CACI International Inc (CACI) Q4 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Fourth Quarter Full Year 2012 Conference Call. Today's call is being recorded. [Operator Instructions] 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, and good morning, ladies and gentlemen. I'm Dave Dragics, Senior Vice President of Investor Relations at CACI International, and we're very pleased that you're able to participate with us today. Now as is our practice, we're providing presentation slides, so let's move to Slide #2 and about our written, 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 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 Dan Allen, President and Chief Executive Officer of CACI International. Dan?

Thanks, Dave, and good morning, everyone. Joining me on the call this morning are Tom Mutryn, Chief Financial Officer; John Mengucci, Chief Operating Officer and President of U.S. Operations; and Greg Bradford, Chief Executive of CACI Limited in the U.K. Let's go to Slide 4, please. Yesterday, CACI announced another quarter of solid performance, capping off a fiscal year that saw us achieve record levels in revenue, net income, earnings per share and cash flow from operations. We also achieved record awards and funding orders in fiscal year '12. Tom and John will discuss the details of these results shortly. But first, I would like to take a few minutes to share my perspective of CACI, our top priorities and how we expect them to drive shareholder value in the future. As you know, I joined CACI about 18 months ago and became CEO on July 1. I knew when I joined the company that CACI was an agile, high-performing company with a reputation for focusing on client success. What has impressed me even more in my time here is just how broad our client base is and the range of systems and services that we are providing our clients today. There are several important and differentiating elements that I believe will drive our future performance, and I would like to highlight a few of them. First, we have a large and established client base providing a steady stream of new opportunities. Because we offer a broad range of information solutions, service and product to these clients, we maintain a large addressable market. We are executing on roughly 2,200 ongoing contracts or task orders. Our new business win rate and high recompete win rate allow us to continuously refresh our current program and add new business across our platform. This large addressable market provides us room to maneuver as we see opportunities while the diversity of our clients and contracts minimizes the risk associated with any individual program. Our record of program performance is another major differentiator for CACI. As you have heard us say many times: Once we win the business, we execute on it extremely well. This commitment to operational excellence leads to trusted client relationships and a consistently high recompete win rate that protects our base of existing business. Our ability to manage complex program successfully is and will remain one of the keys to our success. And finally, I believe CACI's culture is a real differentiator and an important contributor to our performance. Our employees uphold the highest levels of ethics and integrity. We streamline processes wherever possible to ensure we operate efficiently and effectively. Even as the company has grown, we have retained our flexibility and responsiveness to our clients. We maintain an entrepreneurial spirit that focuses on understanding our clients' needs and quickly adapting to meet their evolving missions. We empower our program managers and our frontline employees to make decisions that affect program performance and customer satisfaction because they are the ones who know best how to address client issues. This decentralized approach creates an institutional agility that I believe sets us apart. Of course, these elements alone don't create long-term value for our shareholders. To do that, we must continue to grow the top and bottom line, generate cash and deploy our capital wisely. Let's go to Slide 5, please. As we look to the future, the CACI leadership team and the Board of Directors are committed to building a leading information solutions and services company dedicating to safeguarding our national security and supporting government transformation. We believe we have a clear path for growth that will enable us to perform at the top of our industry while maintaining our core culture. I am confident that our approach will enable us to deliver long-term value to our shareholders. We have examined CACI's addressable market of approximately $235 billion and identified 10 market segments that are high-priority missions for our clients and where we believe CACI has the greatest opportunities for growth. Through this business platform, we are able to rapidly shift people, investments and other resources among these markets, ensure that we remain closely aligned with our clients' highest priorities at any given time. This nimbleness across our markets is one of our competitive advantage and feeds our organic growth. John will dive deeper into our addressable market segments in a few minutes. Throughout our 50 years, we have been known as a services company. And over the last couple of years, we have seen the expansion of systems development work in our client engagements. And we expect information solutions, that is, the integration of systems development and services work, to be a growing part of our business base in the future. Solutions work leads to long-term client relationships and built-in follow opportunities, and CACI is a leader in the industry in our ability to partner with our clients on these projects. Layered on top of our organic growth focus is our strategic mergers and acquisitions program, which we believe is one of the best in the industry. Over the past 20 years, we have completed more than 57 acquisitions, and we believe that successfully integrating companies into CACI is a core strength of the company. These acquisitions have brought important new capabilities, clients, executives, employees, markets and solutions to CACI. Our recent acquisition of APG and Delta Solutions are examples of how we use M&A to support our long-term growth objectives. APG boosts our capabilities in the Oracle E-Business Suite, and Delta Solution expands our SAP and Momentum System capabilities. Both of them provide CACI core capabilities that enable the growth of our Business Systems market segment and support our government transformation activities. We expect to continue to use strategic M&A in a disciplined way to complement our organic growth, ensure we will remain aligned with our clients' highest priorities and create sustainable, long-term organic growth. In addition, we are committed to creating shareholder value by making smart decisions on a corporate level. We maintain a lean cost structure and ensure that we operate efficiently. We seek to allocate our capital wisely through a balanced capital deployment strategy that includes M&A and the return of capital to our shareholders. This combination of growth, cash generation and capital deployment is designed to create share -- significant shareholder value over the long term. Let's go to Slide 6. We know there are challenges in our marketplace today. Tough macroeconomic conditions are affecting just about every U.S. company. In our industry, we are faced with budget uncertainty and a threat of sequestration. CACI has been through tough economic and budget cycles before. We know what we need to do to maintain performance in all cycles. These critical elements of differentiation, our large and diverse client base, our commitment to operational excellence and our unique culture will help us navigate through the current uncertain environment. As the potential for sequestration continues, we are taking steps to mitigate the financial and operational impact it would have on CACI. In the meantime, our forward indicators are strong. We are well positioned in our addressable market segments, and our commitment to our revenue and net income goals remains steadfast. With that, I'd like to turn the call over to Tom for a discussion of our financial results. Tom?

