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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2009
|- | ----------------------------------------------------------------------------------------------------------------------------



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number

000-51579





NCI, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-3211574                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|11730 Plaza America Drive Reston, Virginia                     |  | 20190-4764                          
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (703) 707-6900





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes     ̈  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files).     ̈  Yes     ̈  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of accelerated filer, large
accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                           |  |                      |  |                                               |  |                             
|-------------------------- |  | -------------------- |  | --------------------------------------------- |  | ----------------------------
| ̈  Large accelerated filer |  | x  Accelerated filer |  |  ̈  Non-accelerated filer                      |  |  ̈  Smaller Reporting Company
|                           |  |                      |  | (Do not check if a smaller reporting company) |  |                             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).     ̈  Yes    x  No

As of May 1, 2009, there were 8,222,881 shares outstanding of the registrants Class A common stock. In addition, there are 5,200,000 shares outstanding of the registrants Class B common stock, which are convertible on
a one-for-one basis into Class A common stock.









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NCI, INC.



|         |  |                                                                                                      |  |     
|-------- |  | ---------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                      |  | PAGE
|PART I:  |  | FINANCIAL INFORMATION                                                                                |  | 1   
|Item 1.  |  | Financial Statements                                                                                 |  | 1   
|         |  | Consolidated Balance Sheets as of March 31, 2009 (unaudited), and December 31, 2008                  |  | 1   
|         |  | Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2009 and 2008 |  | 2   
|         |  | Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2009 and 2008 |  | 3   
|         |  | Notes to Consolidated Financial Statements (unaudited)                                               |  | 4   
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 7   
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                           |  | 11  
|Item 4.  |  | Controls and Procedures                                                                              |  | 11  
|         |  |                                                                                                     
|PART II: |  | OTHER INFORMATION                                                                                    |  | 12  
|Item 1.  |  | Legal Proceedings                                                                                    |  | 12  
|Item 1A. |  | Risk Factors                                                                                         |  | 12  
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                          |  | 12  
|Item 3.  |  | Defaults Upon Senior Securities                                                                      |  | 12  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                  |  | 12  
|Item 5.  |  | Other Information                                                                                    |  | 12  
|Item 6.  |  | Exhibits                                                                                             |  | 12  
|         |  | Signatures                                                                                           |  | 13  



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##### Table of Contents

PART 1

FINANCIAL INFORMATION

Item 1. Financial
Statements

NCI, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)



|                                                                                                                                                                                                       |  |                    |         |                       |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ------- | --------------------- | - | -------
|                                                                                                                                                                                                       |  | As ofMarch 31,2009 |         | As ofDecember 31,2008
|                                                                                                                                                                                                       |  | (unaudited)        |         |                      
|Assets                                                                                                                                                                                                 |  |                    |         |                       |   |        
|Current assets:                                                                                                                                                                                        |  |                    |         |                       |   |        
|Cash and cash equivalents                                                                                                                                                                              |  | $                  | 1,441   |                       | $ | 1,267  
|Accounts receivable, net                                                                                                                                                                               |  |                    | 85,304  |                       |   | 92,192 
|Deferred tax assets                                                                                                                                                                                    |  |                    | 3,214   |                       |   | 3,116  
|Prepaid expenses and other current assets                                                                                                                                                              |  |                    | 3,169   |                       |   | 1,733  
|                                                                                                                                                                                                       |  |                    |         |                       |   |        
|Total current assets                                                                                                                                                                                   |  |                    | 93,128  |                       |   | 98,308 
|                                                                                                                                                                                                       |  |                   
|Property and equipment, net                                                                                                                                                                            |  |                    | 5,690   |                       |   | 5,378  
|Other assets                                                                                                                                                                                           |  |                    | 880     |                       |   | 926    
|Intangible assets, net                                                                                                                                                                                 |  |                    | 7,533   |                       |   | 7,981  
|Goodwill                                                                                                                                                                                               |  |                    | 87,740  |                       |   | 87,740 
|                                                                                                                                                                                                       |  |                    |         |                       |   |        
|Total assets                                                                                                                                                                                           |  | $                  | 194,971 |                       | $ | 200,333
|                                                                                                                                                                                                       |  |                    |         |                       |   |        
|Liabilities and stockholders equity                                                                                                                                                                   |  |                    |         |                       |   |        
|Current liabilities:                                                                                                                                                                                   |  |                    |         |                       |   |        
|Accounts payable                                                                                                                                                                                       |  | $                  | 31,433  |                       | $ | 32,747 
|Accrued salaries and benefits                                                                                                                                                                          |  |                    | 15,248  |                       |   | 16,436 
|Other accrued expenses/liabilities                                                                                                                                                                     |  |                    | 6,171   |                       |   | 5,353  
|Deferred revenue                                                                                                                                                                                       |  |                    | 3,156   |                       |   | 2,626  
|                                                                                                                                                                                                       |  |                    |         |                       |   |        
|Total current liabilities                                                                                                                                                                              |  |                    | 56,008  |                       |   | 57,162 
|                                                                                                                                                                                                       |  |                   
|Long-term debt                                                                                                                                                                                         |  |                    | 30,500  |                       |   | 40,000 
|Other liabilities                                                                                                                                                                                      |  |                    | 76      |                       |   | 98     
|Deferred tax liabilities, net                                                                                                                                                                          |  |                    | 1,988   |                       |   | 1,691  
|Deferred rent                                                                                                                                                                                          |  |                    | 2,376   |                       |   | 2,523  
|                                                                                                                                                                                                       |  |                    |         |                       |   |        
|Total liabilities                                                                                                                                                                                      |  |                    | 90,948  |                       |   | 101,474
|                                                                                                                                                                                                       |  |                    |         |                       |   |        
|Stockholders equity:                                                                                                                                                                                  |  |                    |         |                       |   |        
|Class A common stock, $0.019 par value37,500,000 shares authorized; 8,222,881 shares issued and outstanding as of March 31,
2009, and 8,205,711 shares issued and outstanding as of December 31, 2008 |  |                    | 156     |                       |   | 156    
|Class B common stock, $0.019 par value12,500,000 shares authorized; 5,200,000 shares issued and outstanding as of March 31, 2009,
and December 31, 2008                                               |  |                    | 99      |                       |   | 99     
|Additional paid-in capital                                                                                                                                                                             |  |                    | 60,223  |                       |   | 59,734 
|Retained earnings                                                                                                                                                                                      |  |                    | 43,545  |                       |   | 38,870 
|                                                                                                                                                                                                       |  |                    |         |                       |   |        
|Total stockholders equity                                                                                                                                                                             |  |                    | 104,023 |                       |   | 98,859 
|                                                                                                                                                                                                       |  |                    |         |                       |   |        
|Total liabilities and stockholders equity                                                                                                                                                             |  | $                  | 194,971 |                       | $ | 200,333
|                                                                                                                                                                                                       |  |                    |         |                       |   |        

