CACI International Inc (CACI) 2011 Q4 法說會逐字稿

Welcome to the CACI International fourth quarter and full-year FY 2011 conference call. Today's call is being recorded. At this time, all lines are in a listen-only mode. Later, we will announce the opportunity for questions, and instructions will be given at that time. (Operator Instructions) A special reminder to our media guests who are listening in. Please remember that during the question-and-answer portion of this call, we are only taking questions from the analysts.

At this time, I would like to turn the conference call over to Dave Dragics, Senior Vice President of Investor Relations for CACI international. Please go ahead, sir.

Thanks, Allie. Good morning, ladies and gentlemen. I'm Dave Dragics, Senior Vice President of Investor Relations here at CACI International. We're very pleased that you're able to participate with us today. Now, as is our practice on those calls, we are providing presentation slides, and during our presentation, we'll also make every effort to keep all of you on the same page as we are so let's move to slide number 2. Before we begin our discussion this morning, I'd like to make our customary but important statement regarding our 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. Now, these statements reflect our views as of today and are subject to important factors that could cause our actual results to differ materially from anticipated results. Factors that could cause our actual results to differ materially from those we anticipate 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 should be incorporated as part of any transcript of this call. I'd also like to point out that our presentation today will include discussion of non-GAAP financial measures, and these non-GAAP measures should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP.

Now, let's go to the next slide please and to open up our discussion this morning, here's Paul Cofoni, President and Chief Executive Officer of CACI International. Paul?

Thank you, Dave, and good morning, everyone. Thank you for joining us. We're pleased to announce that we delivered record financial results for our fourth quarter and fiscal year 2011 and are raising our guidance for fiscal 2012. With me this morning are Tom Mutryn, our Chief Financial Officer, Bill Fairl, President of US Operations, Dan Allen, Chief Operating Officer of US Operations, and Greg Bradford, Chief Executive of CACI Limited in the United Kingdom. Please go to slide 4. CACI has completed an outstanding fourth quarter, delivering record revenue operating income, and earnings per share results for both the fourth quarter and the full fiscal year. We also had our best year ever for cash flow and funding orders. Slide 6, please.

This strong financial performance results from disciplined and consistent execution of our growth strategy which includes our focus on mission-critical, well funded markets, our commitment to operational excellence, our agility in shifting to and capitalizing on opportunities in fast-growing emerging markets, and our highly successful mergers and acquisitions program. I'm also pleased to report that based on our continued strong growth in fiscal 2011, and our confidence in CACI's future growth in fiscal 2012 and beyond, our Board of Directors has replaced our $175 million share repurchase authorization with one to reports repurchase 4 million shares, or nearly 13% of outstanding shares, which we intend to do in the near-term. As a leading strategic consolidator, CACI has completed more than 50 acquisitions. Both our mergers and acquisition and our share repurchase programs make good use of our capital and continue to create value for our shareholders. Slide 7, please.

There are several key factors propelling the growth in our strategic focus areas of defense, intelligence, homeland security, IT modernization, and government transformation. They include first, the persistent threat environment which drives the need for our defense and homeland security solutions as demonstrated by the expansion of our business in these areas. Second, our clients are increasingly seeking information superiority in the threat environment, making intelligence the fastest growing part of our business. And third, in these times of government budgetary constraints, our IT modernization and government transformation capabilities are in high demand. We see a sustained, long-term need for these kinds of services. Not just because they reduce costs and increase productivity, but also because they give our government customers the ability to maintain an edge in fulfilling their critical missions. Dan Allen will add more detail on some of the exciting recent awards related to government transformation.

Our nation is facing challenges in managing deficit spending. We, of course, factor this into our planning. Yet we are encouraged by Defense Secretary Panetta's strong commentary that we don't need to choose between national security and fiscal responsibility to achieve a balanced deficit reduction. DOD spending choices must be based on sound strategy and policy and not across-the-board cuts that could jeopardize America's ability to ensure national security and preserve its interests abroad. Slide 8, please.

CACI will be part of the solution, serving critical missions in defense and homeland security, while helping our clients meet their budget challenges. There are several high-growth emerging markets which Dan will discuss in a few minutes. Our innovative and agile culture will provide us with significant opportunity in these new markets. For example, through our Company-wide innovation program, we are leaders in development and integration of mobility applications supporting what's known as ISR to the edge. CACI mobility solutions put data gathering and analysis capabilities into hand-held devices and Smartphones right at the fingertips of our troops. This gives our forces immediate situational awareness and a tremendous tactical advantage.

Over our 50-year history, through our innovative culture, CACI has had a remarkable track record of anticipating clients' needs and future trends and quickly adapting our solutions and services to aid our clients' evolving missions through integration and application of emerging technologies. We also believe we are well-positioned to address both persistent and emerging market issues including constrained government spending as our clients seek solutions to increase productivity and efficiencies, exponentially increasing cyber threats, continued terrorist threats to US personnel and assets within the homeland and abroad, all of which is increasing the demand for intelligence, surveillance, and reconnaissance around the world. And the need for more technology-based solutions at the front end of the mission to better leverage, complement, or even replace armed forces encountering global threats.

