SAIC Management Discusses Q2 2013 Results - Earnings Call Transcript

SAIC (SAI)

Q2 2013 Earnings Call

August 30, 2012 5:00 pm ET

Executives

Paul E. Levi - Senior Vice President of Investor Relations

John P. Jumper - Chairman of The Board, Chief Executive Officer, President, Member of Classified Business Oversight Committee and Member of Ethics & Corporate Responsibility Committee

K. Stuart Shea - Chief Operating Officer

Mark W. Sopp - Chief Financial Officer and Executive Vice President

Analysts

Michael Smith

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Glenn Fodor - Morgan Stanley, Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

Timothy McHugh - William Blair & Company L.L.C., Research Division

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

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the second quarter fiscal year 2013 earnings conference call. [Operator Instructions] This conference is being recorded today, Thursday, August 30, 2012. I would now like to turn the conference over to Mr. Paul Levi. Please go ahead, sir.

Paul E. Levi

Thank you, Camille, and good afternoon. I'd like to welcome you to our second quarter fiscal 2013 earnings call. Joining me today are John Jumper, our Chairman and CEO; Stu Shea, our COO; and Mark Sopp, our CFO, and other members of our leadership team.

During this call, we will make forward-looking statements to assist you in understanding the company and our expectations about its future financial and operating performance. These statements are subject to a number of risks that could cause actual events to differ materially, and I refer you to our SEC filings for a discussion of these risks. In addition, the statements represent our views as of today. We anticipate that subsequent events and developments will cause our views to change. We may elect to update the forward-looking statements at some point in the future, but we specifically disclaim any obligation to do so.

I would now like to turn the call over to John Jumper, our Chairman and CEO.

John P. Jumper

Thank you, Paul, and good afternoon, everyone. During the call today, we'll start with a look at our quarterly performance, followed by a quick comment on market conditions and then highlight the next step in our ongoing strategy execution. Following that, our COO, Stu Shea, will amplify to you details about our performance in the future. He will also cover our recent acquisition, the planned divestiture of our test and evaluation business, and we will conclude with the business development results and progress in some of our growth areas. Stu will be followed by our CFO, Mark Sopp, who will go into details on the financial results. And then we'll open the lines and take your questions.

As reflected in our earnings release today, our revenue performance reflects a strong market position, the disciplined execution of our strategy and the dedicated efforts of 40,000 remarkable employees who share our pride in SAIC. The fundamental strength of our core business and intensified efforts in business development have enabled us to grow in markets that are uncertain and, in many areas, declining. During the quarter, we were able to report revenue growth of 10%, of which 8% is internal growth. While 8% revenue growth this quarter stands tall among our competitors, our market faces significant uncertainty, and we're being cautious on revenue expectations for the coming quarters, as Washington deals with the fiscal situation and the specter of sequestration.

In the previous earnings call, we discussed the potential impacts of sequestration, and I commented that it's hard to imagine a situation where automatic triggers replace debate and compromise with regard to critical government programs. Since that time, I have engaged senior government officials and industry partners to help make our government leaders aware of the profound consequences of automatic program cuts that could be well above 10%. This was reinforced in a Congressional Budget Office report released on August 22, citing the possibility of a recession if Congress fails to avert a series of tax increases and budget cuts due in January 2013.

I do believe that the consequences are becoming better understood at senior levels of government, and I also believe that the Congress will take action to delay the sequestration trigger for some months beyond the 1st of January 2013. This, of course, only serves to extend the uncertainty that surrounds the entire issue, which may give pause for government procurement and funding, but it does, however, also buy time to replace the automatic sanctions with reasoned debate.

In our March and May earnings calls, we talked about the strategic review. We've been having this under way with our Board of Directors for some time, as you know. Our strategy has been unfolding over the past few years with emphasized growth areas in intelligence, surveillance and reconnaissance, energy and health. We particularly emphasized gaining more strength in commercial energy and health. We now have a significant growing $1 billion presence in the energy, environment and infrastructure space, all of which have a common thread in engineering, and as we go forward, we will refer to this business area as engineering.

Relative to our health business, we have been supporting the government in its electronic health records program for more than 20 years. As you know, in the past few weeks, we finalized the acquisition of maxIT Healthcare, previously the largest private independent health care IT consulting company in North America. maxIT provides a comprehensive range of health care IT services and solutions, primarily to commercial hospital groups and other medical delivery organizations. This addition of approximately 1,300 employees complements our earlier and very successful acquisition of Vitalize Consulting Solutions. By itself, Vitalize has enjoyed double-digit growth, and our health business will be stronger with the addition of maxIT. We see this as a strong growth market for the next 5 to 10 years and has compelling synergies with the work we do on the government side. SAIC is now one of the largest electronic health records implementation and optimization consulting firms in the country. This is another step in executing our strategy.

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