See accompanying notes



1



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NCI, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(amounts in thousands, except per share data)



|                                                          |  |                             |         |   |      |   |        |  
|--------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------ | -
|                                                          |  | Three months endedMarch 31, |        
|                                                          |  | 2009                        |         |   | 2008 |  
|Revenue                                                   |  | $                           | 105,017 |   |      | $ | 91,501 |  
|                                                          |  |                            
|Operating costs and expenses:                             |  |                             |         |   |      |   |        |  
|Cost of revenue                                           |  |                             | 91,324  |   |      |   | 79,344 |  
|General and administrative expense                        |  |                             | 4,762   |   |      |   | 4,746  |  
|Depreciation and amortization                             |  |                             | 498     |   |      |   | 481    |  
|Amortization of intangible assets                         |  |                             | 448     |   |      |   | 323    |  
|                                                          |  |                             |         |   |      |   |        |  
|Total operating costs and expenses                        |  |                             | 97,032  |   |      |   | 84,894 |  
|                                                          |  |                             |         |   |      |   |        |  
|Operating income                                          |  |                             | 7,985   |   |      |   | 6,607  |  
|Interest income                                           |  |                             | 20      |   |      |   | 54     |  
|Interest expense                                          |  |                             | (212    | ) |      |   | (584   | )
|                                                          |  |                             |         |   |      |   |        |  
|Income before taxes                                       |  |                             | 7,793   |   |      |   | 6,077  |  
|Income tax expense                                        |  |                             | 3,118   |   |      |   | 2,446  |  
|                                                          |  |                             |         |   |      |   |        |  
|Net income                                                |  | $                           | 4,675   |   |      | $ | 3,631  |  
|                                                          |  |                             |         |   |      |   |        |  
|Earnings per common and common equivalent share:          |  |                             |         |   |      |   |        |  
|Basic:                                                    |  |                             |         |   |      |   |        |  
|Weighted average shares outstanding                       |  |                             | 13,409  |   |      |   | 13,353 |  
|Net income per share                                      |  | $                           | 0.35    |   |      | $ | 0.27   |  
|                                                          |  |                             |         |   |      |   |        |  
|Diluted:                                                  |  |                             |         |   |      |   |        |  
|Weighted average shares and equivalent shares outstanding |  |                             | 13,741  |   |      |   | 13,561 |  
|Net income per share                                      |  | $                           | 0.34    |   |      | $ | 0.27   |  
|                                                          |  |                             |         |   |      |   |        |  

See accompanying notes



2



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NCI, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(amounts in thousands)