CACI is well-prepared to assist our clients in understanding and meeting these needs. Our strategy is working. Fiscal '11 is our third consecutive year of double-digit revenue and earnings growth. Our fiscal 2011 financial results provide a firm foundation for continued growth, and these results give us the confidence to raise our fiscal '12 guidance as we look forward to another strong year for CACI. Now, here's Tom who will provide more insight into our financial performance. Tom?

Thank you, Paul, and good morning, everyone. Please turn to slide number 9. We are pleased with our strong fourth quarter and full-year results. For the quarter, revenue grew year-over-year by 13.5% with 11.5% organic growth. Our direct billable labor grew 9.5%, and our other direct costs were up 16%. As you likely noticed in our press release, we reported our results on both a GAAP and a pro forma basis. In fiscal year '10, we completed 2 domestic acquisitions with acquisition-related contingent consideration, or earn-outs, which represent additional purchase consideration based on the acquired company's performance post-acquisition.

The fair value to the expected earn-outs were recorded as liabilities on the balance sheet as of each acquisition date and are re-measured each quarter. Any change in the fair values of the liabilities is reflected in the income statement. We believe that these income statement changes are not related to our ongoing, recurring operations. Therefore, to provide a more meaningful comparison to prior and future financial results, we will be discussing our results to date on a pro forma basis. That is, excluding all earn-out adjustments for all relevant periods. Slide 10, please.

Fourth quarter pro forma operating income for the quarter was up 36.3% year-over-year, driven by the strong growth in our various business units, increased direct labor, and continued control of indirect expenses. For the full year, pro forma operating income increased 25.3%. Our UK operation performed well for both the fourth quarter and the year despite significant UK government budget cuts. Revenue for the year was up 11%, and net income grew 15%. Slide 11, please.

Year-over-year fourth quarter pro forma net income for CACI increased 44.8%, and full-year pro forma net income increased by 31.2%. For the year, our pro forma earnings per share increased by $0.98, almost $1. Next slide, number 12.

Our cash position at the end of the year was $165 million, reflecting the strong operating cash flow of $226 million for the year, a record performance. Quarter-end DSO was at 52 days, 2 days better than at the end of our third quarter and also at record lows. Our free cash flow was $212 million for the year, or $6.76 per diluted share. This translates to a free cash flow yield per share of 13.5% at a $50 share price, an important and noteworthy financial indicator.

We also report results after eliminating certain non-cash charges. For the year, our pro forma diluted adjusted earnings per share were $6.12 materially greater than our pro forma earnings per share of $4.41 and 14.5% higher than last year. Our balance sheet remains strong. Our year-end net debt was $245 million, and our net debt to trailing EBITDA leverage ratio was at 0.8 times. Slide 13, please.

We are increasing the FY '12 earnings guidance ranges we provided at the end of June, primarily due to increased direct labor growth in our US operations and to our Pangia acquisition. Pangia is expected to add approximately $30 million in revenue in FY '12 and about $0.04 in earnings per share. We now expect earnings per share to be in the range of $4.70 to $4.90. We are keeping our revenue guidance range unchanged since it is still early in the year and the added Pangia revenue keeps us within the guidance range of $3.75 billion to $3.95 billion.

With that, let me turn the call over to Bill Fairl. Bill?

Thanks, Tom, and welcome to everyone on the call. Slide 14, please. This morning, I'll address highlights from operations during both our fourth quarter and our full fiscal year '11. I'll also provide a few comments on our fiscal year '12 focus points and the outlook going forward. Starting with funding.

Fiscal year '11 was our best year ever for contract funding orders, $3.59 billion. As we have stated on previous calls, funding orders are the best and surest indicator of top and bottom line growth over the next 12 months. This is the number 1 reason why we are so confident in our ability to deliver in fiscal '12. We are also confident because as we enter fiscal '12, nearly 70% of our projected fiscal year '12 business will come from contracts that we already hold. That means nearly 70% of our expected fiscal year '12 revenue will come from contracts that we already have.

Turning now to contract awards, we received an estimated $550 million in awards during our fourth quarter. That's an increase of $257 million, or 88%, from the fourth quarter of fiscal '10. For our full fiscal '11, our contract awards totaled $3.2 billion. That's an increase of 56% over fiscal year '10. This fiscal year '11 total of $3.2 billion includes an additional $499 million in previously unannounced awards that occurred during the first 3 quarters of our fiscal year '11. These previously unannounced awards were broadly based across our portfolio and were primarily add-ons to existing CACI contracts. Dan Allen will follow my remarks and provide you with some color on our fourth quarter contract awards.

I'll tell you right now that we won a lot a brand new business for CACI in fiscal year '11. New, new business for CACI. Approximately half of our fiscal year '11 contract awards, or a little over $1.6 billion, was for this brand new CACI business -- new to CACI. That's a solid forward growth indicator. These new business wins were in strong growth areas such as C4ISR, biometrics, cyber security, and healthcare IT. Our intelligence business continued its rapid growth during the quarter, coming in 26% higher than in the fourth quarter of fiscal 2010. For the full fiscal year, our Intel work grew by nearly 27% and now represents more than 44% of our business. With the strength of our distinctive offerings, our ability to make strategic acquisitions, and a market that continues to be well funded, we believe Intel will be a mainstay of our business for years to come. Slide 15, please.

