CACI International Inc (CACI) 2005 Q1 法說會逐字稿

Good day everyone, and welcome to the CACI International First Quarter Fiscal 2005 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, Investor Relations, Dave Dragics. Please go ahead, sir.

Thanks, Vicky, and good morning ladies and gentlemen. I am Dave Dragics, Vice President of Investor Relations of CACI International and we're very pleased that you're able to participate with us today. Now 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. And for those of you who are joining us again, welcome back. We appreciate your continued interest in CACI.

Now as has been our custom on these calls, we are including exhibits with our presentation and we believe they'll be helpful in reviewing our financial results and trends and with the discussions of our operations. As we progress this morning we'll make every effort to 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 first quarter fiscal 2005 results. We hope that most of you have had the opportunity to review our announcement and the results and they are summarized on this exhibit. I also want to mention that we are aware that some of you may have had some difficulty calling us last night with your questions after our release was issued. We apologize for that inconvenience as we experienced a brief power failure that affected incoming calls on our phone lines and have been informed that MCI has experienced a circuit outage in the area. This is our policy after each of these calls, we'll make ourselves available to answer any of the questions you may still have. Steve has the phone number. He'll give that to you at the end of his presentation. And as a backup, in case the phone--the phone lines get a little crowded, please send an email to Mary Peevy at mpeevy@caci.com with your phone number. We are able to call out long distance.

Moving to the next exhibit, before we begin our discussion this morning, I'd like to make our customary but important statement regarding CACI's written and oral disclosures and commentary. There will be statements in this call that do not address historical fact and as such constitute 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 earnings release and are described in the Company's Securities and Exchange Commission filings. And our safe harbor statement is included on 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 is Jack London, Chairman, President and CEO of CACI International. Jack?

Thank you, Dave, and good morning ladies and gentlemen. First, let me welcome you to our conference call this morning. I'd like to extend a personal and special welcome to those of you who are new to CACI and to our call this morning. We appreciate your interest and invite you to join us on our future conference calls as well.

Last evening, after the market closed, we reported record results for the first quarter of our fiscal year 2005. As you can see, it was another strong quarter of growth and profitability and revenue for CACI. Pace of operations that we talked about in our August call continued. As we noted in our release, we continued to experience growth across the spectrum of our operations and in our areas of expertise. Systems integration, engineering services, knowledge management, and network services. In addition to the growth of our core operations, our results were also positively affected by the further integration of our recent acquisitions and, in particular, the Defense and Intelligence Group of American Management Systems. We are very pleased with how well these efforts are going and how quickly the group has begun contributing to our performance and results.

During our first quarter, we won $577 million in awards. Approximately 50 percent of the estimated dollar value was new business for us. We had another quarter of strong organic growth, 23 percent. We experienced 64 percent growth in revenue from the intelligence community over last year's first quarter. And we had positive cash flow that allowed us to continue paying down the debt associated with our acquisition of the Defense and Intelligence Group, the D and I Group.

Overall, our first quarter results continue to reflect the long-term strength of our strategic focus on national security, intelligence, homeland security, and government transformation.

As you know, on September 30 we announced that Ken Johnson, President of CACI's U.S. Operations, will be retiring effective October 31. Ken joined us in August of 1999 with the specific mission of building our business development capability efforts in the federal market space while leading our domestic operations. Ken has played an important role in our growth and success over these past five years. On behalf of our Board, our Senior Management Team, and our employees around the world, I want to take this opportunity especially to thank Ken for his valuable contributions to CACI. We certainly wish him the very best in his retirement as he enjoys more time with his family, his grandchildren, and as some have quipped, to efforts of lowering his handicap on the golf scores.

We have already started to search for Ken's successor, looking at both internal and external sources. I am very confident that we'll be able to find the right individual who will help us to continue the very positive growth momentum that we've [indiscernible].

With me today to discuss our results and answer your questions is Steve Waechter, our Chief Financial Officer, and by phone from the United Kingdom, Greg Bradford, President of CACI Limited U.K.

Also joining us on the call in his role as Acting Chief Operating Officer of our U.S. Operations is Bill Fairl. Bill is the Executive Vice President and manages our Integrated Engineering business group. That group provides the full spectrum of engineering services and solutions from five-year science and technology planning kinds of contracts to sustainment engineering for our Navy and Air Force clients. Bill came to us when we acquired QuesTech Corporation in 1998. Bill has over 30 years experience in providing support to the defense market, including all branches of the military as well as the intelligence community. He was promoted to Executive Vice President in December of 2000. In addition to leading his business group, Bill has participated in the Company's M&A efforts, including serving as the operational lead for the integration of a number of our recent acquisitions. Some of you had the opportunity to meet Bill as he has also been very active in our Investor Relations program, meeting with many of you and with our investors around the country over the last couple of years. Bill, please, welcome to your first conference call. Believe me, we are most happy to have us--have you join us.

And now, as is our custom on these calls, we'll handle this call in segments. First, Chief Financial Officer, Steve Waechter, will discuss our financial results. Then we'll go to Bill Fairl who will discuss our domestic operations and outlook. And finally, I'll have some closing comments to pass along. And after that, we'll open up the call to your questions.

So the first item on our agenda is our financial results, which we're quite proud of, and here's Steve Waechter, our CFO, to discuss them. Steve, over to you.

Thank you, Jack, and good morning everyone. Let's go to exhibit number six. As Jack indicated last evening, we reported record first quarter fiscal year results, '05 results. Revenue for the first quarter increased 65 percent to $388.7 million versus $235.7 million a year ago. Just about 48 percent of that growth, or just under $73 million, came from the acquisition of the Defense Intelligence Group that we acquired from American Management Systems.

Net income was $19.8 million or 66 cents per diluted share, up 52 percent over last year's $13 million or 44 cents per diluted share. As was the case last quarter, we exceeded our guidance for both earnings and revenue. The primary reasons for the improvements over our guidance were the performance of the Defense Intelligence Group and a much higher than anticipated volume of third party services and products.

Let me give you more detail on some of these results. If you move to exhibit number seven, you can see that our federal business grew 68 percent during the first quarter and represented 95 percent of our total revenue. The internal growth rate of our federal business in the quarter was 24 percent and for all of CACI, internal growth was 23 percent for the quarter. When we spoke to you in August we forecasted that our internal growth rate would range between 15 and 17 percent. The improvement was primarily attributable to the increased revenue from third party services and products. On a trailing 12-month basis, our internal growth rate was 18 percent, exceeding our annual objective of 12 to 15 percent. The trailing 12-month internal growth rate is perhaps a better indicator of our sustainable growth rate.

Our United Kingdom operations reported $12.4 million in revenue, 33 percent more than the $9.3 million reported a year earlier. The pre-tax profit margin grew to 7 percent compared to breakeven a year ago. These results also--benefited from a favorable exchange rate. Sales of our software and data products remained strong in the quarter and the commercial IT services marketplace in the U.K. is continuing to show signs of improvement. We forecast our U.K. operation will continue to show good results for the balance of the fiscal year.

