David Dragics - Senior Vice President of Investor Relations Kenneth Asbury - President and Chief Executive Officer John Mengucc - Chief Operating Officer and President of U.S. Operations Thomas Mutryn - Chief Financial Officer DeEtte Gray - President of U.S. Operations Gregory Bradford - Chief Executive of CACI Limited.

Krishna Sinha - Vertical Research Partners Cai von Rumohr - Cowen and Company Jonathan Raviv - Citi Research Edward Caso, Jr. - Wells Fargo Securities, LLC Mark Jordan - Noble Financial Capital Markets Robert Spingarn - Credit Suisse Sheila Kahyaoglu - Jefferies & Company, Inc.

Joseph Vafi - Loop Capital Markets Kwan Kim - SunTrust Robinson Humphrey Capital Markets Brian Ruttenbur - Drexel Hamilton.

Ladies and gentlemen, thank you for standing-by. Welcome to the CACI International Fourth Quarter and Fiscal Year 2017 Earnings 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, Kerry and good morning, ladies and gentlemen. I'm Dave Dragics, Senior Vice President of Investor Relations of CACI International, and we are very pleased that you are able to participate with us today. And as is our practice, we are providing presentation Slides. So, let's move to Slide 2.

And about 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.

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, and our Safe Harbor statement is included on this exhibit and should be incorporated as part of any transcript of this call.

I would also like to point out that our presentation today will include discussion of non-GAAP financial measures. These non-GAAP measures should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. So, let's turn to Slide 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 our fiscal year 2017 fourth quarter and full-year results. With me this morning are John Mengucci, our Chief Operating Officer; Tom Mutryn, our Chief Financial Officer; DeEtte Gray, our President of U.S. Operations; and Mr.

Greg Bradford, the President of CACI Limited, who is joining us from the UK. Last evening, we released our fourth quarter and full-year results for fiscal year 2017 and reiterated our fiscal year 2018 guidance. This morning, I will provide you some insight into our results for the quarter and the year.

Tom will give you the details on the financials and John will cover the operational aspects of FY 2017. Let’s turn to Slide 4 in the charts please. We start off by saying, I’m extremely pleased with our fourth quarter and full-year performance, the quarter caps of a year that ended better than we expected.

Looking back, the full fiscal year 2018 organic revenue closed flat compared to FY 2016. This was significantly better than we expected when we planned FY 2017. Most importantly, we generated organic revenue growth throughout the second half of fiscal year 2017, positioning us very well for continued organic growth in fiscal year 2018.

We continue to win a significant amount of business, the fourth quarter marks the sixth consecutive one, with awards over a billion. This level of performance is not possible with innovative solutions, compelling proposals and efficient cost structure and the capability to consistently deliver with quality and customer satisfaction.

We also continue to generate significant levels of operating cash, operating cash of $281 million in fiscal 2017 is a record for us. Let’s turn to Slide 5 please. Shifting to the market environment, it is relatively unchanged since we issued our FY 2018 guidance at the end of June.

We continue to expect strong awards in the September quarter and our assumption is that we will enter the Government’s fiscal year 2018 under a continuing resolution. That said, we remain confident in our ability to win business and deliver in any environment.

This was demonstrated by our performance in FY 2017, during which we operated for seven months under a C.R. and delivered record results.

During the year, CACI was named Military Times, Best Progressive Employer and we repeated our standing as Washington Post Top Place to Work for the third consecutive year., Now I’m extremely proud to receive recognition like that, as it distinguishes us as an employer of choice within our industry.

We will continue working everyday to differentiate CACI through the people we hire, the business we pursue and the solutions we deliver. Our market-based strategy is working, we are winning new business, delivering operational excellence and deploying our capital to drive additional growth.

This gives us continued confidence to reiterate of our FY 2018 guidance as we deliver predictable, profitable growth. Now here is Tom to discuss our financials. Tom..

Thank you Ken and good morning, everyone. Please turn to Slide 6. Our fourth quarter revenue was $1.1 billion, 2.1% greater than the fourth quarter of last year with 2% organic revenue growth. Full-year revenue was $4.35 billion up 16% driven primarily by the NSS acquisition, which closed February 1, 2016.

Net income for the quarter was $44.2 million with strong performance across the Company. Full-year net income was up 15% from last year, driven by NSS’ strong operational performance in lower taxes, partly offset by certain one-time long-term incentive plan for LTIP expenses in facility related expenses.

Our adjusted net income which excludes several non-cash expenses was $224 million for the year, 37% higher than our GAAP net income. For the full-year operating income was up 12% with a margin of 6.8%. Margins would have been higher without the one-time LTIP and facility expansion. Please turn to Slide 7.