Our opportunity pipeline remains very strong. Specifically at the end of our fourth quarter, we had more than $5.7 billion in submitted proposals under evaluation with more than half of them for new business. In addition, we expect to submit more than $8.5 billion in new proposals during our first two quarters of fiscal '12. A little more than half of these anticipated proposals are for new business. As Tom mentioned, our CACI direct labor growth was strong in fiscal '11. Continuing this trend into fiscal '12, we're off to a good start with our hiring. We currently have more than 350 firm, open hiring reqs, indicating continued client demand for our solutions and services.

Now, while I'm on the subject of hiring, we recently hired CACI's very first Chief Information Officer, Mr. Tim [Schlosser]. Tim is a great addition to our management team. In addition to Tier 1 CIO credentials, he brings with him an outstanding reputation from his most recent assignment as general manager for a $300 million per year IT outsourcing job in support of an Intel client.

We believe our solid fiscal year '11 performance has laid the foundation for a strong fiscal '12. Fiscal year '11 was our best year ever for new business wins, funding orders -- both of which provide us with growth momentum for fiscal '12 and beyond, and our operational performance has been outstanding. In closing, we're excited about what's shaping up to be another solid year in fiscal '12. Over to you, Dan.

Thanks, Bill, and good morning to everyone. Let's go to slide 16. Our record performance in FY '11 provides strong momentum for our new fiscal year and demonstrates that our strategy for creating differentiating value is being well received from our customers. We see ample room for continued growth in a large, addressable market and see attractive CACI growth opportunities for our solutions and services in four key markets. Mission-critical intelligence, surveillance, and reconnaissance, or ISR, full spectrum cyberspace operations, business transformation, and healthcare IT.

These growth markets continue to be a high priority for our customers, and even in a challenging budgetary environment, we see continued growth for CACI to support these national, critical needs. We are positioning well in these markets, winning key contracting vehicles, investing in our capabilities, and aggressively managing our costs to allow us to compete effectively and grow our market share. Slide 17, please.

Through our organic capability investments and our focused mergers and acquisition strategy, we are broadening our portfolio solutions and services and expanding the CACI platform to continue our growth momentum. Several fourth quarter new business wins demonstrate the success of this strategy. In the mission-critical ISR market, I would like to highlight our $19 million S3 task order award to assist the Army's aerial reconnaissance support team. This is a completely new effort for CACI and expands our credentials in the airborne ISR market. For this effort, we will be providing training on software and equipment the Army uses to analyze sensor data and derive intelligence for our war fighters. Our acquisition of Pangia Technologies continues our efforts to broaden our presence with key intelligence customers and also gives us increased ISR capabilities.

Next in the area of cyberspace operations, I would like to highlight two key fourth quarter wins. A $9 million award from the Army's Intelligence and Information Warfare Directorate. This is new work for CACI. We are performing tasks that include developing new capabilities for information operations, sustaining and upgrading laboratory networks, and supporting quick reactions and special purpose products. We also received a $73 million S3 task order award to support Army electronic warfare activities encountering remotely controlled IEDs. This is a hybrid award that is part re-compete and part new business. It's a great example of how we are expanding our business by bringing new capabilities to our current customers.

We will significantly expand our defensive cyberspace operations capabilities with the acquisition of Paradigm Holdings. We are very excited that the Paradigm team, including Peter LaMontagne, will be joining CACI. Under Peter's leadership, Paradigm has emerged as the premier cyber security services provider among the intelligence and national security agencies. Slide 18, please.

Our business transformation strategy is experiencing a growing pipeline of opportunities as our customers look for efficiency in their operations. Here, we won a $30 million task order with the Defense Intelligence Agency to digitize and index the clearance information processing at DIA which will revolutionize the way DIA manages security clearance. This is new work for CACI.

We were also awarded a $16.7 million program from Washington Headquarters Services, a Department of Defense field activity that manages DOD-wide programs and operations for the Pentagon reservation and DOD-leased facilities in the national capitol region. On this contract, we will support the DOD's implementation and migration of its financial management system. Our approach supports DOD's objective to provide auditable, financial statements in a cost-effective, low risk, and efficient manner. This win is all new work for CACI.

Our health IT segment has experienced strong growth with recent task orders in our VA virtual lifetime electronic record program. Recently, we also announced the award of a prime contract to support the Department of Veterans Affairs, $12 billion transformation 21 total technology, or T4 ID/IQ contract. This is one of our largest contract wins ever and represents all new work for CACI. T4 adds to our portfolio of VA contracts that are enabling us to help the Administration streamline and enhance its healthcare support for veterans.

Going forward, we will continue to execute our strategy to defend our business, expand our new business pursuits, increase market share, and strengthen our competitive position in our large addressable market to sustain solid growth momentum and attain our financial goals. Paul, that concludes my remarks.

Thank you, Dan. Listening to Dan and Tom and Bill, I think you can see why we are so enthusiastic about our future prospects. Let's go to slide 19.