Moving to exhibit eight, let's take a look at some of the key metrics, most of which were included in the financial exhibits in our press release. Our operating margin expanded during the quarter to 9.2 percent compared to 8.7 percent in the fiscal--in the first quarter of last year. This operating margin growth continues to be driven primarily by our recent acquisition--acquisitions and operational efficiencies. Overall, we continue to benefit from favorable operating leverage as our operating income increased 73 percent while revenue was up 65 percent.

We had a strong quarter with respect to our operating cash flow, which was $21.1 million compared to--compared with $7.3 million in the first quarter of last year. We anticipate operating cash flow to range between $100 million and $115 million for the full fiscal year.

Looking at a few other metrics, about 87 percent of our revenue this past quarter was earned as a prime contractor. Also for the quarter, 59 percent of our revenue came from time and materials work, 23 percent from cost plus work, and 18 percent from fixed price work. Last year, those percentages were 63, 19, and 19 percent respectively.

Moving to exhibit number nine, days sales outstanding at the end of the quarter were 83, down five days from the prior quarter's 88 days. The acquisition of the Defense and Intelligence Group on May 1 added approximately 12 days to the days outstanding calculation in the June quarter. Since then, we've been able to work that number down to about two days through our collection efforts. Days sales outstanding a year ago were 80 and the three-day increase from a year ago is partially attributable to the acquired receivables from AMS, receivables related to our overseas work for U.S.-based customers and higher U.K. operations-related receivables.

Our cash was $63 million and our outstanding debt was $394 million at June 30. As we noted on the statement of cash flows on our earnings release, we've continued paying down our debt, reducing it by $17 million in the first quarter, and an additional $15 million since the first of October.

The next exhibit, number 10, contains our updated--our increased updated guidance for revenue, net income, diluted earnings, and diluted shares for the second quarter and the full fiscal year. This guidance assumes that we complete no new acquisitions and assumes a more normal or lower level of third party revenue than the first quarter. With respect to acquisitions, we are actively looking at several opportunities and do not anticipate closing a transaction in the near term. As we mentioned on our August conference call, while we do not anticipate material changes to the balance sheet we acquired from AMS, we have not found--finalized the acquired balance sheet at this time. We anticipate that our revenue for the second quarter will range between $375 million and $385 million, an increase of 43 to 46 percent over the second quarter of fiscal year '04, and also for this quarter we expect our operating margins to range between 9.3 percent and 9.5 percent.

We anticipate our net income will range between $19.5 million and $20.7 million, a 36 to 45 percent increase, and we expect diluted earnings per share to be between 64 cents and 68 cents per share, up 33 to 42 percent over the year earlier period. We believe that our internal growth in the second quarter will range--will be in the range of 10 to 15 percent, and that our internal growth for the fiscal year should be approximately 15 percent. Finally, we estimate that the diluted weighted average shares for the second quarter will be approximately $30.3 million.

For the full year, we now estimate that our revenue will range between $1.525 billion and $1.575 billion, a 33 to 37 percent increase over fiscal year '04. We now anticipate that net income for the year will range between $80.6 million and $83.6 million, a 27 to 31 percent increase over the $63.7 million reported for fiscal year '04. Diluted earnings per share will range between $2.65 and $2.75 per share, an increase of 24 percent to 29 percent over the $2.13--$2.13 per share reported last fiscal year.

Even though Dave mentioned the safe harbor statement at the beginning of this call, I want to again state that this guidance is forward-looking and represents our current estimate of our future operating results. Listeners on the call and the readers of the transcript should be advised that our actual results may differ materially from the statement we are making today.

As Dave indicated at the beginning of the call, we do have an MCI local fiber optic cable that was cut here, so our communications may be hampered somewhat. However, we do have a local number and if you have questions following the call please feel free to call this number and ask for either Dave Dragics or myself. That number is 703-679-3100. Again, that number is 703-679-3100. And we'll be happy to follow-up with any questions that you may have.

That completes my financial review and now here's Bill Fairl who will cover our domestic operations. Bill?

Thank you, Steve, and good morning everyone. Let me just say that I'm very pleased to join you today. I'll try to be as helpful in answering your questions as Ken was over the last five years.

Let's go to exhibit number 11, please. The strong pace of our domestic operations continued into our first quarter. We experienced expansion of work under existing contracts as well as new work. Some of that new work is associated with new awards we received as a result of our government customers consolidating several existing contracts into one. As you can see from our national security contract awards news release last week and our earnings release, awards from agencies in the intelligence community represented approximately 46 percent of our wins for the quarter.

A significant amount of our operational activity was driven by purchase decisions related to the end of the government's fiscal year on September 30. We believe that activity was a significant contributor to the large volume of ODCs and our 23 percent internal growth for the quarter. Both were higher than we forecasted in August as our government customers placed some quick reaction year-end orders with us. We continued to experience increasing demand for our services from our intelligence community customers. We saw a continued movement of mission functions to field positions for a better response to the war fire. Continued emphasis on contracting out for linguistic support and intelligence analysis and training contributed to our growth.

We also continued to experience demand for mission-related quick reaction capability, or what we call QRC work. And finally, in our C4ISR work, we began to see investment planning and planning activities by our customers to incorporate lessons learned from operations in Iraq and the global war against terrorism.

You heard Jack talk about the success of the integration of our recent acquisitions, particularly that of the Defense and Intelligence Group. Not only does that integration continue to go well, the business of the group continues to grow. Our standard procurement system, also known as SPS, our prime contract is progressing well with all interim bills of that system being delivered on schedule. CACI has partnered with the DOD to create a new implementation plan for the next increment of SPS. This revised plan delivers key functionality earlier and accelerates the start of the DOD certification and accreditation processes from December 2005 to August 2005, thereby minimizing some of the deployment risk.

Let's go to exhibit 12. Let me turn now to operating trends. Our DOD revenue grew approximately 86 percent for the quarter. As was the case last quarter, this growth came from work we are doing in the military intelligence community and our recent acquisitions. Key contributors to that growth were from such customers as the Army's Intelligence and Security Command, its Communications Electronics Command, and the Navy Space and Warfare Command.

Revenue from federal civilian agencies grew almost 30 percent for the quarter. Much of that growth came from our recent acquisitions and through such customers as the Social Security Administration and other federal civilian agencies. Justice Department revenue in the quarter was $23.8 million, down slightly from a year ago as a result of reduced work on an FBI-related contract and a decrease in fixed unit price work. As a percentage of federal civilian revenue, DOJ accounted for 26 percent this quarter compared to 36 percent a year ago. As you can see, continued growth from other federal civilian agency customers more than offset this decline in DOJ revenue.

Moving to the next exhibit, please, here is a recap of the revenue we generated from our federal, commercial, and state and local customers through our various services offerings. These percentages, as always, are approximate. Systems integration work, which includes our U.K. operations and the Defense and Intelligence Group, represents about 63 percent of our revenue. Engineering services are in the 17 to 19 percent range, network services represents between 11 and 13 percent of our revenue, and knowledge management approximately 6 to 7 percent.

