CACI International Inc (CACI) 2006 Q2 法說會逐字稿

Good day, everyone, and welcome to the CACI International second quarter fiscal 2006 earnings conference call. Today's call is being recorded. (OPERATOR INSTRUCTIONS). And now for opening remarks, I would like to turn the conference over to CACI's Vice President of Investor Relations, Mr. David Dragics. Please go ahead sir.

Good morning, everyone. I'm Dave Dragics, Vice President of Investor Relations at CACI International, and we're very pleased that you're able to participate with us today. As is our practice, we are providing presentation slides during the call, and we'll make every effort to keep all of you on the same page as we are during the course of our presentation.

Moving to the next exhibit, number two, before we begin our discussion this morning, I would 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 cause actual results to differ materially from the statements made today, and the primary factors that could cause actual results to differ materially from those anticipated are listed at the bottom of last evening'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 really should be incorporated as part of any transcript of this call.

So moving to the next exhibit, number three, to open up our discussion this morning, here is Jack London, Chairman, President and CEO of CACI International.

Thank you, Dave. Good morning, ladies and gentlemen, and thank you for joining us today. I'd like to extend a personal welcome to those of you who are new to CACI and to our call this morning. We're glad you joined us today, and we invite you to continue participating in our future conference calls.

With me today to discuss our results and answer your questions are Paul Cofoni, CACI's President of U.S. Operations, Steve Waechter, our Chief Financial Officer, Bill Fairl, Chief Operating Officer of our U.S. Operations, and Greg Bradford, Chief Executive of CACI Limited UK.

Turn to exhibit four please. I'm pleased to report that CACI reported solid growth during the second quarter. CACI revenue climbed to $419.5 million during the quarter. Net income for the quarter was $22.3 million, or $0.72 per diluted share. Our contract awards in the quarter raised our total for the fiscal year-to-date to just over $1 billion, a record for our company.

We produced these results in a challenging market environment that included protracted uncertainty on the passage of the Department of Defense budget, some debate about government priorities, and concern about growing federal deficits.

We are pleased, however, that the DoD budget has now been signed into law after its unusually long deliberative process that slowed the award of task orders in our second quarter, and slowed the release of new RFPs throughout the first half of our fiscal year. With that budget now in place, we believe the pace of our awards should gradually improve over the rest of the government's fiscal year. It will be a gradual ramp up because the procurement process will certainly take time to reach full speed.

Turn to exhibit five, please. Our driving principal remains to align CACI's skills and service offerings with America's urgent national priorities in defense, intelligence, and homeland security. Revenue from our intelligence business this quarter is up 26% over the same period last year, and now represents approximately 28% of our total business. The recent addition of retired Admiral Jake Jacoby as Executive Vice President for CACI's strategic intelligence opportunities provide us with even greater depth in this area.

Recent threats from Osama bin Laden and Iran's decision to restart its nuclear research makes clear that intelligence gathering remains a top priority, and affirms our belief that the government's need for intelligence support will continue to grow. We have spoken before of additional intelligence gathering challenges presented by the regimes in North Korea and China. Intelligence work is the most vibrant part of our business, and where we see positive future opportunity worldwide.

We continue to grow our revenue through add-ons, task orders and key recompetes, such as the ETOSS award that we announced last week from the Army Communications Electronics Research, Development and Engineering Center, and has a $450 million contract ceiling. Winning our recompetes and follow-on work is a major part of our growth strategy, and we remain vigilant in fiercely protecting our legacy programs. At the same time, we are strengthening existing capabilities and adding new clients in areas that we receive enhanced funding priorities in the intelligence, defense and homeland security areas.

For the present, we are experiencing short-term shift in our revenue growth. This year acquisitions will account for a somewhat larger share of our revenue growth. Organic growth will account for a somewhat smaller percentage than in the recent past.

Turn to exhibit number six. Going forward, mergers and acquisitions -- M&A -- will continue to be a key part of our growth strategy. M&A is one of CACI's core competencies. We have been at it successfully for some 15 years and we are now leading the strategic -- as a leading strategic consolidator in our market space.

In identifying M&QA opportunities, we go through a meticulous vetting process to identify companies and find acquisitions that will provide new capabilities, new market opportunities, and deliver accelerated growth in the years ahead.

Our acquisition of National Security Research this past October brought new opportunities by enhancing our ability to provide strategic policy analysis to the highest levels of our government. The pending acquisition of Information Systems Support -- ISS -- scheduled to close on January 31st, will be a major driver of future revenue in high-growth areas, again, in intelligence, defense and homeland security. Bringing ISS into the CACI family also adds approximately 1050 professionals, including nearly 800 individuals who hold high-level security clearances. It also raises our employee population to approximately 10,300 people.

Most important, we expect both of these acquisitions will contribute to an expanded business portfolio for many years to come. And let me assure you, as a strategic consolidator, we continue to vigorously pursue other high-value acquisitions that can be integrated into our operations and bring long-term value to CACI.

Please turn to exhibit seven. One of the key trends we continue to see is the increasing government need for contractor support. One of the factors driving this is the increasing number of retirements of experienced and senior-level government employees. These officials are leaving the government, and thus make the private sector the home for much of the government's institutional [memory].

As the overall number of government employees declines over the next few years, that means the close partnership between CACI and its government customers will become even more important and presents more opportunity.

But, with more opportunity comes the need for more people. As you know, one of our greatest challenges to the successful implementation of our business plan, and a key to our future growth, is the recruiting and retention of highly-skilled individuals to meet our clients' needs. Competition for these people is intense, and we are addressing this challenge with new leadership in our human resources area and the implementation of new recruiting and retention programs.

CACI provides services in a dynamic environment. Political and other developments around the globe can change national priorities with little notice. CACI, now in its 44th year, will continue to demonstrate the versatility and dexterity to anticipate developing market trends. We believe the flexible and nimble management structure we have in place gives us the capability to be proactive in this dynamic environment as we go forward.

Turn to exhibit eight, please. We'll be glad to respond to your questions a bit later, but first I'll ask Steve Waechter for a more detailed look at our financial performance and guidance. Steve will then hand off to Paul Cofoni to discuss our operations and what we see for the rest of this fiscal year. Steve, over to you.

Thank you, Jack, and good morning, everyone. Let's move to exhibit number nine, and I will give you details on our GAAP financial results and other key metrics.

Our revenue in the second quarter was up 7.7%. Our federal business grew 7.9% during the quarter, and represented approximately 94% of our total revenue.