CACI completes fiscal 2011 with high confidence in our future. Why? Because we delivered record results in revenue, earnings per share, cash flow, and contract funding orders during a year which had nearly 7 months of continuing resolutions and an enormous amount of political turmoil which included the threat of a government shutdown. We continue to execute our strategy superbly. Our markets remain strong, and we are well positioned to anticipate our clients' future needs. In a large addressable market with room to grow, we offer a proven combination of innovation, operational excellence, and commitment to our clients.

Our well differentiated solutions help safeguard American forces and counter persistent terrorist threats. Our modernization and transformation solutions, many of which Dan listed there, and services enable government agencies to maintain their edge and leverage the limited dollars to reduce costs and raise productivity. Our focus on our ongoing hiring program for veterans and veterans with disabilities brings the benefits of these uniquely skilled and dedicated individuals to our Company and our clients.

I would like to thank -- I would like to conclude by thanking all of our 13,780 employees for their innovation and resolve to assist our clients in achieving their missions. These are the most important clients in the world with the most important missions in the world. It is these clients and their missions that allows CACI to meet our financial goals and continue building shareholder value. Our record fiscal 2011 accomplishments have created a solid foundation for growth and success in fiscal 2012 and beyond. In this, the first earnings call of our 50th year in business, we are proud once again to be able to announce that we are raising our guidance.

With that, Allie, we'll open the call for questions.

(Operator Instructions)

In the interest of time, we ask that you ask one question and one follow-up. Our first question comes from Bill Loomis of Stifel Nicolaus. Please go ahead.

Hi, thank you. Great results. Just in terms of the current environment, obviously you've raised your earnings per share guidance, but we've had a lot of more product-oriented companies from the biggest ones out there to even the small hot ones like Sourcefire significantly lower than forecast for their federal business. And I know products are more volatile, but why shouldn't we see that as a precursor to things to come on the service side? What gives you confidence in that revenue forecast over the next few quarters?

I think, Bill, it goes back to our strategy. This is a strategy that we have formulated over the course of a number of years. Each year, we revise it to add new factors that should be considered -- new trends, emerging needs. But our strategy of course is to stay focused into high priority, well-funded parts of the marketplace that are least vulnerable to the kinds of cuts that others may be experiencing. And this strategy is proving itself out quarter after quarter and year after year.

We also have, as you know, a very strong mergers and acquisition program which helps us to bring into the Company new capabilities that are targeted on emerging markets where there is higher growth. And so you take the combination of our base business being well-positioned in high priority, well funded areas, and then our adroitness at acquisitions that help position us into fast lanes of emerging market growth. Those are the factors that we see that we feel differentiate us.

And on your visibility over the next year, how would you characterize it at this point in the year versus say, last year or the year before?

We have the same or higher confidence than we had this time last year. In looking through our fiscal 2012, if we were to rewind to this time last year, our confidence this year is the same or higher.

Our next question comes from Michael Lewis of Lazard Capital Markets. Please go ahead.

Thank you. Good morning, everyone. Paul, I just wanted to circle back on your prepared remarks regarding the buyback authorization. Your comment was near-term that you should finish this buyback, and I just want to ask if you could quantify that a little bit better. Are we talking over the next few quarters, the next year? Could you help us out there?

Yes. I think you could expect reasonably within the first half of fiscal 2012.

Okay. And then just a question for Bill. What were the total contract orders for S3 in 2011? If you look at -- and also if you look at the first quarter of 2011, you came in at $718 million in awards on S3. What's your expectation as we roll into Q1 of 2012 on the S3 contracts? Should we expect to see similar levels of awards?

Okay, Mike. So I think you're asking me if we expect last quarter -- first quarter of fiscal 2011 we had $700 million and some change from S3 awards, and you're asking me if we're going to have $700 million in S3 awards in the first quarter. I think we're going to have good S3 award activity. Whether it gets to the $700 million mark or not, I really don't know. I would say that that business area, going back to our strategy of working in C4ISR, S3 is a vehicle of choice there. That continues to be a high demand, well funded area.

I think whether it's this quarter or next quarter, we see a robust pipeline of opportunities coming through the S3 vehicle and our companion contract, the test contract. The growth area has just been tremendous, and as I've mentioned on previous calls, we're growing our direct labor faster than our ODCs so we're getting some nice lift to the bottom line on it as well. So just a great new story there.

That's helpful. Thank you.

You bet.

Our next question comes from Joe Nadol of JPMorgan. Please go ahead.

Thanks, good morning. My first question is -- I'd like to, I guess, parse Q1 here a little bit more, if you wouldn't mind. We are halfway through the quarter, and could you compare, maybe Bill, where funding activity is now relative to where it usually is halfway through the quarter? Because I think this is a very important quarter for you. And maybe just talk about that in relation to past Q1s in previous years? And what your visibility is into the final 6 weeks or so of the quarter?

Joe, I can tell you that we are ahead of where we were this time last year in terms of funding, halfway through the quarter. As you know, as a veteran observer of this industry, it gets really frantic and hectic at the end of the quarter, right up to September 30. And we all burn the midnight oil on our side and the government side and a lot happens then. But at this point in the quarter, we're ahead of where we were this time last year.