|                                                                                     |  |                             |        |   |      |   |         |  
|------------------------------------------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                     |  | Three months endedMarch 31, |       
|                                                                                     |  | 2009                        |        |   | 2008 |  
|Cash flows from operating activities                                                 |  |                             |        |   |      |   |         |  
|Net income                                                                           |  | $                           | 4,675  |   |      | $ | 3,631   |  
|Adjustments to reconcile net income to net cash provided by operating activities:    |  |                             |        |   |      |   |         |  
|Depreciation and amortization                                                        |  |                             | 946    |   |      |   | 804     |  
|Gain on sale of property and equipment                                               |  |                             |       |   |      |   | (11     | )
|Non-cash stock compensation expense                                                  |  |                             | 281    |   |      |   | 159     |  
|Deferred income taxes                                                                |  |                             | 198    |   |      |   | 277     |  
|Changes in operating assets and liabilities, net of effects of business combination: |  |                             |        |   |      |   |         |  
|Accounts receivable, net                                                             |  |                             | 6,888  |   |      |   | (1,141  | )
|Prepaid expenses and other assets                                                    |  |                             | (1,390 | ) |      |   | (387    | )
|Accounts payable                                                                     |  |                             | (1,315 | ) |      |   | (2,170  | )
|Accrued expenses/other current liabilities                                           |  |                             | 165    |   |      |   | (92     | )
|Deferred rent                                                                        |  |                             | (140   | ) |      |   | 420     |  
|                                                                                     |  |                             |        |   |      |   |         |  
|Net cash provided by operating activities                                            |  |                             | 10,308 |   |      |   | 1,490   |  
|                                                                                     |  |                             |        |   |      |   |         |  
|Cash flows from investing activities                                                 |  |                             |        |   |      |   |         |  
|Purchase of property and equipment                                                   |  |                             | (810   | ) |      |   | (556    | )
|Proceeds from sale of property and equipment                                         |  |                             |       |   |      |   | 11      |  
|Cash paid for acquisition, net of cash acquired                                      |  |                             |       |   |      |   | (14,996 | )
|                                                                                     |  |                             |        |   |      |   |         |  
|Net cash used in investing activities                                                |  |                             | (810   | ) |      |   | (15,541 | )
|                                                                                     |  |                             |        |   |      |   |         |  
|Cash flows from financing activities                                                 |  |                             |        |   |      |   |         |  
|Proceeds from exercise of stock options                                              |  |                             | 188    |   |      |   |        |  
|Excess tax deduction from exercise of stock options                                  |  |                             | 20     |   |      |   |        |  
|(Payments) proceeds from line of credit, net                                         |  |                             | (9,500 | ) |      |   | 14,058  |  
|Principal payments under capital lease obligations                                   |  |                             | (32    | ) |      |   | (41     | )
|                                                                                     |  |                             |        |   |      |   |         |  
|Net cash (used in) provided by financing activities                                  |  |                             | (9,324 | ) |      |   | 14,017  |  
|                                                                                     |  |                             |        |   |      |   |         |  
|Net change in cash and cash equivalents                                              |  |                             | 174    |   |      |   | (34     | )
|Cash and cash equivalents, beginning of period                                       |  |                             | 1,267  |   |      |   | 109     |  
|                                                                                     |  |                             |        |   |      |   |         |  
|Cash and cash equivalents, end of period                                             |  | $                           | 1,441  |   |      | $ | 75      |  
|                                                                                     |  |                             |        |   |      |   |         |  
|Supplemental disclosure of cash flow information                                     |  |                             |        |   |      |   |         |  
|Cash paid during the period for:                                                     |  |                             |        |   |      |   |         |  
|Interest                                                                             |  | $                           | 212    |   |      | $ | 584     |  
|                                                                                     |  |                             |        |   |      |   |         |  
|Income taxes                                                                         |  | $                           | 1,423  |   |      | $ | 415     |  
|                                                                                     |  |                             |        |   |      |   |         |  

See accompanying notes



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NCI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of NCI, Inc. and its subsidiaries have been prepared in accordance with U.S. generally
accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As a result, certain information and footnote disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been condensed or omitted. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all necessary adjustments (all of which are of a
normal, recurring nature) that are necessary to a fair presentation of the results for such periods. The information disclosed in the notes to the financial statements for these periods is unaudited. For further information, refer to the financial
statements and footnotes included in NCIs Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission (SEC). The current periods results of operations are not
necessarily indicative of results that may be achieved for any future period.

2. Business Overview

NCI is a provider of information technology (IT), engineering, and professional services and solutions to Federal Government agencies. NCIs capabilities are
centered on overcoming our customers challenges to help them meet their critical mission and objectives. Through our comprehensive offerings, we are a full lifecycle capabilities company. We provide full lifecycle IT specialties, complemented
by our professional services. We have the agility, position, and determination to focus on expanding market segments within the Federal IT and professional services markets. We are extending our core capabilities in line with key market drivers and
investing in a robust set of business solutions and offerings. Our core capabilities include: enterprise systems management; network engineering; information assurance and cybersecurity; systems engineering and integration; program management,
acquisition, and lifecycle support; engineering and logistics; medical transformation/health IT; and distance learning and training. The Company provides these services to defense, intelligence, and Federal civilian agencies. The majority of the
Companys revenue was derived from contracts with the Federal Government, directly as a prime contractor or as a subcontractor. The Company primarily conducts business throughout the United States.

3. Earnings Per Share

Statement of Financial Accounting Standards
(SFAS) No. 128,Earnings Per Share, requires presentation of basic and diluted earnings per share. Basic earnings per share exclude dilution and are computed by dividing net income by the weighted average number of common shares
outstanding for the period. The computation of earnings per share presented is for both Class A and Class B common stock.

Diluted earnings per share
reflect potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per share include the incremental effect of stock options calculated using the
treasury stock method.