Moving to the next exhibit, number 10, our GAAP net income for the quarter was $22.3 million, or $0.72 per diluted share, up 16.4% compared with the prior year's restated net income of $19.1 million, or $0.63 per diluted share. Our effective tax rate for the quarter was 37.2%, down from 38% a year ago. You recall that we indicated our lower tax rate this year is from the benefits associated with research and development credits we are realizing from the activities of our AMS operations that we acquired in May of 2004.

Our United Kingdom operation reported record results for the quarter. Revenue was $16.1 million, 19.6% more than the $13.5 million recorded in the year-earlier quarter. The pre-tax profit margin for the quarter was 13.5% compared to 6.6% in the prior year. This record performance was primarily driven by strong sales of our proprietary UK software and data products.

Moving to exhibit 11, let's take at some of our key income statement, balance sheet and operating metrics during the quarter, most of which are included in the financial exhibits in our press release.

Our GAAP operating margin was 9.4% compared to 8.9% in the restated second quarter of last year. Before stock option expense, our operating margin in the second quarter was 9.7%, compared to last year's operating margin of 9.5%.

Moving to the next exhibit, number 12, our operating cash flow for the quarter was $8.9 million compared with $0.9 million the prior year. Our cash position at December 31st was $137.2 million. This was a decrease of $33.8 million in the quarter, primarily as a result of the acquisitions of NSR and TCO, which closed in October. Our outstanding debt was $344.6 million at the end of the quarter.

Days sales outstanding at the end of the quarter were 73, down nine days from the same quarter a year ago, but up from the 69 days we reported for the September quarter. The increase over the prior quarter is primarily attributable to the continuing resolution, where we provide uninterrupted services to our customers in advance of funding. Our core business should improve slightly from the current quarter's 73 days; however, we would anticipate that with the closing of the acquisition of ISS, our days sales outstanding will be higher at the end of next quarter.

In the next exhibit, number 13, with respect to our contract metrics, approximately 83% of our revenue this past quarter was earned as a prime contractor. For the quarter, 51% of our revenue came from time and materials work, 29% from cost reimbursable, and 20% from fixed-price work.

Moving to exhibit number 14, ISS has not closed out their fiscal year 2005, which ended December 31. We believe that the revenues for the fiscal year will approximate about 205 million with an EBITDA of approximately 7.5%.

Assuming the January 31, 2006 closing, we anticipate the following for the remainder of our fiscal year 2006. Revenue should range between 80 to $85 million, EBITDA should range from 7.5 to 8%, amortization of intangibles will range from 2 to $2.5 million, and EPS of $0.02 to $0.03, only slightly accretive, due to the integration over the next three to four months of the systems of ISS. For the fiscal year 2007, looking forward here, we would anticipate revenue somewhere between 215 to $230 million, and EPS accretion of approximately $0.12 per share to $0.15 per share.

Moving to exhibit number 15, turning to our guidance, as we did last quarter, I shall reference margin, income and EPS amounts that reflect the expensing of stock options. Comparative numbers with and without the impact of stock option expenses are displayed on the slides. I would encourage each of you to follow closely with the slides.

Before I give you our initial guidance for our third quarter and an update for the full year, let me comment on the changes since our last guidance update. As many of you are aware, the signing of the DoD appropriations bill at the end of December was one of the latest over the last 10 years. Between the end of September and the end of December, the government operated under two continuing resolutions while the Senate finished its work on almost all of the fiscal year '06 appropriations bills. The $443 billion fiscal year '06 DoD bill was the last one passed by Congress on December 22nd. It was signed by the President on December 30th.

As the debate over the DoD bill continued during the quarter, our defense contractors or customers operated under the most constrained spending environment we've experienced since the shutdown of the government in the Clinton administration. We continued to receive contract funding orders, but they were for periods of weeks at a time, as opposed to funding for the full period of the underlying task. We also continued to perform at-risk work for many of our customers on their mission-critical tasks. Because of the issues surrounding the debate of the DoD bill, neither we nor our customers could predict with any degree of certainty when final congressional approval would occur.

The end result for us of this unusually long delay in getting the DoD bill through were lower contract funding orders, delays in forecasted contract awards, and the slower initiation of new work. The delayed DoD bill and these factors have been taken into consideration in the formulation of our guidance for the second half.

Our guidance for the remainder of the fiscal year includes lower estimated -- includes estimated lower revenue and income from our core business, primarily as a result of slippage on the timing of contract awards and slower ramp-up from new contract awards in the first quarter. Additionally, we are forecasting higher ODCs in the second half of the year, which carry lower operating margins. We are targeting a January 31st effective date for the acquisition of ISS and, therefore, have included estimated operating results for them in our guidance. Clearly, if some unforeseen reason we don't close, our forecast would change accordingly.

For the third quarter of fiscal year '06, we estimate our revenue will range between 465 and $475 million, and we expect that operating income for the quarter will range between 39 to $40.7 million. We expect that our operating margin for the quarter will range from 8.4% to 8.6%, and that net income will range from 21.3 to $22.3 million. Finally, we expect the diluted earnings per share for the quarter to range between $0.69 and $0.72, and that diluted weighted average shares will be 31 million.

For all of fiscal 2006, we now expect revenue will range between 1.810 billion to $1.835 billion. We expect net income for the full year to be in the range of $84.8 million to $87.9 million. Diluted earnings per share is expected to range from $2.73 to $2.83. Fully diluted shares for all of fiscal year 2006 are expected to be approximately 31 million. We also estimate operating cash flow to be in the range of 135 to $140 million for the full year.

That completes my financial review, and now here is Paul Cofoni, who will cover the details on our domestic operations.

Thanks, Steve, and good morning, everyone. Let's turn to exhibit number 16. Our second-quarter results were much as we forecasted in October. As is typical of the first fiscal quarter for the U.S. government, the pace of RFPs released and awards made slowed considerably from the September quarter. What made this quarter different from other recent first quarters for the government, however, was the fact that the DoD was operating for a prolonged period under a continuing resolution while its appropriations were being debated by Congress.

The most noticeable effect of that circumstance for us was a lower-than-planned level of contract funding orders. As we indicated in our release, funding orders for the quarter were approximately $294 million. This lower level was due to the fact that the funding orders we received were for short periods of time, instead of being fully funded for either the year or the entire task. Now that both the Department of Defense appropriations and authorization bills have been signed into law, we expect this situation to correct itself, as funds will become available to our customers over the second half of our fiscal year.

Let's go to exhibit 17 and take a look at key operating metrics this past quarter. Growth in our revenue during the quarter was primarily driven by work for the U.S. Navy, the intelligence community, and the Veterans Benefit Administration.

