it broadly into three categories as you look at the increase there. About a third of it is related to the C-CUBED acquisition. A third really relates to the start-up of some of the new contracts that we received back in the first quarter. And it's just the timing of how you get those billed out and collected. And the first time around, it takes a little longer to get those up and running and collected. And we have a few contracts, one of them, a perennial one, where we always have trouble getting -- we are a subcontractor to a large prime. And it just takes time sometimes to get the funding out of them. There, we've never had any issues with it; it's just a timing issue. So again, three broad areas. Primarily, the start-up of the new contracts, some funding on a few contracts, just delays. Again, we don't anticipate any issues with those; and then the C-CUBED acquisition.

You feel confident that, in terms of some of those delays, those could be made up as early as the current quarter?

There is one in particular that we think will probably be a fourth quarter event. The timing of one of our prime contractor and their hitting a milestone, we think, will happen in the May time frame. And then we will be able to get that bill out and hopefully collected by the end of June. But the rest of them should, in the normal course, come through, and we should get that back down into the 75 to 77-day range, we think, is realistic.

If I can get one more question for Jack. Jack, I want to get your thoughts on the upcoming presidential election. Not to pick the winner, certainly, to help us understand --

I can do that too.

If you want to, we wouldn't mind. Just to understand how you think of your business, in terms of the different administrations and how things may change if we have a change in regime?

I've thought a lot about this, as you might imagine. In fact, I am spending a good percentage of my time scouting around trying to assess. What I see right now is our business plan has pitched us in what I will call a niche, if you will, that is highly likely to continue. I wouldn't say that it's completely independent of administrations. But I think over the next 12 to 18 months, we ought to be seeing a sustained level of activity in the areas of government requirement, national policy that we have been seeing. Beyond that, of course, you talk two to three years out, is always an open question, especially with a change administration would come into place, if it comes into place, will come next January, as you all know. The thing about it, I think, is that regardless of a change, we are going to see pretty good business prospects in the markets that we deal throughout the next couple of years. Beyond that, of course, it's a different picture.

Chris Penny, Friedman, Billings, Ramsey & Co.

Question for you on your comments about the RFPs in the fourth quarter or fourth calendar quarter -- certainly we saw that last year and it's been followed up by pretty strong spring and fall quarters, in terms of contracted awards. Can you guys comment on once these budgets finally get passed, what you would see for the spring and fall quarters?

Chris, the observation is on point. We hope we don't have to wait quite as long for the bubble to get out of the system. But you are absolutely correct, that we have seen a lot of activity. We have actually seen more activity this year from the DoD and Homeland Security than we saw last year, because as you recall, we were competing last year with the start of the war, the outbreak of the war. So there was a priority issue in getting solicitations out from even the appropriations bills that had been passed. That's actually moving at, I think, a much quicker pace this year. And we are going to see, I think, the same exact thing. We have had a number of substantive opportunities that are federal civilian in nature that are kind of just sitting in the queue, waiting to happen until we can get an '04 appropriations bill signed. And so, I think you'll see sometime in the spring and in the summer the level of activity of our proposal writing, comparable to what we saw last year and maybe even in excess of that, based on the number of opportunities that we are addressing inside of the defense and Homeland Security area.

One follow-up for Steve, in terms of your margins, nice growth in margins for the quarter. I believe some of it came from revenue from a fixed-price contract which we may not have expected. Can you comment about, going forward, the ability maybe to show high margins from that same contract or a different fixed-price contract?

I think I would like to start off by saying that we don't have a perspective on shares, and specific contract performance in the fixed-price arena. We have a very modest amount of fixed-price work in our portfolio right now. But in terms of the basic question on margin performance, Steve, I think that would be something that you could pick up on.

We are anticipating in the kind of 8.5 to 8.6. We roll up every quarter, actually every month. And we are looking at the kind of forward-look. And based on what we see on all the different contracts, and the mix of the business and the start-ups of new things and that, that kind of a range could be higher than last year. There's a lot of factors, as you know, that flow into it, whether we are a prime or a sub on things and the mix of the contract, etc. We are comfortable, and it's actually not to comment specifically on any one contract. We think the contract mix is going to stay fairly consistent for the next quarter. We're very comfortable with the range that we have given out there.

George Price, Legg Mason.

First question, if I could dig in a little bit on the contract start-up inertia. I want to make sure I am clear that I think you're saying that it's largely due to the funding delays, which will hopefully get resolved.

Let me stop you there. Really, as we start out on a new contract, the contract administration, the people come on board and we start rolling up the billing and collecting the time cards, etc. And there is usually somewhat of a delay, just learning how a contracting officer may want you to present the bills. These are fairly large start-ups. So we are a little bit slower than we would like to get those first bills out. But they are out, and a little bit later than what we would normally do. So they should be clearing here shortly. And that's why we are fairly confident we will get the days back down to 75, 77 days. It truly is just a start-up issue -- not a funding issue. The funding is there.

