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CACI International Inc (NYSE:CACI)

February 21, 2013 8:30 am ET

Executives

David L. Dragics - Senior Vice President of Investor Relations

Jack Phillip London - Executive Chairman, Chairman of Advisory Board and Chairman of Executive Committee

Kenneth Asbury - Chief Executive Officer and President

Analysts

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

George A. Price - BB&T Capital Markets, Research Division

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Brian Kinstlinger - Sidoti & Company, LLC

Operator

Good day, ladies and gentlemen, and welcome to the CACI International Inc. Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Dave Dragics, Senior Vice President, Investor Relations. Mr. Dragics, please begin.

David L. Dragics

Thank you, Janine, and good morning, everyone, and welcome to our call. I'm Dave Dragics, Senior Vice President, Investor Relations. On the call with me this morning are CACI's Executive Chairman and Chairman of the Board, Dr. Jack London; and President and Chief Executive Officer, Ken Asbury.

Before I turn the call over to Dr. London, there are a few housekeeping items. As we just gathered a few weeks ago, this will be an abbreviated call, with its focus on the transition we announced in last evening's press release. We will open the line up to your questions following the opening remarks, and we would ask you to please keep them specific, your questions specific to yesterday's announcement.

I'd also like to remind you 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 the factors that could cause actual results to differ materially from those anticipated include, but are not limited to the risk factors described in the company's Securities and Exchange Commission filings. Any forward-looking statements should not be unduly relied upon and only speak as of this date.

So thank you again for taking the time to join us this morning. It's now my pleasure to turn the call over to Dr. London. Jack?

Jack Phillip London

Thank you, Dave, and good morning, everyone. Those of you who have followed CACI over the years know that this company has always prided itself on our business development and our strategic M&A program regardless of the market environment. This strategy has been the foundation of our long-term success. Yesterday's appointment of Ken Asbury as President and Chief Executive Officer of CACI built squarely on that tradition.

When it comes to business development, winning contracts and growth, Ken Asbury has a superior track record and is a leader in our industry. For some 27 years, leading business expansion and capture of Lockheed Martin across its technical operations, mission services and civil business, Ken has built an impressive track record of delivering superior enterprise growth, customer value and employee commitment. More recently, he took an extensive skill set and has driven growth and development for ASRC Federal as that company's President and CEO. We followed Ken consistently through his progress and impressive achievements closely over the years. I know that he has the specific background, experience and the entrepreneurial DNA to deploy that laser-sharp BD focus, winning contracts and continue CACI's success and growth.

I'm sure you're all aware of the challenges this industry faces. As the CACI Board of Directors assessed the market conditions, we made the business decision that a leadership change was necessary. This is the best course of action for the company, and we do thank Dan Allen for his 2 years of service and wish him well.

Clearly, this is no ordinary time in our markets, but CACI has always thrived and grown even in challenging environments, and this time we intend it will be no different. CACI has a growth oriented culture. That growth begins with a highly experienced business development team and is fulfilled by the excellent delivery and operational excellence of our solutions and services by CACI's fine team. We are pleased that Ken will now be leading our team and our business development team. He epitomizes our culture of growth through winning contracts and operational excellence, and we are confident in Ken's credentials, and I look forward to working with him. We have the right team in place for the future and for the future success of CACI.

At this point, I'd now like to turn the mic over to Ken.

Kenneth Asbury

Thank you, Jack, for that very kind introduction. It is a pleasure to be on this call today, and I look forward to the opportunity to meet all of you in the coming months and to work with you.

I have watched CACI with great admiration throughout my career. I have appreciated its ability to look around corners, to see trend lines and quickly adapt to changing environments, finding opportunities before its competition and then creating an internal culture with an external expectation of excellence that is second to none. That culture is fundamentally rooted in CACI's employees who consistently deliver mission-critical service for our clients day in and day out. Their hard work is the reason that CACI has such a stellar reputation and image in the marketplace. I am honored to serve as the President and CEO and look forward to this opportunity to work more closely with the dedicated employees of CACI.

Business development and particularly, winning work is a passion of mine, and it's something that I've -- I won't say perfected, but I've worked on very hard over the course of my career. I share that sentiment very closely with the CACI board and the leadership team, and that is why I've decided that the business development team at CACI will report into the CEO's office going forward.