Thank you, Dan, and good morning, everyone. Let's go to Slide #7. We are pleased with our strong revenue earnings and cash flow performance in FY '12. As expected, our fourth quarter revenue declined 1.5% from last year, primarily as a result of an 11.8% reduction in other direct costs. As we have indicated in the past, we have focused our efforts on growing direct labor, which is significantly more profitable than our ODC activity. Direct labor grew by 8.6% in the quarter and 10.1% for the full year. Organic direct labor grew by 3.7% in the fourth quarter and 5.6% for the full year. Since last year, we have been reporting results on a pro forma basis to remove the impact of adjustments related to contingent considerations for 2 domestic acquisitions we made in fiscal year 2010. Slides 8 to 9, please. For the quarter, pro forma net earnings increased 6% and pro forma earnings per share increased 24.1%. This greater increase in earnings per share was driven by a 4.6% -- 4.6 million decrease in diluted share count, primarily as a result of our August 2011 and June 2012 share repurchase program. Slide 10, please. We achieved record cash flow results for both quarter 4 and the full year. Our operating cash flow for the quarter was $122 million and $267 million for fiscal year '12. Our free cash flow for fiscal year 2012 was $248 million or about $8.84 per diluted share. This translates to a free cash flow yield of 16% per share at a $55 share price. I do want to point out that our fourth quarter cash flow increased about $30 million due to a required reclassification of outstanding checks as payables. In prior periods, when we maintained a larger cash balance, outstanding checks were recorded as reduction in our cash balance. Our net debt at the end of the quarter was $524 million, and our net debt to trailing 12-month pro forma EBITDA leverage ratio was at 1.5x. Our leverage ratio has increased with the completion of the share repurchase program in the Delta acquisition. It is now about 1.9x, a comfortable level. Slide 11, please. As a reminder, 2 material items positively impacted our full year fiscal year 2012 results. The first is a onetime commercial product sale and the second is greater-than-expected profitability on a large fixed-price contract. We believe both these items were onetime and unusual and that they should be adjusted for fiscal year 2012 to create the base to better measure our performance. The net income impact of these items, along with the first quarter earn-out adjustment by quarter, is $7 million, $4.1 million, $2.3 million and $0.1 million. Slide 12, please. For fiscal year 2013, we are reiterating the revenue and net income guidance ranges we provided in June. We expect revenues to be between $3.8 billion and $4.0 billion and net income to be between $160 million and $167 million. We now expect fiscal year '13 diluted share count to be 24.1 million, reflecting the completion of the recent share repurchase. Although we completed the Delta acquisition on July 2, we are keeping our guidance ranges unchanged since it is still early in the year and the additional revenue and earnings from the Delta Solutions acquisitions keeps us within our guidance ranges. Let me comment on our expected first quarter performance. We expect to experience typical seasonality moving from the fourth quarter of fiscal year '12 to the first quarter of this year with lower direct labor due to summer vacations and lower work days. In addition, we expect lower pass-through ODC consistent with the prior 2 quarters. Certain in-theater support work, which helps drive strong performance in the first quarter of last year, have largely ended. Based on these factors, we expect first quarter fiscal year '13 revenue to be relatively flat compared to the first quarter of last year and net income to be approximately equal to the adjusted fiscal year '12 first quarter figure of $35.2 million. With that, let me turn the call over to John. John?