The following details the historical computation of basic and diluted earnings per common share (Class A and Class B) for the
three months ended March 31, 2009 and 2008, respectively.



|                                                                            |  |                                      |        |      |   |       
|--------------------------------------------------------------------------- |  | ------------------------------------ | ------ | ---- | - | ------
|                                                                            |  | Three months endedMarch 31,         
|                                                                            |  | 2009                                 |        | 2008
|                                                                            |  | (in thousands, exceptper share data)
|Net Income                                                                  |  | $                                    | 4,675  |      | $ | 3,631 
|                                                                            |  |                                      |        |      |   |       
|Weighted average number of basic shares outstanding during the period       |  |                                      | 13,409 |      |   | 13,353
|Dilutive effect of stock options after application of treasury stock method |  |                                      | 332    |      |   | 208   
|                                                                            |  |                                      |        |      |   |       
|Weighted average number of diluted shares outstanding during the period     |  |                                      | 13,741 |      |   | 13,561
|                                                                            |  |                                      |        |      |   |       
|Basic earnings per share                                                    |  | $                                    | 0.35   |      | $ | 0.27  
|                                                                            |  |                                      |        |      |   |       
|Diluted earnings per share                                                  |  | $                                    | 0.34   |      | $ | 0.27  
|                                                                            |  |                                      |        |      |   |       



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NCI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4. Stock Compensation

During 2009, the Company granted approximately 110,000 options and had exercises of approximately 17,000 options. As of March 31, 2009, there were approximately
1,071,000 options outstanding.

The following table summarizes stock compensation for the three months ended March 31, 2009 and 2008:



|                           |  |                |     |      |   |    
|-------------------------- |  | -------------- | --- | ---- | - | ---
|                           |  | 2009           |     | 2008
|                           |  | (in thousands)
|Cost of Revenue            |  | $              | 108 |      | $ | 92 
|General and Administrative |  |                | 173 |      |   | 67 
|                           |  |                |     |      |   |    
|                           |  | $              | 281 |      | $ | 159
|                           |  |                |     |      |   |    

As of March 31, 2009, there was approximately $3.5 million of total unrecognized compensation cost related to
unvested stock compensation agreements accounted for under SFAS No. 123(R), Share-Based Payment(SFAS No. 123(R)). This cost is expected to be fully amortized over the next five years, with approximately $961,000, $1,230,000,
$818,000, $410,000, and $41,000 during 2009, 2010, 2011, 2012, and 2013, respectively. SFAS No. 123(R) requires that the cost of the options be included in the Companys Statement of Operations before or in conjunction with the vesting of
options.

5. Credit Facility

The borrowing capacity
under the credit facility consists of a revolving line of credit with a principal amount of up to $90 million, which includes a swingline facility with an original principal amount of up to $5 million. The outstanding balance of the facility accrues
interest based on LIBOR plus an applicable margin, ranging from 100 to 175 basis points, based on a ratio of funded debt to earnings. The credit facility expires on March 14, 2011.

The outstanding borrowings are collateralized by a security interest in substantially all the Companys assets. The lenders also require a direct assignment of all contracts at the lenders discretion.

The credit facility contains various restrictive covenants that, among other things, restrict the Companys ability to: incur or guarantee additional
debt; make certain distributions, investments and other restricted payments, including cash dividends on the Companys outstanding common stock; enter into transactions with certain affiliates; create or permit certain liens; and consolidate,
merge or sell assets. In addition, the credit facility contains certain financial covenants that require the Company to: maintain a minimum tangible net worth; maintain a minimum fixed charge coverage ratio and a ratio of funded debt to earnings;
and limit capital expenditures below certain thresholds.

As of March 31, 2009, the outstanding balance was approximately $30.5 million and interest
accrued at a rate of LIBOR plus 100 basis points, or 1.50%. As of December 31, 2008, the outstanding balance was approximately $40 million. As of March 31, 2009, NCI was in compliance with all its loan covenants.

6. Related Party Transactions

The Company purchased services from
Net Commerce Corporation, which is a Government contractor wholly owned by Rajiv Narang, the son of Charles K. Narang, the Chairman and Chief Executive Officer of the Company, under a subcontract. For the three months ended March 31, 2009 and
2008, the expense incurred under this agreement was approximately $95,000 and $52,000 respectively. As of March 31, 2009, and December 31, 2008, there were outstanding accounts payable of approximately $45,000 and $44,000, respectively.

The Company rents office space from Gur Parsaad Properties, Ltd. which is controlled by Dr. Gurvinder Pal Singh, a member of the NCI Board of
Directors. The lease is for approximately 41,000 square feet at $14.00 per square foot with annual escalation and expires on June 30, 2012. The lease was negotiated and signed as of June 27, 2007. For the three months ended as of
March 31, 2009 and 2008, NCI paid approximately $228,000 and $205,000, respectively, for rent to Gur Parsaad Properties, Ltd.



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NCI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6. Related Party Transactions (continued)

During June 2007, the Company entered into a Stock Purchase Agreement to purchase 100% of the outstanding shares of Karta Technologies, Inc. (Karta). This agreement
included certain indemnifications from the selling shareholders. Dr. Gurvinder Pal Singh, a member of the NCI Board of Directors, was one of the selling shareholders of Karta. At the time of the purchase, an escrow account was established to
pay for indemnification claims. As of March 31, 2009, and December 31, 2008, the Company had outstanding claims in the amount of approximately $11,000 and $0, respectively.