Right. But you're not seeing any delays in start-ups. I just want to confirm this, in the DoD segment or DHS segment at this point?

The one thing that I mentioned the text, we announced that $625 million of awards here a quarter ago, in fact, last quarter last year. Not that they are slow in starting up, but different customers have different kinds of acquisition strategies post award. And in one particular case, they indicated while they made that award to us, they fully expected that we would start phasing in our work force sometime around the April time frame. It's actually starting a little bit faster. But we announce an award in September. And obviously, we get quite excited about it around here, and we advertise it and we get a press release and all that stuff out. And then revenue doesn't start showing up until our fourth quarter. It's those kind of issues. And they are not funding issues and they are not contract problems. It's just the way a particular customer wants to phase in a new contract. And so, the point in my text was to indicate and make clear that this very attractive growth that we presented to you, there are legs there. There is more to it than we have actually delivered. We've got a couple of new contract start-ups that really -- we have had nice accelerated staffing -- some last quarter, and kind of at full speed ahead this quarter. But there is more to go for the contracts that we have already been awarded.

Fair enough. I guess the second question on the M&A environment. Are you seeing any changes out there? It would seem like if we, down on the road, see spending growth slow over the past strong couple of years, that M&A activity might pick up even beyond what it is at right now. Are you still seeing consistent expectations in terms of pricing? Do you see attractive properties still out there?

I will just respond by saying I have been looking at this on and off for about 15 years or more. These things tend to be somewhat independent of the factors your are indicating. And that is because the acquisition (ph) properties we are interested in, for the most part, are companies in the -- private companies -- in the 50 to 100 million or more in sales. And they are very tied to the exit planning, if you will, for the owners. So that tends to be a little bit independent of cycles out there. On the other hand, I would say that we anticipate -- continue to be requesting (ph). We have a significant part of our business plan and strategy going forward. There seems to be plenty of opportunities out in the market space. We certainly are seeing what I think is a goodly number of opportunities to look at and pursue. So it's going to be a continuing part of our business plan. And as we have indicated, not only through our guidance, but in our determinations and presentations of our goals, looking at somewhere between 5 to 8 percent each year as a targeted performance growth factor from their acquisition strategy.

The thing that we have seen very nicely here recently in the last 12 to 18 months is the organic growth coming from our acquisitions. That's an important point that I think has accelerated the performance and allowed us the opportunity to increase our guidance to the street, in terms of what we expect going forward. So that's been a very good news kind of result. And I think from the selection, it's a pretty fine company, that are providing some synergistic kind of activity inside the company. So we're very pleased with it. M&A will continue to be a significant part of our game plan going forward.

Tom Meagher, BB&T Capital Markets.

Steve, I will start with my traditional question.

27.9, Tom.

27.9?

Those are the Department of Justice revenues, for those of you who don't know Tom.

Just a follow-up question. There has been some concerns generated in the investment community regarding spending by the Federal government and IT relative to the budget deficit. Our investment thesis has been that if we do see pressure to reduce the deficit, which I'm sure we will, the first place Congress is going to look will probably be to the DoD, given it is the largest source of discretionary spending. Within that, they have traditionally gone after the large weapons systems programs as a way to reduce budgets quickly as opposed to trimming spending on IT-related products and so forth. And I would be interested in hearing your thoughts on how you might see that process evolving over the next couple of years?

Good question, Tom. Clearly, the emphasis has been away from the notion of platform-centric kinds of acquisitions in the Department of Defense. There is no question at all that that is the center piece of -- along with transformation -- the center piece of this particular administration. I think it's been borne out in enduring freedom and subsequently, in the Iraqi freedom engagement, that that's the approach they wind up having to take. In fact, I don't know there are any scenarios that are currently being considered that would cause anybody in the Department of Defense or anybody in the contractor community to believe that in the near or midterm, that there would be any migration away from that. There is an emphasis on the war fighter; there's an emphasis on providing more information, more information sharing, access to look at the battlefield. So there is a lot of emphasis on systems and technology driven down to as slow in the tactical unit as you can possibly get. So I think that the way we prosecute wars and the way we are defending ourselves and projecting force around the world clearly leads all of us to believe that we will continue doing and working with the Department of Defense much the same as we have over the course of the last three or four years. So I don't see that changing at all. So I believe, for companies like us, who don't rely on a manufacturing capability for its growth, that it offers positive opportunity for us for the foreseeable future, irrespective of administrations. This is just a fact of life that we are all facing today. And regardless of administrations, this is going to be the way we conduct ourselves.

