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SAIC, Inc. (SAI)

F2Q2011 Earnings Call Transcript

September 1, 2010 5:00 pm ET

Executives

Paul Levi – SVP, IR

Walt Havenstein – CEO

Mark Sopp – CFO and EVP

Analysts

Tim Quillin – Stephens

Jason Kupferberg – UBS Securities

Cai von Rumohr – Cowen and Company

Bill Loomis – Stifel Nicolaus

Joe Nadol – JPMorgan

Mike Smith – BB&T Capital Markets

Erik Olbeter – Pacific Crest

James Friedman – Susquehanna Financial Group

Ed Caso – Wells Fargo

Tim McHugh – William Blair

Presentation

Operator

Good afternoon. My name is Alicia and I will be your conference facilitator today. Welcome to SAIC's second quarter fiscal year 2011 earnings conference call. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s call, Paul Levi, Senior Vice President of Investor Relations. Please proceed, sir.

Paul Levi

Thank you, Alicia, and welcome everyone. Here on today’s call are Walt Havenstein, our CEO; Mark Sopp, our CFO; and other members of our leadership team.

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, these 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.

With that, I will turn the call over to Walt.

Walt Havenstein

Thank you, Paul, and good afternoon everyone. During our second quarter, we continued to make sound progress in implementing our strategy by focusing on higher growth areas, in C4ISR, cybersecurity and logistics readiness and sustainment within the national security arena, and health and energy markets. As a result, we are expanding the volume of submitted proposals and increasing wins at double-digit growth rates compared with our performance a year ago.

For the call today, I will briefly cover the market conditions and outlook and provide highlights of recent business activity. Then Mark will provide a recap of our overall financial performance for the second quarter and outlook for the rest of the year.

I will begin with our government solutions and services market update. Despite flattening growth in the government solutions and services market, it is a very large market and there remain several large and growing areas of opportunities for SAIC.

Much attention has lately been given to the implications of Secretary Gates' recent announcement that he intends to reform DOD's spending practices in order to cut overhead costs and reinvest the savings in operations and modernization. Let me make two points about the Secretary's announcement.

First, I would like to say that we applaud and fully support his initiative. We agree Pentagon dollars need to be more focused on acquiring affordable and rapidly deployable solutions, which introduce more capable national security technologies or modernizing existing platforms, which the country cannot afford to replace.

Second, allow me to also emphasize that Secretary Gates' efforts are indicative of defense market environment that SAIC envisioned many months ago. And with that foresight, we set our strategy to emphasize solutions and services in a few large enduring markets that we believe will fare better than the broader government market itself.

To briefly reiterate our strategy, we are investing in and focusing on a select few higher growth areas within our core markets where the company can apply its distinctive competitive discriminators. These higher growth areas are C4ISR, cybersecurity and logistics readiness and sustainment within the national security arena, and the health and energy markets.

We remain bullish that growth in these areas will take place despite overall reductions in contractor spending elsewhere in federal budgets. SAIC can capture substantial new business in those areas, because we offer significant thought leadership, domain expertise, and leading-edge technologies along with the ability to deliver large scale integrated solutions that include physical infrastructure.

Our performance will also benefit from our deep and wide reaching customer affinity combined with the agility of our entrepreneurial culture and organization. These traits position us to take market share and achieve higher growth rates than would be possible in our core markets alone.

SAIC recently reorganized some operations to better execute our strategy. We rationalized our operational structure to drive efficiency and generate resources for investment in the higher growth areas we have identified.

Among these changes, we moved from four operating groups to three and reoriented the company's cybersecurity business to give it an enterprise-wide focus by making it report directly to me. We also made strategy-based changes to our corporate leadership structure and personnel. This reorganization is one step along our journey that in the future may include further changes to our organization to address strategic objectives or market requirements.

During our last earnings call, I shared a few examples of our noteworthy success in executing the strategy of our cybersecurity business area. Customer restrictions prohibit us from sharing specifics with you, but I can say unequivocally that this strategy is hitting pay dirt. So far this year, we have won nearly $1 billion in contract awards and including ceiling on IDIQ contract awards with over $650 million in year-to-date bookings, and the nature of these wins are centered in the most advanced technical areas within the intelligence community.

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