We generated $281 million of operating cash flow for the full-year with our DSO at 59 days reflecting efficient performance invoicing and collections. Cash flow was up 16% versus last year and is more than a 170% of our net income. As we have said, in the absence of additional acquisitions, we have been using our cash flow to retire debt.

Net debt at the end of June was $1.2 billion. Our net debt-to-trailing 12 month EBITDA leverage ratio is now at 3.2 times, down from 3.9 times in the third quarter of fiscal 2016 immediately after the NSS acquisition. Slide 8 please. And lastly, as Ken said, we are reiterating our FY 2018 guidance that we issued at the end of Q2.

Now Here is John to provide operational highlights..

Thanks, Tom. Let’s go to Slide 9 please. Agreeing Ken’s comments, I’m very pleased with our performance in the fourth quarter and full FY 2017. Our market-based strategy is providing focus and driving success across our large addressable market.

We are winning business, capturing market share, building a healthy backlog and delivering solutions and services with quality and efficiency. Looking forward to FY 2018, our pipeline remains healthy and our risk profile is comfortable.

Awards in the quarter totaled $1.1 billion and for the full-year, we won roughly $6 billion of contract awards, a record for us, with almost 60% new business to CACI. This translates into a 1.4 times book-to-bill for FY 2017.

Some of the key wins during the year were; our JIDO award with a ceiling value of $1.77 billion to provide deployable analytical operations, integrate intelligence and training services to the Joint Improvised-Threat Defeat Organization.

A prime position on a $978 million multiple award ID/IQ to provide full motion video capabilities to the National Geospatial-Intelligence Agency. A $140 million prime contract to provide global logistics support services for the U.S. Fleet Forces Command.

And last, a $93 million prime contract to provide technical communications engineering and maintenance support services to the Department of U.S. Immigration and Customs Enforcement. Our backlog now stands at $11.2 billion which translates into over two years of revenue at our FY 2017 run rate.

During the year, we had a number of notable accomplishments. Two of which were; we earned at Enterprise-Wide ISO 27001 certification from the Information Security which confirms that our corporate IT infrastructure adheres to industry best policies and practices.

We were selected for the Amazon Web Services Public Sector Program recognizing CACI’s strong overall cloud solutions and services capabilities. Let’s turn to Slide 10 please. Looking forward to fiscal year 2018, our revenue profile now stands at 86% existing business, 10% re-compete and 4% new. And our pipeline remains very healthy.

As of today, we have $8.4 billion of submitted bids that are awaited awards with 74% of those for new business to CACI. This excludes the $8 billion SOF GLSS bid which was awarded last week to another bidder. By the end of the calendar year, we expect to submit another $6.2 billion with about 80% of that for new business.

I would like to take a minute to provide bit more commentary around our SOF GLSS pursuit. First, the award value was not included in our forward-looking guidance. Second, pursuing large higher solution content work like this is part of our strategy and something we will continue to do.

This bid was a great example of our ability to leverage CACIs capabilities and relative strong fast performance in our logistics to material readiness market. Our team provided an outstanding proposal that advanced us to the final stages of customer evaluation and we look forward to learning about the evaluation during the debrief later today.

Although we are just appointed CACI was not the awardee, we will continue to pursue other large bids in our adjustable markets where our innovative solutions and services can bring great value to our customers’ enduring missions. In closing our prospects remains strong.

We will continue to execute our market-based strategy that enables us to win new business and drive our quality, value and customer satisfaction. With that, I'll turn the call back over Ken..

Well thank you John, thank you Tom, I appreciate your contributions this morning. Let's all turn to Slide 11 please. Before we open up the call for questions, I would like provide a bit of perspective on where CACI is headed.

Just over a year ago, we laid out a long-term growth target of 1% to 4% organic revenues above our addressable market and a margin expansion of 10 to 30 basis points annually. Over the past four years we have made very deliberate changes to our business, which positioned CACI to achieve those targets.

Our market alignment drives greater focus on high demand areas of our large addressable markets. We enhanced our business development organization with top talent. We are bidding fewer opportunities and winning more of them. We are winning larger contracts with a focus on solution content.

Our operations of organization has the people that processes credentials and technical expertise to deliver innovation, quality and value to our customers. And we added to our capabilities in past performance credentials in critical market areas through strategic acquisition such as Six3 Systems in NSS.

All of this has built a very strong foundation, allows us to deliver on our long-term goals in fiscal 2018 and beyond. We will continue executing this strategy while remaining agile and continually involving to meet the critical needs of our customers.

I would like to thank all the CACI employees for their commitment and integrity, character and the mission of each of our customers. They bring incredible talent to our customers’ most complex challenges each and every day. Our success as a Company is a result of their daily efforts.

