SAIC Earnings Call INSIGHTS: GSM Program, Collective Margin Structure

On Thursday, SAIC, Inc. (NYSE:SAI) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

GSM Program

Michael Smith – Lazard Capital Markets: It’s Mike Smith in for Mike Lewis. Just a couple quick ones on the two separate businesses, thanks for providing the pro forma revenue, but do you have a pro forma operating income for ’13?

A Closer Look: SAIC Earnings Cheat Sheet>>

Mark W. Sopp – EVP and CFO: Mike, Mark Sopp here. We will provide that later on when we get down the road. We got a lot of design ahead of us. The team is going to be very focused on cost efficiency and so it’s just premature until we get further down the road to provide that, but we will be very transparent in those expectations at the right time.

Michael Smith – Lazard Capital Markets: Then secondly on GSM that’s from my understanding is on the protest, I think you guys submitted a couple protests on that particularly program, but how was that factored into the guidance at this point?

Mark W. Sopp – EVP and CFO: We have eliminated revenue from that program in our guidance as a cautionary measure, but we’re certainly hopeful that we get a better outcome.

Michael Smith – Lazard Capital Markets: If I understand it right, you guys are still collecting revenue under the program right now or is there a stop work?

Mark W. Sopp – EVP and CFO: We are still collecting revenue today, correct.

Collective Margin Structure

Jason Kupferberg – Jefferies & Company: Congrats on the announcement. I just wanted to ask a follow-up on one of the prior questions, just coming back to the margins, I understand it’s premature to give us a target margin for the individual two new companies, but in aggregate should we still be thinking about the collective margin structure being in the 7.5% to 8% range or do you see it being higher because of some of the cost efficiencies that I think you talked about in your prepared remarks, just directionally would the combined margins be higher or more similar to what SAI looks like today?

John P. Jumper – President and Chief Executive Officer: Great question. We do believe our normative margins today are in indeed in that 7.5% to 8% range before nonrecurring expenses that I described in my remarks as an example. Some of those will continue, but in terms of the pure business that’s the baseline today and we will have to see what the market forces dictate in the shorter term, but we will be designing to be maximizing financial performance and we will be endeavoring to improve that number given the portfolio positions we have. So, that’s the challenge to the team.

Jason Kupferberg – Jefferies & Company: Just your thoughts as we head into the last month of the government fiscal year here what are you thinking in terms of potential for budget flush, would it be something on the order of kind of a normal intensity of spend here or not just given some of the macro uncertainties?

K. Stuart Shea – COO: We are seeing a steady increase in the award decisions each period and the beginning of Q3 was particularly strong in terms of those awards. So, when we start looking at our bookings performance, we’re seeing an uptick in that towards the end of Q2 and beginning to accelerate as well into Q3. So, when you translate that into strong Q3 book-to-bill, we see Q3 being very strong and it’s still expected on a year-to-year basis to be at 1.0 or better, so that not really as much of a flush as it is more of a decision-making process on the part of the government.

Jason Kupferberg – Jefferies & Company: Just to clarify, the 1.0 plus, is that what you are now thinking for full-year of fiscal ‘13, I know you are running about 0.8 through the first half of the year and I think you have been targeting something a little north of 1 maybe 1.1 plus, is it more likely to be kind of lower end of that range, just given where you are year-to-date?

John P. Jumper – President and Chief Executive Officer: Yes, it is at 0.8 now and we’ll look at this to get to year end at 1.0 and above and how much above depends on how the pace of awards continues towards the end of the fiscal year, including the impact of sequestration. But the book-to-bill, it should be noted, it doesn’t account for IDIQ programs and our IDIQ programs are about $5 billion year-to-date, that’s a growth of almost 50% over last year and many of those IDIQs are single award IDIQ, which also contributes to our performance and when you couple that with roughly 50 non-IDIQ programs that we have in the pipeline, that we expect to be decided this year in excess of $100 million, recognized in the slow historical nature of some of those awards, that’s why we are remaining bullish on the 1.0 in the book-to-bill.