Ladies and gentlemen, thank you for standing by. Welcome to the CACI International Third Quarter 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 the call, we are only taking questions from the analysts. At this time, I would like to turn the conference over to Dave Dragics, Senior Vice President of Investor Relations for CACI International. Please go ahead, sir.

Thanks, Nicole. And good morning, ladies and gentlemen. I'm Senior Vice President of Investor Relations of CACI International, and we're very pleased that you're able to participate with us today. And as is our practice, we are providing presentation slides. So, let's move to slide number two. Now, 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'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. So let's turn to slide number three and to open up our discussion this morning here's Ken Asbury, President and Chief Executive Officer of CACI International. Ken?

Well, thank you, Dave, and good morning to everyone. Thanks for joining us to discuss CACI Internationals FY '17 third quarter results. With me this morning are John Mengucci, our Chief Operating Officer and President of U.S. Operations; Tom Mutryn, our Chief Financial Officer; and Greg Bradford, Chief Executive of CACI Limited, who is joining us from the UK. Let's please turn to slide four please in the deck. Last evening we issued results for fiscal year 2017 third quarter. Record revenue and contract awards highlighted this quarter. Net income and operating cash were also quite strong. We also raised our full year guidance, reflecting higher demands for our solution and services throughout the year. I want to thank our employees for yet another quarter of strong performance, through dedication, commitment, talent and ethics that drive our results. During the quarter we won a record $1.4 billion in contract awards, this is our fifth consecutive quarter of award totalling over $1 billion. We continue to win larger contracts with a focus on high priorities solutions that address the government's most pressing requirements and the results continued to confirm our market base strategy. Over the last four quarters, our awards totalled $6.5 billion, a trailing 12 month book to bill of 1.5 times over that time period. We also continue to generate significant cash, pay down debt and increased our capacity for future strategic acquisitions. CACI remains focused on the long term, invested in totalling in cutting edge capabilities in people, strategic business development and the infrastructure to support organic and acquire growth. Let's turn to page 5. A one week continuing resolution was passed last week which extended the FY '17 deadline until Friday, May 5. Since then Congress came to an agreement on an omnibus spending package for FY…

Yes. Thank you, Ken. And good morning. Let's turn to Slide number 6. Our revenue at $1.086 billion was up 11.2% year over year driven mainly by the $88 million in NSS revenue. Organic revenue for the quarter was up 1.8%. Operating income at $67.3 million was up 5.6% driven by profit from NSS and strong program performance. Two items in the quarter negatively impacted operating earnings. The first is $4.7 million in long term incentive compensation plan or LTF expense. This expense was triggered by our increase top in line bottom expectations and was not previously assumed in our guidance. The LTF is designed to withstand long term growth and profitability about levels of other incentive plans with metric sedentary challenging levels over multi-year periods. These accruals relate to performance under the 2016 plan for fiscal year 2017. The second item is one which we mentioned in the December quarter earnings call $3.1 million of expense associated with rightsizing certain facilities with the most notable one being a facility we were taking with the NSS acquisition. These actions result in over $10 million and lower rent expense over the next several years. These two onetime items resulted in around 70 basis point reduction to our reported operating margin for the quarter. Slide 7 please, net income for the quarter was $40.4 million with earnings per share at $1.61 up 16.9%. Net income benefited from the same factors that drove operating income in addition to $3.9 million research and development tax credit. With our focus on higher rate technological solution much of it emanating from the fixed three acquisition, we have an increasing amount of fixed price customisation and development work which meets the R&D criteria and is eligible for the credits. During the quarter we finalised work on the tax credits for both 2016 and 2017 and reportedly benefit. Moving forward assuming no change in tax laws, we expect to realize R&D credits in the $2 million dollar annual range. These items LTP facility termination expense up in the R&D tax credit resulted in an approximate $900,000 reduction to net income or about $0.04 per share. Slide 8 please. We generated $81 million cost of operating cash flow in the quarter, more than 200% of our net income. We now expect to generate at least $260 million of operating cash flow for this fiscal year. Net debt at the end of March was about $1.2 billion and our net debt to trailing 12 month adjusted EBITDA leverage ratio is now at 3.3 time. Slide 9 please. As Ken mentioned strong demand, operating performance you know both have resulted in our increased guidance. In midpoint of our guidance now implied growth of 15% for revenue and 12% for net income for the full year. With that, to you John.

