CACI International Inc (CACI) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International fourth-quarter and year-end fiscal-year 2016 earnings conference call. Today's call is being recorded. (Operator Instructions)

At this time I would like to turn the call over to Dave Dragics, VP of Investor Relations for CACI International. Please go ahead, sir.

Thanks, Jason, and good morning, ladies and gentlemen. I'm Dave Dragics, Senior Vice President of Investor Relations of 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, so let's move to slide number 2.

Turning to 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. 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. Now, 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 also described in the Company's Securities and Exchange Commission filings. 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. They are also included as part of our presentation slides.

So let's turn to slide number 3, and to open up our discussion this morning here is Ken Asbury, President and Chief Executive Officer of CACI International. Ken?

Well thank you, Dave, and good morning to everyone. Thanks for joining us to discuss CACI International's FY16 fourth-quarter and full-year results. With me this morning are John Mengucci, our Chief Operating Officer and President of U.S. Operations; Tom Mutryn, our Chief Financial Officer; and Greg Bradford, Chief Executive of CACI Limited, who is joining us from the UK.

I'll have you turn to slide 4, please. Last evening we released our fourth-quarter and full-year FY16 results. The results were strong and position us quite well for our fiscal-year 2017.

Revenue, net income, and cash flow were all higher year-over-year due to strong contract performance and the acquisition of National Security Solutions business. For the quarter, awards and contract funding were also significantly above last year, reflecting our enhanced business development processes and an improved pace of government spending during the quarter. During the year, we received over $5 billion of awards and over $4 billion of contract funding.

We successfully integrated NSS, the largest acquisition in our history, achieving synergy goals ahead of schedule, which accelerated value to CACI and our shareholders. At the same time, we greatly enhanced our credentials in enterprise IT and deepened relationships with key customers.

NSS met our expectations at the top line and exceeded our profit expectations, generating substantial accretion. The acquisition further positions CACI into more enduring areas of the market that will provide predictable and profitable growth in the future.

Now turning towards the market environment, there was an increased pace of awards and funding in the quarter that we expect will extend at least through the end of September. At this point, from everything we can determine, it appears the federal government will likely begin its next fiscal year under a Continuing Resolution.

Let's turn to slide 5, please. We continue to execute a market-based strategy, meaning we're going to win new business, we're going to drive operational excellence and invest our capital for future growth.

In FY16, we won business across all of our markets, adding noteworthy contracts in such important areas as enterprise IT, business systems, intelligence systems and support, and cyber.

We are winning larger, more solution-centric business that will serve us well for the future. John is going to have some more color on this in just a few moments.

Beyond FY17 our goals are to grow organic revenue from 1% to 4% better than our addressable market and deliver higher EBITDA margins on a 10 to 30 point per year basis. Finally, I am very pleased and so proud that CACI was named a Forbes Top Employer for Veterans; and we also repeated our standing as one of The Washington Post's top places to work in the District of Columbia. This is the kind of recognition we appreciate, and we want to continue it in a very competitive hiring environment.

FY16 closes on a positive note and keeps us on track as we start FY17. We are reiterating our FY17 guidance, and I am confident that we will continue to deliver long-term value for our customers and our shareholders.

With that, I'm going to turn the call over to Tom for some financial details. Tom?

Thanks, Ken, and good morning, everyone. Let's turn to slide 6.

Our fourth-quarter revenue was $1.1 billion, almost 30% greater than the fourth quarter of last year, driven primarily by the contribution of NSS. Net income for the quarter was $43.6 million, with strong performance from both heritage CACI and NSS.

Full-year revenue was $3.74 billion and net income was $142.8 million, with both revenue and net income 13% above last year. Excluding the contributions and one-time acquisition costs, CACI revenue and net income would have closed within our original fiscal-year guidance range, reflecting strong profitability of our business and effective cost management. For the year, one-time acquisition-related expenses totaled about $9 million on an after-tax basis.

In the quarter, NSS contributed $255 million of revenue and $13.1 million of net income, providing significant accretion. The net income number includes $1.6 million of after-tax intangible amortization and does not include any interest expense associated with the additional acquisition-related financing.

For the year, NSS generated $427 million of revenue, in line with our five-month expectation. Net income was $18.8 million, which includes $2.7 million of after-tax intangible amortization and $2.5 million of after-tax transaction expense allocated to NSS, notably severance expense, and excludes acquisition-related interest. With interest expense and excluding the one-time expense, NSS is about 25% accretive to our earnings per share for that period.