Just a quick follow-up, would you expect to see the large A&D primes continue their emphasis on trying to grow the services business organically, as well as through M&A, as well, and therefore, perhaps maybe put some more pressure on folks like yourselves that you said are the traditional services-oriented vendors?

No question about it. What they've started, what all of them have done now -- I should not say all of them. Boeing has not made a huge play nor has Raytheon. But of the big five, three of the major companies have in fact, placed a great deal of emphasis on solutions and services, largely focused around either mission or function. But they are very, very labor-intensive kinds of initiatives that they are pursuing, both on the defense and Homeland Security area. And it will not surprise any of us to see that same kind of initiative inside the federal civilian sector of the government. So I believe, Tom, that you'll continue seeing more of the same, in terms of the things that they do, the programs they look at. And the competition that we face in this particular marketplace.

I want to add a thought or two, because I think it's relevant to our business plan. The thing that we have focused on is anticipating national priorities and the need for services. Areas, for example, recently, the intelligence services sector and network services -- these are areas that, over the last two or three years, we have positioned the Company, I don't think very successfully. In terms of the transformation kind of thing, you're going to see, I think, a continued emphasis on joint forces -- joint force activity. The units are going to be selectively put together, depending on their battle capabilities, probably at the battalion level -- certainly, integrating Marine Corps and Army activities. The Navy and Marine Corps also. And Air Force, as a matter fact. So the emphasis there, I think, will be very much different going forward and provide opportunity for services companies like ourselves. In the manufacturing aerospace, I think you're going to continue to see high-tech emphasis on things like the UAV program. Those kinds of intelligence gathering, battlefield dominance -- information technology -- battlefield dominance programs are going to continue to get funding, and I think independently of administrations. In terms of major platform activity, that is always going to be a bigger decision issue. But it's independent for CACI, because the market-space we've picked is one we can maneuver in quite quickly, and re-focus our business activity in terms of priorities out there. So it's part of our strategy to take advantage of the issue you raised in your question.

Tim Quillin, Stephens Inc.

The organic growth was just a little bit lower than I expected, based on your total topline growth, which I think implies that you are growing your acquired companies a little faster than I expected anyway. I am just wondering if you could give me a sense of how PTG, specifically and maybe C-CUBED, are kind of rolling into the overall company and how they are positioning you for increased C4ISR work?

Let me just start off by saying that we have been very pleased with the acquisitions over the last year, as a matter fact. I think we've closed four deals. We've, I think, talked previously about the satisfaction we have had out of the PTG organization, especially in terms of our work around the world. I think if -- Steve has had a chance to reflect here for a second, he will speak to some of the performance factors.

In the quarter, clearly, C-CUBED is in line with our expectations. They did about $9 million of the revenue for us this quarter. With regard to the other acquisitions, PTG you mentioned, significant growth. They, just relative to where they were a year ago, they are up probably 50 percent from a year ago -- their run rates. So they are growing very nicely for us.

To follow-up on that, can you just give us maybe a more specific sense of the type of C4ISR work that you are winning, and is it coming? Is it truly battlefield type of work? And in as much detail as you can, talk about where you are winning business?

We have had some real good successes. I will ask Ken to respond to some particulars.

I think the way I would answer that question is, the C4ISR stuff that we're doing is largely technical in nature. We're providing support on the battlefield, to the battlefield and at the battlefield, in almost every case. We talk about this recent INSCOM award; we have people deployed through this Genesis contract, in a number of theaters of operation around the globe. The acquisition of PTG has provided us a very, very sizable footprint in Western Europe. And from Western Europe, we deploy resources into Eastern Europe in a variety of locations around the globe, certainly in all of the hotspots that you read about, all day, everyday. And a lot of the work they do deals with intelligence analysis, systems support where-in, we will actually build prototype systems for a customer to evaluate it -- kind of spans the entire C4ISR spectrum. It is, in fact, considerably more tactical in nature than we have enjoyed over the course of the previous maybe three or four years.

John Ptak, William Blair.

Can you talk about the makeup of the current pipeline? And then further, can you talk about opportunities in the HR and health services and where you see that going?

The pipeline looks very, very similar to what it's looked in the past. There's probably -- given the growth in that number from 5 to $6 billion, there's probably considerably more federal civilian opportunity in there, because as you know, once that bubble gets in the line, these RFPs, i.e. pipeline, tend to build up for us. And until you write a book write a proposal, submit it for evaluation, it stays in that part of the pipeline. So the only real change that I would offer you is that in that $6 plus billion that we indicated in our current pipeline, it probably has little but more of a Federal civilian flavor than it has had when it was $5 billion, because we are seeing those solicitations coming out of the Department of Defense and several of the Homeland Security agencies actually coming out in do course. The second part of the question was, if you would repeat it for me, please?

