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SAIC Inc. (SAI)

F4Q09 (Qtr End 01/31/09) Earnings Call

March 25, 2009; 05:00 pm ET

Executives

Ken Dahlberg - Chairman & Chief Executive Officer

Mark Sopp - Chief Financial Officer & Executive Vice President

Larry Prior - Chief Operating Officer

Stuart Davis - Senior Vice President, Investor Relations

Analysts

Joseph Vafi - Jefferies & Co.

Laura Lederman - William Blair & Co.

William Loomis - Stifel Nicolaus & Co.

Ed Caso - Wachovia Securities

Joe Nadol - JP Morgan

Cai von Rumohr - Cowen & Co.

Jason Kupferberg - UBS Securities

Elan Gore - Picton Mahoney

Matt Bugarin - Raymond James

Presentation

Operator

Good day ladies and gentlemen, and welcome to the SAIC fourth quarter, fiscal year 2009 earnings conference call. My name is Shamica and I will be your coordinator for today. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s call, Stuart Davis, Senior Vice President for Investor Relations; please proceed.

Stuart Davis

Thank you Shamica and welcome everyone. Here today are Ken Dahlberg, our Chairman and CEO; Mark Sopp, our CFO; and Larry Prior will join us in the Q-and-A portion.

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 made 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.

Also on this call we’ll discuss our internal revenue growth percentage. Beginning this quarter our definition of internal revenue growth and a table showing our calculation of it appear in our press release, which you can get from our website.

With that I’ll turn the call over to Ken.

Ken Dahlberg

Thank you, Stuart. Good afternoon everyone. As has become customary in these calls, I’ll provide some introductory remarks; update you on the government services market and business development; and then Mark will provide a lot of color on the financial details.

By now I presume you would have read our press release and certainly in my view, the fourth quarter was a terrific finish to a great year; reaching the $10 billion revenue milestone as we celebrate our 40th anniversary; well, it’s just icing on the cake. I feel that we really hit our stride as a public company.

In this past fiscal year, we executed on all the commitments that we made as part of our initial public offering. Our major financial results, including revenue, operating margin, earnings per share, and cash flow, were strong for the quarter and the year. We make no mistake; this performance was no accident.

We laid out our approach for transforming the company, creating more focus in the marketplace, collaborating as one SAIC, making bigger bets on emerging strategic trends, and that approach is paying off. Since our performance has been steady and predictable, most of the questions that we’re getting from investors deal with the federal budget and the federal contracting environment. There have been major changes to both, but our overall financial outlook is essentially unchanged.

On the budget front, the President signed the $410 billion omnibus, that provides an average 8% increase for non-defense agencies, and he signed a $787 billion stimulus package. Our largest customers and programs are in national security, but we see potential upside in the stimulus package, especially around our energy efficiency, border and port security, and healthcare IT offerings.

We are taking a measured approach. We do not want to distract the focus of our core business which is growing nicely, but we also want to be able to participate in opportunities consistent with our strategic intent. We have been working our campaigns around energy, homeland security, and healthcare for some time; and we believe that the investments we’ve made, position us well for the priorities of this Administration.

We do not expect any serious issues with the second installment in the fiscal year 2009 supplemental appropriation, which should provide funding of about $75 billion. However, over the next couple of years, we will likely see a decline in supplementals for three reasons: the reduced costs of the war; the shift of some items to the base budgets; and the removal of non-war related costs, such as major procurements.

President Obama also outlined a government fiscal year 2010 budget with a 4% increase in core defense spending and a 9% increase for the rest of the government. As we have been projecting for some time now, the forward projections for defense spending are fairly flat. The Administration is currently refining its requests and taking a hard look at all large program, including future combat systems.

Secretary Gates has spoken and written extensively on the need for 75% solutions delivered in months, instead of 99% solutions delivered in years. Flattening budgets will put some pressure on services, as well as the platforms, but I believe our emphasis on technical innovation and quick response, as opposed to long production cycles, should serve us well. So the money’s there are coming in the budget picture, and a little better than we had forecasted in the last call.

Having said that, the relationship between the government and the contractor community, is a matter of prominent debate. President Obama’s March 4 memorandum on government contracting lays out a number of changes. In the main, these changes do not create a long term headwind for SAIC. In fact, a federal workforce with more clarity around its role, that is better staffed and thus better able to define requirements and manage procurements, is ultimately a good thing for our industry.

Read the rest of this transcript for free on seekingalpha.com