Now let's move to the next exhibit number 14, please. Let's take a look at our pipeline of qualified opportunities. When we spoke to you in August, we were looking at approximately $7.4 billion of business in our pipeline. That estimate now is approximately $8 billion. With the exception of the DOD and the Department of Homeland Security, the rest of the government is currently operating under a continuing resolution. As you know, unless the Department's appropriations bill has been signed into law, new start work cannot be awarded. We do not, however, expect to see any slippage of the defense market RFPs, because the DOD appropriations bills have been signed into law.

We're very pleased with how things went during our first quarter. As you heard Steve indicate when he gave the guidance, we believe our second quarter will be up significantly over last year's second quarter. We anticipate that the pace of operations we have been experiencing will continue. And overall, we believe we've established a strong operational foundation for the second quarter and the balance of fiscal '05.

Jack, that concludes my remarks.

Thanks, Bill, and thank you, Steve, for your updates. Certainly appreciate it. We've completed another record quarter for CACI. We continued to enhance our position as a major provider of information technology and solutions to our government customers. We experienced growth in our work with the intelligence community as well. We broadened our standing with regard to improving financial management and acquisition services for our government customers. And we continue to support our customers in their efforts to transform the way they operate and deliver service to our citizens.

Our focus remains on supporting our customers who have key roles in the priorities of national security and the global war against terrorism, and in helping government agencies reshape the way they communicate and use and disseminate information. We believe that CACI is well positioned to provide the latest technology to our customers, delivering value-added solutions that will help our government respond to the external threats of a dangerous world, and to the ongoing challenge to improve the delivery of services. As we continue to grow we believe that we have the resources and capabilities in place to compete and to provide [indiscernible] enterprise solutions for our customers' needs and the integration, knowledge management, engineering logistics, financial management, network services in intelligence communities. We believe that we can continue our steady and excellent performance while enhancing shareholder value.

So at this point we are ready to open up our discussion to your questions and provide you an opportunity to visit with us a bit. Vicky, would you turn on the questions, please?

Absolutely. The question and answer session will be conducted electronically today. (Caller instructions.) We'll take our first question from Jason Kupferberg with UBS.

Thanks guys. Great job on the quarter. Two questions for Steve. First, in terms of the--some of the third party revenues that you guys had in the quarter, can you kind of give us some quantification around that as far as how much was sort of, you know, above and beyond what you guys had expected going into the quarter? And kind of related to that, was there any margin at all on those revenues or were they essentially past those?

The answer to your first question, the guidance we did last quarter was $360 million to $370 million, so if you kind of look at the upper end of our range of 370, you would say about $18 million of that would be a little bit more than what we had anticipated. And that's probably somewhere between $15 million to $18 million, I would say, is that third party revenue. And as you know, on that kind of revenue where it's a subcontractor working for us or we're passing through equipment, what have you, we'll make very little margin on that. So it has the impact of increasing our revenues, which is--which is good from one standpoint. And we do do a lot of work with that equipment and so forth and put some value to it. But the actual equipment and so forth we buy has very little margin on it. So it has the impact of deflating our overall operating margins, if you will.

Okay. And then, in terms of the fiscal '05 EPS guidance coming up, I guess, about 13 cents on both the bottom and the top end of the range here, can you give us a sense of how much of that increase is really from your expectations of core operating margin expansion, maybe above and beyond what you thought previously versus was there any potential change in the intangible amortization expense or interest expense assumptions related to the DIG acquisition relative to the guidance you gave previously, because I think both of those figures came in a little bit lower than we had been modeling.

Yes, slightly lower on the depreciation amortization, and that will continue. If you take the quarterly numbers there, that's what you should see going forward. Interest did come in a little bit favorable this quarter. Primarily we paid, as I guess you know, we paid down debt. The Libor rates that we had anticipated didn't go up nearly as high as what we anticipated. So we did have a little favorability from that. So yes, there is some pickup from both [indiscernible], but primarily it's from the--from the operations themselves are just much stronger.

Okay. So for full year operating margin what would be kind of the range you guys are thinking about now?

Somewhere between the 9.3 to 9.5, something like that. That's where the--the second quarter in that kind of a range and maybe a tenth higher for the year. So 9.6, something like that.

Okay. Thanks, Steve.

Moving on, we'll hear from Brian Joswali with Raymond James.

Yes, good morning guys. Congratulations on another strong quarter. A couple quick questions for you. Bookings were exceptionally strong this quarter, particularly in the C4ISR area and intell area. Wondering if you can put some color around that, maybe talk to the overall business mix that you're driving there. And then, also talk about a lot of discussion that is focused on the reconfiguration of the intelligence community, where you see that going and what that does to business as well.

Well, I think the intelligence community worked in the market space we're in and is going to continue to be strong at least for the see--seeable future. In terms of the reorganization activity and realignment discussions and deliberations that are being conducted in the leadership levels of the government, I would say that the most important feature of that is that I don't see at this point any significant change in the way contractor support would be involved. And I certainly don't see in the near term any significant change in our business profile, our business opportunities, and the value-added solutions and services we're providing. Beyond that, it's probably speculation as to who that's gonna sort itself out. There's obviously two schools of thought on the centralization issue and--but I think that the important issue for our callers is that the business trend lines I think look pretty strong, pretty solid for the seeable future.

Okay, great. Just a quick follow-up question. You mentioned the impact on the civilian side with the continuing resolutions and provided a little outlook there. Wondering if you can talk about maybe some of the positive things you're seeing with the DHS budget being into play and if you're starting to see potentially some of the RF--RFP activity accelerate in that arena.

Yes, Brian, this is Bill Fairl. We are seeing that. We have a fair amount, actually, of growing presence with the activities that make up DHS. We're actually also starting to see some cross department opportunities. Government is looking at an opportunity to engage in a joint effort between the Department of Justice and the Department of Homeland Security for case management activities and that's right in our sweet spot as well. So we see--we see a growing number of larger opportunities, which is, of course, of great interest to us.

Our next question comes from Morgan Stanley's Julie Santoriello.

Thanks. Good morning. Hi. Steve, I wonder if you could just help us just characterize the budget flush this year, the federal government versus last year. If we think of awards this quarter, as strong as they were, they were certainly lower than they were in the first quarter fiscal '04. But then at the same time, when you look at the revenue guidance and how much that--you didn't increase the revenue guidance really in line with the first quarter performance. So could you just help us understand sort of the way you're--the way you're seeing the trends here?