Okay, very good. And then for the follow-up, was there a change in definition of contract awards? Is that why you added the $500 million for the first nine months? Or could you just describe exactly what happened there?

Sure, Joe. It's Bill again. What happened is there's been a change in behavior on the part of our clients. I believe it has to do with the fact that as we all know, the procurement cycle has stretched out quite a bit. So what we're seeing is, at CACI, an order of magnitude increase in the number of add-ons or plus-ups to our existing contracts.

That could be into two general categories. One because the work scope has expanded beyond what was originally envisioned. Goes to Paul's comment earlier about we're in the sweet spots of the market here.

And two, it's perhaps the recompete package couldn't be put together in time. So they gave us additional contract ceiling and maybe some more performance period, too. So that -- I just added up -- there were just in the first 3 quarters of this year, there were more than 2,000 of those type activities. A lot, which has dramatically increased over any previous years. So essentially, that's what it is.

We got to the end of the year here. We're doing our closeout. We backed through and realized we were getting a lot more of this activity throughout the year and kind of did a scrub through the whole system looking for these -- came up with these, 2,000 of these things just in the first 3 quarters. And that's what that is, add-ons to existing contracts.

Our next question comes from Brian Kintslinger of Sidoti & Company.

Thanks very much. Several companies we've talked to in the sector have said that there's going to be motivation to get recompetes out by the end of September so they can push lower prices through. I know there's always pricing pressure, but it's sounds like it may be a little bit more pronounced. Maybe you can talk about your view on this?

Hey, Brian, it's Bill Fairl. We don't see that. I've not seen that at all. So I can't comment on other people's business models, but that's just not what's happening over here.

Okay. And should the Congress' group of 12 fail to agree on a plan by November, hundreds of millions, I guess, are expected to be cut from the DOD budget. How would that impact -- do you think, CACI, and the industry?

That's what I would call a very low probability event. If you pay -- if you read some of what Secretary Panetta has been saying and Secretary Clinton has been saying. As recently as the last few days, they have come out very strongly and said that to make across-the-board type cuts in defense beyond the $400 billion that was already identified over the ten-year period, that that would be really a very dangerous thing to do for our national security. And I think that all of Congress and the administration understands that, and there is a very low likelihood of that kind of thing happening.

And if there were additional cuts, we believe, once again, they'll happen in the lower priority areas where we don't have a lot of exposure. We are predominately focused in the high-priority, well-funded areas, and we've gone through a period of 7 months in fiscal 2011 of continual resolution slowdown and generated these kinds of results. I have great confidence that we will get through this next period. I believe the Congress will come to some sort of compromise around the super committee of 12 there. But of course, we can't predict all of that.

Thank you.

Our next question comes from Cai von Rumohr of Cowen. Please go ahead.

Yes. Let me echo, good numbers.

Thanks, Cai.

I think on your guidance call, you talked about a little over 25% of your business up from the recompete. Could you give us some color on the key competitions? Does that spread evenly across the year? And how do you feel about that?

Cai, it's Bill Fairl. As I look at that, there aren't any single big movers in that package there. If a lot of -- and I'll use your term, spread across our portfolio -- a lot of mid-size or smaller-type recompetes. Just a lot of them. When you add it all together, right now when we're sitting here it looks like it'll be an active year for us for recompetes. Somewhere in the 25% plus range of our business will be up for recompete. That's if they stay on schedule.

So that's the plan right now. We've got all of our catcher teams lined up. We've got the A teams on each one of these things. We're going to win 100% of this. It could slip like it has in the past, but right now, that's what it looks like.

Okay. And then for Tom, congratulations. I think you've got industry-leading DSOs of 52.

Hear, hear.

Is that sustainable? And what are we looking for free cash flow this year because obviously you've done this for a couple of years where the DSOs go down. What are you looking to end fiscal 2012? And what sort of range should we use for free cash flow or cash flow from ops?

Cai, previously we guided to cash flow from operations of at least $200 million. This year, we were at $226 million. And as we grow the enterprise, everything else being equal, our cash flow should increase. So we're hopeful that we can increase both our operating and our free cash flows.

I believe that the level of DSO is generally sustainable at these particular levels. We've been seeing continued improvement in DSO due to a variety of factors. We just do a very good job of getting our invoices out on time, and our customers are happy with our programs and they pay promptly. So that's all very helpful.

I have cautioned folks before that oftentimes in the last two or three days of a period -- a quarter of a year -- daily cash flow can fluctuate between $5 million a day to $30 million a day. So at the very end of the year, if you get a couple good $30 million cash collection days, it really helps the annual statistics. And sometimes you can get a $5 million cash collection day. So there are some fluctuations. Kind of a long-winded answer, but we are very pleased with our performance, and we think those levels are generally sustainable.

This is Paul. Just to pick up on one of Tom's points which is about clients paying on time and reflecting the health of the programs. In my experience, this kind of DSO performance, which as you pointed out is industry-leading, is a real indicator of client satisfaction.

There are, as Bill often says, over 2,000 contracts that we have. None of them are troubled or bleeding with angry clients. That is a big part of why our clients pay on time. When you -- I've been in other parts of my career it hasn't been so good here. It's really been wonderful, and I just think that that's an important point to make.

