Exelis Earnings Call Nuggets: Full Year Extension of the CR and Bookings Target

Exelis Inc (NYSE:XLS) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Full Year Extension of the CR

Robert Spingarn – Credit Suisse: You’ve both talked about the fact that the guide does contemplate a softening federal acquisition climate as the year progresses, but one of the scenarios you pointed out in this morning’s 10-K was a full year extension of the CR, which potentially might not be accompanied with new fiscal ’13 action and we know that that could create a problem for new starts et cetera. How might your guidance differ, if we actually get that outcome?

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Peter J. Milligan – SVP and CFO: Well, so, I think about it this way Rob. We have about 86% or so of our full year revenue in backlog, which would include unfunded backlog right now. So, for programs like ADS-B and K-BOSSS which represent some of our large unfunded programs that we see obviously continuing to support on throughout 2013, So, from that perspective, we think that the topline is fully protected, but as Dave will mention or has mentioned if the environment get much worse than of course it seems to be evolving minute by minute then there could be some incremental pressure in what we’d see on the top line, but this is our best guess of taking into account everything we know quite literally through today.

Robert Spingarn – Credit Suisse: I was just going to say so you don’t have any major new starts that we’d need to worry about under our continued CR?

David F. Melcher – CEO and President: There is a couple of new starts that we hope to win certainly things like NextGen Jammer. There are some other programs with the FAA that could represent a new start. I think the key on that piece though is that you could impact clearly to orders and backlog that would be I think a line item that we would see more pressure on, let so protect, we’re more protected I guess on the top line on revenue because we’re pulling it out of the backlog. But certainly if the environment was to get worse you would see the pressure on backlog.

Robert Spingarn – Credit Suisse: So that’s really a ’14 issue then it sounds like. Then just the other question I have is on the restructuring the $60 million to $70 million how should we think about from a cash perspective and when would we see that as we flow through the year?

David F. Melcher – CEO and President: Yeah, so largely those restructuring expenses represent employee separation. We should see most of that being paid out in this year, fairly linear. Again, most of that and we say $60 million to $70 million probably $55 million to $60 million of that would be paid during 2013 and again in a fairly linear way.

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Robert Spingarn – Credit Suisse: So, you cash flow guidance embeds that cost?

David F. Melcher – CEO and President: Absolutely.

Bookings Target

Joseph Nadol – JPMorgan: Could you guys characterize or do you have a bookings target you could share for the year just given the pipeline you mentioned et cetera?

David F. Melcher – CEO and President: Yes. We are trying to make sure that we are booking as much as we say we are going to have in sales, if not more. The hesitancy I have is that nobody knows exactly how this year’s going to unfold. It’s one of the reasons that I mentioned having $7 billion in potential bookings in the pipeline right now for decision. We will see how those things rollout during the year and one of the – as you know with a Company that’s got a service business the size that we have there used to be a day when those contracts were funded fully upfront and now it tends to be month by month or maybe two months by two months at the most. So we are cognizant of the environment. We want to basically hold the line on any backlog erosion and make some inroads into building it.

Peter J. Milligan – SVP and CFO: Yes. 2014, it’s obviously going to be some dynamics happening this year, depending on how quickly the withdrawal takes place. Just from a sizing perspective, the two big programs we have in Afghanistan are LOGCAP with Fluor and the Afghan North and South. Collectively, we’ll probably do a little north of $300 million on those programs. So, 2013, as Dave mentioned, we feel pretty good about that. 2014, we’ll see as the year develops, but right now, I think logically we would expect to see that trending down.

William Loomis – Stifel Nicolaus: The recent commentary of the Army about reducing contractors on or contractor costs on LOGCAP, how might that impact you, have you heard anything specific on that?

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David F. Melcher – CEO and President: We are a subcontractor on LOGCAP with Fluor. I think any pressures there would be transmitted in some fashion to us as well, but I think as a general comment across the O&M world, there is a general pressure on contract costs and the government is trying to be a good steward of their resources and we are trying to help them by bringing the best efficiencies we can to our work.

William Loomis – Stifel Nicolaus: You haven’t heard of near term reductions of volume or any of that sort at this point?

Peter J. Milligan – SVP and CFO: Nothing sizeable for the work we are doing.