Now on a final note, we were very sad to learn in this week that Bill Darrell the former Chief Operating Officer of CACI up until 2012 passed away last Friday. Bill was a driving force in the rapid growth of CACI from 2000, to 2012. He will be missed and he will always be loved. So with that, Kerry let’s open the call up for questions..

[Operator Instructions] The first question will come from Krishna Sinha from Vertical Research Partners. Please go ahead..

Hi, thank you.

First on your bid pipeline, obviously the outstanding bids have come down to the SOF GLASS announcement, but do you have a stated goal for the amount of outstanding bids you would like to build backup to as a running pipeline? And then secondly, in that current pipeline that you have of $8.4 billion, how many bids would you say are for contracts that have ceiling values in excess of $500 million?.

Krishna thanks, this is John. Do we have a stated goal? No, I think we mentioned in the past that awards and RFT and RFPs bid submitted are extremely lumpy. If you were to look at the bids to be submitted, we are at about $6.2 billion now, I mean we have had some of those initial bids move to the right from our December quarter to our March quarter.

We have had re-compete bids that we have submitted within the last 60 days and have since been awarded, which is what is driving our expected re-compete revenue from 11% down to 10% now. And in addition, as we look at revenue in earnings, we plans for jobs to be slipped anywhere from 90 days to 120, to a 180 days.

So although the bids to be submitted number looks slightly lower than what it has been in the past, it will not have any impact on our FY 2018 plan.

I think secondly, as how many bids we have above $500 million? I guess we have somewhere five to seven bids greater than $500 million, which is directly in line with our stated goal of continuing to want to go after larger more solution type bids..

Yes Krishna, this is Ken. Another way to think about it is, we look at for the amount of awards that we are pursuing, we are targeting specific win rates, if we are really deep in re-competition, we want to win about 90% plus of those and that’s been our average over the last 10 years.

Its fluctuated from time-to-time, a couple of years ago, we were a little bit below that but that’s because we were bidding jobs that we really didn’t want, they were very low value, we were going to bid them at rates that made sense to us and we weren’t successful.

On the other hand, our new business now, we are targeting on an annual basis, 30% to 50%, so the numbers were 30% to 50% capture rate. So you can come up with a mathematical formula to do that, but given the fact that the market present itself over a course of six months by what the customers want to buy, it’s not easy to always get to that.

But that will help you to see at what time what we might be targeting for an overall awards target..

Okay. And then just on your re-compete, 10% of your revenue you said that has come down a little bit as some of that re-compete has slipped to the right.

Are there any particular awards in there that stand out as being outsize in that 10%?.

Krishna no, I mean I think we have traditionally looked at programs like mega which were a very large dollar value re-compete. We had to re-compete for OTM during FY 2017, we were highly successful there, but no, compared to other years, nothing that stands out on a high dollar value.

What we have seen, however as we started FY 2018 is there has been a higher material number of re-compete.

There were the customer who has pushed that out by another year and I would just say to your earlier question that will also impact the dollars of submitted bids in the next six months, because as our re-compete work continues to be bridged that will actually drive less re-compete bids out there..

The next question will come from Cai von Rumohr of Cowen and Company. Please go ahead..

Yes, thank you very much. So your direct labor as a percent was down in the quarter and your ODCs were up.

Could you explain why the direct labor was down and what kind of mix of ODCs do you anticipate for fiscal 2018?.

Yes, Cai. This is John. Thank you. Yes, it’s true that both direct labor and our headcount were declined a bit during FY 2017. As we said in the past, direct labor is less important to our solution business. So as we see our percentage of solution business grow that’s going to lower the higher labor requirements for direct labor.

What is also driven this more pronouncedly as we came on in 2017 going into 2018 were we had two large awards, one of those being JIDO that were really contract consolidation contracts and during the first - I think as we mentioned the first two to four quarters are going to be much higher revenue based on subcontracted labor as the Government consolidated some of those larger contracts to us first.

We also spoke that as JIDO continues to grow, we will be looking at generating higher value, more CACI self-performed. And as of this point, we have been successful on two tasks orders worth about $45 million to $50 million, which will be about 70%, 80% CACI deal. So all that said, direct labor is extremely important.

We have a material component of our revenue in the professional services area and we have added an element of direct labor growth in certain areas to our incentive compensation plan goes to FY 2018, because this is extremely important to the long-term growth of this Company..

And the next question will come from Jon Raviv with Citi. Please go ahead..

Hi, good morning. Ken, could you just talk about or Ken, Tom or of the Group, can you just talk a little bit about the low end of sales in EP range, the reiterated range. It implies a potentially flattish year on a sales growth and also EPS perspective.

Just how should we differentiate between the low versus high end of guidance, kind of what has to happen?.

Yes, Jon, excuse me, are you talking about 2018? This is Ken..

I’m sorry, yes, 2018..