I would like to be personally involved in every one of the major bids that we see in front of us. We intend to be big winners of those bids as well, and we really want to put a major emphasis on each and every contract we seek to renew. In fact, my very first meeting yesterday was with CACI's Chief Operating Officer, John Mengucci, who I've had the privilege of working with previously. And we discussed this at length, and I think it's going to be a great partnership having John to work with going forward.

I also plan on looking -- work -- I look forward to working very closely with the business development team here at CACI to look at what's in our pipeline both in the near term and taking a longer-term view. I also will be keenly focused on other growth opportunities for CACI. Acquisitions have been another key to CACI's success, clearly its core competency with 58 successfully integrated deals to date. And we're going to continue to aggressively follow that path.

I've spoken very briefly this morning about a vision for growth through business development and acquisitions, but the foundation of our business has to be built on how we deliver on our current programs today. Future customers are going to look at how we did things today, and I promise to be vigilant in upholding the trust that our clients put in us. And I look forward to meeting with our clients and the teams of CACI people who serve them to ensure that we continue to meet and exceed their expectations.

It's going to take me a few weeks to dig down deep and find out a lot more about how the company operates, and I can assure you that I'll be doing that from, actually, after the end of this call. That's been part of my formula for how I've done this for a long time, and I'll be doing the same thing during my helm here at CACI.

In closing, I'd like to thank the board for its confidence in me, and I look forward to working with them and with Jack as we build and grow CACI for the future. This is my first now full day on the job, and so I look forward to talking to you again after I've had some time to transition into the role. So thank you, and now I think I'll turn this back over to Jack.

Jack Phillip London

Thank you, Ken. Thank you very much. Now David, we can open up for a few questions from our analysts, if you will, please?

David L. Dragics

Janine, we'd like to give the instructions on the Q&A, please?

Question-and-Answer Session

Operator

[Operator Instructions]

And our first question is from Bill Loomis of Stifel, Nicolaus.

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

Ken, just with your experience over the years and I know you still haven't done the deep dive on CACI, but what do you see different over kind of things from a high level that need to change from a business development process? Because from the outside, obviously, CACI's done quite well relative to peers. Awards have been good. Win rates have been good. So I'm -- I'd like to get your high-level view on what needs -- what the flaws were in the business development process at CACI and kind of what you're thinking how that might change from a higher level.

Kenneth Asbury

Well, Bill, excellent question, but I probably have to take about 30 days to come back to you and answer it. But let me tell you just generally speaking, I have not had the chance to get into the details of how CACI is, how the business development is organized or how it's prosecuting or how its processes even work at this point. In fact, that's scheduled for later this morning. What I can tell you is just fundamentally, I'll be looking -- and this is from past practice, not so much what I know about CACI today. But I'll be looking very hard at how we are looking at our recompetitions, that work that we currently have today that is up for competition again to make sure that we retain that and we sort of protect the backlog. Second, I'll be looking for what does the pipeline look at in terms of robustness, it's real -- is it real. Obviously, we've got a lot of timing concerns with the way the customer is doing things today -- that various customers are doing things today given the climate. But we'll be looking at the size and complexity of those jobs and how we're positioned for them. Thirdly, we'll generally look to see if there are spaces that we're not covering in the market, as this market shifts around, as it potentially contracts given the issue with sequestration and the CR climate. We'll look to see if there are any new emerging white space items. So that's just sort of a general script of how I will take a look at it, but I haven't had a chance at this point, Bill, to go into it in any detail.

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

And just as a follow-up on that business development side, so have you named or I guess, has the company named a new head there? What's kind of the timeline of changes, personnel changes in the business development organization? And I know you still have more work to do looking at this, but is this more personnel changes that have to happen or process changes on the business development side?

Kenneth Asbury

Well, personnel will be -- well, we'll look -- be one of the things that we address here in the near term. Process, I just can't speak to at this point because I don't have a really good feel for how the -- if you will, how the mechanism works today. That'll be something in the next couple of weeks that we'll dive into pretty deeply.

Operator

The next question is from Joe Nadol of JPMorgan.

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Welcome, Ken. My question is for Jack. So Dan's departure looks, by my count, is the fourth departure of 1 of the top 2 executives at the company, excluding yourself, over the last 3 or 4 years, and I'm wondering if there is -- if you can characterize, is there a line that runs through all of this? Or are these one-offs? And then just more specifically, just so we all can understand, is there a strategy difference that runs through any of this? Or is this really just personalities and individuals?