I think that my first response is that we were obviously quite delighted in the significant level of rewards last year in '04 first quarter. We still thought we had a pretty good, pretty strong first quarter as well. The awards cycle is not tied necessarily to the fiscal year in that great a degree. The correlation is not that strong. So I don't think you can draw any revenue performance short run or business performance short run tied to the awards in any one quarter in terms of contract awards. For one thing, those--many of those contracts reach out over several years. Some of them are re-competes. Obviously, in some cases there would be sustaining. There are other cases where we would have to be building up or ramping up as we go. So I would--I wouldn't try--if I understand your question correctly, we obviously would be delighted with the level of the awards, but the lumpiness, the variation from year-to-year on a fiscal--a fiscal year basis I don't think should try to draw any direct correlation in projected performance.

I think over the--over the longer term, you look at the aggregate, obviously that's important. The fact that we've moved from seven some odd billion in the identified opportunities up to 8 billion shows you, I think, those are--those are serious business opportunities that we like, we see ahead. I think that gives you an idea of the market place out there and the robustness of it, and CACI's ability to position itself to target some of these larger awards. So those are the kind of indicators, at least in my opinion, are most useful to you.

Thank you. That was very helpful. Could you just, as a follow-up, comment on the decision on revenue guidance?

The decision on revenue guidance is we just anticipate a strong--continuing strong performance. It's one of these things where the further you go into the year the more--the more visibility you have on customer trends, customer interests, the kind of--kind of tasking that they are looking forward to. And we try to go throughout the organization and get a good idea of how things are looking. We see a continually expanding market opportunity. We, on the other hand, try to be as pragmatic as possible. I wouldn't say we're overly conservative about it, but certainly not extraordinarily bullish. We're trying to give a really good projection of what we think our performance scope is going to be. And conversely, if we felt like that there was some adverse indicators out there, I'm sure we'd be--we'd be out publicly announcing that as well. So we see a strong market right now. I think you can look around and see almost all of the articles that you read above the fold--the fold on the major newspapers show you the kind of world we're living in these days. And CACI has positioned itself right in the area of technology and support to the United States Government in these areas of high critical national priority.

Julie, I'd add just one other thing is you look at our second quarter versus the first. We have one less billable day in the quarter, too. So as you are looking at comparables from one quarter to the other just keep that in mind that there's 63 billable days versus 64.

But overall, I think we're seeing stones of business opportunities is the main tie here.

Our next question comes from Tim Quillin with Stephens, Inc.

Good morning. What was said--the revenue contribution from AMS in the quarter?

$72 million.

$72 million. Thank you. And have you changed your expectations as far as the full year revenue contribution which I think at one point was 265 to 275?

The answer is yes, there--probably add another $5 million to that.

Of course, we're very hopeful that that will continue to fulfill itself. We've been, as you might guess, very please with the acquisition of the D and I Group. The leadership over there is very strong and the business base they're in seems to be very robust as we had anticipated. So from a strategic fit standpoint, we believe it's been an excellent selection, but even as more a pinch me is how well the integration has gone. We're very pleased with it and feel like there is a nice expanded customer set and business opportunities, good strong technologies, and a real sweet fit for CACI going forward.

Absolutely. And can you talk about the revenue impact when the next increment starts of SPS and what the pushup to August '05 might mean for you in terms of FY '05 or FY '06 revenue?

Bill, would you--?

--Yeah. It's not so much a revenue impact as what we wanted to indicate there is the project is going well. It's a large important effort for us as well and we're interested in getting it done, certified and accredited, as soon as possible and that's just an indicator of the health of the organization, if you will, how well that software development project is going. That's the point there I think.

I don't think we see a particularly significant revenue bump one way or the other on--because of that project. It's almost a milestone realignment in the delivery side of the job, which is going favorable, as Bill indicated.

And just one last question in regards to your presence in Iraq and Afghanistan and what thee--what the trends you see in the future. Do you see a continued overseas presence by CACI employees or do you see that slowly trending down over time--or I guess we hope that they--that the war ends at some point.

Well, we certainly ends at one point, there's no question about that. I would say to you that the visibility--what visibility we're able to garner or glean out of the array of activities is sustained business for some period of time. Clearly, security is the key and crucial issue there. As you well know, we are not in security force work at all. We're in the technology support. We've had certain kinds of IT and the network services, some logistics work, some interrogator intelligence work. All of that has been what I will call military support and not military security work. So we would see probably a continued line of that for some time. Again, our work around the world has been broadened and I would see as the--as the world situation continues to have the critical nature and the dangers, I think the presence of the United States military around the world will be sustained.

And I think that the continued trends of what's called outsourcing from the United States military to qualified customer contractor organizations is a trend line that is here to stay. I don't think you're going to see any major reversal of that. In fact, it's been incorporated into our strategic planning going forward. Within the scope of our business profile, the kinds of products and services, the offerings we have, I think are going to have a continued overseas potential. I really can't speak much beyond that except in the near term, meaning the next year or so, I would see pretty sustained. Beyond that, it's probably--it could throttle back, but I don't believe so. I think you're going to see sustained opportunities for this Company. And I think we've developed some strong relationships on how to carry that business forward.

Our next question comes from Joseph Vafi with Jefferies & Company.

Hi. Good morning. Great results, again. Just a couple questions. First question related to some of the pass-through revenues we saw here in the quarter being a little bit high. I would suspect, as you said in your comments, there would be some services related to those stronger than expected pass-through revenues. If you could comment a little bit on if you're gonna--if you think you're gonna see stronger services business coming off those pass-throughs moving forward or if we saw a lot of it in the actual September quarter. And then, secondly, Bill, welcome to the call. And I wanted to get an update on the DIG business, and specifically, some of those fixed cost software projects that were going on there. I know previously Ken had talked about some progress the Company was making in moving those off of fixed cost schedules onto T&M schedules, and any more general update on those fixed cost software projects? Thanks.

Joe, this is Steve. Just very quickly, on the pass-through side of third party stuff, what I would tell you is what we always have. We're--being a prime contractor, 87 percent of our business is as a prime. We have a lot of subcontractors working for us. And everyone of the contractors is a little bit different. But we have subs that are doing various and sundry things to us. Some of them deliver equipment to us and we integrate various and sundry things on those and then ship them on to our RN customers. This quarter we probably had a little bit more on the equipment side of things coming through at the last minute. But overall, the mix of what we have is in that ODC, as we call it, other direct costs that consists of subcontractors or people's travel, and just other equipment-related kinds of sales. So not terribly different than what we typically have, just a little bit more at the end of the quarter. Bill, I don't know if you want to--.

--Joe, this is Bill. Yeah. To your question about the fixed price software development. I'll go back to our standard procurement system, the SPS, again. I'm just very, very pleased and encouraged by the fact that we're able to move the delivery up on that from December of next year to August of next year. That's a four-month acceleration in the rollout of that. Our customers are very pleased. To me, that's just the best indication that things are going really well there. As far as moving efforts from true fixed price completion to T&M, yeah, there's some of that going on. We're also seeing a little bit more of the fixed price level of effort work as well, which is quite similar to T&M. So that is, as it was indicated last quarter with Ken's discussion, I'll reaffirm that. And again, very--very encouraged by the progress on SPS.