Revenue from our Department of Defense customers increased 8%, principally due to the growth in our Navy business. Revenue from our intelligence community clients grew by 26%, and now represents 28% of our total business. The growth in intel business came primarily from our TEFOS, GENESIS and Night Vision contracts. The continued strong performance of these contracts in the defense and intel business helped us partially overcome the lost revenue from [our former] work in Iraq.

Revenue from our federal civilian agency customers increased 7.5%, primarily as a result of the Veterans Benefit Administration. These increases helped us partially overcome decreases in our Department of Justice litigation support revenue.

Let's go to exhibit 18. Our awards this past quarter totaled approximately $208 million. 40% of this amount was for new work, and 10% was for what we call hybrid awards, or awards that consolidate some of our recompete business with new incremental business.

Our key awards this quarter include a contract to support the U.S. Navy's Pacific Fleet, where we will be providing continued system integration services to help the Navy modernize its maintenance information systems and upgrade IT infrastructure for the entire fleet. This includes transforming current applications into enterprise-wide systems, following the trend across all government for greater connectivity and information sharing, and a CONUS base stationing award to provide IT services and training range operation support at Fort McCoy, the major National Guard training facility in the Midwest.

Let's move to exhibit 19, please. Our proposed activity -- proposal activity continued at a robust pace. We currently have more than $2 billion worth of proposals submitted and under evaluation by the government. We expect that over 50% of these will be awarded between now and June. We also anticipate submitting over $5 billion worth in additional proposals in that same period, over 50% of which will be for opportunities with total contract value in excess of $100 million. Our pipeline of qualified opportunities stood at more than $14 billion at the end of December. As was the case in October, the majority of these opportunities are greater than $100 million.

Moving on to exhibit 20. As Jack indicated, our pending acquisition of ISS is a positive step for us. ISS brings us an expanded client base in high-growth areas such as communications, logistics, and network solutions. In addition to the Department of Defense, the ISS roster of clients includes the Department of Justice, the Library of Congress, the Drug Enforcement Administration, and the Social Security Administration.

As Jack said, attracting and retaining qualified people is crucial to our growth. Because of that, we have created a new top-level leadership position to amplify our recruitment and retention programs. As we announced earlier this month, Bob Boehm has joined the management team as CACI's first Chief Human Resources Officer. Bob brings 25 years of industry experience to CACI. With his expertise, we anticipate improving our current programs and filling these openings more quickly, so we can continue to provide quality, timely service to our clients.

Exhibit 21. The second half of our fiscal year will be more challenging, as is reflected in our revised guidance. We expect that the flow of contract funding orders will increase, and the majority of our proposals under evaluation will be awarded in the second half. However, the ramp-up will be gradual, causing lower than previously forecasted earnings for our ongoing business in our second half.

Let me share with you an example of the types of delays we experienced this past quarter. At the end of our first quarter, we had $1.7 billion of proposals submitted. Seven of these proposals, with a combined award value of nearly $1 billion, slipped an average of three months, from our second quarter into our third quarter. Most of these slipped due to limitations of the continuing resolution. And as we previously mentioned, the continuing resolution also impacted our funding orders during the quarter. We are pleased to have received in January the ETOSS award, which has a $450 million contract ceiling. This award also gives us confidence that the large backlog of our proposals under evaluation will begin to be awarded.

In summary, we're excited about our future and confident in our ability to continue to grow. We had over $2 billion in proposals under consideration at the end of our second quarter, and we expect to submit another 5 billion in proposals in the back half. With this, and our strong mergers and acquisitions program, we anticipate a $2 billion annualized revenue run rate in our fourth quarter, providing solid momentum for double-digit growth in fiscal year '07.

Jack, that concludes my remarks.

Thank you Paul, and thank you, Steve, as well, for those updates. Ladies and gentlemen, please go to exhibit 22.

We are pleased with our second-quarter and first-half fiscal results this year and our ability to overcome short-term market aberrations. In the second half of our fiscal year, we are confident we will overcome the impact of the delayed passage of the defense budget through, again, our (indiscernible) growth and strategic acquisitions, and intensive recruiting to meet the increasing needs of our customers throughout the federal government.

We won a record volume of contract awards during the first half of the fiscal year, closed two significant acquisitions and won major recompeted contracts. We have a robust pipeline of qualified opportunities that continues to increase and a substantial amount of proposals not only under evaluation, but to be submitted over the next few months. We will continue to grow by keeping our strategic focus on the national priorities in defense, intelligence, homeland security, and the transformation of the federal government.

In a few days the proposed budget for the federal government's fiscal year 2007 will be released. These national priorities will continue to drive discretionary spending on this new proposed budget. We believe our capabilities in systems integration, engineering services, network services and knowledge management are aligned with these priorities. We are confident that CACI's growing range of services and our versatility will enable us to compete successfully and to continue to grow our business in the years ahead.

With that, we're prepared to take your questions. Jennifer, I'll turn the call back over to you for the Q&A period.

(OPERATOR INSTRUCTIONS). Brian Gesuale, Raymond James.

The first question here is for Jack. Jack, wondering if you can kind of give us your perspective looking at the '06 budget, kind of having some thoughts on what '07 may look like, and really CACI is a $2 billion service company. What should we think is the long-term growth rate on this business over the next three years from this point of view?

Long-term growth rate -- of course, we have for many years said a double-digit -- significant double-digit growth rate perspective. We, I suspect, will have some challenges over the next two or three years to sustain that, but we will be looking at our strategic planning process this spring and looking at the forward opportunities.

I would just have to tell you this, that notwithstanding the overall budget profile of the United States government, CACI has over the years demonstrated the ability to move in those national priority areas where there is growth opportunity. I will give you just a moment of reflection.

Back in the '90s, when the budgets were going down during the Clinton administration, the middle period, CACI was able to continue to grow at 15 to 20% during that period, even though the budgets were on the down-slide. And the reason is very simple -- we're focused on the priority areas, coming forward with very avant-garde service offerings and a very robust and effective M&A program. So it's a combination of being -- anticipating market technology requirements and trends, and the effectiveness of our M&A program. And I think that that gives us every opportunity to move beyond the $2 billion range up into our goal, which we've set out there a couple of three years of being a $3 billion corporation. In fact, moving to the $2 billion run rate here at the end of fiscal '06 is, quite frankly, in advance or ahead of our plan that we put out a year or so ago. So I'm very optimistic, just because of the management team here and the way we look at the future.