7. New Accounting Pronouncements

We adopted SFAS No. 141(R), Business Combinations(SFAS
No. 141(R)) effective January 1, 2009. The new standard replaces existing guidance and significantly changes accounting and reporting relative to business combinations in consolidated financial statements, including requirements to
recognize acquisition-related transaction and post acquisition restructuring costs in the results of operations as incurred. There was no material impact to the Companys financial statements upon adoption of this standard.



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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations

Forward Looking Statements

This
Quarterly Report on Form 10-Q, including the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding our business, financial condition,
results of operations, and prospects. There are statements made herein, which may not address historical facts and, therefore, could be interpreted to be forward-looking statements as that term is defined in the Private Securities Litigation Reform
Act of 1995. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. The factors that could cause actual results to differ materially from those anticipated include, but are not limited
to, the following:



| |  |  | Our dependence on our contracts with Federal Government agencies, particularly within the U.S. Department of Defense, for substantially all our revenue; a change in
funding of our contracts due to bid protests, changes in spending patterns or changes in priorities due to the change in administration
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Failure to achieve contract awards in connection with recompetes for present business and/or competition for new business
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Competitive factors, such as pricing pressures and competition to hire and retain employees (particularly those with security clearances)
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Failure to identify and successfully integrate future acquired companies or businesses into our operations or to realize any accretive or synergistic effects from
such acquisitions
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Current economic market conditions, specifically the credit and liquidity crisis, (i) has caused the interest rate on our outstanding debt to fluctuate and
could increase significantly in the future; (ii) could cause our non-government business partners, prime or subcontractors, to default on contracts which may impact our ability to perform; and (iii) could impact the cost of future
acquisitions significantly above our current cost of debt
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Economic conditions in the United States, including conditions that result from terrorist activities or war; material changes in laws or regulations applicable to
our businesses, particularly legislation affecting (i) Government contracts for services, (ii) outsourcing of activities that have been performed by the Government, (iii) delays related to agency specific funding freezes, and
(iv) competition for task orders under Government Wide Acquisition Contracts (GWACs) and/or schedule contracts with the General Services Administration
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our own ability to achieve the objectives of near-term or long-range business plans.
| | - |  | ------------------------------------------------------------------------------------

Some of these important factors are outlined under Item 1A. Risk Factors and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2008,
filed with the SEC, and from time to time, in other filings with the SEC, such as our Forms 8-K and 10-Q. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee our future results,
level of activity, or performance. We undertake no obligation to update publicly or revise any forward-looking statements. You should not place undue reliance on the forward-looking statements.

In this document, unless the context indicates otherwise, the terms Company, NCI, we, us and our refer to
NCI, Inc., a Delaware corporation, and, where appropriate, its subsidiaries.



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##### Table of Contents

OVERVIEW

We are a
provider of information technology (IT), engineering, and professional services and solutions to U.S. Federal Government agencies. Our technology and industry expertise enables us to provide a full spectrum of services and solutions that assist our
clients in achieving their program goals. We deliver a wide range of complex services and solutions by leveraging our skills across eight core competencies:



| |  |  | Enterprise systems management
| | - |  | -----------------------------



| |  |  | Network engineering
| | - |  | -------------------



| |  |  | Information assurance and cybersecurity
| | - |  | ---------------------------------------



| |  |  | Systems engineering and integration
| | - |  | -----------------------------------



| |  |  | Program management, acquisition, and lifecycle support
| | - |  | ------------------------------------------------------



| |  |  | Engineering and logistics
| | - |  | -------------------------



| |  |  | Medical transformation/health IT
| | - |  | --------------------------------



| |  |  | Distance learning and training.
| | - |  | -------------------------------

We generate the
majority of our revenue from Federal Government contracts. We report operating results and financial data as one operating segment. Revenue from our contracts and task orders is generally linked to trends in Federal Government spending by defense,
intelligence, and Federal civilian agencies. The following table shows our revenue from the client groups listed as a percentage of total revenue for the period shown.



|                                                |  |                             |   |  |      |  
|----------------------------------------------- |  | --------------------------- | - |  | ---- | -
|                                                |  | Three months endedMarch 31, |  
|                                                |  | 2009                        |   |  | 2008 |  
|Department of Defense and intelligence agencies |  | 85.5                        | % |  | 79.8 | %
|Federal civilian agencies                       |  | 13.2                        | % |  | 18.3 | %
|Commercial and state & local entities           |  | 1.3                         | % |  | 1.9  | %

Contract Types

Our services and solutions are provided under three types of contracts: time-and-materials; cost-plus; and fixed-price. Our contract mix varies from year to year due to numerous factors including our business strategies and Federal
Government procurement objectives.