Thanks, Tom. Before I provide operational highlights from our fourth quarter and our full fiscal year '12, I'd like to discuss our view of our addressable market and our efforts towards pursuing the wide range of opportunities we see in it. Let's go to Slide 13. The 10 market segments Dan referenced earlier include mission-critical markets, such as Intelligence, Cyber, Business Systems and Healthcare. These market segments listed make up our entire business platform. Slide 14, please. Among this platform, we analyze the market dynamics, the client needs, the growth characteristics and challenges in each of these market segments and pursue the opportunities that are most strategic and valuable. A key differentiator of CACI in the marketplace is the agility with which we manage this business platform. We see market forces and client needs changing and we are nimble enough to react accordingly by shifting resources to pursue opportunities and make investments across the major markets to continue our growth. At the same time, we maintain a cost structure that is appropriate for the markets we serve and enables us to deliver cost-effective solutions to our clients while maintaining appropriate margins. Slide 15, please. As our recent contract awards and funding orders illustrate, we continue to see attractive opportunities for growth in our markets and believe CACI is well positioned to capture those opportunities. So as you look at our awards and funding orders, we want you to see them the same way we do: As a successful result of our focus on pursuing opportunities in high-growth, high-priority markets and of our ability to shift resources across the business platform to adapt to changing market dynamics and to pursue growth. Let me provide some details on our awards and funding orders. In fiscal year '12, we had our best year yet for funding orders, totaling more than $3.9 billion, which is up 8.8% over fiscal year '11. Our fiscal year '12 awards also reached record levels and totaled approximately $4.5 billion, up 40.8% from FY '11. Our fourth quarter awards, like those throughout the year, represent strong growth in our Cyber, Business Systems, Healthcare and Intelligence markets and continued volume in our C4ISR, Enterprise IT and integrated security solutions markets. We closed the year with a total backlog of approximately $7.2 billion, a 5.9% increase over last year. In addition, our funded backlog grew 7.2% over last year as well. Both of these increases are a result of our diverse portfolio of programs and our focus on growth and high-volume markets. Let's go to Slide 16. We are aggressively competing and growing our market share by winning key contracting vehicles, investing in our capabilities and continuing to manage our costs. In addition, our strategic mergers and acquisitions program allows us to expand CACI's platform to continue our growth momentum. In fact, several new business wins are directly attributable to our recent acquisitions. For instance, in our Business Systems market segment, a $45 million contract to support the National Institutes of Health was a direct result of our acquisition of APG. And as a direct result of our Paradigm acquisition, we were awarded a role on a yet to be disclosed DoD program to provide cyber forensics and IT solutions. More information on these previously announced new business wins can be found in our press releases. We continue to see consistent award volume in both our high growth and traditional markets as well. In our Intelligence market segment, we captured $233 million in new business. In our C4ISR market, we were awarded 2 3-year awards for the total value of $154 million to provide the U.S. Army satellite communication systems. We also won 2 significant awards in our Enterprise IT market. These 2 wins awarded under the DOJ IT Support Services 4 contract provide the Department of Justice an innovative method of consolidating their IT operations and to take advantage of cloud technologies across the department. Details on those awards can also be found in our earnings press release. The breadth of these awards across multiple markets and clients demonstrates the strong foundation we have built to support our future growth. In our last call, we discussed our IDIQ vehicles, and I am pleased to report that we've secured 2 additional vehicles this past quarter in Business Systems and Healthcare market segments. These awards bring the total number of IDIQ vehicles to 65. And as our customers continue to work through budget pressures and the necessity to get cash awarded expeditiously, we believe our large and diverse base of IDIQ vehicles is a key differentiator for CACI. We also see clients in the markets we serve continue to shift from large single-award contracts to smaller incremental efforts, a trend we are well positioned for as we look to future growth. Slide 17, please. As we head into FY '13, we are confident in our outlook. Our opportunity pipeline remains very strong. Specifically, at the end of our fourth quarter, we had more than $9 billion in supported proposals under evaluation with various agencies and we expect to submit another $11.7 billion of proposals over the next 6 months. Over 1/2 of this pipeline is for stand-alone contracts and task orders, which fuel our revenue growth. In addition, our FY '13 plan calls for nearly 70% of projected revenue and earnings to come from contracts we already hold, 15% from recompete business and 15% from business that is new to CACI. Of the 15% from new business, less than 1% would come from new program starts, which are prohibited under any continuing resolution. This is the only portion of our business that could be at risk under a CR. This means that 99% of our projected FY '13 revenue will come from funds that can be obligated under a CR. This type of visibility into components of our revenue mix is one of the reasons we feel so confident in our FY '13 plan. It is also worth noting that we have less reliance on pass-through, Southwest Asia and overseas contingency operations revenue in FY '13. This, coupled with our more than 400 open staffing reqs and the growth we experienced in our fourth quarter total and funded backlog, leaves us very optimistic about our future. We are confident in our outlook and we believe our strategic focus on high-growth, high-priority areas and our agility and commitment to operational excellence positions us well to deliver another year of growth. I'll now hand the call back to Dan.