Great. So does that imply if--Bill, if we're moving up that delivery date on that procurement system that potentially there's--you know, that we could see a windfall in the--actually, in the P&L of that project potentially relative to how it was scoped out originally?

This is Steve, Joe. I think the hope is that we continue to execute on that, but you won't see anything in this fiscal year. If we have it, it'll be in our guidance as you see it roll out in fiscal year '06. Again, we're very hopeful, as Bill said, that things are clicking are on all cylinders right now, and we're--we think that that could be a nice upside to us for fiscal year '06.

Okay. Great. Thank you very much.

Moving on, we'll hear from Piper Jaffray's Brett Manderfeld.

Good morning guys, and my congratulations as well. I'm hoping you can comment a little bit on the mix of business in the intelligence area as it stands today. And then, just in terms of the contract types that you have there, the size of those kinds of deals, the length, and, you know, how you get paid relative to some of the other contracts that you have. Thanks.

Well, I'll give a couple comments and then Bill will pick up. I think we have a pretty customary spectrum of contract types, if I may say so. We've got some cost plus some T&M and some fixed price pieces. We have a variety of work packages. Some of the work is system integration, some software development, some training-type work, some tools--intelligence analysis tools development. So we have a kind of networks systems and network services, communication services. So we've got a pretty good variety or scope of work, let me say, that pretty much parallels the kind of business we run here. But in terms of maybe some of the emphasis issues, Bill, would you--.

--Yes, sir--.

--[Indiscernible] that a little bit for us. Thank you.

Yes, just thinking back to the announcement that we made last week with the $266 million in previously unannounced contracts for the national security intelligence community. I'd have to say without, you know, without sitting down with a finely pointed pencil, that the spread there is across the board, as Jack mentioned. It's--there's a fair amount of cost plus, and more than that, there's more T&M and fixed price level of effort kind of work. I would say slightly less fixed price true completion kind of work. More emphasis on T&M and cost plus.

I'd like to just mention that we--that CACI today has worked for all of the major national security agencies that I'm sure you're familiar with, so our business and customer base is pretty broad--is much broader. And obviously, as you might guess even, the acquisition of the Defense and Intelligence Group over at AMS even broadened that base into some customer sets, which was obviously part of our strategic plan and the objective of the--of the transaction. So I think the intelligence community business we are--we're into today has a longer duration profile. These contracts are not short terms. They're more classic or traditional United States government-type contracts reaching out several years with option years behind them and so on. I think it'd be safe to say that the contract--the contracting configuration--the contracting configuration would mirror the other kinds of projects and contracts we have with the Department of Defense. I hope that answers your question.

That perfectly does. And, just one quick follow-up. Can you comment, Jack, just in terms of the difficulty today in terms of finding qualified people, especially those with security clearances, you know, kind of given the backlog that we keep hearing about? Thanks.

I think it continues to be a significant challenge to our corporation. We're always, as you might guess, looking for the best and the brightest. But it does continue to be a challenge. I think we are seeing a better creep in terms of competition in the market space. There are several companies that are significant players in this space, as you know. Not a lot of--lot of players, but there are some. And we tend to wind up sort of competing for the--for the same pool of technical professionals. On the other hand, there are people coming into the industry--coming in, picking up clearances, being integrated. I see that as a trend line that is important for the industry and for the United States government, and something that we will be focusing on. We're putting a lot of attention and priority--it's one of the--it's the top priorities of the corporation right now is our recruiting retention and employee cultivate--employee programs, motivations, and their professional development programs. So we're paying a lot of attention to it. It is a challenge.

Our next question comes from Bill Loomis with Legg Mason.

Hi. Thanks. Can you talk about the new business generated by the AMS D and I Group? How--if there's new contract wins or [indiscernible] expansions of existing business? And then also, separately, just give us the internal growth rate for the defense area total and then the civilian are separately, please?

Sure, Bill. Hi. Talk to a little bit of the--of that question and Steve can pick up a bit more and maybe Bill will have a thought or two. It's an excellent question. D and I Group is our largest transaction. It is off to a terrific start. I will give it the highest marks possible in terms of across the board performance, including new awards. The announcement on about July 28, a $75 million work with the information systems for navy shipyards was based out of the D and IG Group acquisition. Certainly they are very compelling work they are providing for the security agencies. I think is a clear indication of their movement now to a more aggressive posture. We'll be bringing them aboard. They have a different resource base here at CACI. They have a different strategic focus and opportunity because our business is national security and national defense. I don't think it would be fair to say that that was the focus of the American Management System--Systems organization. So they've come home, if you will, to an organization that reinforces the business directive--direction that they as a unit had established. So I think you can see some accelerated performance. And, in fact, I don't think, I know. I am seeing it already. So we're very satisfied with that, but--and we did a good job I think of bringing that in. Ken and others I think were very strong in our leadership of bringing and integrating that unit inside to the Company. But Bill, maybe you have a thought you might want to add.

Yeah, I would just add to that. Again, the $266 million that we announced last week, a real healthy chunk of that was new business coming out of our Defense and Intelligence Group. Very pleased with the awards there.

They are--they're doing some very important high tech work and I would see it sustaining and continuing for quite some time. That help, Bill?

Yes, it does. And the internal growth?

Let's follow-up here with Steve.

Yeah, Bill. Just to give you the overall, as we indicated, 23 percent was the total for the Company, federal was about 24 percent. And to break that down a little bit further, we had about 33 percent internal growth on the DOD side of the house, and about 6 percent on the civilian side. Overall state and local was down about 15 percent. So you can see the best emphasis there.

Okay. Thanks. Great results.

Moving on, we'll hear from Michael Lewis with BB&T Capital Markets.

Good morning. Nice quarter. Hey, Steve, what were the ODCs in Q1 '04?

In Q1 '04? About 100--let's see if I've got the right number. It's about $110 million on an ODC. This is on a cost basis by now. Okay? We don't--we don't give out the revenue on it for competitive purposes. But I think we spent about $110 million, roughly $109 million, on ODCs in the last quarter. It was about 100 and---get my numbers here--about $122 million this quarter.

This is Dave Dragics. For the first quarter of '04, the September quarter, ODCs were $76 million.

I'm sorry, Michael. I misunderstood that.

Okay. Just to go back to the pass-throughs again, if we were to back out pass-through revenue in the quarter, would we see the internal growth rate drop from say 23 percent to below 15 percent? I am calculating around 15 percent right now. What are you guys internally calculating?

That's about right.

It is?

Yes. Between 15, 16 percent. In that range. It's a--it's a tough calculation to do because it's--as you look at the business--and what we're trying to give you is just some highlights and some of the--some of the differences. As you look at any forecaster guidance we give, obviously there's a lot of things that are slightly different than that. But that's one of the bigger ones.

Okay. Well, thank you very much.

Moving on, we'll hear from Alex Hamilton with Advest.