Jack Phillip London

Well, that's an excellent question. Thank you for giving me the opportunity to respond to it. The departures of the -- of our former CEO and our Chief Operating Officer were retirements, so we can just push those aside as natural evolution as time goes by. What we're doing now in this particular case though is a bit of a modification to the strategy in the sense of priorities. Strategies incorporate the notion of priorities, and what the corporation, the Board of Directors under a lot of consideration over this last, a year or so, let's say, particularly, as we've seen the market environment begin to tighten. We're all familiar with the sequestration so on. We have determined that the best course of action is to put in place an aggressive, a very aggressive business development that's a contract winning program and process and to put that under the leadership, direct leadership of extremely qualified individual at the CEO level. So it's a focus and intensity objective, and we feel like it's the right move for this corporation this time. We have a -- there's really 3 pieces to our game plan, if you will, pretty straightforward. The first is the -- a very aggressive organic growth through business capture and takeaways. Also, included, of course, is our recompetes, very important recompete rate that has to be sustained to maintain the business platform. Our second important element in our triad, if you will, is the operational skills and excellence of the corporation, and we have a fine and wonderful record really of delivering. I think if you look across the industry and compare our performance with other companies, you'll see that we are at the very top and one of the best in operational delivery, and we're very proud of that. The third piece of -- leg of our triad is our M&A program that we've had instituted for some 20 years, very successful. I think Ken mentioned the 58 deals. Somebody told me that it was 59. So we have so many successful programs that we pulled along over the years, integrated those lines of business very successfully, made career opportunities for people, so M&A is a big piece of our operation. The part of it that needed focus and intensity, as we see ourselves moving into this market space, is quite frankly our organic internal business development, contract winning skills and capabilities. And we'll be streamlining and focusing our energy and intensity there, probably moving more investment capital into that part of our business. So that is sort of a summary of why -- how we're approaching this and why Ken has joined us and how we look forward to working with him in that vein.

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

That's very helpful. And I understand that you're focused on the -- this is really focused around the first 1 of those 3 items. Just to follow on there though is on the third item, the M&A. Does this change -- you've done a couple of large share repurchases, as well as acquisitions over the last 2 or 3 years. Does this change signal any directionally? Are you going to go more aggressively into the M&A realm? Or is this really not about that at all?

Jack Phillip London

Well, the -- I'd like to say that we think that we believe we've been looking at the market space. We anticipate that there may be more opportunities as the world of the sequestration issues begin to unfold. And by the way, if you know how that's going to turn out, give me a call. We don't see anybody that has the answer on that one, but it will perhaps force some stress in the market space. It will provide some new opportunities for acquiring, perhaps, the smaller companies, medium-sized companies, and we'll be very aggressive out on that market space. In terms of the share buyback program, the Board of Directors looked at the opportunities for deployment of its capital virtually every quarter in our board meeting. So we will be continuing to look at that as a possible alternative, but again, the M&A program is an important part of the triad, if you will, of CACI's business plan.

Operator

The next question is from George Price of BB&T Capital Markets.

George A. Price - BB&T Capital Markets, Research Division

Just, first, to kind of follow on, on some of the questions that have just been asked. The aggressive organic growth focus, I guess, is this directly attributable to the response to increasing competition? And would you say that this is going to involve a more aggressive pricing strategy on CACI's part as -- in the current market?

Jack Phillip London

Well, anytime you move into an environment where the overall market tends to be shrinking, in our instance, the national security arena, including the Department of Defense and its agencies and services, as well as the intelligence community and related security organizations. We already see that pulling back, you're going to see more competition. In my opinion, I think we're going to see some of the larger organizations come into that space. That's another reason we're really setting the sail in a more aggressive and a more streamlined mode to pursue the organic growth. So we anticipate -- we do anticipate issues on margin pressure, and we have plans to address that as well. So we're going to be doing some fundamental, internal restructuring in some of these directions and making sure we have the right kinds of resources to commit to our organic new business and contract-winning programs.

George A. Price - BB&T Capital Markets, Research Division

And then also as a follow-up to some of the questions around M&A, I guess more specifically, the force in the market or the pressures in the market, I'm sorry, certainly may give you some opportunities to consolidate. But what about diversification through M&A? Can you give some thoughts on that and in particular, pursuit of new areas, either within the government space, perhaps on the civilian side where you have a focus but not as big, obviously, as your defense focus or even entirely out of the government space in the commercial markets?

Jack Phillip London

Thank you, that's a good one as well. As we look forward, we contemplate what might be the alternative market strategy. We certainly have had a -- some acquisitions in the health area. We are looking carefully at Cyber and continue to building our capacity there. But I thought maybe Ken might share from some perspectives in his experience out in the market space to share some thoughts on how he might see us going forward there.