Thanks, John, and thank you, Tom, for your comments. Let's go to slide 18. As we head into fiscal year '13, we have great confidence in our vision for the future and remain focused on our operational excellence. Our strong fiscal year '12 performance in a challenging environment reinforces our belief that what we are pursue -- that we are pursuing the right opportunities in solid, high-growth segments of our addressable market. We believe we will continue to win business and grow the bottom line, and we are reiterating our guidance for continued growth in fiscal year '13. As we have pointed out, our forward indicators remain strong, and our solutions and services are aligned with our customers' priority. We are committed to deploying our capital wisely to build shareholder value in this uncertain budget environment. Before we open the call to questions, I would like to acknowledge one of the most important keys to our continued success, our people. We previously announced Bill Fairl's retirement and he will be leaving CACI at the end of this month. I want to thank him for his leadership and his efforts to build the company we have today. I also want to recognize the almost 15,000 men and women of CACI who are passionate about meeting our clients' needs and delivering outstanding performance. I am honored to work among such a skilled and dedicated group of people. I thank them all for what they do for CACI. With that, Allie, we'll open the call for questions.

[Operator Instructions] Our first question comes from Michael Lewis of Lazard Capital.

I did notice that you had a $479 million debooking in total backlog. I was wondering where that came from by contract and what was the impact by service?

Yes, Mike, this is Tom. Our total backlog is based on certain estimates we make when we get various awards. Some are single awards, some have been multiple IDIQ awards where we have some incumbency and we're able to make reasonable projections of what we expect the future revenue potential of those awards will be, oftentimes 3- to 5-year awards. Within that backdrop, on a periodic basis, we go through the backlog of awards to validate that they're still legitimate numbers. And in this case, there was probably 10 to 15 different awards where we felt that it was unlikely we'd realize that revenue potential. Each one is a separate story. Oftentimes, the government will no longer use that particular contract vehicle and shift work to a different contract vehicle. Sometimes they're scoping. Sometimes options are not being awarded and the government wants to move to small businesses. So there's no singular event and it's not concentrated on any one particular area. When I look at this number, I compare that to the awards that we received in this particular quarter and the full year. And despite the fact we were able -- we needed to reduce the backlog, it did increase because of the strong awards that we had in the year. So all in all, not a concern for us, but it cleans up some older numbers in our systems.

That's fair. And I guess the silver lining is that there wasn't a debooking in the funded backlog. My second question, on the $165 million single-award recompete that you won in Business Systems, was there a scope increase on this contract, or were there some reductions over the 5-year term?

There were -- it's a continuation of a current activity that we have ongoing to support and sustain the DoD procurement systems. So I don't believe there is any scope reductions.

Our next question comes from Edward Caso of Wells Fargo.

Could you just level set us on your visibility? You spent a good amount of time and you articulated well your forward view, but I'm just curious to how that view today matches to where you stood a year ago?

So our view today, we tend to use our addressable market space as a tool to help us give a view of what the overall opportunity is for the company. And our addressable market space with the '13 budget that was requested by the administration, and with some of the uncertainty tied to sequestration and so forth, has declined about 3%. But still, it is a $235 billion opportunity for us. And as we look at the pipeline of opportunities in the 10 market segments that we've discussed, we still see ample supply of opportunities making their way through the pipeline and that will be awarded. The uncertainty exists with sequestration and how that might ultimately play out and the further impact it could have and that's a crystal ball we don't quite have yet. But even in some of the reductions that we anticipate, we still see a large addressable space and one that we're optimistic we can go compete and win on. And these are high-priority areas. So we feel pretty confident continuing to look forward.

If you move towards the higher end of your revenue guidance range for F '13, will it be because that there's an increased pace of pass-throughs in the back end of the year? Is that sort of the variability factor in the guidance?

Yes, that's one variability factor. Certainly, higher pass-throughs, which are unpredictable, would help our revenue. The other one would be pace of the awards. In our plan, we've laid out very systematically existing business, recompete business, new awards. And with those new awards, we estimated the probability of win and the probability of delays and protests for us securing the revenue. And if some of those awards were won sooner than we anticipated or our win rate was greater than anticipated, those would drive us to the higher end of the guidance range.

Our next question comes from Robert Spingarn of Crédit Suisse. Robert Spingarn - Crédit Suisse AG, Research Division: I just wanted to go over the growth expectations for '13. So really 2 questions on the same thing. But first, I think you said the Q1 revs would be flat year-on-year?

Correct. Robert Spingarn - Crédit Suisse AG, Research Division: And does that embed the Delta acquisition and was that previously in the guidance or...

The Q1 flat embeds the Delta acquisition. Robert Spingarn - Crédit Suisse AG, Research Division: And therefore, would the organic be negative then, Tom?

Yes, it would be. And mostly due to continued year-over-year impact of the pass-through ODC revenue. We expect direct labor in the quarter to grow, but our pass-through in ODC revenue should be down. Robert Spingarn - Crédit Suisse AG, Research Division: Okay. So then that really leads to the next question, which is 3 consecutive quarters of negative organic growth. How do you get to positive organic growth for fiscal '13 as a whole in the low- to mid-single digits? And to the extent -- in your answer, maybe you could separate your assumptions for direct labor growth versus ODCs in '13.