Thanks, Tom. Let's go to slide 10 please. With three quarters of the fiscal year are now behind us, our financial, operational and business development performance puts us in a good position to finish FY '17 strong and focus on delivering our long term revenue margin goals beginning in FY '18. During the third quarter awards, funding and backlog were all robust and our pipeline continues to look healthy with a focus on larger more enduring solutions business. To provide some detail around contract awards, we won 1.4 billion of business in the quarter about 40% of that was for new business CACI. This was a record amount of awards for our first - for fiscal third quarter and was achieved while the government was operating under a continuing resolution. As Ken mentioned, this is now five consecutive quarters with awards above $1 billion and our trailing 12 month book to bill ratio is 1.5 times revenue. Funding was also strong in the quarter come in a $1.1 billion and backlog now stands at $11.8 billion which implies almost three years of revenue on a trailing 12 month basis. Slide 11 please. We're in a very comfortable position to support the increase in our guidance now with 99% of our annual revenue expected to come from existing contracts and only 1% depending re-compete awards. Turning to our pipeline. We have $14.1 billion and submitted bids awaiting award with about 90% of those for new business to CACI. Over the next two quarters, we expect to submit another $10.1 billion of bids for about 75% of that for new business to CACI. On our last Investor Day we noted several market areas in which we see high demand, specifically business systems, enterprise IT. intelligence services and charter systems and support and cyber and while we see opportunities across all of our markets, these in particular will drive growth and margin expansion. All in all, I'm very happy with our performance of position in the market. We remain focused on operational excellence, delivering with high quality and customer satisfaction and our business development results continue to be industry leading. In short, our marketing line strategy is working. Lastly to echo Ken, none of this is possible without the agility, innovation, technical expertise and customer commitment of our employees. I Thank you all for that. With that let's turn the call back over to Ken.

Thank you, John and Tom I always appreciate your comments. Let's turn to Slide 12 please in the deck. Before we open the call up to questions, I'd like to reiterate how pleased I am with the performance of our team this fiscal year. We are seeing the results of having the relevant solutions, capabilities and contract vehicles to meet the current and emerging needs of our customers. The renewed commitment to enhancing America's national security and intelligence posture, coupled with our performance in FY '17 gives me a great deal of confidence in our goal of returning to consistent organic growth next year. With that Nicole, let's open the call up to questions.

Thank you. [Operator Instructions] Our first question comes from Jon Raviv of Citi. Please go ahead. A - Ken Asbury Good morning, Jon.

Good morning thanks for taking my question. Could you just address where the sales up side is coming from in your guidance. And maybe what the mixers are just noticing that deal in the quarter [ph] underperformed ODCs and didn't get as much of a bump on EPS or net income for the years, what is that?

Yes, Jon, this is Ken. I think what we've seen here in '17 - when we plan '17 we sort of planned a different profile that didn't take into some of the OP's temple increases that we've seen. So what you what you're basically saying and I think DL in the quarter was up 4% to 5% and ODCs were up in the low 20s. That's really a function of a couple things. One, the kind of - a couple contracts that we are coming - that we brought on, that we won last year that were major consolidations, the initial stages of those are to bring in existing contracts under a single contract umbrella. And we had a big team to be able to do that. So our initial contribution of participation in that program is rather small, hence a larger expansion of deal. The second is, we've seen - excuse me, a larger a larger amount of ODCs in the initial stages and John is going to talk a little bit later about how that changes over time. The second thing I would point you to is we sort of - when we were putting this plan together back in early '17 or mid '17, we anticipated that we would see - we knew we were coming to the end of one administration, but the likely successor to that administration would be - would have very similar national security policies. And as a consequence our planning was that we would not - would not see as much support activity in different parts of the world. Well, first surprise was in the waning months of President Obama's administration, we saw a surge in support to go after ISIS in a variety of places around the world. And that's what was reflected in our first and second quarter increase in ODCs, as time went on, we then got to November and a completely different administration with a completely different national security or more aggressive national security posture and ops tempo has come into play and that's what you're seeing being reflected in the higher amount of ODCs.