The following table shows our revenue from each of these types of contracts as a percentage of our total revenue for
the periods shown.



|                   |  |                             |   |  |      |  
|------------------ |  | --------------------------- | - |  | ---- | -
|                   |  | Three months endedMarch 31, |  
|                   |  | 2009                        |   |  | 2008 |  
|Time-and-materials |  | 52.0                        | % |  | 39.9 | %
|Cost-plus          |  | 15.8                        |   |  | 25.9 |  
|Fixed-price        |  | 32.2                        |   |  | 34.2 |  



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##### Table of Contents

Results of Operations

The following table sets forth certain items from our consolidated statements of operations and expresses each item in dollars and as a percentage of revenue for the periods indicated.



|                                    |  |                             |         |   |                                                       |   |        |      |  |       |      |  |       |  
|----------------------------------- |  | --------------------------- | ------- | - | ----------------------------------------------------- | - | ------ | ---- |  | ----- | ---- |  | ----- | -
|                                    |  | Three months endedMarch 31, |         |   | As a percentage of revenueThree months endedMarch 31, |  
|                                    |  | 2009                        |         |   | 2008                                                  |   |        | 2009 |  |       | 2008 | 
|                                    |  | (unaudited)                 |        
|Revenue                             |  | $                           | 105,017 |   |                                                       | $ | 91,501 |      |  | 100.0 | %    |  | 100.0 | %
|                                    |  |                             |         |  
|Operating costs and expenses:       |  |                             |         |   |                                                       |   |        |      |  |       |      |  |       |  
|Cost of revenue                     |  |                             | 91,324  |   |                                                       |   | 79,344 |      |  | 87.0  |      |  | 86.7  |  
|General and administrative expenses |  |                             | 4,762   |   |                                                       |   | 4,746  |      |  | 4.5   |      |  | 5.2   |  
|Depreciation and amortization       |  |                             | 498     |   |                                                       |   | 481    |      |  | 0.5   |      |  | 0.5   |  
|Amortization of intangible assets   |  |                             | 448     |   |                                                       |   | 323    |      |  | 0.4   |      |  | 0.4   |  
|                                    |  |                             |         |   |                                                       |   |        |      |  |       |      |  |       |  
|Total operating costs and expenses  |  |                             | 97,032  |   |                                                       |   | 84,894 |      |  | 92.4  |      |  | 92.8  |  
|                                    |  |                             |         |   |                                                       |   |        |      |  |       |      |  |       |  
|Operating income                    |  |                             | 7,985   |   |                                                       |   | 6,607  |      |  | 7.6   |      |  | 7.2   |  
|Interest income                     |  |                             | 20      |   |                                                       |   | 54     |      |  |      |      |  |      |  
|Interest expense                    |  |                             | (212    | ) |                                                       |   | (584   | )    |  | (0.2  | )    |  | (0.6  | )
|                                    |  |                             |         |   |                                                       |   |        |      |  |       |      |  |       |  
|Income before taxes                 |  |                             | 7,793   |   |                                                       |   | 6,077  |      |  | 7.4   |      |  | 6.6   |  
|Provision for income taxes          |  |                             | 3,118   |   |                                                       |   | 2,446  |      |  | 2.9   |      |  | 2.6   |  
|                                    |  |                             |         |   |                                                       |   |        |      |  |       |      |  |       |  
|Net income                          |  | $                           | 4,675   |   |                                                       | $ | 3,631  |      |  | 4.5   | %    |  | 4.0   | %
|                                    |  |                             |         |   |                                                       |   |        |      |  |       |      |  |       |  

Three Months Ended March 31, 2009, Compared to Three Months Ended March 31, 2008

Revenue

For the three months ended March 31, 2009, total
revenue increased by 14.8% or $13.5 million, over the same period a year ago. The increase was due in part to the acquisition of the PEO Soldier contract, which occurred during the late part of first quarter 2008. Additionally, we added a number of
new contracts as well as new task orders under our GWAC vehicles, primarily ITES-2S, TEIS, and NETCENTS, and had growth on a number of existing programs, including the expected contract increases under the NETCOM ESTA EMS contract. These increases
were slightly offset by revenue reductions due to tasks that ended and lower product related sales under our NETCENTS contract and the implementation of the Microsoft Exchange 2007 Messaging Solution for the Air National Guard which occurred in
first quarter 2008.

Cost of revenue

Cost of
revenue increased 15.1%, or $12.0 million, for the three months ended March 31, 2009, as compared to the same period a year ago. The increase was attributable to an increase in direct labor and associated indirect costs, and subcontractor costs
related to the increase in revenue. As a percentage of revenue, cost of revenue was 87.0% and 86.7% for the quarters ended March 31, 2009 and 2008, respectively. The 0.3% increase in cost of revenue as a percentage of revenue for the quarter
ended March 31, 2009, compared to the quarter ended March 31, 2008, resulted primarily from a slight increase in indirect expenses as a percentage of cost of revenue.

General and Administrative Expenses

General and administrative expense increased insignificantly in both
absolute dollar and percentage terms for the three months ended March 31, 2009, as compared to the same period a year ago. As a percentage of revenue, general and administrative expenses decreased to 4.5% from 5.2% for the quarters ended
March 31, 2009 and 2008, respectively, as we leveraged our corporate infrastructure expenses over a larger revenue base.

Depreciation and
Amortization

Depreciation and amortization expense was approximately $0.5 million for the quarters ended March 31, 2009 and 2008.