Yes, sure. So what we're seeing are -- or expected to see in FY '13 is continued increase in both total and organic direct labor growth. That's consistent with FY '12. It should be consistent with FY '13. We have the funding to support that. We have the open reqs to support that. We're adding headcount to support that. So we're pretty confident in our ability to grow organically in total direct labor during this time period. The other piece, obviously, is our other direct costs. And what we saw in our third quarter of last year was a step function where our other direct costs declined materially largely due to pass-through revenue, largely associated with work in Southwest Asia, up-tempo, in-theater. It's going to take 12 months to anniversary that step function such that for the first 2 quarters of FY '13 we expect a decline of ODCs, primarily due to that step function pass-through. Underlying that, we're seeing a steady increase of other direct costs associated with materials we're purchasing to support some of the systems that we're putting in place as well as the ODCs, which supports subcontractor work, which are integral to some of our programs. Such that in the back half of the year, we expect ODCs to increase, not due to pass-throughs, but to other types of ODCs supporting our solutions, which we provide to our customers.

Our next question comes from Joe Nadol of JPMorgan. Joseph Nadol - JP Morgan Chase & Co, Research Division: So just along those same lines. It does seem like since you acquired Delta, since your guidance and then didn't raise your revenue guidance that the ODC outlook did deteriorate from a month ago or 1.5 months ago. And so I'm wondering if you could illustrate was that something different than what you saw in Q3, or was it just the same trend that you saw last quarter continuing?

Yes, I would not read too much into the fact that our revenue guidance did not increase with the Delta acquisition. We provide a range, a $200 million range, a relatively broad range in terms of kind of revenue guidance. We know that ODCs, pass-through ODCs, are unpredictable. We feel confident with our forecast. The Delta acquisition's adding approximately $50 million of revenue for the full year. That $50 million revenue increase keeps us within the guidance range. And given the fact that it's still early in the year and a lot can happen, we felt it prudent for us to maintain the existing guidance ranges for revenue.

Our next question comes from Cai Von Rumohr of Cowen and Company.

I'd like to kind of follow up on that. You mentioned the normal seasonal slowdown implying that direct labor would be down sequentially in the September quarter. And kind of as we look back, you also have vacations in the second quarter, December quarter and normally direct labor does not grow sequentially, which would say looks like you're growing 6%. And if you continue that pace in the second half, you come to about 5% for the year. But you need to have a pretty big step-up in ODCs even to get to the lower end of your revenue range. So is it that you kept the revenue range the same, but now we're really bunched toward the lower end because getting to anywhere above the middle of it looks impossible.

Cai, I'll take a step back and kind of explain our forecast process, which is a pretty kind of bottoms up kind of detailed forecast process. Program-by-program, we're pretty comfortable with the numbers. We can predict our direct labor relatively accurately. John mentioned 70% of our work for fiscal year '13 is known, 15% is associated with recompetes. So pretty forecastable, if you will. I think the question is first quarter versus fourth -- first quarter, flat in earnings and kind of what is driving that. I mentioned kind of one factor. Last year, we had some strength given the fact that there was some relatively profitable in-theater direct labor work associated with up-tempo in Southwest Asia, which has abated. The other factor is, besides vacation, which occurs both years, and so that's not a factor on a year-over-year basis, but the other factor is billable days. And every quarter, we look at how many billable days we have given where weekends and holidays fall. This year, we have one less billable day than we had last year and that is material for us. And so that's another factor driving us to believe that our first quarter net income should be approximately flat to last year.

So, therefore, you have 63 billable days and then you pick up the extra day in the December quarter, is that kind of the way it works?

Cai, I'm not sure where we pick up the extra billable day. Some years, we lose the billable day for the full year given how the calendars work. I was just focusing on the first quarter billable days versus last year, so I'm not sure what happens. I can get my calendar out and check and get back to you on that.

Our next question comes from Glenn Fodor of Morgan Stanley.

It's Matt Lipton for Glenn. Just turning a little bit to pricing. I'm thinking about the 30% revs that you're expecting in fiscal '13 from new business and recompetes. And can you give us your view on pricing in-house since the market's being more competitive as things get a little tighter here?