Slide 7 please. In the quarter, we elected to early adopt a new accounting rule which simplifies the accounting for share-based payments. Previously, differences between the value of tax deductions from when share-based compensation was initially reported and when the awards vest were treated as balance sheet adjustments.

The new guidance specifies that these differences flow through the income statement. Since this change is retroactive for the full year, we have included a table in our earnings release detailing how the $1.2 million tax benefit impacts each of our four quarters.

Slide 8 please. We generated $53 million of operating cash flow in the quarter and $243 million for the full year. This is about 7% greater than our operating cash flow a year ago and is about 170% of our net income.

Net debt at the end of June is $1.4 billion, and our net debt to trailing 12-month pro forma adjusted EBITDA leverage ratio is now about 3.8 times.

We will be adopting the new ASC 606 revenue recognition standard in our fiscal-year 2019, and it will apply retroactively to FY17. Among other provisions, it standardized mandatory backlog reporting requirements.

In preparation for this, we have reviewed our backlog processes, definitions, and scrubbed our balances. As a result, we have reduced our backlog associated with a number of programs and tightened up our reporting processes going forward.

In a number of cases, we received awards for funding a number of years ago; but due to changes in government priorities and programs we never realized the full value of those awards, and the period of performance had lapsed. Inclusive of these one-time adjustments, our total backlog at the end of June was $11 billion and our funded backlog was $2.3 billion. This adjustment has no impact on our FY17 plan or forecast, which is built up program by program; nor does it have any impact on our longer-term outlook.

Please turn to slide number 9. Lastly, with consideration of our fourth-quarter results, we are reiterating our FY17 guidance that we issued at the end of June. Consistent with the June call, we expect a normal sequential decline in revenue from the fourth quarter of FY16 to the first quarter of 2017 and expect first-quarter net income to be less than $30 million.

Now here is John to provide operational highlights.

Thanks, Tom. Let's go to slide 10, please. Our Q4 results bring a successful FY16 to a close. During the year, CACI continued to execute our market-based strategy, win new business, and deliver with quality and efficiency in support of our customers' critical missions, as well as completed the integration of NSS.

As Tom mentioned, exceptional delivery was one of the drivers of the strong profit performance in the fourth quarter, and I'm very proud of our team for their efforts. We have discussed our market-based strategies and feel it worthwhile to illustrate how one of our market strategies has driven success in this dynamic federal market, that being enterprise IT.

Five years ago IT budgets came under pressure as our customers were faced with the Budget Control Act and caps on spending. In this new environment, large-scale traditional IT would simply be cost-prohibitive.

This presented us with an opportunity to disrupt the market with technology-enabled solutions and provide significant cost savings for our customers, hence our pursuit of NSS. Today, our combined capabilities are responsible for recent wins, and enable us to address the well-funded enduring needs of IT modernization by leveraging cloud-powered solutions, as-a-service models, and performance-based management. This is a single example, a representative of the success we are having by applying focus to each of our markets.

While on the topic of NSS, their performance these past months has been exceptional. Upon close, we quickly implemented targeted synergies. We capitalized on this by fine-tuning several bids in process, enhancing our solutions, improving competitive positions, and thickening our past performance credentials. In addition, NSS has exceeded our net income expectations for the fiscal year, driven by great program performance and the realization of those strategies ahead of our planned schedule.

Turning to awards and funding, we continue to win business across all of our addressable markets. We won $1.6 billion in contract awards during the quarter and more than $5.3 billion during the fiscal year. This results in a 12-month awards-over-revenue ratio of 1.4 times; very healthy.

Some of the significant awards this fiscal year were: a $102 million single award to provide litigation support for the Security and Exchange Commission; a $199 million single award to provide operations support and enhancements for the USDA Web-based supply chain management system; a prime position on the $22.3 billion IDIQ to provide IT solutions and services to the Department of Veterans Affairs; a prime position on an $809 million IDIQ to support business systems at the Naval Supply Systems Command; a prime position on a $460 million IDIQ to provide mission support to the U.S. Cyber Command; and $360 million in previously unannounced intelligence awards.

We also booked more than $1.1 billion of contract funding orders in the quarter and exceeded $4 billion for the full year. Awards, funding, and their contribution to overall backlog put us in a sound position as we enter our fiscal-year 2017.