It also shows up in our high win rate. We've had for 5 quarters now, higher than a 50% win rate across the board, and that is another reflection of client satisfaction. We're proud of that and intend to continue.

Our next question comes from Tobey Sommer of SunTrust. Please go ahead.

Hi, this is Frank in for Tobey. Wanted to ask about the hiring environment. You mentioned the 350 open positions. Can you talk a little bit about what's going on there, any color you can give?

Yes, Tobey, It's Bill Fairl. I'll start., maybe our Chief Operating Officer, Dan, will want to contribute a little bit. We have a great team here. I'll just start by bragging about our recruiting staff and the way they work with our line managers. We've gotten our days to fill -- time to fill an open req down to what we perceive as an industry-leading statistic there. The cost to fill the position. In fact, you may have noticed that our team won a prestigious award here for recruiting. So that's all about excellence, if you will, in the whole bringing the people into the industry.

Different challenges in different areas, depending on the geography you're in and what sort of security clearances you have to have for the job. So that varies a little bit, but we've got our team targeted to address all those particular nuances of our hiring field. And it helps to win this great new business that Dan talked about as well. That really attracts people to the Company.

So Dan, do you want to pick up from that and add your thoughts there?

I'd just like to add the fact that our recruiting team does perform at such an outstanding level which allows us to then feed back into customer satisfaction. When you have open positions and being able to quickly fill them with quality people has allowed us to continue to grow those areas in our business. And we can see that trend continuing with the growth in headcount as we see some of these opportunities coming. A point you made in the classified community, that is an area that we're continuing to look at expanding our base of people and focusing some recruiting activities there. But a strong team, good performance.

Okay. And then quickly maybe a follow-up. Can you talk a little bit about how things are progressing with the integration of Pangea Technologies and I guess it is Paradigm Holdings still on plan for fall 2011? That's not included in guidance, correct?

So, the Pangea team, we've had a series of meetings with the employees. We've brought them in. The employee base is coming in, integrating well. We're integrating well with our customers. That's all going superbly well for us.

I think Paul mentioned 50 plus acquisitions. So we have a real good infrastructure in place to go out and engage from the customers to the employees. I think everything is going well there.

The Paradigm acquisition, we're moving forward. We hope to close that here in the next month or so. And we're preparing for that integration as well.

Frank, the Paradigm acquisition is not baked into the guidance. Our practice is to wait until the acquisitions are closed before we roll them into guidance.

Yes. And just picking up on Dan's point. This is Paul. We are really pleased that Peter LaMontagne decided to come across and lead his team across into our Company. He is a strong leader. His people have great regard for him as do we, and he's going to play a valuable role here at CACI doing more than just what he's been doing with Pangea. We think there's a great deal more he can add to our organization.

Our next question comes from Mark Jordan of Noble Financial. Please go ahead.

Thank you. Good morning, everyone. First, I'd like to just go back and ask questions relative to deployments in Iraq and Afghanistan. Could you talk about your exposure to -- and what percent of that exposure is troop level-sensitive versus basic -- ongoing basic infrastructure support?

This is Bill Fairl. So, we have total -- we just did a little analysis on this. I believe a little over 600 people over in Southwest Asia there, and my thumbnail read of that is about half of those people or so are more or less directly, I would say, are heavily correlated with troop levels in Southwest Asia. A lot of the rest of them, much less so correlated to troop levels there.

Okay.

I think about 50/50.

Okay. There is an initiative afoot, obviously, to reduce the number of federal data centers -- consolidate them for efficiency and cost savings. What tangible signs have you seen that this is actually going on? And what exposure do you have to basic data center operation which could be impacted by that consolidation versus the modernization and transformation activities you're engaged in?

Okay. Let me start with a couple pieces to maybe answer your question. The first is, our exposure.

We have very little exposure to the broad data center environment today. As we look at the strategy and the evolution of going forward, we are looking at those opportunities. And your observation, I think, is correct. A lot of those are struggling to get traction, and our customers are using some of their existing infrastructure and looking for ways that they might be able to meet that objective with new technologies like cloud computing and so forth. So I think the data center initiatives are slow in materializing to the level that people were expecting.

And as we look at our strategy moving forward, we are really focusing on how do we provide assured access to data and do that in ways that is more efficient? And particularly, these cloud initiatives and some partnerships that we're establishing, you might have seen Amazon's web services announcement earlier in the week. We're working with them, and as a partner there. And an interesting part of Paradigm that we acquired is a mission critical infrastructure group which looks for -- brings some underlying infrastructure power and so forth to assure continued access to data. So we're looking at that environment that had a slightly different strategy than the big data center development.

Our next question comes from Tim Quillin of Stephens Inc. Please go ahead.

Good morning. Nice results.

Thanks, Tim.

With regards to ODCs, they're still growing faster than direct labor. Maybe if you could talk a little bit about -- ODC is a pretty nebulous term. Talk a little bit about what's going on underneath the covers on ODCs? And also maybe if you can talk about within your intelligence business what the general split is between ODC and direct and kind of the trends there as well?