And then with that in mind and given sort of where the year is headed. Can you give us a sense for the base off which you expect to grow margin in FY '18. I heard you reiterate that kind of 30 basis points where do you see this year finishing up given the - I guess the mix issue...

So Jon, this is Tom. Let me just talk a little about FY '17 margin then Ken transition. As I mentioned we have two items impacting operating margin in the quarter, the facility restructuring cost in the LTP. And the LTP had a second or third quarter accrual and an additional $1.7 million fourth quarter charge given the way we account for these compensation plan, the impact is about 70 basis points for the third quarter around 20 basis points for the full year. So adjusting for this kind of margin is relatively close from the initial guidance despite those higher kind of ODCs.

Yes Jon let me add to that you know, we started the expectation of the year with the expectation in '17, an expectation of about 7 1 and as Tom just explained, if you take into account the one timers were approximately flat, were reasonably consistent with that. But what's more encouraging to me is that we've been delivering on those targets minus the one timers in a world where there's a lot more increased material purchases driven by ops tempo. I'm going to have John talk about some of those factors or to give you a little bit more insight in just a moment. As we look forward, we're confident in our ability to expand our margins 10 to 30 basis points on average, but it's a little too early to be for us to be talking about take-off points. We're still in the midst of planning. We have to finish off '17, each quarter so far as we looked at our forecast, we've done slightly better. And so I want to cheers for the team to be able to do that before our start you know putting a line in the sand with regard to where we're going to kick off. And the other thing I would point out to everybody on the call is I think we're a different business. We have a different business profile in order to deal with ops tempo increases. In the past when a customer wanted to increase the ops tempo with regard to anything, our biggest ability to respond that way was through our IDIQ to contracts which generally were material and sub-contracting pass through kind of activities. Since the basis - I mean, the balance of our business now includes a lot more solutions. We are seeing a call for higher solutions content, as well as ODCs which should help us manage margin better going forward. I'm going to ask John to give us give us an insight into that. So that clear up, I'll give you some more detail into that premise.

Yes, John, so I guess also to me the questions is around take off points and is you know we're at this time we're in the middle of our FY '18 planning. So we're working through the typical items like contract mix and re-compete revenues and margins and staffing plans and levels in the [indiscernible] and ODC makes, a new contract phasing and the administration priorities and the like. So basing nothing different than the items we always consider when we're building the following year's plans. But I thought it might be helpful to share a few specific examples of some of the items in this list as it pertains to FY '18, I think and covered one and the first would be this new administration's priorities. I mean, we've experienced firsthand since about January around the strategic shift of resources as it pertains to ISIS and cyber and terrorism and the Pacific pivot and the like, against those items we have seen as Tom kind of already mentioned, some increase relate to op tempo in several areas of the world and that's clearly driven increased demand from material buys related to those different activities. As we said in the past, we're very proud to support our customers is engaging critical national security defense missions and those ODCs do support our top line growth. And frankly those relationships grow even deeper and that drives our ability to deliver even other opportunities as we move forward. A second item would be on contract phasing and we could talk about CAMMO or about Jairo. You know first with regard to Jairo great example of a larger and enduring contract. About 900 million were to search opportunity on top of the numbers that we earlier released. Now as all of you on the…

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

Good morning thank you. This is actually Ben Cleveland from March this morning. Just a couple of quick questions regarding your pipeline. Is that you reported on slide 11 here. Wondering if you can kind of break down the pipeline that by contract size and of expected timing of awards and while those competition and especially note if there's any kind of major bed that are really driving these numbers. And then with that specifically with the $10.1 billion expected over the next two quarters it seems like kind of a significant number, so we're kind of curious what was really driving the wave or near-term opportunities pipeline?

This is Ken. Let me start. And so in the pending category is this one single large contract and the number of I would say a significantly large contract. And then the rest of it is made up of other large contracts. So our strategy for the last four years has been to bid less to bid more to bid more of you I should say and the bid jobs that are of more complexity which is consistent with our consistent with our ability to deliver them. So we have a chance to deliver or to bid for more from fixed price work, we want to take that because we're actually very good at delivering on firm fixed price work. And what you'll see and what you have seen over the last two to three years is a steady increase in the size and complexity of the contracts that we've been bidding. The context that we're looking at in the future again reflect that theme, although maybe without the single large potential award that is reflected in the pending category.

