Science Applications International Corp (SAIC) 2016 Q2 法說會逐字稿

Good day and welcome to the SAIC FY16 Q2 conference call. Today's conference is being recorded. At this time I'd like to turn the conference over to Paul Levi of Investor Relations. Please go ahead, sir.

Good morning. Thank you for joining us for SAIC's second-quarter FY16 earnings call. This morning we issued our earnings release. And joining me today to discuss our business and financial results are Tony Moraco our CEO; and John Hartley our CFO. Today's call is being webcast at investors.SAIC.com where you'll also find the earnings release and supplemental financial presentation slides to be utilized in conjunction with today's call. Both of these documents, in addition to our Form 10-Q to be filed soon, should be utilized in evaluate our results and outlook with information provided on today's call.

Please note that we may make forward-looking statements on today's call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call. I refer you to our SEC filings for a discussion of these risks including the risk factors section of our annual report on Form 10-K and quarterly reports on Form 10-Q. In addition, the statements represent our views as of today and subsequent events may 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. It is now my pleasure to introduce our CEO, Tony Moraco.

Thank you, Paul. And good morning. Since becoming an independent company nearly two years ago, we continue to deliver on our shareholder value proposition that we outlined at separation. During the second quarter of FY16, we continued the execution of our strategy and opened new market access to the intelligence community through the acquisition of Scitor. With second-quarter revenues of about $1.1 billion, reflecting 16% total growth and flat internal growth, SAIC is positioned as one of a select few government service providers at scale with significant market opportunities. Second-quarter adjusted operating margin was 5.9% excluding $12 million of acquisition- and integration-related cost. And adjusted diluted earnings per share was $0.66. Operating cash flows of $21 million were lower than historical levels due to various items occurring in the quarter that John will cover in the financial details momentarily. In summary, the second quarter results continue to demonstrate consistent performance across our diverse contract portfolio.

Our customers continue to operate in an atmosphere of relative stability and are able to focus on their mission objectives. As we near the end of the government's fiscal year, customers have better insights to their budgets as compared to previous years. I expect that government's FY16 will start under a continuing resolution as Congress will soon return and face several other issues that require action in short order. After several years of our customers reducing their spend rates to new budget realities, the difference between their operating levels and mandated budget caps is significantly less than two years ago. As a result, this round of sequestration in 2015 should have less of an impact to most of our customers than in 2013.

Turning to our business development results, second-quarter award activity of $1 billion translates to a book-to-bill of 0.9, which is in line with our historical norm for second-quarter contract awards. We continue to see strong demand for the broad capabilities we offer. And with the additional intelligence community market access, we are well positioned for future opportunities. We had several notable second-quarter contract awards that demonstrate the traction of our protect-expand-grow strategy. Notable awards in the recompete or protect category are the $105 million DLA prime vendor MRO South Central region, the $109 million US Army aviation systems and computer resources support contract, and a $64 million Marine Corps enterprise information technology services contract. We were also awarded two notable new IDIQ contract vehicles in the second quarter under our expand and grow initiatives.

First, we were awarded the NETCENTS2 contract vehicle to provide a variety of services and solutions around network operations to the Air Force, where we see additional market opportunity. Second, we were awarded prime contract positions on three IDIQ contracts to supply the Army - Tank and Automotive Command with knowledge-based equipment-related and research and development services. As one of four companies that were awarded all three contracts, SAIC is now pursuing task orders with this new customer. With the contribution of Scitor's backlog of approximately $1 billion, SAIC's total contract backlog at the end of the second quarter stood at $7.1 billion, of which funded backlog was $1.9 billion. The estimated value of SAIC submitted proposals awaiting award is $13.1 billion. With nearly three times our annual revenues in submitted proposals awaiting decision, SAIC continues to take advantage of new market opportunities based on our scale and broad market diversification.

Before concluding my remarks let me give you an update on the Scitor integration. In short, integration efforts have proceeded as planned and I am pleased with the progress. With like-minded cultures of dedicated service to customers of vital national interest we have performed integration activities in a thoughtful manner to preserve the continuity of contract performance and minimizing the impact to our employees. The leadership team has already identified numerous business development opportunities to leverage our collective capabilities into multiple markets.

John, over to you to discuss our financial results.