Slide 11 please. Our commitment to operational excellence remains at the heart of this organization. During FY16, CACI revalidated and expanded its enterprisewide CMMI Level 3 certification for US operations and added its first enterprisewide ISO-9001 quality management credential. These validations assure our customers that CACI will provide reliable processes, driving quality and efficient delivery on our programs.

As an example, this rigor is enabling our successful delivery of the largest pay and personnel and PeopleSoft implementation in the world with IPPS-Army. This program has achieved several key milestones in fiscal 2016 and has a very satisfied government customer.

Slide 12 please. I'm optimistic about CACI's ability to achieve our long-term growth goals. We closed out a successful fiscal 2016, which keeps us in a great position as we enter 2017.

Our revenue plan now consists of 86% existing business, 10% recompete, and 4% new. Our opportunity pipeline remains strong. There were $12 billion in pending contract awards and more than $23 billion we expect to submit by the end of this calendar year.

Our market-based strategy is working, and we remain focused on the core elements of our performance: winning new business and delivering mission-critical solutions and services to our customers. With that, I'd like to turn the call back over to Ken.

Well, thank you, Tom. Thank you, John; appreciate your comments this morning. We'll turn to slide 13, please.

As we began our fiscal-year 2017, I'm pleased with our position. In FY16 and in early FY17, we won some key contract awards that provide a solid foundation for CACI going forward. We continue to build on that success this year as we execute against a robust pipeline of opportunities, and we have the opportunity to deliver innovation, quality, and profitability on our current book of business.

I am very proud, very proud, of the work our 20,000 dedicated professionals do in modernizing IT systems, countering cyber threats, securing national airspace, and in all of the solutions and services we support our customers with. We look to the future with confidence in our strategy and our talented employees, who are committed to ensuring that our customers succeed in their critical missions.

I thank everyone at CACI for that success. Our people work hard each and every day to meet our nation's most important challenges, support our Company's growth goals, and deliver long-term value to our shareholders.

In an initiative related to our national security focus, on September 22 CACI is jointly sponsoring the Ninth Annual National Security Symposium: Offset Strategies to Prevail against Asymmetric Threats. We are providing thought leadership in this forum to further the national dialogue on how to address complex, asymmetric threats to national security.

With that, Jason, I think let's open the call up to questions.

(Operator Instructions) Edward Caso, Wells Fargo.

Hey, good morning. Seems like every several years there is an issue with the calculation of backlog, going back a good 10 years or so. Does it tie in at all to the fact that CACI is a very acquisitive company? I guess my question is, are you comfortable with the ERP systems that you have to monitor your business and help you forecast the future, or is there more need for further investment in that area? Thanks.

Yes, thank you, Ed. I'll take that. When we acquire companies, we do a pretty tight scrub of bringing their backlog on to our books. Now, some of the smaller companies may have less elaborate books and records; but by definition their backlog numbers are not as large as legacy CACI.

But in the most two recent large acquisitions, Six3 and NSS, we have pretty detailed processes to look at their programs and scrub them before we enter them into our system. So the situation was less associated with our acquisitions but rather with the processes I discussed.

The government provides awards and funding, and we have various databases which track those awards and funding, keeping a number of parameters associated with those programs in our databases. And what we neglected to do, quite candidly, was when we calculated the backlog numbers pay special attention to the period of performance.

So we discovered as we were preparing for the new accounting standards that a number of programs had lapsed period of performance.

You had the bigger question: is there underlying problems with CACI and ERP and data systems? From a GAAP perspective, we have clean bills of health, Sarbanes-Oxley 404, no issues associated with the reporting requirements. Haven't had any accounting restatements or issues associated with our accounting systems.

And are forecasting systems are very robust. We discussed of those in the past in terms of a bottoms-up program-by-program forecasting system which gives us insight into FY17 with some degree of fidelity.

Our low DSO was reflective of pretty precise billing and invoicing processes on our program level. So all in all, I think I would give ourselves a pretty strong bill of health.

Great; thanks. If I can sneak in one more, can you just update us on the OPM contract? We're hearing of supply-demand imbalances where a lot of it's triggered by the tightness in the security clearance issue. Anyway, if you can update us on the timing of the recompete and how that contract's going, thanks.