Great. One quick follow-up. You've talked about acquisitions becoming an increasing part of the strategy over the near-term here. Is this something we should expect a few acquisitions here over the next six to nine months, or maybe take some time to digest the ISS before we see you back in the marketplace?

I think you're going to see CACI continue to be very aggressive. We do have some work ahead of us on the closing of ISS, to get it all integrated. It's on a different structure platform, and we will need three or four months to consummate that. I expect it to be fully in place by the first of the fiscal year, so we can achieve our cost synergies and efficiencies of earnings accretion for the next fiscal year. We have talked about, I think, the range that we looked at was $0.12 to $0.15, I think, for next year. And I fully expect that that will be part of our portfolio going forward.

So you can anticipate seeing more of CACI, or continuing to see CACI out in the strategic consolidator space. I guess we've done 32, 3, 4 transactions over the last 10, 12 years. I would report to you that every single one of them has been accretive, effective. Not all of them have been at the same degree of success, obviously, but we're very pleased at the infrastructure and core capabilities here in the M&A program. So that will be a main thrust going forward.

Jason Kupferberg, UBS.

Just wanted to start with a question regarding the guidance. One of the reasons you cited for the lower outlook is some of the increased mix of lower-margin subcontractor revenues. I just wanted to learn a little bit more about that, and did something kind of take you by surprise there at all relative to kind of where the outlook was a quarter ago? Is this just a temporary mix issue? What's the right way to think about it?

Clearly, the slowdown in the appropriations process with the funding of new contract awards, the ones that we won in the first quarter is an example, and the delay in the award of new contracts has clearly slowed down any ramp-up that we would have had on the professional services piece of our business. The mix shift that you're seeing -- there's also some of our contracts that have a heavier content of subcontract or material content to them, are growing, and we've won some contracts here that are a consolidation, if you will, of other contracts. And that flows through, and the timing of that and the mix of it just gives us a higher content of subcontractor work as we look forward. So the real issue is that the professional services piece is just lower than what we anticipated, and that's why you're getting this mix shift.

Sandra Notardonato, Robert W. Baird.

I have a follow-up question to Jason's. It looks like the last couple of quarters the trend has been somewhat slower in terms of SG&A spending. And now your guidance, Steve, on the second half of the year says that you're going to need to use more subcontractors. What's the correlation there? In other words, has your under-investment in SG&A hindered your growth potential for the remainder of the year?

I would tell you that that's a misread of the sub -- we don't use a lot. The subcontractors we use are part of the contracts. When we win a contract, we team with people, and that contract is -- not that we are out looking for labor, it's just because they do various specialties related to the overall program management of a contract that we are doing.

The G&A piece of that -- the SG&A run rates, if you will, you get various timing of the things. In our first quarter, as you know, we had very strong stock option expenses. That's why if you look at first quarter versus second, we're down, because we don't have as much stock option expense. As we run forward, you're going to have the mix of ISS is going to be in the numbers, if you will. But it's offset by some favorability in some of the fringe rates that we're looking at. As you recall, we book our fringe on direct labor in SG&A. And so you get some mix there in terms of the labor content being a little bit lower, so the fringe on that would be down, and timing -- I don't know; I hope that answers your question. But we are not under-investing; we are spending a very high level of money in our bidding proposal. As Paul indicated, we've got a huge pipeline of bids that we're going to be submitting, so we are investing very heavily in that area. And the other area that Paul indicated, we're investing very heavily in the whole area of recruiting and retention, which is very critical to our business.

That's helpful. My follow-up question is, historically ODCs have run at about 50% -- 51% of total direct costs. What does the guidance assume for the second half of the year in terms of ODCs as a percentage of total direct costs, please?

I don't have that exact -- I think it's about 55%, 56%, in that range. So it's probably about 4 or 5% higher than what it has historically run.

John Mahoney, BB&T.

Just a quick one about the (technical difficulty) quarter. (technical difficulty) understand what I think we all read in the paper understand that the budget was delayed. I guess the fact that the June quarter is going to be so heavily impacted is a bit of a surprise. Could you talk about why it's going to extend out that far? And is there a possibility, I guess, that could be [helpful], that you might in -- that business could ramp up in the June quarter, maybe later in the quarter?

That's exactly what it is. The fact is that now that the budget is passed, there is about a six to eight week period before the funding actually moves its way through the process to us. And then we have to ramp up on these programs. And that is not a step function, that will be a process of us hiring the right people to do that work over a period. So what you're seeing is an impact throughout the whole second half, although in the fourth quarter it's less of an impact than in the third quarter. Does that answer your question, John?

Just as a follow-up, I think yesterday General Dynamics was saying funding was starting to (technical difficulty) pretty freely. (technical difficulty) to experience that yet?

I think your question was that General Dynamics said that their funding was starting to flow freely, and have we seen that yet. Is that the question?

Yes.

I would just repeat what I said a second ago. It's about a six to eight-week process for the funds to move through from the time the budget is approved. So we are starting to see a little, in the last week or two, a little uptick in contract funding orders. But I wouldn't say flowing fully or freely as a characterization of it, no.

Tom Meagher, Friedman Billings Ramsey.

Just wanted to follow-up on John's question. I've been out of the DoD budget environment for more years than I care to remember, but I know that the [PMs], the agencies and military departments need to be 99% spent on their current budget in order to get a full budget, or even an increase the following year. So when you're looking at the timing of the federal fiscal year versus that of your fiscal year, and assuming that they're going to have to commit and obligate those funds at a faster pace in order to reach that 99%-plus goal by September 30th, I guess what you're saying is -- I understand the 30 to 60 days for the money to flow down, but that would seem that they started in January -- it would impact January and February. But then, once again, June and September, I would think, you'd see that spend start to accelerate. So I just want to make sure I'm clear. You're saying that you don't expect that to happen in June, that it would be more of a September year?

No, we do traditionally see in the last quarter of the government's fiscal year, which is the September quarter, a pattern of increased contract funding orders as a result of the government utilizing the resources it has remaining in the fiscal year. So we do have that sort of pattern. And that for us, of course, is our first quarter of our FY '07. So we would expect to see that as we have each year in the past.

But what you're saying is you don't think you're going to see that acceleration in June, though.

We may see some of it start in the June quarter, we will see some of that. But really, it's a phenomenon that happens actually right toward the end of the government's fiscal year.

I guess I'm just thinking in the context of once again having to be at that 99%-plus spend. I've gone through this exercise once or twice myself, and it seems like they pull out all the stops to make sure they get there so that they do get the money they got the previous year, as well as any increase they might get. So that's why I'm kind of having a little problem understanding why June wouldn't be maybe a faster acceleration than what you're talking about.