Tim, it's Bill Fairl. I'll go ahead and start. On the Intel business, we don't break that out separately. I can tell you my impression across all of CACI is that the split between looking inside of ODCs -- say, between what we might call broadly -- materials on one hand and then labor that we're buying from other companies, if you will. I believe is around down the middle somewhere. Around 50/50 in terms of the cost basis to us.

So I mentioned on S3 that we're very pleased that that one in particular, which in the past has had real heavy ODC growth disproportionate to labor. We've turned that around now, and that one together with our test contract -- labor is actually growing twice as fast as the ODCs. Which as you would guess, would give you a lift on the bottom line. So we're really concentrated there on what we'll call our margin improvement program. Focused there to build CACI labor content, and it's paying off.

We're going to do the same thing looking at other engagements we have across the CACI. Where it makes sense as CACI gets bigger and more capable, we can do more things internally. And one of Dan's initiatives here is to look at ways to further increase what I'll call a cross-selling or internal selling inside of CACI.

Dan, I don't know if you want to pick up on that all --?

I would like to add a little color to the ODC discussion, and part of that is tied to very often, ODCs are viewed as pass-throughs and that has some financial implications. One of the key aspects of our strategy going forward is broadening our solutions base. And in solutions, we're bringing a larger volume of CACI direct labor, but we're also working with partners to bring either their labor and expertise to help us develop a solution or some material that we'll purchase. So we'll continue to see some ODC there but a slightly different flavor in how we deliver the solution to our customer which has a different business model and is more supportive of our financial goals.

An example of that is the aerial reconnaissance support team discussion that we talked about earlier. That's a CACI-led activity, but we have had some partners and some material that will be used to support that. So we're bringing more direct labor, but we're also bringing our partners in as well.

The point that Bill is making on our internal cross-selling -- we are investing and targeting through our M&A activities, expanding some of our capabilities in these very specific growth markets or large aspects of our addressable market to improve our capability. And improving our capability as an organization to sell those across organizational boundaries. Varying -- at times, organizations grow. We're finding ways that we can help improve how we deliver that integrated solution to our customers, and we're making some good progress there.

Good. And just on acquisitions. Tom, I think you talked about Pangea adding -- correct me if I'm wrong -- $35 million in the year. What's the total -- including the tail that's carrying over -- what's the total amount of acquired revenue that you expect in 2012? And congratulations on adding Peter LaMontagne to the team. Thanks.

Yes. Pangea -- let me correct you -- approximately $30 million is a better number for the revenue associated with Pangea. What we have is we have a few months left on some of the prior acquisitions, Technographics and ASR, not sure what the right number is. I can get back to you on that one. I don't want to speculate.

Our next question comes from Josh Sullivan of Gleacher. Please go ahead.

Thanks for taking my question. Sorry if I missed this, but is there any assumption for continuing resolution in the 2012 guidance?

Yes, Josh, this is Bill Fairl. We're assuming that we'll have the typical sort of CR that will go into our third quarter and the government's second quarter of fiscal year 2012. We're not assuming a full-year continuing resolution or a shutdown. We're assuming sort of a normal end of their second quarter, our third quarter.

And I would just add to that again that that's our assumption. However, in fiscal 2011, we generated these phenomenal results with a year of 7 months of continuous resolution. And it just points to the resilience of our organization and the importance of the work we're doing that our customers -- even in those conditions find ways to get the funding to us to do the work because it's mission-critical work.

Right.

Thanks for that. And just as a follow-up, can you talk about the business transformation segment and the competitive environment there?

We missed the last half of that question. If you could repeat it?

Sorry, just the competitive environment in the business transformation segment?

In the business transformation part of the business, okay.

And competitive environment. Let's see. It is a competitive environment. Almost all of those opportunities are competed.

Fortunately, many of them are being competed through multiple award ID/IQ vehicles. And we as an organization over the last couple years have focused on those vehicles to help provide a channel to those customers. So we will compete. We are competing, and I think the two examples I showed you -- we're competitive, and we're competing effectively.

We are -- this is one of those areas that we have been investing in our capability organically, and think there's a couple areas for us to continue to look at. And we are looking at those aggressively.

Our next question comes from George Price of BB&T Bank. Please go ahead.

Hi. Thank you. Good morning, and I'll echo others' comments and say nice numbers. Nice job.

Thanks, George.

So a couple of questions. First, on the guidance. Taking the EPS up $0.10, I think you said about $0.04 from Pangea. The other $0.06 -- I'm assuming since the share and the tax rate guidance is the same is coming from margin operational improvement. Can you give us a little color maybe on whether that's more a function of direct labor versus efficiency on SG&A?

George, this is Tom Mutryn. It's generally direct labor. We've seen some new awards, some plus-ups on some of the additional work, and so it's the direct labor growth is driving that increase.

Okay. Very good. And then following up on the share count. What was the share count -- diluted share count actually exiting the quarter? And just to confirm, too -- if you can confirm what I believe I heard which is you're going to get through this revised share repurchase program probably through -- by the end of the first half of fiscal 2012? Thank you.

Sure. Yes. In terms of our diluted share count, for the fourth quarter of FY 2012 was 31.9 million shares was the diluted share count at that point in time. For the full year, FY 2011 was 30.3 million shares.