Okay, fair enough. At this point, I’m not going to worry a great deal about 2018. I think we have started off very well. As we talked about we took a look at the way we finished 2017 which was quite strong, very happy with those results, and 2018 starting out very well as well in terms of some of the new awards.

However, I think the simple fact that we are waiting on our budgets out of a brand administration puts a little bit of pause in how that’s going to work out. And we felt it was prudent six weeks into the quarter, not to do anything with our range.

And so, really where we sit at now is a matter of timing, a little of outperformance in 2017 is putting some pressure on the lower end of our 2018 guidance. But we remain confident in the 2018 guidance..

Let me add to that Jon. The way we develop our forecast is a very kind of systematic in the process. So program-by-program kind of bottoms up, we use that process for our annual plan, and we refresh the forecast on a monthly basis.

And kind of based on the forecast that we have today and those forecast will change I'm sure, but based on the forecast we have today that suggest that we should keep our guidance unchanged..

Thanks and this is a follow-up to speaking with our growth specifically.

If you revisit some of the various tailwinds and headwinds on growth, remind us what drove the upside in FY 2017 versus expectations and how some those things trend at the FY 2018 and to what extent to this higher material purchases might actually be a headwind?.

You bet, so let’s say - 2018 first John. We have had a period listed over the 2015, 2016 time period, we really saw change in behavior on a number of the big contracts that supported war related activities, and we were finding that it was really almost ridiculous to try to predict what the behavior was going to be.

We obviously exited out of Iraq fundamentally at that time, in 2014 or 2015 or slightly earlier, and if you understand it was sort of winding down and then got to the steady state. And we saw a couple of things happened.

You know the last three months of president Obama's Administration we saw the surge go after ISIS, that provided an uplift on those contract, because we were providing material support to allies and other forces to conduct those activities. Then we changed administration and that increased even more.

And so how do we think that translates to 2018, by the way the other part of it John answered in his question was we won two major consolidation contracts, where customers took in one case 14 different contracts, put them together into one.

The base of that contract represented sort of the value of those 14, then they could almost another $1 billion worth of option, or surge options on it which we are starting to execute on now. So by definition we wouldn’t have seen as much of direct labor group as a result of that.

But we will measured that overtime as we see past quarters come into the surge - we will perform more of that work than we will have the consolidated subcontractors do. So as I look at 2018 the trend around world situation I think is going to be the same, we have modeled our direct labor group and our ODC group to be about the same, Right.

Tom will probably pace better than 2017. What could change that? Honestly, if there was a conflict that can’t be predicted right now that require a surge support of activity. That would probably have an impact on ODCs.

I'll tell you, without telling you anything until November that we have already seen a number of key wins in areas that are impacted by a change in philosophy from a national security point of view that we can't talk about at this point and time, because they are recent wins. But that will add significant amount of direct labor.

In terms of headwinds, we still have in certain areas the Washington DC area, we have got there is competition for talent, the overall unemployment rate in the country is down pretty significantly. Its having an impact.

Three years worth of the Budget Control Act and that kind of activity has driven some talent out of the market making it - we have got to increasingly role our own, in terms of training people to do some of the jobs we have.

The clearance process issue, that as an industry, and industry and an incoming administration is working pretty well to start to understand what is some of the holders are on that and we expect over a period of time to see some action taken to help that. But all those are sort of headwinds.

What are the tailwinds for this is, look at every single budget that has come out, this administration proposed or has been authorized in the NDAA and by the appropriators and you see a great deal, more funded. I believe NDAA request was $38 billion more than what the President had asked for in his original budget back in I think June or July.

How that gets played out remains to be seen since that’s just going to take some time to work it out.

What does all that say? It says that world is not a safe place, businesses that are in our business that are configured to be National Security Support Organizations against that template of what is going on in the world will like do quite well, we have to get through what will be the maturations of how this budget activity plays out..

The next question comes from Edward Caso with Wells Fargo Securities. Please go ahead..

Hey good morning. I was try to think of question for Gregg Bradford, but couldn’t, so let me ask about your thoughts on a potential Government shutdown, what are you hearing, how are you preparing in case that happens and what impact might it have? Thank you..

Hey thanks for the question. I will take a shot at that. I have seen probably same thing that are coming out of Professional Services Council that you have.

I think David Berteau is right to sort of put up a red flag on, but I will say that for the last seven or eight years, at least the five years that I have been here or almost five, we have had our planning every single time that prepares this for a shutdown.

The last one was what 2013, coincided with my first year, I don’t know if that was coincidental or not.

But we executed a plan where we didn’t layoff a single employee, we were able to recover a lot of our costs, we did have an impact at the end of the day, because not all of that was recoverable and I think for instance I read your note this morning where you know on average we might see a percent of revenue.