I think it will be an acceleration, but it will be toward the end of the government's fiscal year.

Bill Loomis, Steifel Nicolaus.

How much has the ability -- lack of ability, rather, to hire people to fill your openings hurt her guidance, if at all? And with your new Head of HR and some of the programs you've put into place, how quickly do you think you could step up the hiring to fill those openings?

That has been a challenge for us. We have taken over the last six months a whole series of actions that are programmatic in nature that involve everything from rolling out communications and training programs for our leadership team, to reinforcing our employee referral program. We have really worked hard on the communication aspect with our people, and encouraging and training our leadership to communicate frequently with their people. We've seen a corresponding downward trend in our attrition. We think we can correlate it to the positive actions we've taken. We have brought Bob Boehm on as the Chief Human Resources Officer, to bring new thinking and leadership to these programmatic initiatives that we've been rolling out.

So we have -- this is a challenging area for us. It's also challenging by virtue of the fact that the requirements for people with higher security clearances is a greater demand for these than ever before, and the process for getting these clearances processed is not what it needs to be to satisfy that demand. So I would say we are improving our retention, and our recruiting efforts have picked up. We're starting to see actual real improvement in net hires, and I would say that's a continuing trend we would expect through the second half of the year.

So can you quantify the turnover again? And also --

We don't -- as a practice we don't release our retention statistics. However, I would say retention has improved over the second quarter by as much as two percentage points.

And then on the higher subcontractors, is some of that higher subcontractor because you can't find people for direct labor?

No, not really. I think that is more a phenomenon of the government contracting, where the government would come to us and ask us to consolidate four or five other subcontractors' work up under a single contract. So we would be acting as assistant integrator over all of that work for maybe three, four, or five subcontractors. And now that would be -- their work is treated as other direct costs, by virtue of the fact the government is looking for a system integrator to oversee that work.

Paul, we could see that as a continuing trend (multiple speakers)

I do. It is a continuing trend. As the government sort of refocuses around its budget pressures, there is a real pattern of taking the many contracts that are out there, with many contractors, and bundling those and seeking a system integrator to oversee all of the work, especially on larger contracts.

A good example is a contract we announced in our first quarter, PEO Littoral Mine Warfare, where we did exactly that. We have bundled four or five other contractors' worked under us. We're overseeing it on behalf of the customer. Those costs, of course, get treated as other direct costs, and therefore, have a different fee structure than we would have on work that is our own labor. Does that answer your question?

Cai von Rumohr, SG Cowen.

Could you give us some more color on kind of bookings? For example, what was the win rate of 200 million awards that you got? How much did you submit in bids in the quarter? And give us some color on the 2 billion in kind of bids awaiting decision. Is that after ETOSS? And kind of could you give us some color on some of the major awards you're looking for?

Let's see if I can take that in pieces. First, in terms of win rates, we don't -- as you know, we don't communicate our win rates, although I would say they're in line with our historical win rates. We tend to view something in the 35 to 40% range as being healthy. We are consistent. We are in our normal pattern in terms of winning.

The deals that are kind of backed up here now -- we mentioned we had 2 billion of proposals under evaluation. They've been backed up. In some cases they've been backed up for five or six months. We expect that those will now start to get awarded. I can -- we don't generally talk about the details of those contracts; however, they are a rich mix across the spectrum of our service offerings of systems integration work, of knowledge management, engineering services. So they're in network managed services. They're consistent with our historical offerings, and they are centered in defense, intel and homeland security. I apologize; I just can't give you the details of the contracts here.

When you look at your change in guidance, kind of if you take out the impact of ISS, it looks like -- and we take the midpoints, it looks like we're peeling like $0.15 out of the full year estimate on a 50 million sales mix approximately, which would suggest definitely a higher-than-average margin. And you did allude to the shift to subcontractor costs. I guess I'm a little confused as to, given you've only shifted this amount of revenue, how come over one quarter there was that much of a shift in the second half? And then, if in fact -- is that a function of these decisions not being made, so that this backlog of orders under evaluation has a mix where the ODC ratio would be much more favorable if you win it?

First and foremost, the defense bill slowdown, if you will, or the timing of the funding on the award of contracts and the funding of the ones that we won in the first quarter, clearly had an impact on us as we rolled forward into our guidance, if you will. And we took our core guidance down, if you will, about -- the low-end about 25 and the high-end about 75 million, in that order of magnitude. And that is primarily in -- it's a labor -- our professional services labor is what we're really seeing there. That's what the drop-off is related to that. And that is a higher mix of margin. Now, we did have some offset in the first -- of some ODCs in there, but that's primarily the reason for the shift there.

So the second part of the question is, you mentioned a "rich mix", on this 2 billion under evaluation. Should we expect the ODC ratio to be more favorable on that business, if in fact you end up winning it?

I would think if these contracts get awarded here in the third and fourth quarter, as we roll into '07 that you might see a rejiggering of that mix of direct costs back to maybe the more normal levels of where we were, which is -- typically we've been about 51% has been ODC. As I said earlier, we're about 55, 56% in the current guidance. I see that getting back closer to the historical norms as we roll into '07.

Clearly, we have a preference toward work that utilizes our own labor base. However, when the government comes to us with a system integration opportunity, as we described a few minutes ago, those are important -- that's important work to do for the customer, and we step up and do that.

Julie Santoriello, Morgan Stanley.

This is [Ashi] in for Julie. Just a quick question on the revenue guidance. Last quarter you guys talked about the Interrogator contract and the DoJ contract having impacted this about $45 million. Can you just update us on that?

There were two things that we had problems with last quarter -- was the loss of the C2 contract, and also we indicated that our DoJ revenue had kind of dropped off. As far as an update, obviously, the C2 is gone. That is out of the revenue base. The DoJ work has actually dropped a little further than what we thought. We did about 22 million last year. This quarter we did about 17. That's a little bit lower than what we had anticipated. We think that should flatten out at about that range. So, we're pretty much on target with what we had indicated to you earlier.

The second question, just again on the revenue guidance. How much of that is attributed to -- solely to the late signing of DoD defense budget versus the changing -- changing the macro -- I guess the spending environment? Because we are also seeing Networks and Alliant being pushed out. Can you just comment on that as well? What's the impact there?