If you could just talk about the opportunities and the HR and health services.

Basically, what we were selected to do is we are a prime software development subcontractor on this very large DIMHRS program. And so this again, is a large, well funded critical defense program that was awarded to our partner, Northrop Grumman here, about three months ago. Our staffing has been a little bit slow on that, not because of the availability of people, but again, just because of the program rollout and the way this particular customer has elected to roll out the program. We believe we are through that bubble now. And we've got staffing requirements from our prime contractor. We are presenting names and people and places to him to get people work and on the job, start looking at the detailed software requirements that we will be responsible for. So that, in effect, although we are extremely delighted, that is, as we speak today, potential energy, and we believe it is going to turn into kinetic energy very, very soon. In the area of health care, with the award of the D/SIDDOMS contract and the TRICARE support that we announced here over the course of the last three or four months, TRICARE wound up staffing up very, very quickly, and that's one of the jobs where we had nice, accelerated staffing. And we are at work for that particular customer today. D/SIDDOMS, as most of you know that follow our space, is one of those contracts that they awarded to 14 million contractors and put a $27 trillion ceiling on it. And so our job there, and I say that in jest. But a lot of awards, 20 some-odd awards and many billions of dollars in pent-up potential. Our job there with our team is to compete for individual tasks on that. And the is another opportunity for us, from a potential-energy standpoint that we are very bullish on. We believe we put forth a very strong team. We are one of the two, I think, new D/SIDDOMS contractors that were selected. And we believe over the course of the next five years, there's going to be substantive potential and growth for us in that part of the defense health care business.

Where do you see those areas growing at?

I'm sorry?

Rate, growth rate.

Rate -- for particular market segments, we actually don't keep track of that.

I don't know anybody that does, incidentally. But I would like to amplify an important point here. It's probably related to several of the questions. It has to do with the fact that the business focus has been a lot on -- and our success recently over the last 12 months -- I would say is in battle space support. We certainly recognize that. I think it's important to recognize also that the trend here is an outsourcing trend. So even if the battle space intensity -- the battlefield intensity may reduce, the outsourcing aspect of bringing in services providers through the contract venue, I think, is a trendline you're going to continue to see. And that is basically a big piece of our strategy going forward.

In terms of diversifying into technology areas and market space areas beyond that, we certainly have talked about the health care and the human resource aside. I would like to add to that effect that we have a growing offering in the financial management services area and systems integration support in that line. R. M. online is a technology we have had in support of the Army for some time. And so we have another couple of areas that we anticipate to see growth, as business broadens. Hopefully in the next couple of years, we will be looking at a significant increase in those business lines. They are certainly part of our business strategy, going forward.

Cindy Shaw, Schwab SoundView.

Good morning, nice quarter.

Thank you.

A couple questions, one, obviously some of your recent acquisitions are going quite well. I'm wondering how much of that is right place, right time, and how much of that is things that you may have done at CACI, either a better sales process, CACI's name, sort of changes you may have made that helps accelerate those companies? And my second relates to the network services business. I think you've got some encryption capabilities that really probably demand out there in the market that has not really hit the revenue line yet; if you could give us an update on the outlook there?

I will answer the first one by saying all of the above. I think that we have a fine reputation -- it is my belief -- fine fine reputation in the market space with regard to our M&A work. We have had very good success, 20 some odd different transactions over the last 12 to 15 years, or 12 to 13 years. I think we have actually increased the capability, as we have gone along, enhanced it, improved it. I think our reputation out there and our dealing with companies and being able to integrate successfully and provide sellers a good steady -- not steady -- but a good reliable source to market their corporations; we are an active buyer. And when we engage with somebody, they know it's for real. So I think all of these things play in our reputation. But Steve has had a big role in working that program. Would you like to add any thoughts to the first part of her question, Steve?

, No. I think you covered it, Jack.

Okay. The network service aside, we certainly, for the last several years -- I should say since the last part of the '90s -- felt like there was going to be significant growth opportunity in that market space. We have been very successful, I think, overall bringing our business line up. We have had a little bit slowing in that sector or that segment of our business, if you will, I should say that line of business. And we still anticipate some solid opportunities out ahead of us. I think maybe Ken would like to talk to some of the detail there because he has been working --

We do, in fact, have a fairly attractive encryption capability rolling out those kinds of solutions. As you know, it's not necessarily an incredibly broad addressable market for folks that use that. But we do anticipate and expect continued growth out of that part of our business, largely because the communications part of conducting this global war on terrorism is probably the most emphasized and the most advertised and the most difficult part of the business that requires a tremendous amount of communication through a variety of media. And much of the communication winds up having to be encrypted. So we expect continued growth continued growth in that part. Having said that, there are a number of companies, big and small, that provide similar and akin kind of support. So it's an attractive offering and an attractive competency in our skills, if you will.