Kenneth Asbury

George, clearly, we've put some -- we've laid some cards down in Healthcare and Cyber. Those look like to have -- they're going to have an enduring quality to them. I mean, simply just the President's announcement yesterday about getting more serious about the threat from China and taking more government action is probably going to make that a little bit -- we have no idea of how much that's going to -- how would you define that market. But we're also going to look for things that, as this contracts, that anytime this market changes, opportunity shows up in it. And we're going to look for companies that may be looking to exit certain parts of the services business as we've seen potentially some of the prime contractors do. Is that an opportunity for CACI? We have to try to focus in on that a little bit.

Operator

The next question is from Tobey Sommer of SunTrust.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Having the bid proposal department kind of report directly into you, is that something that you have historically had in your previous positions where you've kind of managed that directly?

Jack Phillip London

This is Jack. I'm going to start off and then pitch that one to Ken. Let me just say that for many years, the company has had the BD operation of reporting other than to the CEO. We have to go back to a number of years ago when I was the Chief Executive Officer, I had the BD operation reporting to me. But Ken has a lot of experience in how to craft and mold that organization for an efficient and effective operation, so I'll just hand it right to you.

Kenneth Asbury

Yes, Tobey, a great question. I mean, I think part of it is just my -- sort of the style and the way that I grew up in the business. I came up in the business sort of through the business development channel, and the mentors that I had at that point in time made it very clear that, that was the sort of the -- in one way, the growth engine of the business, and so you need to pay close attention to it. And I think that was just imprinted on me earlier. So in my past -- in several of my past assignments, I've done very much the same thing, and it's been successful. So I sort of want to try it again.

Operator

[Operator Instructions] The next question will be from Brian Kinstlinger of Sidoti & Company.

Brian Kinstlinger - Sidoti & Company, LLC

I'm wondering do you guys talk about getting a little bit more aggressive on the bidding proposal side of business development. And the other, on your press release, you also talk about reiterating your guidance. Is there not a significant cost associated with changing personnel and the process? Is that what you assume? Or is it too early to assess the financial aspect of it?

Jack Phillip London

We've -- that's a good question, Brian. Clearly, the implications of the company's performance and projections going forward, and we did emphasize the guidance remains the same. And I'd like to make a note of that in this conference call that we do have -- no change in our guidance going forward. There will be probably some adjustments in some of the cost areas associated with the transition, but at this point, we don't see them being impactive. But clearly, as we roll forward in our next quarter report, we'll be discussing future opportunities in the areas of our projections and guidance. So for now the guidance remains the same, and we're confident that, that picture will remain the same.

Brian Kinstlinger - Sidoti & Company, LLC

Great. And then my follow-up is just I want to be clear. It sounds like there's a lot of things that the board wants to change in terms of strategy. So just to be clear, was this a company move by the board to change executives? Or was it a voluntary move by Dan that, as a result, caused you to reassess the business development side? And if it was a board decision, what was your main concern as you looked at the last year and how it played out?

Jack Phillip London

The decision to appoint or remove Chief Executive Officers always up to the Delaware Corporation and with regard to the chartered bylaws of CACI International reside in total at the board level. And I will assure you that the Board of Directors of this corporation takes its job very seriously on behalf of its shareholders and its fiduciary duties and was carefully looking at the world around us, as well as the world inside of us in terms of the skill sets and the leadership and the focus and the areas of success and/or shortcomings. And the bottom line here is that we saw a world that was changing around us, and we did not feel we were adequately positioned internally for a focus on the organic competition that was going to come in this market space. And we like to anticipate issues. I think if you look back at the track record of this company, we have a pretty good record of anticipating issues and getting out in front. And the objective here was to get out in front of the issues that are looming in our market space to get ourselves in position, to compete in a different style and with a different kind of leadership and a different kind of expertise. And I'm very pleased the board, through its deliberations, came to the conclusion that, that would be our priority going forward in the near term, meaning the next year. So that's how the decision came about. I assure you it was done with care and consideration, as with the -- incumbent with the duties of the -- of such a board.

Operator

I am showing no more questions in the queue. I would like to turn the conference back to Mr. Dave Dragics. Please go ahead.

David L. Dragics

Thank you. Thanks, Janine, and thanks, everyone, for calling in. And I'll be available for questions after the call. Thanks for dialing in.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.

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