This is John. So I'll add that, you asked a question about that $10.1 you know about 35 % of those are going to be for new for new business and since those are jobs that we're about to submit, it's been our practice not to share too much on an individual area. But I can tell you that the market areas, the business systems, enterprise IT, intelligence services and Intel systems and support are actually very heavily weighted in that $10.1 billion that we expect to submit by June.

Very good. Thank you, guys.

Our next question comes from Krishna Sinha of Vertical Research Partners. Please go ahead.

Hi, guys. Thanks for taking my questions. On cash flow kind of a quick two part question looks like your CapEx is trending at maybe double the rate it was last year something like 1% of sales. What's driving that? I don't know if you guys talked about that earlier but I'm curious.

Yes. So we're being guided for the year guidance around $30 million in CapEx versus prior run rate of about $15 million as you pointed out. The increase is driven by facility expenses, we've been doing a lot of work reducing in optimizing our facility footprint. We exited relatively large facility. I resolved to make the modifications to existing facility to restructure the work environment, and so that has been driving. Now with $35 million is our CapEx to date are higher than we originally planned. And that was driven by some additional facility expense. We want CAMMO, John mentioned that what we need to do some silly thing there. We had some adverse weather down in Fayetteville North Carolina required us to deference to some facilities there are some internal ERP system. Those are generating those kind of one time CapEx, going forward as we get into '18 I suspect we'll get to a more normal life, will provide more information in June.

Okay. And then those were about in the high 50s this quarter. How sustainable is that going forward? And what's the kind of normalized underlying run rate for that.

Yes so we're getting it that they were very happy with the heritage. So we you know we've got a team sport. We perform the programs we enjoy creatively. We gave approval to the invoices we send off the bill. You know we have a good relationship with the contracting with the payment agencies. So that's positive. In theory those are way down. We know some of it is in our control some of it's not in our control I'm comfortable with what we're doing in our control. You know oftentimes we see issues with regard to pay or paying agency you know kind of staffing levels you know how many days you go into like you know I would suggest a 60 day. So you know kind of the low 60s is kind of normative or you will strive to get below that but I'm sure you will be able to deliver on that on every quarter given you do certain things which are not in our control.

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

Yes thank you very much. So some of your competitors have mentioned that they saw delays in contract awards because of the slow filling of [indiscernible] and that on some programs basically the funding was curtailed because of the CE ad yet you know the revenues continued so book to bills were artificially depressed that doesn't seem to be the case with you. But did you see any of those trends in your business.

Cai, this is Ken, I don't believe we have seen the same sort of trends, we have certainly seen some variability even in smaller programs where funding in and there's some question about in that it had on a very minor scale some impact. I will tell you probably the single largest impact that we have seen and is the clearance processing activity through you know through the adjudication by the government we need I think as an industry this is frankly for the country it is a problem we sit today with somewhere between eight and nine hundred positions that we could fill that are waiting at various stages either for initial clearance processing or just crossover. And we are doing a variety of things both as a company and as an industry group to try to work with our customers to be able to deal with that. But as you know we had a record quarter for our awards this quarter and so I did say that we saw that kind of slowness. I don't know if that's reflective of where we sit in the market versus others but you know clearly I like the trends that I see towards our business base now and into the into the near future.

Thank you. And then John you mentioned contract phasing and you gave some specifics on Chido what said but you mentioned CAMMO. What should we look for in terms of contract phasing CAMMO?

Yeah, Cai. Okay, thanks. So you know we've got about eight months under our belt on camera CAMMO now, so you know that was a program coming up like '17 that we had a plan that contract phasing in as well. You know I would I would tell you we're probably we're 85% to 90 % of fully staff there. So unlike what you saw in FY '17, FY '18 you should start to see a full year impact both top and bottom about bottom line from our efforts on CAMMO. So really, really nice - nice start-up and a very happy customer.

Our next question comes from Brian Kinstlinger of Maxim. Please go ahead.

Hi, this is actually Josh for Brian. Thanks for taking the questions. Can you just maybe provide some color on any emerging trends in the mix of contract types in the company's pipeline? Then similarly do you expect any trend suggesting maybe lengthening of contract terms overall given the more favourable budgetary environment? Thanks

Yes, Josh. This is John. I guess on the first on the on the last question actually I have a kind of you read the back part of that question.