Joseph Vafi, Jefferies & Co.

Good morning, and congratulations on passing one billion on a run-rate basis.

Thank you.

I guess a question for Ken -- I know, Ken, you mentioned in your prepared remarks that you were staffing up on some significant contracts right now. Maybe some more color there -- are those contracts in billable phase now, during the staff-up phase? Or do they become billable once they become fully staffed? Then maybe some color, more color on the some of what's going on with some of those contracts in terms of service provision and the outlook for those pieces of business?

Good question. They are billable now to a certain extent. The two examples that I would use for you -- and I actually talked about one of them -- in the DIMHRS program, basically, on the way it's being acquired and the way we're supporting our prime contractor, is just only recently that we have started to receive some tasking that we will wind up putting -- we have had some modest amount of tasking from them -- but where we will put a meaningful number of people to work helping them start the software design development process. That's one example. But as soon as we we get the requirement, as soon as we provide to them the people that we propose to address their requirements, they will go on direct bill. Like minded, we advertised the award of that large $120 million nightvision laboratory contract here several months ago. In that particular case, it has been the opinion of the customer and the strategy of the customer to wind down the work that is currently being done by the predecessor contractor until such time as new tasking arrived. And we fully expected, as I indicated in my commentary, work to start sometime around our fourth quarter, the April time frame. It appears as though it's starting a little bit earlier. They have actually started issuing some test work on that. We were awarded a very, very small modest test on this nightvision contract. We expect that to kind of grow over time to provide doing much of their experimentation and deployment for some of their nightvision or reconnaissance kinds of initiatives. So in that particular case, as they issued tasks like in many of our contracts, we look at the task, decide whether to bit it alongside of the Company that was awarded the contract or not bit it, and then hopefully win more than our fair share, and then put these people to work. And so they are billable to the extent that funding is available. It's just they need to be -- requirements need to be more manifested and initiated by the customer. And as I indicated in my prepared remarks, we are very, very comfortable with what these customers are doing. We are actually delighted that they are moving a little faster than they had originally anticipated what they intended to do.

Okay, that is helpful. Maybe one for Steve. We saw some acceleration in the organic growth here in the quarter. Is there any way to quantify on a sequential basis, the contribution sequentially and the bump up in organic growth from existing business versus new business that came on in the quarter?

Not easily, Joe. Unless, Ken, do you have some thoughts? We don't track it that way. We really do it from backing out the acquired revenues from a very high level. And the remainder is basically the internal growth. And I think Dave has shared that with the analysts in the past.

It's hard to do. It's almost the same -- to answer to Joe the same way, when somebody asked us a question -- how are our acquisitions performing because we break them up and integrate them into the entire company. So it's, you know -- we can tell you at the front end, whether it's new or follow-on. But once it gets going, from our perspective, internal growth is internal growth.

The thing that you look for is synergy (inaudible) organic (inaudible).

Fair enough. And then just one final question. Steve, maybe if you could provide some follow-on on your chart showing the seasonality on cash flow over the last few years. Is there anything particular there that drives -- this quarter, we saw some onetime kind of things, come up with some new business etc. But just over the longer term, what drives the seasonality of your cash flow?

Some of it is related -- and a small part of it, not a lot -- but just the government cycle, if you will in terms of how that feathers into us, and the timing of how we receive funding, etc. So that is a part of it. There is also corporate-type items that we have in the beginning of the year. Obviously, we have our annual bonuses and things like that. That hits us in the first quarter. The continuing resolution has been -- go back 30 years, I think three out of the last 30 years -- there hasn't been a continuing resolution. So that somewhat can affect us. But, so there is some seasonality to it. Timing of tax payments -- always seems to be heavier with tax payments in the first part of the year, as we kind of estimate out what we're doing for the year etc. So that's really it.

Okay great, congratulations again.

Thanks, Joe.

Cynthia Houlton, RBC Capital Markets.

Congratulations on results for the quarter. Most of the questions were asked, but just a couple of housekeeping items. If you could just provide us ODC revenue for the quarter? And just the split of organic growth by DoD and civil?

We don't give out the ODC revenues per say. But we do talk about the direct costs. Direct costs this quarter -- about 52 percent of the direct costs was ODC. I'm sorry, what was your --?

The organic growth by DoD versus civil, if you could just split that out?

I can, but give me a second. I will have to pull up a chart here. The DoD was about 14 percent, and about 23 percent for civil agency.

Just a clarification. On the guidance for '04, that doesn't include any acquisitions that have not been completed; is that correct?

That's correct, that's correct.

Mark Jordan, A.G. Edwards.