In fact, speaking of like Alliant, we're not really involved in the Network GSA umbrella vehicle. But the Alliant, we are pursuing that. It is an umbrella vehicle. It is not a -- it does not generate by itself winning, it does not generate contract funding orders or bookings. It just would provide a vehicle for pursuing future business. So today, for example, we have worked with GSA through Millenia Lite. Also, ISS has -- is an ANSWER contract, major supplier and fourth highest in volume supplier to the ANSWER contract. So we have plenty of runway in terms of ceiling on those vehicles. The Alliant is really meant to just replace them for the future. So that pushing out, I think, has more to do with some of the issues surrounding GSA and their acquisition activity than it does in terms of revenue for us.

Mark Jordan, A.G. Edwards.

My question relates to your ability to catch up, or the timing of catching up. Assuming funding starts to flow in the middle of this quarter, and you start to see an acceleration in Q4 of your business, part of the issue for getting back on track or moving towards that is a staffing issue. Is the three months or four months that you end up losing here in terms of starting programs, is that perpetually lost, or do you have the opportunity over time of catching up?

You can't -- we're not going to add two people in February, because we didn't have anybody -- we didn't have the one person we needed in our fourth quarter. So, no. The catch-up in the sense of rate of growth, yes. To catch up in terms of recovering those revenues back into our fiscal year, no. That's why we revised the guidance, is that we can't get it back into the fiscal year. But we'll get the ramp rate back over the second half, so our growth rate going into FY '07 should be more like what we've experienced in the past.

Second question. Of that $2 billion worth of (technical difficulty) submitted in the 5 billion you're planning to submit through the end of the fiscal year, what percent of that is in the camp of recompetes and/or are programs that have been bundled with major pieces of prior business?

Historically, each year it's around 20%, because our contracts have an average age of five years. I don't know if we have the exact number for the 2 billion, Bill, that we've submitted. Do you have that?

The two major ones, significant recompetes in there were, of course, the ETOSS award, which we've already announced that we won. And then, our pursuit of the mega recompete, which actually there will be a proposal out a little bit later this year, and an award very late in the calendar year. Those are the two significant ones.

Ed Caso, Wachovia Securities.

My question is on your -- you mentioned sort of a lower emphasis on organic growth and a greater emphasis on acquisition. Maybe Steve can talk a little bit about where you stand, roughly how much ISS is going to cost you in cash outlay, where does that position you with resources to make other acquisitions, maybe some on the financial, you know, metrics.

We think we're going to have to -- first and foremost, let me say the purchase price on this transaction can't be determined finally, if you will, until we do a final balance sheet. There is a provision in the transaction that anticipates a certain amount of net assets. And to the degree it's over or under, there will be a dollar-for-dollar post-closing adjustment. That's why I'm hesitating to give you a specific number here. But we think we'll have to borrow. We have enough cash on hand, and we'll probably borrow somewhere between 40 to $50 million on our revolver to pay for this transaction. On kind of a multiple basis, we're on -- when you net the -- there's a tax benefit because it's an asset deal. We think the enterprise value we're paying for this thing is about 9.5 times trailing 12 months EBITDA, is the order of magnitude of what we're looking at here.

But as far as going forward, we have an accordion feature on our revolver that if exercised, we would have about $250 million available for additional acquisitions. And as you know, we also have a $400 million shelf registration that's sitting out there if we wanted to do something of a substantial -- substantial larger size. Plenty of capital available.

I just wanted to reconcile one other thing. Jack mentioned sort of a -- maybe in the '07/'08 period, sub-10% organic growth and a greater reliance on acquisitions. Did I hear that correctly? Especially if we're sort of re-accelerating growth '06 into '07.

I don't -- thank you for the question. I wouldn't at this point talk in terms of specific growth percentages out in the out years. Our objective -- again, our goal and objective is double digit. To exceed -- certainly exceed 10% would be the goal that we set for ourselves. I would remind everyone that we are ahead of plan that we announced a couple of years ago, and that we're passing -- I am confident we will pass through a $2 billion run rate by the end of this fourth quarter and this fiscal year. So I think we're head of plan to become a $3 billion company by '08 or '09, in that timeframe.

We are, however, emerging, I think, as the leading strategic consolidator in this space. And in our financial planning and capital structure planning, we would be looking at alternatives as we go forward. We think there are a lot of significant properties out there. It is an extremely important core competency of CACI, and we bundle that as a pure play in the government services and IT sector. We think that we will continue to be attractive to the customer community, quite frankly, as a very significant alternative in terms of their service providers.

So it's a strategy that embraces that, plus focusing, quite frankly, on the high-priority global war on terrorism, national defense, national security intelligence community support world. I think it's a very coherent and effective strategy we've put in place, and so far I think we've demonstrated above-average capability to deliver.

George Price, Steifel Nicolaus.

First of all, I wanted to follow-up quickly; I don't think I caught all of your answer to Ed's question. I believe you just indicated -- are we resetting the internal growth target range to just 10% plus? Did I hear that right?

No. I think we continue to work towards our target organic growth rate of 12 to 15%. That is the goal. This year we've had some unusual conditions. We've discussed those throughout the call today. We don't think that those conditions will paint our future; they more characterize this fiscal year. So we continue to work towards our target organic growth rate of 12 to 15%.

Okay. And then shifting to -- just to the M&A environment, I think you noted ISS had about 9.5 times trailing [EBD] EBITDA.

In enterprise value that would be purchase price. Then there's a tax benefit, George, that we get because it's an asset purchase. On a net basis there, you're looking at about 9.5 times trailing 12.

I'm sorry; does that 9.5 include the tax benefit?

It does.

So can you maybe talk a little bit about, given your focus on M&A and given the market, what's happening to multiples that you're seeing out there? 9.5 times TTM EBITDA for at least the metrics that you've given out on ISS would seem a little -- historically a little higher than you guys have paid.

It's not out of the norm, but what we're seeing -- in fact, I would tell you it's right in the range of what we're seeing deals being done for out there. Again, deals depend on the size of the deal, the makeup of the deal; they're all different. What kind of contracts they bring to you, what kind of customer subsets, so that -- margins, size -- all those things are factors that you need to look at as you do these transactions.

Laura Lederman, William Blair.

A few questions. One, following up on your focus on consolidation and the acquisitions going forward, what does that mean in terms of if a company were to come to you and say they wanted to acquire you? In other words, would you be open to that?

Sure. CACI is a public corporation, New York Stock Exchange, a Delaware corporation. The board of directors is very in tune to its fiduciary responsibilities. If we were approached by a suitor, if you will, with the (indiscernible) and the financial wherewithal, obviously, the Board is going to listen very seriously to any offers that would come through. But I can assure you that, given the growth perspective of CACI International, that that would [have a] very significant premium. But we are open-minded, we create value for shareholders in both dimensions, the internal operations of the Corporation and the value that is potentially there for a takeover situation. So both dimensions are our objectives and our responsibilities as management, and we believe we're doing a good job of that.