Hi. Good morning, gentlemen. Two quick questions. The first one is you talked about--I don't have a specific number in front of me. You talked about the [indiscernible] and the potential opportunities I guess going from roughly $7.4 billion to $8 billion. Can you talk about potentially where those opportunities are? Are those really coming from the DIG acquisition? Are those focused on national security? Are they military support? If you could just give a little color on that that would be helpful.

Yes, Alex, this is Bill Fairl. It's really across the board for us and it's across all of our business units as well. It's our--of course, we're primarily with the DOD and intelligence community, so most of those opportunities are coming out of there. But they're out of the federal civilian sector as well. It's really a broad-brush set of opportunities for us.

I would mention that the D and IG Group is fairly represented, however.

Yes, sir.

Great. And my second question is related to, obviously, the--you guys have had two great quarters. The trend, obviously, looks like it's going to continue. How much of that is a benefit more of the trend continuing? How much of that is a benefit from let's say the operational tempo in Iraq versus the rest of the business?

Well, I--I'd simply offer that there is no question that the operational tempo is meaningful. But we've been building that--to that level here for about a year or so. So I don't think you saw any dramatic ramp up in the--in the fourth quarter per se. Dramatic in the sense of proportional. I do--I do think that you're gonna see, again, as I mentioned earlier, continued business coming from our operations overseas, and obviously, the military zone is a piece of that. We do have work in the Balkans, we do have work around the world with the [C-Com][ph] and other organizations, the United States Navy. We have folks deployed around the world in Japan and elsewhere and those contracts. So you're gonna see a lot of that, I think, continued. I think--I think the business platforms we're in now are pretty much sustained areas with the--with the possible exception of the intensity of--the focused intensity in Iraq. But as I've already said, and will say again, I see that business sustain--sustaining itself for at least a year or so.

Jack, I guess I would add that the Iraq business is just a very low percentage of our--.

--From a total standpoint--.

--So--.

--Iraq itself is still a small piece. That's quite true. I don't see particularly any rapid expansion there either. Does that help? Vicky?

Moving on, we'll hear from William Blair's John Ptak.

A great--great quarter guys. Most of my questions have been answered. Quickly, turnover this quarter--employee turnover?

I don't know if we have a handle on that number. I know that it's been up a bit from where we had seen it earlier and again, as I had mentioned here a caller or two--a question or two before, it is a significant priority and--recruiting and retention is a challenge, especially with the security clearance. We have had, as you might imagine, in some of the danger zones we've had a higher turnover rate than elsewhere in the Company and that might distort our numbers a little bit. We've also had a couple of projects that have come to an end here in this last quarter or so, which warps those figures a bit. But I would say nothing that I would consider in a sense of being alarmed over. It's just something we're gonna have to focus on and continue to work directly.

John, it's Steve. I would add to that that the overall trend in turnover is up. I--we don't have the specific number here for you, but the industry I think in general is seeing a little tightening. The economy is improving and I think it's--it is increasing our attentiveness to having to retain people and also our recruiting efforts to bring new people in.

Sure. And then, as CACI continues get bigger, can you talk a little bit about your ability to identify larger deals and to win those larger deals? And then lastly, any change in the competitive environment? Thanks.

The first question about larger enterprise and the need and requirement to identify larger programs and contracts and successfully pursue them is obviously part of the overall plan. And we must address that and we will address it. We've taken some steps I think in the last year to do some configure--alignment configuration within the Company to pull our visibility, and more importantly, our resources, where we can pull our resources together in an organized fashion to pursue the larger projects and contracts. And I think--I think we've made significant progress on that and I think you're going to see us be very successful in that arena. As a matter of fact, I'm quite confident of that. In terms of the competitive environment as such, all I would say to you is that I've been in this business going on 35 years now and it's always been competitive. I don't remember any time that it wasn't. People have always been saying, you know, you have to be bigger to bid the deals. Well, I've been hearing that, again, for many, many years. So we were just gonna keep marching to the same set of objectives. We're gonna have focused efforts. We're gonna stay on task. We know the market space we're in. We think it's a great one. We emphasize over and over the importance of customer relationships. I don't think there is anybody in this industry that's any better at its customer--management-customer relationships programs. And I think that is a big part of the secret to our success, and we're going to continue to emphasize that. And that provides you the opportunity to stand out and to have distinction. So that's gonna be the model we're gonna continue on. And Bill has some thoughts you want to share as well.

Yeah, I just wanted to point your attention to an award we had in August of our first quarter. It's a $126 million contract from the Navy to provide professional support services for its most successful ERP initiative, what we call [NAMAES][ph]. We couldn't have done that a couple of years ago. We've managed to build a team now that allowed us to go out and prime that contract where all the other contractor support under that important program was rolled together and awarded to us. And that's to me a--just a great indicator of how far we've come here.

I hope that helps.

RBC Capital Markets' Cynthia Houlton has our next question.

Hi. Thanks for taking the question. I guess in terms of something--in terms of just maybe providing a little bit more color on--forward acquisitions drives--just kind of, what are the areas you think are most important? Kind of, what are the areas that you are tracking for either accelerating your capabilities in certain areas or areas that you see fastest growth? Just kind of get a view, you know, post-DIG what you think the more important areas to focus on are?

Sure. Thank you. That's a very good question, Cynthia. I think that we're seeing still consolidating activity in the market space. There's been consolidating activity. We're certainly looking at larger scale transaction opportunities. We believe as we've moved our balance sheet up that we are in a position for larger transactions and we're gonna be looking for larger transactions At the same time, we're still going to continue our tried and true proven process of acquiring the smaller niche special customer, special technology-oriented companies. I think we have a better than--better than average, a far better than average success track record. Some 29 or 30 acquisitions I think it is, something like that. Virtually all of which have been successfully, some better than others, obviously. So we're gonna be looking at, again, those kinds of opportunities.

In terms of the business focus, we're going to look at companies that participate in the defense engineering and the intelligence community, networks and communications. I think the thrust will just continue to be that of IT. The thread or the common thread throughout all of our enterprise is information technology and significant expertise in applying that--those technology--technologies to innovative solutions for our customers. That is our distinction. So it's basically, I don't--I hate to use the word more of the same, but we've--we believe that we are a dominant--becoming a dominant player in this space, certainly a recognized player, and will continue to look at the expansion opportunities. There is a trend line, I think, out there in the government space right now that says that peer play, companies that have a--an ability to advocate new solutions rather than some of the major large players are gonna--we're gonna get our fair share of opportunities as we move along, because they are looking for innovation, they are looking for creative solutions, they are looking from a little bit more independent perspective. And I think that's gonna be something we're gonna trade on going forward. And we're certainly building our reputation in that direction.

One of the things we want to maintain is the excellent reputation CACI has in this market space, which is quite a nice thing to be able to reflect on, especially over this last year and some of the things that have occurred.

And then, maybe just as a quick follow-up, what kind of trends should we anticipate on kind of the next 12 to 18 month basis in terms of the U.K.? And then, what's going on at the DOJ since we have seen the revenue from DOJ continue to decline. Is that--the pace that we've seen recently, should we kind of continue to anticipate that? Just if we'd get some color in those two areas.

