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Q4 2013 Earnings Call

March 26, 2013 5:00 pm ET


Paul E. Levi - Senior Vice President of Investor Relations

John P. Jumper - Chairman, Chief Executive Officer, President, Member of Classified Business Oversight Committee and Member of Ethics & Corporate Responsibility Committee

K. Stuart Shea - Chief Operating Officer

Mark W. Sopp - Chief Financial Officer and Executive Vice President


Christopher Sands - JP Morgan Chase & Co, Research Division

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Amit Singh - Jefferies & Company, Inc., Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

Edward S. Caso - Wells Fargo Securities, LLC, Research Division



Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the SAIC Fourth Quarter Fiscal Year 2013 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, March 26, 2013. And 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 would like to welcome you to our fourth quarter fiscal year 2013 earnings conference call. Joining me today are John Jumper, our Chairman and CEO; Stu Shea, our COO; Mark Sopp, our CFO; and other members of our leadership team.

During this call, we'll 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 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 like for our audience to please note that our management will speak of our Q4 and year-to-date results as compared to adjusted prior year periods. The adjustments center on the CityTime charges incurred last fiscal year. A GAAP reconciliation of these adjustments is provided in our earnings release issued today. I would now like to turn the call over to John Jumper, our Chairman and CEO.

John P. Jumper

Thank you, Paul, and good afternoon, everyone. During the call today, I'll be discussing 4 key items. I'll start with our quarterly performance, followed by a discussion of our journey to achieve greater cost efficiencies, then third, I'll talk about market conditions and finally, our capital allocation decisions and plans. After my comments, Stu Shea will update you on the progress of our planned separation, our actions to expand our pipeline of opportunities and review new business development results. Mark Sopp will then follow with details on the financial results, guidance for FY '14 and then we'll answer your questions.

First, our Q4 performance. During the quarter, our revenue growth trended down, and our full year ended with just modest growth but within our expectations. Our margins were lower than our normal run rates and were largely impacted by nonrecurring costs, including those required to achieve the planned separation and a few legal and program adjustments. Stu will provide the details in a few moments and discuss our continuing actions to improve margins.

Many of the actions needed to provide sustainable margin improvement have been or are being implemented, and further actions being taken early this fiscal year will deliver benefits to both companies after separation.

The second item is cost efficiency. Today, through Project Gemini, we're focused on ensuring the cost structures of 2 companies being created are appropriate for the markets they will serve. Since our IPO in 2006, various efforts to control costs allowed us to improve margins and invest more in technology and business development. However, the markets have become more competitive and stressed, requiring us to raise the bar on cost efficiency considerably more.

As we prepare for our planned separation, our goal is much higher, with plans to reduce our indirect costs by at least $350 million annually in order to maintain competitiveness and profitability. For example, we've undertaken a careful review of our facility footprint and have identified ways to reduce our facilities by over 30%, saving about $70 million per year. We'll implement these reductions in the coming months. Our intent is to achieve top quartile competitiveness in our industry to address the market uncertainty we now face.

Let me move to my third key point and update you on the current conditions we are facing on our government market and brief -- and a brief look at our commercial business market. Of course, we have now transitioned from the threat of sequestration to the realities of sequestration in our government markets. Sequestration, combined with the drawdown in overseas operations, provides significant headwinds for FY '14. Mark will provide additional color in his remarks on our guidance, but we believe we have realistically addressed the range of impacts embedded in sequestration.

We have and will continue to work closely with our customers in these difficult financial circumstances to ensure critical operations are supported as effectively as possible, with decisions that respect our obligation to shareholder value. Whatever the impact of sequestration, the restructuring and cost efficiencies embedded in Project Gemini are essential to the long-term competitiveness and financial success of the 2 companies.

Turning to our Commercial business, which is growing nicely. We continue to be the largest third-party electronic health care record implementation provider in the U.S. and this market continues to grow. Although sequestration and the fiscal cliff created some short-term uncertainty in our federal health clients, we expect this overall segment of our business to grow significantly over the next few years and beyond. In addition, large clinical system implementation opportunities in Canada provided -- will provide additional growth opportunities for the company.

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