Yes sure. I was just wondering I guess if you know given a more favourable budgetary environment if you expect to see maybe contract terms extending overall maybe to a more and more closer to a three to five year average that we saw prior to the budgetary Control Act of 2011.

Yeah, great. Thanks Josh. Yes so what we've experienced and I would say over the last maybe 10 to 12, 12 months is we are starting to see terms in our services and our solutions world started expanding only when LPT came out better buying power, you know one 1.0 came out with an absolute drive to shorten the terms of the professional services contract because that allowed the government to continue to drive down prices. I think what the government has gotten themselves to is a more balanced norm of how to buy a professional service. So we have seen and we believe over the longer term some normal factoring coming back. So today we're somewhere average across professional services about 28 36 months. We would expect that to at least get up to three to three to four years.

Great. And then maybe just a quick comment on the mix of contract types. You know emerging in the company's pipeline in any trajectory you're starting to see there. Thanks.

So as we've mentioned we have been looking to move the company over time to more solutions lacework versus professional services work. And as we talked about in the past it is a knob and not a switch. So we did very slowly dial that over time as our capabilities grow our solutions. We would like to see the balance of our top and bottom line driven by that. As for specific numbers you know if I looked at the fourteen point one billion of pending awards as of a ten point one it does trend more towards solutions than professional services. And I also say that with the acquisition of LTE and assess the amount of managed services work and our enterprise I.T. work has gone up and that was one of the critical factors of that acquisition.

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

Hi. This is Kwan Kim on for Toby. Thanks for taking the question for. As you provide more solutions work and with the trend of moving away from LPGA contract, has there been any changes to the way small businesses fit into strategy and do you think we could see a shift in the small business requirements in the near future. Thank you.

Yeah great question and I think you know I think small business are a huge part of the defense and intelligence industry and we certainly saw that come into increased prominence over the last in the last administration. I don't see that really shifting in. I think it is important that we figure out the proper ways to team. We have seen some cases where there were contracts that were put in place that were switch to small business that were probably not fair in terms of asking them to be able to do things. But you know in terms of overall capability and End complexity but there are a number of course we depend on our small business partners particularly in some of the very, very advanced technologies to help us think through things. There's working small but working smart is something we want to take full advantage of. But I don't see I don't see a recidivism or I mean name going back in terms of what the government's going to want to do. I see opportunities to say do more but maybe contract with small businesses in different ways that are more reflective of their ability to perform the business.

That's helpful. Thanks very much.

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

Yes, thank you very much. It appears that you guys are gaining market share with their strong bookings. I wanted get your all's opinion on where the market is going in and what you're doing differently. If in fact you are gaining market share it just appears that way versus your peers so if you can address that and then I have a follow up question.

Sure. Well you know what we've been doing is focusing on the same thing. We felt that it was really important to emphasize the talent and you know kind of expand our talent in our business development we were we were going to have to grow our way out of the contracting market once we seek restriction. We did that in a couple ways we acquired two companies that put us into completely new markets and allowed us to continue to expand in places that we felt were going to be incredibly relevant as time went on and become less dependent on just conflict related activities to try to find the more enduring pieces of the market that were always going to be valuable when we went to the market strategies that really took us to a different level instead of organizing by customer. We were able to concentrate our talent our tools are all of our emphasis and then be able to pick and choose between the increasingly larger contract base that we saw in each one of those areas and in some cases that's worked very well and in other cases where the markets receded we've been able to maintain. In other words there are some areas where logistics in material readiness about five years ago was probably the single largest market in the federal government that's come back a great deal since Iraq and Afghanistan and Iraq got away largely in Afghanistan has been reduced. It allowed us to apply resources to the areas that we thought were the hotter pieces of the market like Enterprise I.T. business systems Cyber Intelligence Solutions. So you know honestly there's no secret sauce. It was just being religious and disciplined about how we talked about going and doing it we did. But we added some new folks to it. We added some new incentive programs like you don't have to get people out there. Comfort zone and allow them to take on and just think that there were bigger goals to be achieved. And this year this quarter actually we saw a little bit of that come to come to fore. We'll see if it keeps going. But it certainly contributed this year.