Can we talk a little bit about -- you have spoken about your new projects that you have been successfully won here recently. Is the tasking, the gating factor, to ramping those revenues? Or is staffing a concern for you at this time?

Tasking on the ones that I just gave the example on are clear -- that's the driver. The way the customer rolls it out. In the staffing sense, obviously, I don't want to ever minimize the importance and the challenges that all of us face in finding good, qualified people, and good qualified people with significant -- cleared to a significant level. We have been very fortunate on two of those awards -- the Genesis award that we announced, the $155 million or thereabouts. And the NTCSS (ph) award, which I think was 120 or $130 million. Those two programs, literally hundreds of people counting our team and our subcontractors teams, have been staffed in less than 45 days. So in certain cases, it's staffing. And it is staffing, and staffing will always be an issue. But in most cases, it really is a function of the acquisition strategy or the rollout strategy that a particular customer has.

As a follow-up, given your goals for cash generation in the second half, bringing the DSOs down and generating cash through operations, do you have a goal as to -- or thought -- as to how much cash you are going to deploy in acquisitions? And therefore, where you would end up on a cash basis, net cash at the end of the fiscal year?

We are not forecasting anything in the guidance we have given for acquisitions. So again, the thought is that for the year from operations, we are going to get that 70 to 80 million of cash flow. We think the CAPEX, excluding any acquisitions, is going to be in the probably 8 to $10 million range. But we don't have any -- we are looking at lots of opportunities on the acquisition front. But it would be a little too soon to talk about any of that.

Sandra Notardonato, Adams, Harkness & Hill.

Another question along the acquisition strategy -- what do you foresee over the next couple of years? Do you see doing a number of smaller acquisitions or do you foresee doing one larger acquisition? And how does that strategy affect the margin expansion opportunity, if at all?

Let me start out by saying that we are an acquisitive organization. I think we have demonstrated a fine track record of being able to what (ph) space we are in. We would like to think, as the Company matures to a larger activity with a larger platform, that we can appropriately finance larger transaction opportunities, and indeed, we will be looking at them. So the overall plan will be to continue the program we have had, which is two or three -- sometimes a few more, of those of the smaller acquisitions as we go along, niche plays, we call them and on the successful track record we have established. At the same time, we are aggressive in looking at larger transaction opportunities. And we have been doing that a bit over the last 12 months or so. And I would anticipate, would continue to do, perhaps hopefully picking the pace up and maybe being successful. The larger deals, obviously, attract a different kind of attention from other participants and also --or a different issue in terms of financing. We have been able to work right off of our cash balance. As you well know, in our acquisition strategy over the last couple of years since the 2002 when we did our secondary, as we say. We are still working off that powder. On the other hand, we were very focused on debt financing as opposed to using our equity as a transaction mechanism. So these are all issues that we look forward to. In terms of the margin, I would think that anything we do would be margin positive. That's the whole game here, is to increase our margin opportunities, and certainly bring along deals that are accretive. We have never had one single transaction that we went into that wasn't deemed or designed to be accretive. And in fact, of every one of those that we have had, they have all been accretive and all positive cash flow transactions. So I think that speaks for itself. And you can just sort of extrapolate the trendline out over the next couple of years in terms of the sizes of the deals we would be looking at. I hope that helps a little bit.

It does, it does. Thank you. A couple of other questions -- what do you think the margin potential is on the commercial side? I think you said, Steve, that it got up to 8.4 percent pretax this quarter. What do you think the potential is now that business is picking up a little bit?

I think we have got a couple of things we can offer on that. Primarily, on our commercial side, in the UK area, and I will turn that over to Steve. And perhaps Greg can add a few thoughts on that.

It's certainly turned around in the last quarter here. We had some encouraging results in this quarter. And Greg may care to comment here. We think that the trend is going to continue. I think we're still somewhat cautiously optimistic, I guess, that we can see them inch up. But as you know, the commercial IT side has been a struggle for not just us, but for the whole industry. Greg, I don't know if you care to add anything to that. Your closer to the commercial side.

Yes, I will just pick up on it a little bit, Steve. Our performance has improved in quarter two nicely, certainly over quarter one of this year. We're cautiously optimistic. There are indications that the IT services sector, particularly in the UK, is turning a bit. But one robin does not a spring make. So that's why we're cautiously optimistic. Over the longer term, historically, we have been able to run our commercial business at anywhere between 10, 13 percent pretax profit margins. So that is certainly the objective, as we improve over the next several quarters, to get back to that level of profitability, which is certainly achievable.

Last question, what do you think is different about how CACI is positioned in the market versus some of the folks that had some negative commentary to make on what they are seeing? Maybe a difficult question to answer, but I'd love your thoughts on that.