Well, these are certainly another couple of excellent questions. In the United Kingdom, our business base there is, obviously, could be described as revitalizing in a turnaround. The U.K. operation is an interesting part of our business in the sense that it's always been a much higher margin provider--business margin provider and has provided us a continuing expansion opportunity into the U.K. and into Europe given the right kinds of conditions. And we are anticipating that--that that may be something coming along here is a--is a new element of our strategy looking to the business opportunities in that part of the world. I would think that we're seeing around--something around 50--$50 million this year, and I think good strong margin performance. From the Department of Justice side of the thing, Bill, maybe you'd like to chime in here and give the folks a little bit of perspective on that color in that direct regard.

You bet, sir. I mentioned earlier that we had a--an end to an FBI project that drove a little bit of that downturn. So some of this is just a little bit cyclic, if you will, with some projects ending and new ones starting. So I really don't see any major overarching trend to this work here.

Okay. Does that help? Vicky, next one please?

Our next question comes from Will Hamilton with Pershing.

Good morning. Steve, first, you mentioned debt repayments, $12 million in the first quarter, and another 15 already in the second. Where do you see the full year coming in in terms of the repayments?

Well, what we'd like to see is, hopefully, by the end of our third quarter, Will, I think we can probably pay down the revolver, which would leave us with about $348 million on the term loan. And then, we'll probably pay that down somewhat during the end of the year. As I indicated earlier, we are anticipating from cash flow from operations to be at $100 million to $115 million kind of a range. And we'll continue to just pay down the debt.

And then, Bill, you discussed you benefited this quarter from the consolidation of some contracts. Is that a trend that we should expect to continue in that CACI should benefit going forward?

Well, yes. And what I particularly had in mind there, Will, was the ERP contracts that I was just alluding to--the $126 million win. That's a--that's a rollup of several contracts that the Navy had out to different contractors. They wanted to bring it under one large prime contractor and we were successful in positioning ourselves for that. I think we're gonna see more of that as we roll forward with the consolidation. So I do think that's a trend to keep your eye on.

All right. Thank you.

Our next question comes from Adams, Harkness' Sandra Notardonato.

Hi. Thank you. Very nice quarter. Can I get a sense, if you know, Steve, what your organic growth would be for the last 12 months if you exclude pass-through revenue?

No. Not easily. Did you stay up late thinking about that question, Sandra, as you celebrated a Red Sox win?

How about this question then? Who's your daddy?

I would--I'd like to make a comment on that because it is an excellent question. And our--our crystal ball that's labeled projections is just full of clouds when it comes to the ODC area. Not so much on the subcontracting, but I think it's the material demands and other equipment and the supplies that sometimes we pull together for some of these integration jobs and-or other special requirements our clients have. We are very responsive to our customer set. And they look at us as a--an organization that's responsive and understand their mission, and I think that's the great value of CACI. So that's part of the issue here is you're gonna get a little bubbling around on--.

--Right--.

--On those. But it's good news. If you look at it from my standpoint, the fact that they call on us to support that, that's a good news thing. That's not a bad news thing. So the bubbling around there--and it maybe--give you a little bubbling on the top line from time to time. But we ought to look at it as a positive indicator of how the Company is viewed by its--by its customer set. The other thing I would--I would say to you is that I think that the other side of this is often the--when you get in this "ODC" area. There are certain kinds of efforts that we get moving into that provide maybe not immediately but a little bit later on, additional services opportunities. So that we have a very distinct--there's two or three different distinct reasons why it's in our favor--in our best interest to be responsive in that--in that regard. So I hope that gives you a little background on why we do this. I've even heard people say well why do you do that?

Right.

Because you know, the margins bounce around and all that. Well, there are extremely good business reasons to be doing it, as I have hope I have given you at least some indications.

Sure.

This is Steve. I would--I would tell you that one of the things we put out this quarter, and we'll probably do it going forward, is the trailing 12 months probably gives you a better sense of what the growth--it takes the lumpiness out of any one quarter where you get that. And as I said, it was 18 percent. That's probably a better of looking at it. And just to kind of finalize, Dave and I are both looking for some World Series tickets from you.

I was just going to invite you. I'm having a party.

I'd like to make some kind of final passing thought to make sure I'm--our business is not a reseller business.

Right.

And we don't go out and resell our programs. We are responding to needs and requirements. So there's a completely different viewpoint here, and I'd like to make sure for our listeners that if--somehow I didn't communicate the notion we're in the reseller business. We're really not--.

Sandra, this is Dave. That's the--that's the point that you need to understand about that. And it's just when we talk about it, it's just you have to understand it. As it--as it does inflate revenue, it is revenue with a lower margin, but is still part of the overall service package and it has to be viewed as part of the entire package and to qualify and draw it out is kind of like making a--that's kind of like slicing and dicing it a little too far.

Okay. What about on the consulting front? You mentioned last--or actually, Ken mentioned last quarter that you were gonna move into some more strategic consulting. Can you give us an update on what's been happening there and potentially when we can see that revenue broken out?

That's an excellent question. And, Bill, would you please?

Yes, sir. Sandra, this is Bill Fairl. We did take a look at that, thought long and hard about it, and I'll tell you that my view of it today is that it's so closely tied with our systems integration business, a lot of that represents up front kind of work, requirements analysis, if you will, that eventually leads to system integration work that--I really don't think it makes sense for us to break it out right now. We'll continue to take a look at that, but for the time being it's part and parcel of our system integration business.

I'd like to say though, I think we're very proud of the work we're doing. We have some excellent people that are leading some task areas and that for high-level clients. And I'd like to say, I think that's a new aspect of our portfolio that we're quite proud of and giving us some new relationships that we hope--hope we can cultivate into some larger integration-type jobs, as Bill has indicated. So it's a--it's a good move so far and showing, I'd say, a good trend line. Is that a fair statement, Bill?

That's absolutely true, and it just strengthens the relationships with the high-level clients you mentioned.

Okay. Just a couple more questions. You--the low end of your guidance for the following quarter is sequentially down from what you delivered this quarter. Why would we see a sequential decline and--I--I guess that's it. Why do you think we'd see a sequential decline?

Sandra, there's probably two areas, one I indicated earlier. Second quarter only had 63 billable days instead of 64. So that's--that's probably $5 million, $6 million of a day's billing that we're--we won't get out. And then, a more normal level of ODCs is what we're projecting. So those two things would take the low end down slightly from where we are.

Okay. Sorry that I made you repeat something. The last question, I guess, is for you, Steve, as well. Can you give us an update on where you are in terms of Sarbanes Oxley compliance?

That's a good question.