Okay. And then as a follow up I'm just trying to drill down and try to figure out your long term growth trajectory and figure out you know where '18 is going. I know your and I can make specific comments but maybe you can talk a little bit about your long term growth. Is it going to be 3% 5 % what are you seeing out there and then CapEx for '18? I know it's inflated and '17 but is again revert to the norm and '18 maybe $15 million to $20 million?

Yes, let me take this assets question. It will revert to the norm in probably closer to about $20 million. So things are getting very much bigger organization than we were a few years ago. When you're around $15 million a year, we think you know that be great for planning for that point in time and be finalized and we'll have more insight as to what work we need to do internal ERP, IT infrastructure and the like so $20 million.

So cycling back again to the beginning of your question, our stated goal and we're not wavering from that is we're going to grow 1% to 4 % topline better than our addressable market. Last year when we discussed our guidance in June we had just completed an addressable market study that showed that over the next five years based on looking at budgets we were that was the first time in quite some time that we saw a five year plan that had modest growth in it and that growth was basically one beginning at about 1 % in '18 to 1.4 % as you went higher on a compound annual growth rate. So think of all our goals as anywhere from 2 to 5 % topline and the 10 to 30 basis points are our best guess at driving our business towards both enduring and more profitable things. We are not being passed through contracts anymore. It's just not in our lexicon. What we are building is we do have a feeling we do have a portfolio of those that have been going on for quite some time. And as reflected in this year in the first three quarters our customers are called on those to support their efforts around the world. But going forward that's going to be less how we invest and we'll invest more in higher solution and higher margin businesses.

Edward Castle of Wells Fargo. Please go ahead.

Great. Thanks. Congrats on the quarter. I'm trying to get a sense for how important new business new business is to your long term outlook as we you know we're hearing that decision making still is uncertain and you're still seeing extensions. You know as clients I know we've got '17 budget done, but the battle for a king could be quite sizable here. So it could give us a sense how important for your know you are quoted long term outlook is to new business wins? Thanks.

Great question. So let me start this way. I would I would in the macro view I would believe that 18 started some series of C RS That ended that is we have a 17 now with 4 appropriations through the year end with additional money for intelligence defense homeland security and the like. So are our pending business which is about $14 billion is going to play out against a fully funded in fact increased funded budget. As we look into 18 it becomes a little bit less certain but I'm pretty confident in the way we've been winning lately particularly on new business and I think our pending business is somewhere in the neighbourhood of 90 % who are awaiting award. That's a good news story for let's just say the next the next two years we've also demonstrated that even in ACR I think this year we've been in the second longest C.R. in history and we've been able to knock down a very, very strong awards quarter after quarter. Now that could change at any point in time because it's an inflection point. But I believe we've built up enough capacity and we have enough of a set of pending contracts that that's going to that's going to help us get through this year and into the beginning part of next year.

Also I guess, from a new and then some of these takeaway variants, I think you know take away various weight we've been looking for this the last couple of years which drove the L3 acquisition was an enterprise market as a customer goes from you know more of what I would call desktop services to manage services or services. I mean, that requires a balance sheet investment of sort of up front but it also does paves the way for stronger returns of those seven to 10 year programs play out. I would tell you on the new ad what's exciting for us and something we're watching very carefully and looking at shaping as well is in our in our Intel systems and support market is the whole concept around this re-focussed electronic warfare area. You know we were using cyber right. We're seeing the army and the Navy ramping up not only the requirements, but their predicted spend and we really believe the companies that come with a proven solution will be well-poised. As you know we talked about Sky tracker in the past you know as we come out of FY '17. We're looking at maybe double-digit million dollars' worth of awards for that with that product and that is one that that coupled with some of the cyber capabilities we have is where EW is going and this is a company focused well over a decade on where EW goes and helping customers shape where they are where what those potential solutions are. So why you know, that that's one area of news that we've got our focus on.

My other question is on pricing other firms talk about things getting stuck in the waiting decision category that have much older pricing involved. Have you or you over the hump yet are we are we getting to a point now where you're your average pricing might start to lift a little bit and take some of the pressure off of margins. Thanks.