That's probably one for me. I'm not sure I can address the particulars of other organizational or business plans. All we see is sort of what everybody else sees, for the most part at least, their public announcements and filings and so on. We do have some business relationships with some of these companies in our space, obviously, from a teaming or strategic partnering kind of thing. So we have maybe a little bit of view of how they operate. I would say this.

Our objective is to pay a lot of attention to the market space we operate in; pay a lot of attention to customer behavior, if you will; a lot of attention to national priorities. I think the thing that we have been able to do reasonably successfully over the last, oh, I will say a decade at least, maybe 15 years, is to anticipate trends. The good thing about a services business is your ability to maneuver on the market space. We don't have a lot of heavy plant and equipment investments and so forth that bog us down. We can move very quickly across the space into new areas if we see the opportunities. So it's anticipating by looking ahead; seeing where the priorities are -- or trying to anticipate where priorities are going now. We have been able to work that plan as anyone can see, certainly over the -- representable over the last decade, very successfully, especially since we have been able to augment with our M&A program, which was actively endorsed and supported by our board in the mid-90s. So we have shifted the procedures within the Company -- through M&A we're able to select opportunities out in the space and anticipate. So it's a combination of these things and maybe those of -- some distinctions and discriminators in our business -- our process -- beyond our competition. I don't know. The let the market judge that. All I know is that the way we go about it seems to work pretty well.

John Mahoney, Raymond James.

At this point in the call, all my questions have been answered. I will just congratulate you on a great quarter.

Steve Lucia, Sidoti & Company

The question was, what percentage of your revenue in the quarter is from GSA and how has that been trending recently?

It's about 30 percent and the revenues you heard, that Ken mentioned earlier -- we surpassed the billion dollar kind of funding mark inception of our using those schedules here. It has been growing nicely. I would say the growth rates on those schedules is in the -- about 45 percent year-over-year.

And what do you see from that going forward, in terms of the impact on the operating margin going forward?

I think it is an expansion metric -- the more we do -- obviously, there will be some upper bounds, because there are any number of customers inside the federal government who prefer to buy their services and their products and their solutions with their own contracting organizations and manage themselves. So it is not a completely inelastic upward movement. But as we have indicated in the past, time and materials kinds of contracting when managed properly, have a little bit more margin potential. And the fact that the speed with which it -- overtime -- the speed with which -- that we can -- that a customer can acquire the services for us -- the overall cost of sales, the impact on SG&A is positive. So the trend, as long as it continues to grow, I think it will have a positive influence on the margin expansion potential.

Thanks.

Muir Uceles, SG Cowen & Co.

Two very quick questions. One, since -- which Mega being expanded outside of DoJ, are you seeing tasking opportunities or actual task orders from non-DoJ customers on that vehicle?

Well, it really -- just to be clear -- it's not expanding any more out of DoJ than it already has -- the Mega contract has always been in-place to serve the government customer. So there are new customers that come in and then maybe some that leave. We have enjoyed the benefit of providing some service to the Securities and Exchange Commission, as an example. I don't see that as a trend of real consequence or real significance, as the lawsuits emanate inside the Federal Government and as they become important to the point where justice litigators have to represent the interests of those particular agencies, they necessarily and appropriately go to the Department of Justice. But I do not see any big ground swell for that. That's -- it comes and it goes. And as it happens, it happens.

And maybe a question for Jack -- more of a broad question. Given your, CACI's growing involvement in the kind of military HR arena, what would you say you're seeing, in terms of the impact -- sort of starting to hear about an impending problem in retention -- certainly as forces come back from the Gulf and as budget pressures make it -- on the one end -- difficult to retain or grow that -- grow the work -- put the force. But, on the other hand, a lot of pressure to cover the deployments. And if anything, the impact on the importance of military HR systems?

Well, I would simply say that you've clearly put your finger on an issue that could be significant going forward. And that is retention, especially on the reserve side component side. Always, benefits for the soldier, sailor, airman are important. The human resources considerations, especially health care, have always been important -- I think and continue to be important. It's not only the quality, it is how fast things get put in-place to serve the individual and the families. I would like to think that there will be emphasis in this area. How would like to think there would be continued need. As part of the overall package, for attractively retaining servicemen or bringing people into the service -- either one -- both issues are germane. I do think, however, that part of this trend of retention and part of the issue of the complexity with it, in terms of budgets going forward, are going to result in more outsourcing of functions and activities to the contractor community. Our strategic plan is designed to be responsive to that. Our strategic plan is designed to identify high priority of areas where we anticipate that those movements and monies will flow. We certainly see that in the health-care type of human resource support systems. But we have also seen it in the intel community worldwide, whether it is battle space or not. We have also seen it in the logistics arena. And we will continue, I think, to see it in those areas. So some of this will impact us in a interesting enough -- favorable way -- from the contractor side, as the forces are restructured. So I think there is some good news on both sides of it -- good news in assessing the systems that will be needed to retain people and be attractive to the community. And on the other side, the drawdown, I think will provide outsourcing opportunities.