Amortization of Intangible Assets

Amortization of
intangible assets was approximately $0.4 and $0.3 million for the quarters ended March 31, 2009 and 2008, respectively. The increase is due to the amortization of intangible assets from our acquisition during 2008.



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##### Table of Contents

Operating income

For the three months ended March 31, 2009, operating income was $8.0 million, or 7.6% of revenue, compared to $6.6 million, or 7.2% of revenue, for the three months ended March 31, 2008. Operating income was higher for the three
months ended March 31, 2009, due to the higher revenue volume as compared to the same period in the prior year and operating margin increased due to the lower general and administrative expenses as a percentage of revenue.

Interest Income/Expense

Net interest expense was $0.2 million
as compared to $0.5 million for the quarters ended March 31, 2009 and 2008, respectively. The decrease is due to both lower borrowing costs and lower average loan balances.

Income Taxes

The increase in income taxes of $0.7 million is the result of the increase in operating income.
The effective income tax rate for the quarter ended March 31, 2009, is approximately 40.0% as compared to an effective income tax rate of 40.2% for the quarter ended March 31, 2008.

Contract Backlog

At March 31, 2009, and December 31, 2008,
our estimated backlog was $1,191 million and $1,189 million, respectively, of which $249 million and $234 million, respectively, was funded. We define backlog as our estimate of the remaining future revenue from existing signed contracts over the
remaining base contract performance period and from the option periods of those contracts, assuming the exercise of all related options. We define funded backlog as the portion of backlog for which funding currently is appropriated and obligated to
us under a contract or other authorization for payment signed by an authorized purchasing agency, less the amount of revenue we have previously recognized. Our backlog does not include any estimate of future potential delivery orders that might be
awarded under our GWAC or other multiple award contract vehicles. Additional information on how we determine backlog is included in our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC.

Liquidity and Capital Resources

Our primary liquidity needs are for
financing working capital, investing in capital expenditures, and making strategic acquisitions. Historically, we have relied primarily on our cash flows from operations and borrowings under our credit facility to provide the capital for our
liquidity needs. We expect the combination of our current cash and cash equivalent balances, cash flows from operations, and the available borrowing capacity on our credit facility to continue to meet our normal working capital and capital
expenditure requirements. As part of our growth strategy, we may pursue acquisitions that could require us to raise additional external capital or increase our borrowings.

Generally, our most significant use of working capital is for accounts receivables. During the first quarter of 2009, the balance of accounts receivable decreased by $6.9 million to $85.3 million at the end of the
quarter. Days sales outstanding of accounts receivable (DSO) decreased to 73 days as of March 31, 2009. This compares to a DSO of 83 days as of December 31, 2008.

Credit Agreement: The borrowing capacity under our Loan and Security Agreement (the Agreement) consists of a revolving credit facility with an original principal amount of up to $90 million, which includes a
swingline facility with an original principal amount of up to $5 million. The outstanding balance of the facility accrues interest based on LIBOR plus an applicable margin, ranging from 100 to 175 basis points, based on a ratio of funded debt to
earnings. The credit facility expires on March 14, 2011.

Funds borrowed under the revolving credit facility will be used to finance possible future
acquisitions, to provide for working capital expenditures, and for general corporate uses. As of March 31, 2009, there was $30.5 million outstanding under the credit facility.



10



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##### Table of Contents

Off-Balance Sheet Arrangements

We do not have any offbalance sheet arrangements.

Critical Accounting Policies

There have been no significant changes to our Critical Accounting Policies during 2009. Refer to our Critical Accounting Policies section in our Annual Report on Form
10-K for the year ended December 31, 2008, filed with the SEC.

Item 3. Quantitative and Qualitative Disclosures
About Market Risk

Our exposure to market risk relates to changes in interest rates for borrowings under our credit facility. For the quarter ended
March 31, 2009, a 1% change in interest rates would have changed our interest expense and cash flows by approximately $0.1 million for the three months ended March 31, 2009. This estimate is based on our average balances for the respective
period.

Additionally, we are subject to credit risks associated with our cash, cash equivalents, and accounts receivable. We believe that the
concentration of credit risks with respect to cash equivalents and investments are limited due to the high credit quality of these investments. Our investment policy requires that we invest excess cash in high-quality investments, which preserve
principal, provide liquidity, and minimize investment risk. We also believe that our credit risk associated with accounts receivable is limited as they are primarily with the Federal Government or prime contractors working for the Federal
Government.

Item 4. Controls and Procedures

Evaluation of the Effectiveness of Disclosure Controls and Procedures

Management carried out an evaluation as
of March 31, 2009, of the effectiveness of the design and operation of the Companys disclosure controls and procedures. This evaluation was done under the supervision and with the participation of management, including the Companys
Chief Executive Officer and Chief Financial Officer. Based upon the evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2009, the Companys disclosure controls and
procedures were effective.

Changes in Internal Control Over Financial Reporting

The Company made no change to its internal control over financial reporting during the three months ended March 31, 2009, that has materially affected, or is
reasonably likely to materially affect, its internal control over financial reporting.