Ed, this is Ken. I think the thing here is simple the way the discipline that we're bringing into how we get to pick or choose what we're going to invest in is reflective of that already we're not going to pursue the things that you got to fight it out on the basis of more of the 25% labor category and no benefits or very, very limited benefits just not there's not a good future to that in this and there is enough work in various parts of there are different markets that is more reflective of the customer recognizing the value proposition of the seniority of people of the tenure of people and the qualifications of individuals and the tools that they bring to them. And that's what being a lot more that's pursuing more is going to get more out of it. That's where our strategy is taking us. Talking a little tongue tied there.

Our next question comes from Josh Sullivan of [indiscernible]. Please go ahead.

Hi, good morning. Could just talk a little bit about the recruiting market dynamics obviously of backlogs and getting actively impressive here. What is the talent market look like just given the uncertainty around budgets or potential hires more likely to commit are large or operator like CACI or are people staying put just given the uncertainty.

Yes So I think you know the macros that we're seeing is that we are seeing a need to in certain marketplaces for clean highly un-cleared talent in the software development area Intel analysis - solution business and in certain geographic locations there's not enough of them so there is a bit of a food fight over how you attract them. The other thing the other the other deal that we were that we were experiencing is a decline in the Baby Boomer generation and an increase in the millennial and Gen X component of our workforce. And then when we are I think everybody in the industry and I know that we're working on it in particular is making ourselves and making national security and the kind of things that we do very attractive and so we just completed the largest employee engagement survey in the history of our company and it's given us some really cool data about how we should think about making our benefits more attractive how we talk about the kind of work that that we do to increase the probability that we're going to be successful. I would reiterate back and then we'll flip it over to John because and can give you some more detail. Probably the single largest issue we have is the clearance process where we have a lot of people that would love to come to work on the kind of mission critical work that CGI has and I daresay every one of us of our peers in the marketplace. But the clearance process and the adjudication process through the federal government is a bottleneck right now that needs to be solved.

I would just add to our kind of Ken's comments or something quickly which is you know we've actually seen that this that this fight for personnel is no different than shaping and the fight to win a. You know it's really listening to what our customers are saying or where they're headed as we look at within CACI as Ken mentioned we did just completed employee engagement survey. It's all about differentiation, right. I mean part of that survey they actually told us that we're working on the right the right things to retain and attract talent. But they also share some areas for us to can consider. They love the high tech nature and the missions that we support out there. So we have shared examples of our work as an example we work with the Virginia Tech. Hume Center to help develop tomorrow security warriors. So you know it is true that the labor market is tight. We just believe we're doing the right number of things to retain and attract folks and get the clearance process issues. We like to think that we are doing our best to differentiate CACI from other folks within our government services space.

Okay. Thank you.

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

Hey guys just one quick one. Ken, I know you're bidding larger and larger deals. Are there any smaller deals that you're not bidding now? And why wouldn't you be building those up and moving forward. Thanks.

Thanks for the question. We know when we when we look at the marketplace we get to be a little bit more discriminating than just you know chasing every job that anybody wants to put out and there are certain there really are very large power pockets in the marketplace of customers that are interested in a different kind of relationship. With the LPGA market, the LPGA environment had was really sort of driven by having to do short term savings of money and frankly to get that professional services a lot easier than anything else. But we did it had two problems it drove us to do natural acts in terms of bidding in some cases and some companies actually aligned themselves to the lower end of the market. We chose not to do that even though we did in certain cases places where we couldn't always provide the people and we paid a price for that. On the other hand in buying 6, 3, 5, almost 4 5 years ago, 3.5 years ago and NSS, were in pieces of the market now where the customers are really looking for longevity. They're looking for mission critical change to happen. I will tell you they are lavishing money on anything but it is aim is a better place. So if I have a choice between bidding a hundred person contract that has no where nobody where price is the most important criteria not capability then I'll probably pass on that unless it is something that leads to something strategic over in the long run. But bidding of five people or 20 people unless is hard when you're you know when you're approaching $4.5 billion dollars in sales it's hard to manage those things. And while when we were a billion dollar company days made up a good portion of it we want to see the lesson as time goes on and do more contracts with 500 people.