If we saw that kind of deal, that would still have us growing organically for FY 2018 at the high end of our guidance range.

So I worry about it, we don’t need any more uncertainty, there is enough uncertainty in the world and I hope that cooler heads will come together and make sure that’s sort of why we have intimated that we believe that we will start with the C.R. because I don’t think anybody wins as a result of shutting down the Government at this point..

My other question is on your backlog. I assume you review it every quarter, did you have more or less sort of up or downward adjustments this quarter? Thanks..

Yes Ed, we do it every quarter, so we did have slightly more a downward adjustment to the backlog, approximately $500 million in a quarter. And I think people can kind of back into that because we are getting backlog awards kind of where we are doing the adjustment. For the full-year, the adjustments were approximately $1.4 billion.

And so, we have a pretty diligent process going forward. We review all our programs and make sure that the backlog numbers are clean as they can be. So that’s where we are..

The next question comes from Mark Jordan of Noble Capital Markets. Please go ahead..

Good morning gentlemen. First a question on CapEx in fiscal 2017 was to $43.3 million up from $20.8 million. I think the guidance in June was for $35 million to 40 million.

Is that still the CapEx outlook and what is that you fundamentally started spending more on in 2017 and looking out into 2018 and sort of $35 million to $40 million kind of more of a new normal going forward?.

Yes. Thanks Mark. This is Tom. In FY 2017, we had the opportunity to do a pretty large facility consolidation.

We had one building, we occupied a four story building for a number of years and we were able to relinquish the lease of that building of the lease expiration date and we were able to take the folks in that building and put them into existing facilities.

That necessitated us going to those existing facilities and doing somewhat of a complete redo of the facilities to make sure we had kind of more efficient, effective, up-to-date office standards. And so that major real occasion drove capital spending in FY 2017. In FY 2018 the higher facility expense will drive the CapEx.

What we have in our pipeline in our expectations is that we are going to win some relatively large pieces of new business. Those new business pieces will require employees to work at CACI locations. And overtime, we have squeezed our footprint down such that we don’t have surplus space to that level to accommodate the additional work.

And so as we get additional work we will need to make those necessary investments in facilities and that is the driver..

Beyond 2018, do you expect those types of expenditures to be recurring or do you see a version back down to the $20 million to $30 million range?.

Yes I would say I hope to see those types of expenditures in the future because that is an indicative of us kind of getting business and how we just start business [indiscernible] facilities.

It’s a little bit too early to say, but I think the fact that we are a larger Company than we used to be will drive an ambient level of CapEx spends higher than it used to be the $15 million range perhaps is the $20 million, $25 million range and on top of that we will overlay additional facility expenses..

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

Good morning. So Ken, this may be a little redundant, but back to the sales growth.

Given that it’s flattish at the low end for the year, if we don’t have CRs are you saying you could be about high end without a CR and that’s the question what does a no CR environment look like for growth? And at what point do you think you can outgrow the market by the 1% to 4% that you have been talking about, just given that O&Ms were up 4% in 2017 and much higher in 2018?.

Great question. So our assumptions around this work this way, when we planned our addressable market. In 2016 we started looking, in June of year before last we had our Investor Day and we talked about establishing something more we could grow 1% to 4% higher than we saw in the addressable market.

What I believe is being laid out to happen is we will continue to see 1 to 1/25 CAGR in the very near-term such as through 2018 because it's simply going to be too hard. I'll give you an example. when we got out of the CR and they added what $18 million as a result of the omni bus in June of this year I think or excuse me, maybe reservoir in April.

We had a lot more customers who claimed that they were getting too much money and they didn’t have the acquisition authority to put it on contract and I think it's going to.

With more money coming into the system, particularly in the O&M its still when you take some time for the acquisition machine on the Government side to get that placed on contract. And they will do it in certain expedient ways where they find ceiling value on certain contracts and we have seen that.

We have seen a lot of adaptation to that money coming in. In other words, we have seen faster determinations on certain jobs and we have been the beneficiary of that already year here in 2018. So I think 2018 stays at that 1% to 4%, so I would tell you I'm still comfortable with our original guidance range.

The downside of that is we get some form of shutdown or that really kind of prolong and that could obviously have an impact on everybody in the industry.

But while looking forward, I think we will start to see budgets or addressable market growth that are going to be in the 3% to 4% maybe in the out years 5% based on some of the modeling that we have seen. And then our guidance regarding that is going to change dramatically.

We will still look at 1% to 4%, but if I’m starting with the 3% addressable market growth, my bottom line expectation of my team is going to be 4%. So..

Ken what I was going to ask you is, I think what you are saying is 2018 is an exception to the rule because of the CR and some of that natural headwinds, because of your tougher comps. But your fiscal 2019 would be the first year that the dynamic you are forecasting would hold true..

