Q1 2014 Earnings Call
June 03, 2013 5:00 pm ET
Paul E. Levi - Senior Vice President of Investor Relations
Previous Statements by SAI
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K. Stuart Shea - Chief Operating Officer
Mark W. Sopp - Chief Financial Officer and Executive Vice President
Ross Cowley - Crédit Suisse AG, Research Division
William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division
Jason Kupferberg - Jefferies & Company, Inc., Research Division
Cai Von Rumohr - Cowen and Company, LLC, Research Division
Joseph B. Nadol - JP Morgan Chase & Co, Research Division
George A. Price - BB&T Capital Markets, Research Division
Richard Eskelsen - Wells Fargo Securities, LLC, Research Division
Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the SAIC First Quarter Fiscal Year 2014 Conference Call. [Operator Instructions] This conference is being recorded today, Monday, June 3, 2013. At this time, I'd like to turn the conference over to Paul Levi, SAIC's Senior VP of Investor Relations. Please go ahead, sir.
Paul E. Levi
Thank you, Vince, and good afternoon. I'd like to welcome you to our first quarter fiscal year 2014 earnings conference call. Joining me today are John Jumper, our Chairman and CEO; Stu Shea, our COO; and Mark Sopp, our CFO; and other members of our leadership team as well.
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'll refer you to our SEC filings for a discussion of these risks.
In addition, the statements 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.
I would now like to turn the call over to John Jumper, our Chairman and CEO.
John P. Jumper
Thank you, Paul, and welcome, everyone. The first quarter of 2014 was relatively in line with our expectations with revenues of $2.71 billion for the quarter, down slightly to the prior year quarter. This represents an internal revenue decline of 4%, primarily due to the loss of the large DGS contract and ramp down on the war-related OCO work on a JLI contract, which together reduced our revenues by more than $100 million. The revenue performance also reflects the impact of sequestration, which is driving delayed decisions and imposing significant fear and caution throughout the contracting process.
Operating income was lower than the prior year, due mainly to $40 million of costs for the separation and preparation of 2 stand-alone companies, and our operating cash flow was negatively impacted by the earlier-than-expected discontinuance of an accelerated payment program by the government. Having said that, our performance was mostly as we expected and our previous guidance anticipated many of the current challenges. Today, we are reaffirming the guidance that we outlined in our March call.
Looking forward, uncertainty over funds -- over funding remains, but there is still little that our customers can tell us about what to expect and over what period of time. I, along with other CEOs in this space, have been engaged with leadership of the Pentagon who, I must say, have gone out of their way to conduct frequent meetings with industry leadership. Along with others, I have emphasized the need to work the necessary fiscal discipline in a more reasonable way with debate and compromise rather than mindless across-the-board cuts. At SAIC, we are proactively responding and taking the necessary steps to manage the business in the current difficult environment. Our $350 million cost-reduction plan is progressing well and we continue to adjust our infrastructure to ensure that we have the right-sized business to address our revenue base. Our strong balance sheet has and will effectively support our ongoing development of the company. We remain thoughtful about how we deploy our capital, as evidenced by the special dividend that will be paid out on June 28. As always, we approach all of our capital deployment efforts with a view toward maximizing value for our shareholders.
Our planned separation is progressing on schedule and will yield 2 cost-conscious, high-performance companies that focus on driving value to our shareholders. We're still operating as one company and focused on making our plan for the year. However, we are in a transition year and incurring significant cost to prepare for the companies to be successful following separation.
We are pleased to announce a new National Security Solutions leader, Lou Von Thaer, who Stu will discuss in his section. Lou brings a career of experience and talent to that sector, and we are delighted to welcome him. Also, we have John Sweeney on the call with us today, and he'll be heading up Leidos Investor Relations efforts. The leadership team for both companies is substantially in place.
Now I'll turn this over to our COO, Stu Shea, who will discuss business performance.
K. Stuart Shea
Thanks, John. Let me first comment on the appointment of Lou Von Thaer as our new President of the National Security Sector. Lou has the benefit of coming into an organization that has been expertly led by acting President John Thomas. Over the past 6 months, John has done an exceptional job shaping, streamlining and focusing that sector for the future. This includes the establishment of a much improved sharing of key-enabling technologies such as Big Data analytics and cybersecurity across our full portfolio, with specific focus on bringing these solutions to the Health and Engineering Sector. This is a key building block in the future success of Leidos. In addition, John's energy at market positioning and core strategic focus areas of maritime ISR and cybersecurity lay the groundwork for Lou's day 1 efforts. Lou brings to legacy SAIC and future Leidos, a strong background in both these key areas. As an example, Lou served as a cochair of the recent Defense Science Board Task Force on Resilient Military Systems and the Advanced Cyber Threat. Combining his firsthand knowledge of the cyber threat with our existing market leadership in the cyber community will be a powerful combination for our shareholders. I look forward to Lou's arrival later this week to begin that process.