That's great. That's helpful. And then if you keep bidding and larger pieces of business you know I think maybe tell me if I'm wrong, it probably will be you know more perhaps more significant you know product pass through component to those very, very large pieces of business. As CACI model somewhat change you know away from just being services led to more of a hybrid product services model over time as perhaps you win more and more of these larger and larger contracts. Thanks.

Yeah Joe, I think I think you nailed it and you said it very nicely. Our ambition has been to get away from the op tempo driving you know, driving how well the company does and get to a place there's a part in the government, where they're the things that they depend on you know, whether it be IT systems, whether it's cyber or whether it is consistent intelligence analysis. But it is not passed through contracting. That's a sort of subject to whatever potentially conflict or humanitarian activity that needs to go on. We want to be in the more enduring places of the marketplace. Some companies have chosen to be in health care. Some have chosen to be elsewhere. Ours is going to be in the core decision analysis pieces of the Department of Defense in the intelligence community as our principal place to look for the direct I would also add to that, wherever the government needs to be more efficient in how they do their hiring and doing their financial management and doing their supply chain management all those I think are also enduring pieces, enduring pieces that have to be modernized over a long period of time. So thank you for stating your strategy out there.

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

Hi. Thanks for taking the follow up. I guess it's just a follow up of a question that somebody else asked earlier, but David you know given you talked a little bit about the year you know your margin targets going forward the mix of your pipeline seems to be turning more towards solutions which is positive for margin. But I guess given your very, very strong win rate on new awards is there any threat that you know there is an offset in terms of the price that you have to bid to win or to be everybody else in these competitions as that is at an offsetting force to what your margin is, you know your margin profile going forward or are you do you find that you're able to we're not on favourable terms to CACI and you know again it's just more supportive of your of your ability to drive you know 30 or 40 bits of margin going forward?

So this is Tom, let me start out. You know kind of the price we paid is a function of our cost level, for us to be successful bidding, we need to make sure we have a lower rate than our competitors and that has been a focus of our senior year pretty consistently. So you know that should give us a competitive advantage as we drive in and out of our rate structure you know operate efficiently. We spoke about our facility reduction you know focusing on operational excellence within the indirect infrastructure. I think that a lot of this to be successful at our base by pricing effectively and taking advantage of our cost structure.

I guess I will add that, you know as a as a heritage professional services company you know we always had this look if DL or ODC, I think where you've heard us moved the last four years has been moving ourselves to more profitable mix of both which are actually very representative of fixed price solutions work versus purely time Terria [ph] professional services work so it is a mix and as I stated earlier every year at this time what we're looking at no less than 12 different knobs and dials of how do we having this collective mix of business we have to know and give us the best representative chances of anyone our long term goals are and I would also stress long term.

[Operator Instructions] Our next question is a follow up from Cai von Rumohr of Cowen and Company. Please go ahead.

Yes, thank you very much. So one for Tom. So you'd mentioned you know the margin pressure this year from the leasehold buyout the $3 million in the third quarter and then the 6 plus million for this year for LTP. As you think about a 10 to 30 Bps of margin upside next year, what are your assumptions about those two factors and what they will do because at one point you said mentioned that can be sold by out will actually benefit next year. Should we expect an LTP impact next year? And you know how do they figure into your margins for next year?

Ken mentioned earlier, we're still in the process of formulating the '18 into plan and we have stated long term goal, how that operationalize into '17 versus '18 that's going needs to be finalized as we complete our FY '17 planning in and our FY '18 plan as well. When we speak about the marketing goals though every quarter we're going to have some kind of good guys and bad guys. I mean fluctuations, we'll some accruals, release some reserves. We'll have some of that one time you need a bit of a negative benefit. But in the spirit in which we're operating is kind of underlying is kind of the noise of those fluctuations is given the fact that we're bidding range, solution oriented fixed price business that will drive you know kind of a signal of higher margins going forward. So I will leave it at that.

Thank you.

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

Well thank you Nicole and thanks for your help today on the call. We would like to extend our thanks to everyone who dialled in or log in to our webcast for their participation as well. We know that many of you will have follow up questions through the day. And Tom Mutryn, Dave Dragics and Dan were available for calls later this morning and throughout the day. So this concludes our call. Thank you. Have a very good day and we appreciate your long-term interest in CACI. Thank you.

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