Okay thanks.

Edward Cossil, Wachovia Securities.

Just one follow-up question or a different question. Jack, are you willing to sort of look in the crystal ball and give us a sense on timing that the Omnibus (ph) build for the civil agencies might be funded? And also maybe a probability on whether they just -- it doesn't get done and then we have to kick it back into a new bill for the third scenario which has been rumored about -- which is just continuing resolution for the rest of the year?

I think what I will do is start off -- and I'm going to ask Ken to talk to this a bit with you. I would just say simply this -- I've been in this business a long time. I have seen many comings and going of budget programs and difficulties in Congress of coming to consensus on what they want to do. On the other hand, our business plan is -- I won't say independently crafted from these activities -- what we have is a business base that -- essentially we are able to project through pretty well. And when the throw on top of that the activity of our M&A program, we're able to put out, I think, pretty good guidance in the sense of being reliable and dependable, in terms of what we're seeing out there -- crystal ball, I don't know. Timetable for the civilian side of the budget -- I think Ken is watching that very carefully and I will turn it over to him. But I would just say that our projections -- our guidance -- really is not keyed or tied specifically to a date-time certain or even an approximation of a date-time for passing of that bill.

Ed, you're probably sitting there, chuckling a little bit, at throwing that ball in our direction -- to have us make any predictions when it comes to how the politicos downtown are going to act. And in many cases, your sources are probably similar and deeper than our's. I think sometimes when we forecast these things, you're hearing as much hope as you are prophecy. But the punditry today -- I'm saying that it doesn't appear as though the will of the Congress will allow this to go much beyond this week or the end of the month. There was some talk at one point in time here -- two weeks ago -- that indicated we actually may have a continuing resolution -- damn it -- all the way to the June 30th, if we need to have it because -- or September 30th -- if we need to have it, because by-God there are some things that we have got to rectify. It doesn't appear as though there is that same zeal and fervor exists downtown. So we're cautiously optimistic that, by the end of this month, hopefully by the end of this week, that we will get that Omnibus bill signed into law.

If the bill does happen in the next week or two, and then you have got another 30 or 40 days to ramp from it, would that suggest upward bias to your guidance? If it gets done quickly?

No. I don't think -- we actually cannot have it both ways Ed. We kind of indicate to you that it's not as big a problem for us, given the nature of who we support and how we do it. So to tell you that they sign it and we get all bullish -- kind of life goes on. Trust me though, we will be very excited if they sign the damn thing. It's just a fly in the ointment.

It takes some clouds off the horizon.

Thank you. Congratulations.

(Operator Instructions) George Price, Legg Mason.

Just a very quick follow-up question -- maybe to put a finer point on an earlier question. Can you give us a sense of what kind of internal growth we might see in the fiscal fourth quarter -- looks at least by initial project projections to be picking up. And I know that the comp is much easier --?

Steve, do you want to take that?

Just overall again, our guidance is in that 12 to 15 percent for the year. We were a little bit below that in the first quarter. We were certainly a little bit higher than that here in the second. We think, again, it will balance out to pretty much in that range. It might get a little higher. But we're comfortable in that 12 to 15 percent kind of guidance.

Okay thanks.

There appear to be no further questions at this time.

All right Peter. Thank you very much. We certainly appreciate your help. I would just like to say a couple of things here in closing. We feel very delighted with the performance of the Company at the half year mark. Certainly, the second quarter was one that we're very proud of. We anticipate a good strong back-half, as we've indicated, by increasing our guidance. And we anticipate, generally speaking, a continuing strong market for the services that we provide in the Federal sector -- for sure coming forward. And we feel like that the UK side is coming back as well. So, we would like to thank everyone for their questions and your interest. And we want to thank you for your participation on our call. We hope we provided you with a good picture of what is happening here at CACI. We're very enthusiastic and excited about the prospects of passing our billion in sales this fiscal year ending June 30th. This quarter we'll be participating in three investor conferences and visiting with investors in Boston, New York, and elsewhere. We certainly look forward to seeing some of you and bringing you up-to-date on the progress we're making here at CACI. As always, if you're coming to Washington D.C. or this area, we would like to invite you to come by. And we can arrange a meeting. So please contact David Dragics in our investor relations department. I assure he will be able to set something up for you. We're also aware that some of you have other questions you would like to discuss. So we'll be available here in 10 to 15 minutes, to take some questions, if you'd like to call back in. So in concluding, thank you again ladies and gentlemen, for your participation and your interest in CACI.

Thank you. This does conclude today's conference. Thank you for your participation, you may now disconnect.