If all the moons and stars and everything else aligned up sort of like the eclipse on Monday and we manage to get an appropriated budget with the amounts that everybody could agree to earlier, then I think we would see the opportunity. It will take some time, it will take some time to that money to make its way in.

I do think in the National Security space we are going to see an increasing budget period. I just think its tempered now by a new administration that is trying to get its real first budget in place, and is trying to figure out what does it take to legislate that and their learning curve is high at the moment and will get better overtime.

Does that help?.

It does and I just have a quick one for Tom upon still here.

Tom just on NSS and on Six3, just some sense of what the organic growth is there?.

So Mark, I think I will go back to Six3, we did the acquisition quite a while ago and its than fully integrated into our business and so you have seats even attempting to track it or even asked that question.

And I think for NSS again a similar situation, fully integrated business, the business are performing well, but we do not through that level of tracking..

Yes, Rob this is John. When we bought NSS in two marketer is that was crucial to Enterprise IT, our Intel Services business and shortly after we close on that in February, we quickly moved those programs and that entire pipeline into the core CACI market. So that’s a real tough measure for us to actually carve back out NSS in those two markets..

The next question comes from Sheila Kahyaoglu of Jefferies. Please go ahead..

Hi, good morning all, thanks for taking my question. Just the first one on margins. They were slightly under development given just the better top line what came in much better than I thought.

What else impacted profitability aside from 20 best supplier out of expense and as we head into 2018 what are the drivers we should be thinking of on EBIT margins?.

Sure, so Tom went through some of the expenses, LTIP and then what wrote down on facility. The other part of it was, we were very successful in wining a couple very large consolidation contracts, one at that ended 2016, one at the beginning of 2017. Those contributed a great deal of revenue, not a great deal of bottom line. Let me say it this way.

Our estimate for 2017 was to be about 7%, I think if we didn’t have the two items that Tom talked about, the facility charge as well as the LTIP, we would have been approximately 7%.

As we ramp up on the two consolidation contracts, which are very large, we will start to see increasing CACI participation in those as those options, get exercised and we will see that will in and of itself pull of our margin.

Third, I would tell you that, you will see an increasing component overtime, a little slower at the moment, but we have held on in terms of where our fixed price kind of levels have been, we should see that increase over a period of time.

We have a number of very key bids that will convert from level of effort, cost plus level of effort to fixed price in a managed service kind of way, some time about the middle part of this year. So that contribution overtime will also be driving a higher gross margin and higher profitability..

Great, thank you. And then one more if I may.

Your DoD revenues in the quarter were up 5% and several was down 2%, maybe I know civil has been strong up until now, but maybe can you talk about some of the drivers that were less than the decline within all those things?.

Yes, good, this is Tom. Yes civil was down a bit, there is a number of different agencies within this civil buckets kind of DHS, Department of State, the CIA is a civilian agency. So there is no kind of singular contractor piece of brokerage is driving that.

It’s a series of kind of puts and takes, kind of throughout that in a subset of some of the customers we serve. So in our mind the distinction between. civil and DoD is a bit artificial, although we do report them. At the end of the day, our focus is on kind of National Security.

A lot of the civil work we do is focused on National Security as well as helping the Government to be more effective and efficient, business system EIT, across the entire Government enterprise..

The next question comes from Joseph Vafi of Loop Capital. Please go ahead..

Hey guys good morning. Just one question for me today.

Was just wondering at a high level if you could discuss how new advance technologies like cloud and perhaps other Internet technologies are changing some of the contracts that you are seeing coming out of the DoD and out of civilian side in terms of structure, in terms of how the contracts are going to be serviced or any other notable characteristics these new technologies are bringing to the contract environment? Thanks..

Yes, Joe. This is Ken. If we take cloud, cloud really takes the owners of the customer of having their own infrastructure, they can concentrate then on - we get somebody else that’s building cloud infrastructure and deploying that worldwide. They do that in a much more efficient scalable economy of scale basis.

Then the organizations that used to spend a heck a lot of time managing that, managing newer networks, managing all those other things, then get to focus on what the value-added propositions are of having that kind of virtualized environment that they can work on. So they then focus on their apps, they then focus on their data science.

And to be frank, we then do not have to depend on short-term or kind of mid-term I should say changes in technology in order to drive that. You got a technology base, all that’s going to be done by an outside provider. And pretty soon you become the person that helps the customer as a systems integrator like CACI as in some of our [competimates] (Ph).

We have the mission knowledge then to take that lower cost of ownership and turn it into a lot more value.

As you think about this is kind of a fun topic, I don’t know how much time we have, but if you think about where we are going not just with cloud but let’s talk about the Internet of Things now, it used the mixed end of fortune on building exclusive sensors and explicit platforms to carry those sensors.

