SAIC Earnings Call Nuggets: Health Business and Engineering vs Healthcare

SAIC (NYSE:SAI) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Health Business

Ross Cowley – Credit Suisse: This is actually Ross Cowley in for Rob. I had two quick questions. On the first one specifically looking at health and engineering. You had nice growth of around 25% there and the margin came down. Now I know you said in the 8-K that some of this was because of intangible asset amortization expenses, but is it possible to breakout, how much of the pressure is related to spend and how much is related to things such as greater competition, et cetera?

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Mark W. Sopp – EVP and CFO: This is Mark here. I did mention in my prepared remarks that the health businesses we did, make some steps to integrate the previous Vitalize acquisition as well as the recent maxIT acquisition, and so that was pretty meaningful in the quarter and, nonetheless the right thing to do. On the engineering side, we had strong performance overall, I would say and good energy or engineering products going out the door as well, and also including, give Joe a lot of credit, a healthy maintenance business as part of that which has been very profitable for us. So, a little bit of investment. Very bullish on the long-term prospects of both growth and prosperity in that area.

Ross Cowley – Credit Suisse: Just one more. Is it possible to quantify the mix of cost-plus versus fixed-price contracts in each of the two new businesses in Leidos and SAIC?

Mark W. Sopp – EVP and CFO: Give us a second to check that out. Yeah, why don’t we come back to that question in a moment. We have it for the consolidated business of course in the sectors, but we’d like to redo it for Leidos and new SAIC per your question.

Engineering vs Healthcare

William Loomis – Stifel, Nicolaus & Company, Inc.: Just staying on the engineering and healthcare side, Mark, can you give us kind of what the breakout is between the engineering and healthcare, because if engineering was strong, organic 9%, I know the healthcare was growing like 20% or so, but it seems like might have slowed down in the quarter. Am I reading that right?

John P. Jumper – President and CEO: Both businesses were fairly equal in terms of growth rates this quarter, the commercial health was just south of 10% and engineering was similarly strong obviously. So that’s how it shook out this particular quarter. I still think we’re seeing some pause in the marketplace on the commercial health side as a result of the extension of the ICD-10 and meaningful use regulations that went from August 2013 to August 2014. Also the 2% haircut to Medicare reimbursements via sequestration might also be attributing to some of the pause. But nonetheless, the regulations are in place. We think the industry is compelled to invest in modernizing its IT and its EHR implementations accordingly. So, might be a short-term pause, but nonetheless very bullish on the outcome for this year and beyond.

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William Loomis – Stifel, Nicolaus & Company, Inc.: Just in that on the National Security Solutions, can you tell us since you’ve put the MRAP business in that, which will be in Leidos, how much of that segment now would be either – would be both Army and then specifically OCO work. So we understand when it goes to Leidos what it would be – what it would be for that firm?

Mark W. Sopp – EVP and CFO: We’ll have to work on that one, we don’t have that on our finger tips. We have our Investor Days in July I think we’ll provide plenty of color on the composition and revenue stratifications of the businesses, so I think it’s best to hold off until then.

A Closer Look: SAIC Earnings Cheat Sheet>>

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