Shifting gears, if you look at the difficult hire environment and you're decline in revenue guidance, how much of that is due to the inability to hire versus the delayed budgets and the delayed contract awards?

We have -- have had a challenge for some time, for over a year, in hiring the types of people with the high security clearances that we need. We are meeting that -- are rising to that challenge with a whole series of initiatives aimed at improving both our ability to attract people into our environment, and to retain them. That is starting to have a positive effect. However, that is not in a large way at all connected to the revised guidance, which, of course, is completely due -- almost completely due to the impact of the delayed budget, as we've discussed here this morning. So it is a challenge. It's sort of not a major contributor to our issue in the second half.

Tim Quillin, Stephens Inc.

Not to slice this too exactly, but if you exclude out your Iraq-related revenue that went away, and exclude the litigation support work or the DoJ work, the rest of the business grew at about almost 12%. But the intelligence seems to be growing -- seems to be really the key driver of growth. And excluding out that, then you are at about a 7% growth rate. And I'm just wondering, from a bigger picture perspective, is there anything besides these external factors, anything internal to the Company regarding the positioning that you would like to change?

No, I think we are focused exactly where we need to be focused. We're focused on defense, homeland security and intel, law enforcement. And that's where we'll stay focused. That's where all the threats to our national security are placing the greatest demand. We're blessed in a way that we're positioned perfectly in that market space. We continue to try to attract people who have those skills that can add value to help solve the mission of the country in that area. And we continue to pursue, in terms of acquisitions, the kind of companies that have those core skills that will help solve these national imperatives. So, no, we're not looking to shift left or right; we think we've got the bull's eye lined up here.

DoJ business -- has that hit a low ebb at this point? Can we look for it to be at a steady state, or perhaps even grow from this -- from that 17 million level?

Bill, will you handle that one?

I think we see at this point that we have hit the low level on this thing. We're looking out over the next six months or the rest of this fiscal year, and we are optimistic there could be some opportunities as we roll later this year and early in fiscal '07, government's fiscal '07.

Erik Olbeter, Stanford Financial.

Just to parse this one more time. Last quarter you talked about the $800 million in new bookings, and this was in the same environment, meaning a budget delay. It seems that now some of that is not going to be hitting as expected. And I understand that the program offices still haven't received their full funding budgets, but I guess I'm still confused about why you wouldn't see at least some of this coming in the second quarter. So are those projects just rolling out slower than expected?

We didn't mean to communicate that there would be nothing occurring in the third and fourth quarters, but rather that there would be a gradual ramp-up. There was always going to be a gradual ramp-up; we expected that that ramp-up would have started in our second quarter, and by the time we hit the third and fourth quarter we'd have been way up the ramp. We've just moved the ramp, we shifted the ramp, if you will, to the right one quarter. And so that's the thing we're seeing here. It will improve each and every week over the third and fourth quarter, but it will not be an instantaneous achievement of the top of the ramp, so to speak.

To follow-up on the ODCs, with a significantly higher ODC count for the back half of the year, we would expect to see sales sort of increasing. Is this suggesting that when we look at an '07, that the run rates -- the growth rate is actually going to be a little bit lower? Do you expect ODCs, therefore, to decrease moving into the '07 timeframe, back to the 51% historical level of ODCs to total direct costs?

I think what happened with the mix -- Steve explained earlier that some of the work that terminated, C2 and some of the Department of Justice work that receded a bit, had 100% pure labor content, if you will. And what has replaced it is our normal mix, or our average mix, which is more like around the 50 or 55% ODC level. And we're not expecting some major shift in the mix, beyond what's just occurred here. In fact, we would be trying to tilt that back toward -- more toward the 50% ratio, which is where we'd like it to be. And we will do that by influencing the priorities of our bid activity. So we'll be moving to the top of our priority stack those opportunities that give us a chance to have higher labor content, bringing CACI, blue-blooded CACIers to the clients' needs.

Joseph Vafi, Jefferies & Co.

I was wondering if you could give some qualitative color on what you believe will be the uptake of new award activity into revenue. We kind of know that over the last couple years there's been a torrid pace of new awards in general, and new tasks. And their conversion to revenue, I would imagine, has been kind of at maybe a more accelerated pace than it has been historically. I was wondering if you could kind of comment on how you see new tasks and new awards converting to revenue in a time fashion moving forward from here.

Bill, do you have any thoughts on that? I think I've tried to address this already by saying we see a steady ramp-up in the third and fourth quarter. We don't have the kind of precision on that. Basically we're still in that six to eight week period, post approval of the budget, where we're waiting for the flowdown through the normal government process of these funding orders. So it's very difficult. It's not that we're trying to be coy here, so much as we don't want to misrepresent our understanding of the condition. It will unfold for us over the next month or so, and we'll have a better feel then. But right now we're sort of in the early stages of that flowdown of funding. Bill, is there anything you would add to that?

I'll just add kind of an average metric that we use here that has proven to be about on over the long-term. If you think of these contracts as having five-year performance periods -- so if you just did the simple math, you'd say 20% per year. But the fact of the matter is, even under normal conditions, they ramp up in the first year. And we look to gather somewhere between about 15 and 17% of a full run rate during the first year to reflect that ramp-up process. Now, Paul and Steve and Jack have referred to the fact that this year is somewhat extraordinary because of -- this is the longest that the continuing resolution has gone in 10 years. So we're in a bit of an aberration this year. But over the long run, it's that 15 to 17% during the first full year.

That's helpful. Maybe some comments from Jack on maybe the competitive landscape. Obviously, Anteon was quite a strong and attractive asset in the federal IT marketplace, and maybe a little bit of a surprise that they actually have exited as a stand-alone company, or are. Maybe some thoughts on maybe a combined Anteon General Dynamics as a bigger, stronger competitor in the marketplace, and how you might view them now versus before.

That's an excellent question, and it's one that, believe me, I reflect on more than you might think. What happens in most cases is that when companies are acquired, they tend to at that level, at that size, tend to continue to operate -- I won't say stand-alone, but mostly in a similar profile that they've been operating before. They still remain a viable competitor. They do to some extent have more reach-back capability. There's no question about that. But what we counter that offering is our ability to bring more force onto the target in terms of response to the customer. In other words, we're kind of the Avis model -- we try harder, we pay more attention to the customer, and we offer more direct support. So you get a competitive position that you can offer, even though some of your major competitors that were stand-alones are now being acquired. So it changes the landscape a bit. And it's an excellent question, but my experience so far over the years is it hasn't changed it radically. It doesn't change the competitive landscape radically.