Yes, sure, Matt. This is John. So it's fair to say that we do see some level of pricing pressure. And I'm going to try to talk about pricing pressure and where we see LPTAs heading also. It's fair to say we've always been in a price-competitive market. And traditionally, it's been a price-disciplined market also. The way we look at these bids is every bid for us is a business decision. And clearly that has to have us firmly recognizing and focused on the importance of our margins. We'll always make bid decisions based on sustainability of the company. And most importantly, in today's market, is our ability to deliver at those offered prices. So when we look at pricing, we actually look at it in -- with 3 different elements: one, labor rate; labor hours; and then profit. And we're going to continue to manage our efficient cost structure the way that we have. So that really keeps the eye on our labor rate. We've also been continuously investing in capabilities that lower the number of labor hours and it also makes it a more cost-effective solution for our client. So if we continually invest in our capabilities and we're watching the cost element piece, we believe that it allows our clients to receive better value, gives them a much better cost-effective solution and it still allows us to retain our margins. In the LPTA area, the 2 C4ISR awards that I talked about earlier, those are both real examples of where we invested in our capabilities on 2 recompete programs. Those drove the cost of our solutions down, we were able to maintain our margins and we were very successful at winning 2 LPTA bids.

That's great. And then just a -- I mean, you guys had some fun on wins, you had some good Intelligence and Cyber wins. Are those business growing faster than the company average? And is that something just given where the government's priorities are going that you expect to continue?

So -- I'll take that. This is Dan. If we look at our high-growth market segments: Cyber, Healthcare, Business Systems. Those are growing at a faster rate than the company is growing. And we see continued opportunities there for that over the next several years, so we are focusing on those areas. The Intelligence area also grew, but not quite at the same pace of those high-growth opportunities, so -- or high-growth market segments.

Our next question comes from Brian Kinstlinger of Sidoti & Company. Brian Kinstlinger - Sidoti & Company, LLC: The first question I have is around the 15% recompetes, if it's weighted more towards the front end, the back end. Just more details on the large deals. Does that include IDIQs?

Can you repeat that one more time, Brian, sorry. Brian Kinstlinger - Sidoti & Company, LLC: Sorry, just information on the 15% recompetes. Trying to figure out if the bids are weighted towards the front end or back end. And then just more information on other single large deals in there. Does that include recompetes and IDIQs?

Sure. So the recompete revenue we expect in FY '13 is about 15%. We see the recompetes pretty evenly spread throughout the year. We don't traditionally discuss specific ones. But I know in the last call, we did talk about Mega and that's a very important recompete in our Litigation Services market. We're looking for an RFP release later this month and most likely an award in the May time frame. So most of FY '13 are one of our largest recompetes. We'll still be responding to task orders based on the current tasking. So we do feel very confident that we're doing all the right things so we can continue that relationship. From a win rate side, we always focus on 100% win rate there. Historically, we've been north of 95%. We don't see that win rate changing throughout FY '13.

Our next question comes from Jason Kupferberg of Jefferies. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Just wanted to get your view on how the continuing resolution is going to play out here. I know you made reference to it in your prepared remarks. There's been discussion around a 6-month CR to take us through March, I suppose. Is that your base case, and what kind of likelihood do you see around that? And then if you can also just comment on expectations for government fiscal year '12 budget for us? Do you think it'll be typical in terms of its order of magnitude, or will it be somewhat subdued just given the overall budget conditions?

Yes, Jason. This is Dan. From a CR perspective, the positive part about getting that put in place is we wouldn't have to worry about the risk of a shutdown, which I think is positive. For our planning purposes, we looked at our fiscal year '13 and the uncertainty of election sequestration and we planned the whole year in a CR-like environment. So this essentially falls within our plan, how we approach the current guidance. The one open area there is sequestration and how that plays out. And I think we've spoke about that before. The budget flush is something that we are anticipating. We're seeing evidence of that and we're actually slightly encouraged by our Q4 funding and awards. And in discussions with some of our clients, their interest in accelerating, pulling some things forward to getting them awarded and getting task orders on contract and funding obligated that we expect to see something very seasonal that we've seen over the last couple of years. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Okay. And then just in terms of the mix of new awards versus renewals in fiscal '13 versus fiscal '12. Do you expect that mix to be materially different?

Jason, this is John. I mean, we still believe in FY '13 that our mix is going to be 70% based on current work, 15% recompete and the remainder new. That's a little bit different than it may have looked in FY '12. We had a heavier recompete percentage in FY '12. So we see that coming down. So I think the way I would tell you is that in FY '13, the level of follow-on work is higher than it was in '12 and the level of recompete work is less.

Our next question comes from Tobey Sommer of SunTrust Robinson.

I was wondering if there are any changes to the mix of incentives in the incentive compensation that you have internally for employees such as the shift, I think, you made a couple of years back focusing on operating margin and profitability of contracts?

So as we look at our overall incentive program and the alignment with our long-term goals, we believe we continue to have a program that's focused on really driving that income at the bottom line. What we have done is broadened somewhat our sights on the elements of growth, winning new business and revenue generation. But it's clearly still driven by net income and margin performance. So we're consistent with how we've done things and we're continuing to see benefits.

