SAIC Earnings Call Nuggets: Revenue Guidance by Segment and Tax Rate Outlook
SAIC (NYSE:SAI) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Revenue Guidance by Segment
Christopher Sands – JPMorgan: This is actually Chris Sands on for Joe.. Mark I was wondering if you could help us out with revenue guidance by segment particularly in health, energy and civil mentioned is expected to be a growth engine over the next several years, but obviously it lagged particularly last year. When did that start to pick up and what are the big moving pieces there.
Mark W. Sopp – EVP and CFO: Chris we decided not to issue guidance for our segments at this time that’s something we may do later. So I’m going to refrain from doing that, but I will say and as you probably expect our commercial health business is expected to continue to be a growth engine for the company. I think the fed, civ area I think you mentioned that in your question will continue to be stressed and I think our intelligence and cyber business will continue to be a relative strength across the business, particularly in the government space. That about all the color I think we should provide in terms of segments at this time when we are preparing for the separation and get into a separate roadshows for the two parties closer to the transaction itself, I think you’ll expect to see more color there.
Christopher Sands – JPMorgan: Can you provide any color on the M&A pipeline and the environment there just given all the uncertainty and obviously we are very focused on the spin. So has that changed your behavior in that aspect at all.
John P. Jumper – President and CEO: This is John and I think, as we said before each quarter the Board considers all the opportunities and as M&A opportunities are in fact opportunistic you got to take them when they come. So we’re still sticking with our strategy that M&A is of what we’re looking for in our growth areas and we’ll stick with that, but those opportunities just have to be at the right place in the right time
Christopher Sands – JPMorgan: In terms of volume of opportunities, are you seeing more or less now than you were say 12 to 18 months ago?
John P. Jumper – President and CEO: Probably just because of the environment.
Christopher Sands – JPMorgan: Then, Mark, one last one. Is there any share repurchases factored into the guidance?
Mark W. Sopp – EVP and CFO: There is not Chris. We have a pretty small amount of creep, it’s about 5 million shares, so it’s not really moving the needle, but we have factored in and assume by that for fiscal ’14.
Tax Rate Outlook
Cai von Rumohr – Cowen and Company: Am I correct, this $140 million of expenses costs are included in your guidance?
Mark W. Sopp – EVP and CFO: Yes, Cai, that’s correct.
Cai von Rumohr – Cowen and Company: Which basically is saying you expect to have 8.5% to 9% margins sort of is the rough math on a go-forward basis in fiscal ’15, is that correct?
Mark W. Sopp – EVP and CFO: Well, we might have some issues in the tax rates and other matters Cai, because it’s not that high. I mentioned in my remarks that absent those items, we expect to be in the mid 7% range.
Cai von Rumohr – Cowen and Company: Which means absent those items, I mean, because basically if those items are in there and you hit your number, you are in the 7% range with those items. So that’s the confusion I think that’s there?
Mark W. Sopp – EVP and CFO: We can perhaps work with you on the side, but we are quite convinced the 140, assuming that’s incurred of course and net of those will – well, pro forma for those if you add them back, if you will, will produce mid-7 range. There are some dynamics in the allowability of the 140s, so the sum of that piece is allowable other parts are not and so there is some recovery on part of the 140 that could be part of the dynamics there.
Cai von Rumohr – Cowen and Company: So, what sort of a tax rate, you said expense but just what sort of a tax rate are we looking at for the year?
Mark W. Sopp – EVP and CFO: Our normative tax rate is 36%. We have a slightly lower rate projected for ’14 due to the planned discrete item we have in settling in prior year items, but that’s just about 2 percentage points. So, if you’re really looking at longer-term think 36%, short-term we got about a 2% pickup in fiscal ’14.
Cai von Rumohr – Cowen and Company: My last one, if you could tell us the commercial healthcare, the maxIT, the Vitalize, what sort of growth did that commercial business have in the fourth quarter, and what are you assuming for fiscal ’14?
Mark W. Sopp – EVP and CFO: We were well into the double digits for all quarters of fiscal ’13. It was little stronger in the third quarter. There is a little bit of was little to slow down from some of the – I think confusion around some of the meaningful use regulations, but we are actually seeing restoration of momentum there already. So, we view that as temporary.