And as Paul mentioned, we do have a revised authorization from the Board to repurchase shares. We anticipate executing upon that authorization, and as we execute we will be notifying our investors and updating the share counts prospectively as we move forward. For guidance purposes now, we are guiding to flat share count versus FY 2011, the 31.3 million shares. For 2011, 31.3 million shares, yes.

Our next question comes from Jason Kupferberg of Jefferies. Please go ahead.

Thanks. Just want to pick up on some of the comments earlier about the funded orders being one of the best indicators of near-term trends. And I guess if we look at those funded orders, and we look at them in the context of a book-to-bill ratio which I know you talk about a lot. Book-to-bill has been below 1, I believe for 3 straight quarters. And on a trailing 12-month basis is I think it's lowest levels in 5 plus years if I'm not mistaken.

And funded backlog itself, has come down significantly since the end of your Q1 2011. So just help us reconcile what we seem to see in some of those metrics with the outlook for near-term organic revenue growth and what seems to be a very high degree of confidence on your part?

Okay. Jason, it's Bill Fairl. I'll start with funding orders there.

Our first quarter of our fiscal year which is the fourth quarter of the government's fiscal year is always our strongest quarter for funding orders. And it just stands to reason because that's when the government has to get the funding activities wrapped up for the fiscal year. So I'm expecting a very strong quarter for us in our first quarter as we get to September 30. I did say in answer to a previous question that we're actually ahead of where we were this time last year in our first quarter which is another good indicator.

The total funding orders that we received in our fiscal year 2011 were in excess of our revenue. So in terms of that book-to-bill ratio, we exceeded 1 there.

In terms of contract awards, we recorded $3.2 billion in contract awards in fiscal year 2011 which was a big increase over fiscal year 2010. I gave you some statistics on what our pipeline looks like, which is we've got $5.7 billion proposals already been submitted and awaiting evaluation. More than half of that for new business, and then we're going to submit another $8.5 billion -- our current plans call for that by the end of the calendar year.

We've got very high win rates, as Paul mentioned earlier, our programs are not being canceled. So this is a matter of when as opposed to if. So that's really what our confidence is all about here.

Okay. And then as a follow-up for the June quarter itself, it looked like even if you pulled out the earn-out accrual reversals, I think you're operating margins were around 7.3% which is quite high relative to what we've seen recently. So wanted to get a sense -- and I think that's really what the driver of the EPS upside seemed to be because revenue was in line.

Any other callouts in the margin in the quarter that we should be aware of? And if you can just as part of that, give a little bit more -- relative to answer to a prior question on the fiscal 2012 EBITDA margins, I believe, were going to be flat over year-over-year? Are you now saying EBITDA margins will be up year-over-year in fiscal 2012? I wasn't 100% clear from one of your prior answers.

Jason, this is Tom. Yes, our fourth quarter margin pro forma was 7.3%. Our award fees are periodic and episodic. Some quarters we have a large amount of award fees. Some types we don't get dependent upon the underlying contract.

This quarter -- the fourth quarter we had high award fee levels of approximately $8.5 million, approximately $2.5 million greater than the comparable period last year. So that's certainly helped our margin performance this quarter. I will say that for the full year, the award fees are spread out because some quarters are high, some quarters are low. We had a 6.7% pro forma operating margin compared to 6.1% last year. So we certainly have made progress in increasing our operating margins.

Looking forward in FY 2012, consistent with what we said at the initial guidance call, we believe we should be able to either sustain or improve that 6.7% operating margin as we go into FY 2012.

(Operator Instructions)

Our next question comes from Dale Dutile of Boston Company.

I'm sorry. My question was already asked. Thank you.

Our next question comes from Robert Spingarn of Credit Suisse. Please go ahead.

Good morning.

Good morning.

So based on everything you've said, what is the organic growth embedded in your fiscal 2012 revenue guidance?

Yes. Robert, this is Tom. I would think approximately 1%, 1.5% of our revenue growth in FY 2012 is coming through acquisitions.

1%, 1.5%, so you're going to do something -- you said 5% to 10% overall. The majority of that is organic despite the fact that the book-to-bill trailing has been about even?

Yes. Our goal is mid- to high single-digit organic growth. And I think that's reflected in the guidance.

So I guess this goes back to what you said earlier, you're going to have a fairly strong September bookings quarter, and that's going to drive this organic growth this coming year?

Robert, this is Bill Fairl. Booking in terms of funding orders, yes, I expect. In terms of contract awards, they're not quite as sensitive to the government fiscal year-end. So we take a longer view.

I think our fiscal year 2012 will be a good year for us for contract awards. I think the first quarter will be strong for funding awards.

I'm showing no further questions at this time and would like to turn the conference call back over to Mr. Paul Cofoni for any closing remarks.

Thank you, Allie, for all your help here today. And we'd like to thank everyone who dialed in or logged on to the webcast for your participation today as well. We know that many of you will have follow-up questions, and so as we usually do, Tom and Dave and Dave Spille will be available shortly after the call here to take any questions you have. This concludes our call today. Thank you, and have a great day.

Ladies and gentlemen, this does conclude today's conference. You may now disconnect and have a wonderful day.