Yes, Ed, thanks; this is John. We are prohibited to discussing it in great detail; but overall, still very pleased with the performance of that contract. We've been pretty much at steady-state since Q4 of FY15, and as we expected that does continue today.

It is public knowledge that we are in the midst of a recompete. The last information we received from the government customer is award on or around October 1.

What I can tell you is this customer's priority is still quality and efficiency, both of which we are very proud to be providing. As with all of our recompetes, we do feel we are in a very good position, given how we have performed in the value -- and the level of investment, frankly, that we've made in growing our corps of background investigators.

There is a potential, as we talked about last call, for other providers to be added for the next award. But as you correctly state, the backlog for this clearance process is extremely large, and we work each and every day, partner with our OPM customer, to continue to drive that backlog down. So thanks.

Bill Loomis, Stifel.

Hi, thanks. Since we are on OPM, just what other changes? There could be more people added; can you talk about what other changes might be made to the OPM contract in terms of scope or maybe contract type? Is there still going to be a large fixed-price component, for example?

Yes, Bill, I'll be cautious in my comments because we are still in this recompete phase. But there's not any material changes, Bill. It's still a fixed unit price for each of the different investigative types, which has been very consistent over our involvement with this contract.

One item is, as part of the RFP response, being able to show exactly how much throughput you as a potential provider can supply on a quarterly and on a full-year basis. As you remember, in the second quarter of 2015, we put a reasonable investment out there to grow our background investigator workforce; I think that has paid off extremely well for us. It's also helped the federal government get this backlog number down.

So no material RFP changes and again, Bill, we firmly believe that we're going to hear about this beginning of October. Given the way customer's moved things around, clearly by the end of October.

Okay. Then my next question is on the commercial and state and local. That had very sharp improvement. What's happening there?

Yes. In terms of the commercial entity, we did a small acquisition at the end of last year which had some commercial contents to it; it was a security-related acquisition. We hadn't spoke about it a lot given the nature of the business, and that was the major driver of the commercial entity.

In addition, the UK operation had some acquisitions as well, and that is commercially focused.

Cai von Rumohr, Cowen and Company.

Yes; thank you very much. This backlog scrub, it works out to roughly 20% of funded and 20% of total backlog. This is a very substantial number.

How often, just in terms of your processes, do you look at this? Because this is not like a 4% to 5% rounding error; this is a very substantial number.

Do you look at this every quarter, or once a year? And how could you miss by that much?

Yes. Cai, this is Tom. Every quarter we report backlog, and we pay special attention to what goes in the backlog numbers when we receive funding and awards; and then typically what comes out of backlog to -- relates to revenue.

And candidly when we run the calculations we did not pay attention to period of performance. So this is a cleanup which goes back a number of years in terms of the backlog.

Yes, it was a sizable reduction as a percentage of the backlog. I think the question that we've asked ourselves is: What is the relevance of backlog, and how do people look at backlog? From our perspective it's the change in the backlog that is more relevant than the absolute ambient levels of backlog.

Assuming that this adjustment would have occurred if we restated backlog last year, would get the same change in backlog. In terms of those changes, one could also look at the book-to-bill numbers: awards to revenue, funding to revenue. Both of those numbers are greater than 1; that implies that the business is growing, the potential for us to generate revenue is growing.

So either looking at the changes in the backlog or the book-to-bill ratio is greater than 1, when we get the same result, that the business is growing, underlying business is healthy. Again, I'll reiterate that this is a one-time adjustment, sizable, and it's not having impacts on our FY17 forecast or plans or our prospects going forward.

Robert Spingarn, Credit Suisse.

Good morning. I have two questions: first is on NSS and then I have a follow-up really to Cai's question. But if we do the math on NSS, it looks like the first-half margin excluding the amortization, Tom, that you talked about, and trying to tax-effect it -- and I don't know if I'm using the right rate -- is about -- rather the six-month margin, your fiscal second-half is about 9%. A little lower in Q3 than Q4, but very good margin, higher than the Company average, and about double what the margins were at L3.

So I was wondering if you could speak to that and to the sustainability of that. And then separately I have a question on backlog.

Okay. I'd give you a different calculation. When I look at the margins and assess for the first five months, I get a number close to 7%, which is similar to CACI's base margin. Now that has some severance expense in its, so that would add a little bit to the margin percentages.

Yes, I backed all that out, Tom. But I may not have done the math right.