11



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##### Table of Contents

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

The Company is party to various legal actions, claims, Government inquiries, and audits resulting from the normal course of business. The Company
believes that the probability is remote that any resulting liability will have a material effect on the Companys financial position, results of operations, or liquidity.

Item 1A. Risk Factors

There have been no significant changes from those
discussed in Item 1A. Risk Factors included in the Companys Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6.
Exhibits



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|3.1    |  | Amended and Restated Certificate of Incorporation of the Registrant (incorporated herein by reference from Exhibit 3.1 to registrants Registration Statement on Form S-1 (File No.
333-127006), as filed with the Commission on October 4, 2005, as amended).                                                                                                                                                                                                                                                                                             
|       | 
|3.2    |  | Bylaws of the Registrant (incorporated herein by reference from Exhibit 3.2 to registrants Registration Statement on Form S-1 (File No. 333-127006), as filed with the Commission on July
29, 2005).                                                                                                                                                                                                                                                                                                                                                      
|       | 
|4.1    |  | Specimen Class A Common Stock Certificate (incorporated herein by reference from Exhibit 4.1 to registrants Registration Statement on Form S-1 (File No. 333-127006), as filed with the
Commission on October 20, 2005, as amended).                                                                                                                                                                                                                                                                                                                      
|       | 
|4.2*   |  | NCI, Inc. 2005 Performance Incentive Plan (incorporated herein by reference from Exhibit 4.2 to registrants Registration Statement on Form S-1 (File No. 333-127006), as filed with the
Commission on July 29, 2005).                                                                                                                                                                                                                                                                                                                                     
|       | 
|4.3*   |  | Form of 2005 Performance Incentive Plan Notice of Stock Option Grant and Stock Option Agreement (incorporated herein by reference from Exhibit 4.4 to registrants Registration Statement
on Form S-1 (File No. 333-127006), as filed with the Commission on October 20, 2005, as amended).                                                                                                                                                                                                                                                                
|       | 
|10.1*  |  | 401(k) Profit Sharing Plan (incorporated herein by reference from Exhibit 10.4 to registrants Registration Statement on Form S-1 (File No. 333-127006), as filed with the Commission on
July 29, 2005).                                                                                                                                                                                                                                                                                                                                                   
|       | 
|10.2   |  | Loan and Security Agreement, dated March 14, 2006, by and among NCI, Inc., as the Parent Borrower, each of the Subsidiary Borrowers identified on the signature pages thereto, the several
banks and financial institutions from time to time parties to the agreement, and SunTrust Bank as the Administrative Agent. (incorporated by reference from Exhibit 10.1 to registrants Current Report on Form 8-K dated March 14, 2006, and filed
with the Commission on March 17, 2006).                                                                     
|       | 
|10.3   |  | First Amendment to Loan and Security Agreement, dated August 1, 2006, by and among, NCI, Inc., as the Parent Borrower, each of the Subsidiary Borrowers identified on the signature pages
thereto, the several banks and financial institutions from time to time parties to the agreement, and SunTrust Bank as the Administrative Agent (incorporated herein by reference from Exhibit 10.1 to registrants Quarterly Report on Form 10-Q
for the period ended September 30, 2006 (File No. 000-51579), as filed with the Commission on November 7, 2006)
|       | 
|10.4   |  | Second Amendment to Loan and Security Agreement, dated June 27, 2007, by and among, NCI, Inc., as the Parent Borrower, each of the Subsidiary Borrowers identified on the signature pages
thereto, the several banks and financial institutions from time to time parties to the agreement, and SunTrust Bank as the Administrative Agent (incorporated herein by reference from Exhibit 10.1 to registrants Current Report on Form 8-K (File
No. 000-51579), as filed with the Commission on June 27, 2007).                                             
|       | 
|10.5   |  | Third Amendment to Loan and Security Agreement, dated March 20,2008, by and among, NCI, Inc., as the Parent Borrower, each of the Subsidiary Borrowers identified on the signature pages
thereto, the several banks and financial institutions from time to time parties to the agreement, and SunTrust Bank as the Administrative Agent (incorporated herein by reference from Exhibit 10.1 to registrants Quarterly Report on Form 10-Q
(File No. 000-51579), as filed with the Commission on August 1, 2008).                                          
|       | 
|31.1  |  | Certification of the Chief Executive Officer pursuant to rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                
|       | 
|31.2  |  | Certification of the Chief Financial Officer pursuant to rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                
|       | 
|32.1  |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                     
|       | 
|32.2  |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                     



| | Included with this filing.
|- | --------------------------

|* | Management Contract or Compensatory Plan or Arrangement.
|- | --------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



NCI, Inc.Registrant




|                  |  |     |  |                                                                                                                  |  |  |  | 
|----------------- |  | --- |  | ---------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Date: May 8, 2009 |  | By: |  | /s/    Charles K. Narang                                                                                        
|                  |  |     |  | Charles K. Narang Chairman of the Board, Chief Executive Officer and Director (Principal Executive
Officer)     
|                  |  |    
|Date: May 8, 2009 |  | By: |  | /s/    Judith L. Bjornaas                                                                                       
|                  |  |     |  | Judith L. Bjornaas Executive Vice President Chief Financial Officer (Principal Financial and Accounting
Officer)



13