(OPERATOR INSTRUCTIONS). Colin Gillis, Canaccord Adams.

I'm just wondering if you can give us a sense about the number of open reqs that you have right now.

If you include ISS in the acquisition, somewhere between 475 to 500 open positions.

And are you getting any better traction with referrals from internal referrals inside the Company?

We have a very robust internal referral program working inside the Company, which incentivizes our employees to help us with the recruiting process that works very well. We have -- by the way, over 50% of those requisitions Steve mentioned a moment ago are in the highly-classified top-secret and above category. And I don't have a statistic. Bill, do you have a statistic on how many of the hires come from referrals from our employees?

Again, over a long period of time, we've been able to achieve as much as 50% of our new hires coming from employee referrals. And of course, we consider those to be the absolute best kind of folks we get.

I would add just another little stat for you. About 68 to 70% of our core CACI folks have clearances. ISS, we think, is going to bring -- about 80% of their folks have clearances, and a large portion of these open positions are, clearly, in that area of a requirement to have a clearance.

Just a little perspective here might be of interest to you. You might observe -- some of you have watched CACI over the years. You will perhaps note how we've transformed this business enterprise over the last six to eight years into a very high security-oriented company with intelligence community and classified work. Rising from sort of a meager position in the early '90s, we have transformed this business to where we have 28% of the business right now is with the intelligence community. Some -- I guess some 70% of our people now have security clearances in the government. So we've transformed this business in a very interesting way, if you think about it.

We continue to see this as the high-priority area, it's one of the reasons why frankly, ladies and gentlemen, we perceive that we continue to have significant growth opportunities. We are specializing in the area that we believe is the highest continued sustainable priority of the United States government. And we believe that will pass the current administration. No matter what perspectives with regard to the debate over Iraq one way or the other, there are challenges out there. And I tried to outline those and give you indications of why we see this market as not only one that is full of challenge, but is absolutely essential to the security of the nation going forward.

Along the security clearances lines, we've picked up a couple of data points that clearances are moving along a little faster. Can you talk about that? Is that something that you're seeing as well, just an improvement in the processing timeframe?

Paul, you speak to that.

Actually, we have not seen an improvement; we've actually seen it taking longer to get these, especially those that are the highest levels that require polygraphs, etcetera. And those can take in some cases up to three years, believe it or not. And unfortunately it's not improving. We continue to work with the industry to try to suggest ways to the government to improve the process, and we will continue to do that. I would be happy to report it was moving faster, but it's not.

Jennifer, we'll take two more questions, if you would, please.

George Price, Steifel Nicolaus.

Thanks for taking a couple of follow-up questions. I guess first one was -- a little bit on the SG&A. Obviously, you're putting some more controls in there, though I think you've noted that you're not really looking to pare back at all on the B&P side. Can you talk about maybe over the next year or so what your targets are, in terms of what you would like to take out, and what kind of operating margin is -- what you'd like to achieve, assuming you can get the ODC mix at least headed back toward historical levels?

Talking in terms of operating margins goals -- Steve, maybe you could assist us on that one.

It's kind of the 9% range on an operating margin is where we would like to get to here in the near-term. Clearly, the stock option expense thing here kind of muddies the waters up a little bit. The acquisition of ISS is actually a little bit -- about 20 basis points dilutive to the operating margins. We think in time we're going to get that up to the more 8.5, 9%, closer to where we are running. So I think as a target, I would suggest a 9% near-term is what we're looking for.

And as we said earlier, we're investing in our bid and proposal operation. We've got a lot of opportunities out there, so we're not cutting any areas. And we're looking also on the recruiting and retention arena, to invest heavily in that area to make sure that we can keep our people, and to find the people that we need to fill the contracts here. So overall I think we have scalable systems. As we do acquisitions we're not going to have to add a lot to that, so that would be incrementally growing at a lower rate than what hopefully we will be doing on the topline.

The last question is why -- just (indiscernible) Jack in particular, why you think we might or might not see a similar situation as we move into late calendar '06, with the budget issues similar to as we saw at the end of last year? Was there something in particular about last year? Because it seems like the last couple of years we started to see a little bit more of this as we get further and further away from 9/11. What are your thoughts on that?

There may be some truth to that, but I think at the same time you're seeing some serious issues arising in the world landscape, if you will. I would just draw your attention to almost the headlines, the daily headlines in terms of the Iranian issue on nuclear weaponry.

The great bugaboo out here, ladies and gentlemen, we all know, is a clandestine weapon of mass destruction being brought in the United States. The only chance we have to preempt that is through, basically, an intelligence information structure that can be coordinated. And there are some challenges there. But the whole worldwide scene, I think, drives the requirement for budget priorities.

And you're going to see some debates, perhaps. Can I assure one that in the calendar '06 there won't be another series of debates late in the calendar year? No, I cannot. I would think that some of these issues will be wrapped around the elections. You have the mid-term elections 2006, so you're going to get a lot of debate on this area. But I don't think that either party, quite frankly, leading party is going to back away or say that there isn't a challenge out there. So I think the priorities are going to sustain themselves. It may be a matter of how they are implemented, different perspectives on what ought to be done by the different viewpoints, but I think the challenges are there and they're clear. And I believe all the national leadership sees that.

It appears there are no further questions at this time. Gentlemen, I will turn the conference back over to you for any additional or closing remarks.

Thank you very much, Jennifer, and ladies and gentlemen for participating with us this morning. We continue to believe that CACI is a significant pure play in the government services and IT sector. We have, clearly, emerged as the leading strategic consolidator in our space. We anticipate performing at a $2 billion run rate by the fourth quarter ending this fiscal year, going into the next year. We believe we are ahead of plan in terms of our goal to be a $3 billion company by fiscal '08. We see, as you've seen, I believe, strong fundamentals and good forward metrics. There are some challenges out there. We believe we've been very candid in outlining those to you. But in any case, we proceed forward.

And we thank you for your attendance. And we know that some of you might want to call back in to visit a little bit further, so Steve Waechter and David Dragics will be available in about 20 minutes or so -- a quarter after 10, I guess it will be -- to take your calls.

This concludes our call at this time. Ladies and gentlemen, thank you again for participating. Have a good day.

This does conclude today's conference. We thank you for your participation. You may disconnect at this time.