And then you spend less money on the front-end processing of the information that was coming out. We would only be able to get a partial look of what data was being collected, because we could collect so much. Now we are going to collect an infinite amount more. And all are processing power now can be virtualized.

If somebody else can do that, you don’t have to spend any money doing it. You spend all your time on mining, turning that data into information that then [indiscernible] enterprise, whatever it is, your mission may be. And so that’s obliviously the exciting part of that.

I think what we will see in our own world the things that we are concentrating on now, we have got some exciting stuff is, when we use to put sensor system on a ship, now we can do it with a radio. We can basically do it in software.

And so I think increasingly doing things on any piece of hardware as long as it’s got reasonable capacity is going to benefit by advanced software capabilities.

And so modernization of our capabilities is not going to be depended on building a new piece of hardware or something else, but simply writing some pretty slick code that takes advantage of existing processing power or even a different way of doing it.

We saw a demonstration just a few weeks ago, where our guys were using machine learning on particular intelligence problem. And by the time they were done over the course of a couple months, we were predicting what a bad guy was going to do by simply work their patterns of behavior.

Instead a waiting for them to do something and then try to go back and figure out what they did. Now we can predict what they are going to do based on their patterns of behavior. And I think that is going to be a very powerful tool for our National Security going forward. So sorry it could go on and on but I will stop..

Thank, it was helpful..

The next question comes from Tobey Sommer of Suntrust. Please go ahead..

Hi this is Kwan Kim on for Tobey thank you for taking my questions. First off, what is the average duration of recent contract awards and has it lengthened at all recently? Thank you..

Kwan, I don’t think we have had the exact number, but I could tell you that when we were back in 2013 and 2014 we were seeing some very short-term contract behavior, we think that’s more normalized now. We have seen a number, in fact we won a couple of seven and eight contracts here recently.

And there is a couple of other ones that are in our future that are 10 year. So I think that with a little bit more understanding about how we were going to budgets and the like, in learning how to work with the Budget Control Act we sort of seeing contract terms somewhat lengthen out..

This is John. I'll add also that when we were going to better buying power 1.0 and 2.0 in our professional services where those contracts have been awarded, they were being re-competed on a much more rapid scale. We are now seeing those period start to go back to the three to five year period, so which has been very positive for us.

It does tie into some of our comments earlier around getting a quicker handle on some of our re-compete or avenue..

Got it, that’s helpful.

And secondly, sorry if I missed this, what was CACIs addressable market growth in fiscal 2017 and the most recent quarter?.

So from 2016 to 2017 think of it as - I believe it is about 1.1% at the addressable market and over a five year average which is what we based are thinking on our 2017 plan on, we saw about 1.4% CAGR over five year period starting in 2016..

The next question comes from Brian Ruttenbur of Drexel Hamilton. Please go ahead..

Yes, thank you very much. Major competitions seems to be ramping up their business development departments.

It doesn’t seem to impact you guys yet with your strong bookings, but can you talk about that what you are seeing on the competitive landscape anything changing, we have seen [indiscernible], I mean I can go down through the list everybody seems to be reshaping, hiring, focusing on growth. You guys seem to have led the way that.

Can you talk a little about the changing landscape that you see out there in the bidding activity?.

Well I think there were different sorts of strategies that people took when we saw the decline in the budget and one of them was get incredibly low cost and cut off everything and what we decided to do is invest in good companies and pay decent dollars, willing to position for the future and invest a great deal in our business development organization.

Because the only thing that going to get you out of the downturn and we can go back for the downturn in 1990, 1991 where people either bought companies or invested aggressively in business development. That was at the prime level and the ones that did the best of that they can now - when the budget starting to turn up they did a lot better.

That was basically our predicate for when we entered into 2018, really we strong at business development, look for enduring contracts, hire the absolute right kind of talent, stop rolling the rubber chicken dinners thinking that was marketing and really concentrating on what customers want and when do they want it, how they want it.

So that’s been the key to our success and we expect the market to be competitive, I also expect the market to be bigger and so I don’t know how that’s going to even out.

I do believe as well by-in that we will continue to see some consolidation in the market, so there may not be as many players, as time goes on, so less player, bigger market, great business development engine. I kind the like where we are..

Thank you..

The next question is a follow-up from Jon Raviv of Citi. Please go ahead..

Hey thanks for taking the follow-up.

Tom could you just update us on the other large opportunity, I think you flagged on the previous call, still see that coming in January, February timeframe?.

Yes Jon, the last information we have from that customer as we are looking for January to February work date that has not changed. I would tell you, I would like to see that anywhere between the December timeframe and the March timeframe..

And can you just give us sense for the kind of work that it is solution and consolidation related to new priorities by this administration, what kind of stuff is it?.