I was wondering if you could comment -- in your prepared remarks, you talk about the increased ability and focus, perhaps, on getting solutions work with your customers. And I was wondering if you could comment about what the long-term implications could be for the P&L. Could that change any of the margin profile that historically CACI has delivered?

Yes, we think from a couple of different perspectives, the mix that we're seeing in our business from services, solutions and products have opportunity for us to continue to improve our P&L going forward. And what's driving that as we move away from the pass-through ODCs and begin to have value-added ODCs going through the business, there are opportunities there for continue to improve our margins and we are assessing each program and this is -- ties back very closely to John's comments earlier. We have to look at each opportunity and ensure we are being price competitive. But we see opportunities long-term for the improvement there, continued improvement.

Our next question comes from Mark Jordan of Noble Financial.

I just have one question and it's relative to the federal civilian sector. Have you seen any change in customer behavior now that we're facing sequestration and also the long-term stimulus funding has rolled off? This sector has not faced any cuts over the last couple of years unlike the Department of Defense. My question is have you seen a change in behavior as we're moving -- as those clients are moving towards the end of the year?

So Mark, I would say the aspects of the civilian marketplace in the market segments that we're targeting, like Business Systems, I don't think have or aren't being impacted by the items that you mentioned. And in fact, they are getting priority because of the drive to have the financial tools that each of those departments, agencies can use to manage their enterprise. And they are making those type of investments but doing them in smaller, sustained ways, which support the vehicles -- allow us to compete with the vehicles we have. So we feel very positive there. The one open area or one area that we're seeing positive impacts on priority changes is in the health care area. We do have a wide range of vehicles. We have been very successful at winning new business organically and seeing growth there at over 20% per year. I don't think we'll see a significant change at the end of this year or be impacted by sequestration.

But anecdotally, do you see that the customers are shifting funds, funding your sector well and trimming others?

I think there are aspects of each of the agencies in the federal budget that are being impacted by some of the priorities of the administration. And as they're adjusting their priorities, I believe I would say some of it is supporting these type of activities. I can't draw a direct line between something that might be happening in one part of their enterprise to funding that continues to exist or be coming in the areas that we're focusing on. But as you look, there are winners and losers in that dynamic.

Again, I would like to add, Mark, that if you look at our 2,200 programs, what that allows for us is that we don't have any large exposure in any one program, any one task order or any one federal government agency as well. So we believe, regardless of the cuts, that we've got the right balance to navigate our way through it.

Our next question comes from Joe Nadol of JPMorgan. Joseph Nadol - JP Morgan Chase & Co, Research Division: I didn't get a chance before for my follow-up. I just wanted to really dig in again to that second half rebound you're looking for in ODCs. First of all, Tom, how much of that is just easier comps, which I know you already referenced? But how much of that is easier comps and how much of it really is a pickup that you're looking for? And then can you give any detail on the contract vehicles. John or one of you already noted that this is not about pass-throughs as much as, I think -- I forget exactly the terminology you used, but where exactly are you looking for this? Is it S3, other vehicles? What might it be?

Yes, I'll start on the question. Generally speaking, the reason for the pickup is easier comps as opposed to pickup on the underlying business. We have 2 things going on. We have a steady, reasonable increase in our ODCs associated with subcontractor labor and some of the material purchases we do with solutions and so that is somewhat constant. But we did have that step function of the pass-through ODCs decline in our third quarter and it's going to take 12 months for those to anniversary off such that if everything looks flat and we have that step function, we have continued declines for 4 quarters and then would rebound to a more normalized level. And so, essentially, that's what's happening in terms of the profile of the ODCs in the back half of the year. And John, you may want to talk about if there's any specific programs that are driving...

Yes, Joe, I don't see any one specific program. What I can tell you is that when we look for FY '13 and doing our planning, I mean, this really is an aspect of the robust planning process of looking at when we believed each award would come in and the level of revenue that we would be generating on it. One of the things that we did do in our FY '13 plan is we did account for slips and awards, timing, protests and the like. I think when you put that type of planning process in place, it naturally will move some of the revenue we may have seen in the second quarter last year into our third. But with 70% of our revenue in FY '13 already known, we don't see the year playing out in a high-risk back end. We actually look at it more of exactly the way we expect those awards to be made.

Our next question comes from Brian Kinstlinger, Sidoti & Company. Brian Kinstlinger - Sidoti & Company, LLC: One more follow-up on the 15% revenue from new business. If it's not coming from new stores, can you talk about how much comes from expanded work that you have versus unseating incumbents? And then the last thing related to that is if you hit the 15% recompetes and you hit the 15% new business, does that put you at the low end of guidance or at the mid-end of -- point of guidance or the high end?