That's a good question, and we, I would say we're somewhat ahead of the game in some ways. As you recall, the Sarbanes Oxley--we were a June fiscal year-end and I think it was in February, we were marching down the road of a June having to certify here. So we had done a lot of our documentation. We had begun a lot of our testing. E&Y, our outside auditors, had just begun coming in when they moved the date and they actually pushed it out for us, gave us a reprieve till June of next year. So, we internally have done a lot. We are continuing to do our internal--we do a Section 302 and 906 testing we do every quarter with no deficiencies noted. And I would say 404 is well under--well underway and the outside auditors will be coming in, E&Y, here this quarter and next to do their testing. And so, we're in pretty good shape I would say.

Our next question comes from A.G. Edwards' Joy Mukhergee.

Good morning. Most of her questions have been answered. Just one housekeeping question. The intangibles amortization. Should we model it to be in level with Q1 for the rest of the year, and where does it go next year?

I think that's fine for this year and I really have no guidance for you for next year other than it should be--it should probably come down somewhat, because we're amortizing some of that, the intangibles go away probably about somewhere between 20 to 25 percent.

Okay. Thank you.

George Price has the next question from Legg Mason.

Hi. Good morning. Congratulations. I just had a couple follow-ups. First thing, just going back to today to the AMS Defense and Intel Group. How is--how is retention there since you made the acquisition?

That's also an excellent question, and thank you. The retention I think has gone quite well overall from the D&I Group. I would say to you that the--almost all transactions have a little bit of a burbling around at first, I'll call it. We've had a couple of instances over the years where we had a little bit--it was a little bit scary at first. But I think the AMS DIG has been very successful, and I would say completely within the norm, but maybe Bill, would you want to emphasize some point? I don't know if we--.

--Yes, sir--.

--We have the exact statistics, but--.

--I think you're right about the initial sort of transient response with the acquisition, but I've got to tell you now, about six months into this, they're actually a little bit above average as far as the entire enterprise goes from a retention standpoint. So it's working really well. Very pleased with that.

I know the or--the unit was extremely pleased to be affiliated with our corporation and we obviously welcomed them in wholeheartedly. And I think they've become participants in our enterprise here and I feel good about it overall. And I think they had some employee growth over there. So every--all the trend lines are in the right direction. And it's an excellent question, because it's important, obviously.

George, this is Dave Dragics. Gail and I were up in Boston about a month ago and we got that question when we were going around meeting with folks. And basically what Gail answered was that it is much better than we expected, that there was also still some people who had left--who had their resumes out during the transition. But on the whole, he is very pleased with the retention, as we are. So it's higher than I think what you would expect. And a second point is, we know were are a lot of comments out on the street after the transition about--hearing that a lot of former AMS people were being laid off. And I want to clarify that was from the part of the AMS that we did not acquire, just to make sure that if those comments resurface again, we have not had that experience at all.

We can speak for ourselves. We were not laying people off. That's for sure.

Right.

Okay. Great. On the civilian side, I guess, you talked about DOJ a little bit. But, 6 percent internal growth there. Could you give us a little bit more, you know, color about what else might be going on in terms of spending trends and deal flow and expectations over the next few quarters?

Well, I think--this is Bill--Bill Fairl. It looks pretty good to us. About as we expected. Larger deals that we can go after [indiscernible] some of the acquisitions we've made and increases we've already made there. So I'd say it's looking favorable to us. Positive. Lots of opportunities to bid. The pipeline is full. They're a contributor to this significant increase we have in our business deal pipeline that I mentioned, up to $8 billion. So, very healthy.

(Caller instructions.) Moving on, we'll hear from Ed Caso with Wachovia Securities.

Good morning and congratulations. This is Clint Fendley for Ed. Jack, I wondered if--when you expected to name a successor--successor for Ken and what characteristics you are focusing on for that role?

That's an excellent question. The first part of it is we don't have a--and do not set for ourselves deadlines, because if we don't meet it, what do we do? We do work--I'd say we're proceeding with all due importance associated with this role. The character and attributes we're looking for is significant leadership capabilities, someone who has expertise and experience in our industry and our marketplace, that has a customer focus, that understands the M&A side of our business, that can deal with the clients and with our employees and create a vision for the future, that is a candidate, obviously, to continue the management succession and continuity of CACI as an enterprise. We're a pretty good size public corporation at this time, and obviously, the Board of Directors are most interested in the skills and qualities of people we're looking at. And we're going to continue, which is--I guess we're at 42 years in business now. And certainly looking for someone that can augment and follow in Ken's steps and can be--provide the leadership that we need. So those are, I guess, broadly speaking the attributes-- a lot of little details. But I think those are the main features you'd be interested in. We're looking for somebody in this industry that knows this market space, certainly knows the defense, intelligence and the security. The kind of businesses we're in. If I could just step back and say, the business we're in is national defense, national security. We're in the intelligence community work. We are a network services, communications business. We provide broadly into agencies also in the United States Government that are--that are in the--transforming their organizations to take advantage of information technology and eGovernment as they call it. So that's sort of, broadly speaking, the market space we're in and anybody who comes in will meet--will need to have, let me just say, an expertise and a legacy of experience and recognition as being a performer in that market space.

Okay, Steve, a question for you as well. I wonder were there any share repurchases in the quarter, and your outlook for any future share repurchases?

There were none in the quarter and no expectations for such.

Okay. Thank you.

At this time there are no further questions. I'll turn things back over to Dr. London for any additional [indiscernible] remarks.

Okay, fine. Thank you, Vicky. We appreciate your help. And I want to extend our thanks and appreciation to all of those who have participated in our conference call today. And we've welcomed you and hope you've been provided with the kind of information you're looking for. We certainly have endeavored to give you a clear picture of our Company and where we are today, our first quarter results, and obviously, our expectations for the balance of this fiscal year ending June 30. I also, hopefully, have given you a little indication of how we--how we believe the Company is positioned in the market space for the foreseeable future, frankly. This quarter we are going to be participating in a couple of investor conferences around the country, and in particular, invest--visiting some investors in New York City, Los Angeles, and out in the Midwest as well. We look forward to seeing you and bringing you up-to-date on CACI on those special occasions. And I might say, as always, if you're in the Washington area, down this way, and like to stop by and visit with us, we certainly most welcome all of you in having a meeting with us at anytime. So to do that, please contact Dave Dragics, he's our Investor Relations executive and I'm sure he'd be delighted to help you set something up. Again, our conference call number today, given our situation, the local area phone exchange problem, if you'll call in at 703-679-3100 we'll be able to take those calls promptly. I'll say that number again, 703-679-3100. We are also aware that some of you may have other questions you'd like to discuss, so give us a call if you'd like. We'll take a little break here, but our team will be available in about, oh, let's say, 15 minutes or so--about, let's make it ten after--ten after ten. Our team will be available for calls that you may have and any special questions.

So, again, ladies and gentlemen, I want to thank you for your participation in the quarterly conference call of CACI International. We're delighted to have had you with us, and we wish you a very good day. Thank you very much. This ends our conference call for the morning.

And that does conclude today's teleconference. Thank you and have a great day.