Yes, well, we can talk off-line about the mathematics about it. The other factor I think was interesting is when I look at NSS, similar to CACI, they have some cyclicality in terms of award fees. In the fourth quarter, they had some higher award fees, and so we had a shorter stub period which was at least in that fourth quarter award fee heavy. So that would skew it.

I wouldn't get over our skis, as we like to say, and start thinking about NSS margin materially greater than the CACI margin. We think it's generally in line with the CACI margin.

Okay. Then if I'm still here, a question on the backlog. Really taking piggybacking on the last question, as you look forward, is there any rule of thumb for the lapsed backlog as a percentage of backlog? I know you've culled everything backward-looking, but presumably each quarter there is some unused backlog that goes from live to dead. Is there any way to measure or monitor that?

Yes, there is a way to measure or monitor for that. Have we had that fidelity right now? The answer is no; I think this is something that we can get.

But let's assume that the backlog breakage, I'll call it, is X%, and that X% is constant. So if I apply to the prior period's backlog and this period's backlog you would come up with the same backlog growth numbers -- which again, in my mind, are the more relevant numbers than the ambient level of backlog. So that's another way to look at the same issue.

Brian Kinstlinger, Maxim Group.

Great; thank you. The first question I have is on the award base. You mentioned continuing into September, which is a seasonally strong quarter. Can you talk about how the first half of this quarter has gone, specifically on the new business trends as well?

Yes, Brian; this is Ken. We ended fourth quarter with a pretty strong -- I would say a higher level of award activity than we had seen. And we obviously finished the fourth quarter with about $1.6 billion. I think half of that was for new; 25% was for recompete; and about 25% were for contract modifications.

So, generally a pretty strong quarter. We also saw the beginning of 2017 begin in a similar fashion.

Based on the last five years of booking, this is generally our biggest awards quarter. If I look at the last three years of this, we're close to averaging a little over $2 billion in total awards during this period of time.

I would expect -- I don't see anything in the government planning cycle that would suggest that they're going to do anything other than their normal end of fiscal year activity to get money placed and to get contracts going before we get into the next one.

Now, beyond September -- or I should say beyond October 1, that could be a different ballgame with either a short- or a long-term CR. But right now looking at our first quarter, I like the way it's begun, and I expect it will finish strongly as has been the history.

Great. Then my follow-up is the fourth-quarter earnings seem to have been much stronger than expected, while revenue was in line, suggesting fixed-price contracts were delivered much better than expected -- at least how you guys were anticipating it. I'm wondering how the $30 million in net income in the first quarter, as well as the annual guidance, contemplates execution compared to what's happened in the fourth quarter.

Yes, Tom, do you want to address that?

Yes. Brian, we have a process internally where every month we go through a pretty detailed, rigorous forecast. We put a FY17 plan in place, so mid-July we reviewed our FY17 numbers; Mid-August we reviewed our FY17 numbers. And based on that assessment, which includes prior-period performance, fourth-quarter actuals, we are refirming our guidance.

The fourth quarter was higher for a couple reasons. One is we had some lower tax rates, some associated with the stock-based compensation, some associated with manufacturing and WOTC and state tax credits; that certainly helped.

And then the underlying performance of both legacy NSS and legacy CACI was strong. And, John, I think you have some insights there as well.

Yes, Brian, I would also add to Tom's comment. There were a few of our fixed unit price programs that showed higher volume and stronger performance in the fourth quarter. The logical question is: Would we see that push forward into the first?

Most of that work was a lot of one-time volume. But I do believe that the volume we have for our fixed unit price drops is responsibly planned throughout FY17.

Could we see some of those additional peaks? Yes. But we're set right now, given we're only six weeks into FY17, that the volume we expect on those programs will be very consistent moving forward.

Jon Raviv, Citi.

Hi, good morning. Could you guys talk a little bit about the sales cadence going through the year, as some of those previously identified commoditized contracts roll off? And what's your visibility/confidence to the consistent organic growth, both in fiscal second half and thereafter?

And then really the same question on margins: When do we reach those 10 to 30 basis points of annual expansion?

Yes, Jon; this is Ken. I'll start. Let's talk about organic revenue. We plan the year at the midpoint of our guidance to being about down 5% year-over-year, and really that is due to the run-off of the pass-through contracting business that was associated with a tremendous amount of our growth in the Southwest Asia support over, I would say, the late 2010, 2012 period.