Okay, sure. This is John. So if we look at the 15% new business content, the majority of that is new business takeaways on current government-funded programs today. We literally have less than 1% of our new business, which is purely a new, new job that would be susceptible to any type of CR. As for our win rates and what's in our plan, should we be successful on the 15% recompete and the 15% new business, we'd be at the center point of our guidance. And I think we've talked about earlier on the call that what would move us closer to the higher end is a higher win rate. Some of the timings of awards would need to move to the left. And then just some other new items that aren't in our horizon today come up and we decide to bid those and we are successful with them. So I feel very, very confident that the FY '13 plan we have puts us at the center of the guidance.

Our next question comes from Bill Loomis of Stifel, Nicolaus. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: Can you give just a couple of the stats you've given in the past, Intelligence as a percent of revenue and the year-over-year change and just explain the changes on that? And then how much -- give us an update kind of a new figure on the OCO or theater, not OCO funded but theater-related business that you expect in your '13 estimate? I know you did before, but I just want to get an update on that.

So John will take the OCO question. Let me spend a second and gather my notes on the Intelligence, so I'll...

Okay. Yes, Bill, on OCO and our exposure to the support of the efforts in Afghanistan as well as our Southwest Asia, those have not changed from our original FY '13 guidance. We're still looking at OCO funding somewhere in the $125 million range, looking at Southwest Asia work at around $250 million, about $150 million to $160 million of that being our work in Afghanistan. And another topic we always talk about, our pass-through ODCs, are looking somewhere in the $300 million range. So nothing has changed since our FY '13 guidance call on that end. Tom's taking a look at the Intelligence growth.

Yes, I have that. Bill, for the quarter, our Intelligence, as a percentage of total revenue, was 40.9%. Intelligence revenue actually was down a bit versus where it was in the fourth quarter of last year. And let me comment upon how we define Intelligence revenue. It's a combination of the national, 3-letter intelligence agency at a national level intelligence as well as some military tactical intelligence. And under that bucket for us, some of the Army CECOM work, the S3 work, is in that particular bucket. And you flow down one level down, some of the ODC pass-throughs, given the level of security clearances associated with securing that work has been classified in that particular broad bucket, so the reductions kind of generally are due to some of the S3 pass-through type of activity in terms of the kind of national intelligence, that business continues to grow nicely. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: Anyway, in the future you could give us kind of a new breakout of intelligence excluding S3 and CECOM-type work?

Yes, that's a good observation. We've been thinking about kind of refining that definition to provide a different level of insight to you.

[Operator Instructions] Our next question comes from Michael Lewis of Lazard Capital.

Tom, I was wondering, 3 things: Number one, acquisition revenue embedded in fiscal year '13. I'm writing a rough estimate right now of around $85 million to $95 million. Also, could you give us what your expected share count is in Q1? And then, finally, are you still forecasting S3 at around $650 million all-in, and of that $650 million, what is overseas versus U.S.-based domestic work?

Okay. Our share count in Q1 should be approximately 24.1 million. Your estimate with regards the acquired revenue is kind of spot on. We're anticipating $85 million to $90 million of acquired kind of revenue in FY '13. And I'll turn over the S3 to John.

Yes, Mike. It's probably worth spending a little bit of time talking through how we see S3 moving forward. We finished FY '12 in the $825 million range of S3 revenue. That was compared to about $785 million in FY '11 and we're looking at about $650 million in FY '13. So as we discussed in our guidance call, we believe that we continue to see the movement of task orders off of S3. So with all that moving on and off, it's going to make comparisons in the future to past quarters tougher, so we'll have to work through that in our future calls. But it's probably worth stating again that we service many clients under S3. Tom mentioned some of our largest being the U.S. Army in the RDECOM and in the CECOM area as well as Special Operations. And the way I've been able to look at S3 is I also further separated that work into CONUS and OCONUS work. So as we mentioned in our guidance call, we are beginning to see the reductions in our OCONUS work and that's in support of the activities in Afghanistan that are really aligned with the government's plan for drawdown and squarely in line with FY '13 guidance. What's also evident is that we've seen no reduction in the requirements or the funding from our core S3 customers in the CONUS work that we are currently doing and those, as well, are in line with our FY '13 plan. So we expect to continue supporting clients on S3 and other IDIQ vehicles. We've also gotten some questions around what would the impact of sequestration be on S3. So it's probably worth mentioning that on all of our multiple award IDIQs, those are available to a wide range of clients. So we talk about a robust planning process. We assess all of those impacts, not at the S3 top line, but every individual task order. And we really believe that the portfolio of task orders and the like give us a lot -- even more confidence that we'll achieve our FY '13 plan. So probably more than you were asking for there on S3, Mike. But I really want to try to set the stage as we move forward that a quarter-to-quarter comparable on S3 we're going to have to talk in slightly different terms.

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

Thanks, Allie, for your help today on the call. And we'd like to thank everyone who dialed in or logged on for the webcast for their participation today as well. We know that many of you will have follow-up questions, and Tom Mutryn and Dave Dragics will be available to take your calls shortly. So this concludes our call. Thank you and hope everyone has a good day.

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