Yes. So being our enterprise value, seeing market more around moving from traditional help that support more into a managed services type of arrangement..

The next question comes from Cai von Rumohr of Cowen and Company. Please go ahead..

Yes, thank you very much guys. So historically your gross margin has varied inversely with ODC and ODCs go up, gross margin goes down and you have had two years with ODCs going up as a percent of COGs particularly this last year.

I believe you said that ODCs would be stable next year as a percent and then we don’t have the drag of the LTIP charge and I think you mentioned the bids converting to fixed price presumably should be more profitable.

What is the opportunity that your EBIT margin could be at the top of your up 10% to 30% range or perhaps a little bit higher?.

Yes, Cai I think the observations you point out are kind of good observations, kind of ODC given the contract structure that we have often come at as kind of lower profitability than kind of direct labor.

This year in FY 2018 we expecting DL and ODC to grow comparable rates in heads that drive the kind of margin guidance that we put out there, or the implicit margin guidance that we put out there. What would drive it higher is our ability to kind of drive more direct labor proportionately.

John mentioned kind of the importance of direct labor and our focus on direct labor. John also mentioned a few other important areas, you know fixed price, products, et cetera.

John, anything you want to add to that?.

Yes, I think the other element to this Cai is we have talked about professional services, talked about managed services, or just talked about solutions and you heard us talk about contract types, trying to more from cost plus to fixed price.

I think some news that we are seeing in last a couple of weeks is rather exciting as well which is the current administration providing a SECTF with the authorities to protect DoD basis from drone incursions.

So if you think about our large suite of electronic warfare products and solutions and you think about defending CONUS based DoD installations from drone incursions where we believe that we will see an additional uptick in our product based business as well which as you know build it once, make some software definable changes, we can address many more customer needs on much more rapid basis and at materially higher margins.

So we would expect it 2018 and beyond as we grow our product line in the EW area that would also tend to drive us towards the higher end..

Yes, Cai. If I could just to add real quick. I think that overtime a business like this that’s focused on solutions and services should be approaching low double-digit margins, if it were optimally configured.

And that’s going to take one or two really incredible programs that are - where are going to take a little bit of risk, but the reward is going to be there and that begins to add to the overall portfolio and the path that we find ourselves on..

Just one follow-up. I think John you mentioned JIDO would be front-end loaded in terms of ODC related work.

Should we expect the pattern of quarterly results in the year to have higher ODC growth and therefore a little margin pressure early on in the year and then better margins as we get to the second half?.

Yes, Cai, if we look specifically at JIDO I mean we will see those pretty much normalized throughout FY 2018.

I think I mentioned earlier we were successful at putting a couple of new SECTF quarters on there, which will drive higher margin on that work, but the proportion of how much initial contract consolidation work, it’s still far exceeds what it is we are doing on the task score basis.

I would say through FY 2018 sort of I think Tom used a term ambient, more of a level over the course of the year..

Yes, but that being said, we expect to have a slight drift up in margin from the beginning of the year to the end of the year. Then on top of that we have our award fees layered on those and some seasonality layered on those as well, so those are the pattern..

The next question is a follow-up from Krishna Sinha of Vertical Research Partners. Please go ahead..

Hi, I just wanted to ask on your M&A pipeline. Are there any particular focus areas of customer, such you are trying to build through acquisition as you go forward. I know in the past you have mentioned they have apps and space and a few other things.

Is there anything you are seeing out there that you are interested in? And what the timeline looks like for maybe a new acquisition?.

Yes Krishna, this is Ken. So as we go onto market line, we really developed each one of the strategies to look for ways to fill gaps in terms of capability about where we think that particular market is going. I mentioned in one of my answers I speak to one of the questions, talked about what we will do with machine learning and things of that nature.

In general we are going to look for things that are technologically differentiating. There is a number of key companies out there not necessarily large that has some pretty remarkable technologies that we think could be applied over a broader scale.

And they themselves need companies such as us that have broad reach and broad customer channels that would allow that to happen more quickly. In particular I wouldn't expect us to go buy something for the sake of just adding to growth, because now that we have returned organic growth that’s our number one priority.

The kind of acquisitions that we will make and in terms of timing that depends, it really depends on when we could find the right kind of cultural fit, financial fit and make sure that we wedded each of those companies appropriately. I wouldn’t be surprised for us to make a series or a couple of small ones sometime in the FY 2018 timeframe..

And this concludes the question and answer session. I would like to turn the conference back over to Ken Asbury for any closing remarks..

Well thanks Kerry, and thanks for all your help today on the call. We would like to thank everyone 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 and Tom Mutryn, Dave Dragics and Dan Leckburg are available for calls later this morning and throughout the day.

So thank you for your interest in CACI International. This concludes our call. Have a very good day..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day..