If we look at the upper end of our guidance range for revenue this year, we do see the potential in the fourth quarter for modest, very modest, organic growth. Looking forward, we believe, based on our addressable market -- which we see over the next five years growing about a point to a point and a half over that period of time, which is the first time, by the way, we've seen that in a long time -- we believe that we can grow faster than that rate.

And why is that? We will have settled the majority of those pass-through contracts. Those will either have run off or stabilized as of this year, and going forward we will not see a big presence of those in, if you will, in our portfolio of business. They will be replaced with more solution-oriented work as we head forward.

I would tell you the same thing for the margins. We are bidding jobs. We have jobs that we have bid today.

Some of them are fixed unit price; some of them are fixed price; and they are very large. When we are successful on those, those will give a lift to margin over a period of time.

And that's probably what I'll say. I don't want to get to competitive in terms of what job is what. But suffice it to say that the portfolio of jobs that are in adjudication today are really reflective of everything that we've been talking about the last three years: larger, more solution-oriented, generally going to be higher margin, and with several of them featuring fixed-price components which I am highly confident we will derive more value out of than our general cost-plus baseline.

Thanks. I'll hop back in the queue.

Tobey Sommer, SunTrust.

Thanks. My first question. What's the underlying compensation growth in your direct labor base? And do you anticipate any change in that going forward?

Tobey, I think just in terms of -- merit is what, 2.5%? 2.5% on labor.

Okay. That would be an all-in compensation including benefits?

Yes, I haven't thought about it that way. I'm thinking in terms of salaries right at the moment.

Cash comp? Okay.

I think our fringe rates are staying essentially flat on a year-over-year basis, and so that would be a good proxy. Now the caveat is that's assuming the same mix of business.

We have a number of employees, some are SCA employees, some are higher paid employees. And to the extent that we are growing some higher-end programs greater our average salaries are going to fluctuate.

Given the Law of Large Numbers, there's probably not a large fluctuation in average salaries. But as Ken said, a 2.5% (technical difficulty) merit increase based on market conditions, our assessment of ensuring that we have competitive pay and benefits to both retain and attract people.

Thanks. Tom, curious. Why did you adopt the new accounting standard early?

Are we talking about the share-based accounting standard?

I believe so, yes.

Yes. The share-based accounting standard, quite candidly, allowed us to increase earnings per share -- or net income rather, one point -- kind of $2 million this year, a comparable amount next year.

It's interesting that at the end of the day the economic benefit -- the tax deduction -- is there all along. We're going to get the same refund or pay the same amount of taxes to the federal government. The accounting standard allowed us to take that economic benefit and translate it from the balance sheet to the income statement; so given everything else, we prefer to put it in the income statement than having it rest on the balance sheet.

We are required to adopt it two years hence. It seemed like a good idea to adopt it early. Pretty easy to do and it improved our earnings per share. Again, with the caveat that there is no economic consequence to it; it was an accounting move.

(Operator Instructions) Mark Jordan, Noble Financial.

Good morning, gentlemen. A question relative to bookings. In the numbers you reported, I assume there's no contracts that are in the protest cycle. Could you tell us how much business you have won that is currently still in a holding pattern due to protests?

Yes, Mark; this is John. Currently we have about $600 million of the $1.6 billion that we announced of awards that are under protest. We've been in this position many, many times. We fully expect a positive outcome for CACI.

For all three of those contracts, we aren't planning on material revenue contribution until closer to our third quarter, which we believe will provide sufficient time for those protests to be resolved. As many of you know, we do allow for these business realities as part of our annual planning cycle. I think you've all heard us talk about extending the government's announced award date by 30 to 60 to 90 days; and then on these larger solution-based jobs, where there are major takeaways that we have worked in some instances 18 to 24 months to go win, when we're successful on those we've also planned that those will be protested.

So again, about $600 million of our $1.6 billion. If you look back over the last couple of years, you would see an extremely materially high success rate on us being successful.

Okay. Final question for me. Just could you reiterate what the CapEx plans are for fiscal 2017?

Yes, this is Tom. Consistent with what we said on the initial guidance call, approximately $30 million. That's higher than normal. We're doing a relatively large facility move; it's underway as we speak, but that spending will hit our first and second quarter of this year.

Jon Raviv, Citi.

Yes, thanks for the follow-up. Can you talk a little bit more about the mechanism of booking awards to funded backlog? In essence, how confident should we be in the actual contract funding orders driving your book-to-bill? And what's the risk that those contract funding orders don't manifest down the line?

Yes, thank you. This is Tom. The process we have of the data going into the system is a well-defined process. We maintain a contract data repository, and when we get a funding or an award we bucketize it. If it's a multiple award IDIQ with no value specified, we do not put anything in it.

If it's a single award, we look at the four corners of the contract document and see whether there is dollars specified. And if there's dollars specified within those four corners we will incorporate those funds associated with the four corners of the document.

We have a two-step process where one person will look at the underlying contract document and make the entries into the system. We also have a review, where another party will double-check the work to make sure the numbers are going in with some degree of fidelity.

We also have similar processes when contracts are modified -- which is often the case, there is a series of modifications taking place. So the numbers going in -- again, I'll be repetitive -- have a high degree of fidelity, double-checking, looking at the four corners of the contract, not relying on management estimates or we think, based on run rates, the value should be excellent: Put these numbers in.

We do not have those processes. But we're looking at the four corners of the contract when numbers go in.

Got it. Then just a quick one for John. Can you talk about the big bid coming up in the fiscal second quarter, how you are positioned, and also how you think you guys stack up with a reinvigorated NSS business against some other reinvigorated businesses that are cropping up now? Thank you.

Yes. It's like the $64,000 question this morning. We do have -- I've not going to get into too much because we're right in the middle of the RFP, and that will be delivered here shortly.

Look, whenever you go to compete, you look for an opportunity to discriminate yourself from whoever it is you are competing against, and there are multiple ways of doing that. In our particular case, we think we do it with a set of very innovative approaches to this one particular job, using commercial, well-known commercial both processes and capabilities that have not been seen inside of this space before.

And then they're arrayed against some more traditional ways of solving a very similar problem. Look, I'm not giving you a lot because I don't intend to give you a lot on that subject.

I believe that we have a reasonable chance at that opportunity. That's why we made the investment in talent, in the teaming that we have done, in the relationships that we have built throughout that customer community.

So we'll see what happens. It wouldn't surprise me if we lost; but I'm not going to be greatly surprised if we win.

We understand that job very well. We believe we understand what the customer wants.

And the second part of your question had to do with -- maybe they already cut him off. If you want to come back on, John, I forget what the second part of your question was.

Tobey Sommer, SunTrust.

Thank you. Could you give us an example of an explicit change to your backlog methodology that increased fidelity going forward?

Yes, Tobey. Prior to this kind of adjustment when we on a quarterly basis rolled the backlog, we looked what was in our system and used that as the basis for the backlog. Just a bottoms-up addition of tens of thousands of line items in backlog.

What we did not consider was the period of performance, and so we did not explicitly exclude items for which the period of performance has lapsed. The change we have made and is reflective of the adjustment, quite simply is if the period of performance has lapsed there is very low probability we will realize revenue; and as a result of that we are excluding it from the backlog calculation.

Thank you.

Cai von Rumohr, Cowen and Company.

Thank you so much. You'd indicated that NSS contributed $255 million in revenues and to Bill's question that you did a small security acquisition and some acquisitions in the UK toward the end of the year. So the question is: What was the total acquisition-related revenue in the fourth quarter? And what do you expect it to be for fiscal 2017?

I think you'd said $600 million for NSS. But how much for the other guys? Thanks.

Yes, the total acquisition revenue in the fourth quarter was $263 million. And for all of FY17, we expect it to be approximately $600 million.

We attributed that to NSS. The acquired revenue on the other acquisitions is relatively small, and so we around to $600 million.

Then a follow-up. I think on the guidance call you'd indicated a 7% sequential drop in revenues first quarter from fourth. Given that you had stronger than expected Q4 revenues, is 7% still the right number? Or how should we think about that?

Yes, that's still the right number. That's still the right ballpark.

Thank you.

Thank you, and we have no further questions. I will now turn the call over to Ken Asbury for final remarks.

Well, thank you, Jason. Thanks for all your help today on the call.

We would like to thank everybody who dialed in or logged on to the webcast for their participation as well. We know that many of you will have follow-up questions throughout today or the rest of the week; and Tom Mutryn, Dave Dragics and Dan Leckburg are available for calls later today or throughout the week.

So this concludes our call. Thank you. We appreciate your interest in CACI. Have a very good day.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.