Thank you, Tony. And good morning, everyone. Consistent with my remarks in prior calls, my comments today will exclude the minor amount of revenues and costs performed by our former parent. Our second-quarter results include a full quarter of Scitor, as the acquisition closed on May 4, the first business day of the quarter. Second-quarter revenues of approximately $1.1 billion reflect 16% total growth and flat internal growth as compared to the second quarter of last fiscal year. While discussing operating income, I will provide additional information to make the historical activity comparable to current results because, as expected, the acquisition of Scitor resulted in temporary expense impacts and the introduction of a significant amount of intangible asset amortization.

Operating income of $52 million in the second quarter resulted in an operating margin of 4.8% and was impacted by $12 million of acquisition and integration costs that if excluded would have resulted in adjusted operating margin of 5.9%. Going forward and through the end of FY16, we expect additional integration costs of approximately $5 million as we complete the integration of Scitor's IT systems. Both GAAP and adjusted operating income for the quarter included $11 million of incremental amortization related to the acquisition. This amortization does not impact ongoing cash flow nor do we believe it impacts the value proposition of our investment. The FY16 intangible amortization associated with the Scitor acquisition is now estimated at approximately $32 million compared to the previously estimated $19 million. After FY16 this intangible amortization will normalize to align or be below the previously estimated $25 million per year as the asset for the contract backlog is fully amortized during year one.

EBITDA and adjusted EBITDA after acquisition and integration costs is a helpful measure of our profitability that can assist in evaluating the value proposition of the Scitor acquisition and of the combined Company. As communicated previously, we expected adjusted EBITDA to be in a normative range of around 7% following our recent acquisition, and believe we can continue to increase this by 10 to 20 basis points annually on average and over time. For the second quarter, EBITDA as a percentage of revenues was 6.4%. And after adjusting for the $12 million of acquisition-related costs, adjusted EBITDA was 7.5%. These results reflect strong EBITDA generation for the quarter due to strong contract performance across our portfolio.

Net income for the second quarter was $22 million and diluted earnings per share was $0.46 for the quarter. Second-quarter results were adversely impacted by the acquisition and integration costs which negatively impacted earnings per share by $0.20. Adjusting for these acquisition costs results in adjusted diluted earnings per share of $0.66. Our income tax rate for the current quarter was approximately 43% which was impacted by non-deductible acquisition costs. Going forward, we expect a more normative rate of about 38%. I would like to remind you that we acquired a significant tax asset in the Scitor acquisition that we estimate will favorably impact cash flows by about $20 million a year for the next seven years.

SAIC continues to have very strong free cash flow characteristics. However, in the second quarter we saw a decline in cash flows from operations as a result of cash outflows associated with the acquisition and integration costs of $12 million, timing of income tax payments of about $15 million, and an increase in our day sales outstanding of 4 days to 55 days, which negatively impacted cash flow by about $40 million during the quarter. This increase in DSOs was partially attributable to the receivable balance on our Marine Corps AAV contract of over $20 million. This fixed price contract calls for scheduled milestone payments as certain contract deliverables are met. Based on the current contract schedule, the receivable balance is expected to grow to $40 million by the end of FY16 and is scheduled to be collected in the first half of FY17. In the June call I mentioned the potential for a return to a more normative level of DSOs in the mid 50-day range, which occurred this quarter, but we will continue to strive to improve in this important area.

Accordingly, we had cash flow from operations of $21 million, and after $5 million of CapEx in the quarter, free cash flow came in at $16 million. We expect strong operating cash flow in the second half of FY16, with full year cash flow from operations approaching $200 million. In conjunction with the closing of Scitor, we utilized $157 million of cash on hand and entered new credit agreements to fund the remaining $670 million of purchase price and related transaction costs. Our total debt is now approximately $1.1 billion equating to a leverage ratio of about 3.5 times debt to adjusted EBITDA.

Since the announcement of the Scitor acquisition in March, we have communicated that we intend to deploy excess cash by honoring the recurring dividend and paying down debt until a more optimal leverage ratio of between 2.5 and 3 times EBITDA is achieved. We estimate that our required debt repayments under our credit facility will result in us reaching a debt to EBITDA level of 3 times by the end of FY17, utilizing approximately $100 million in excess cash flow over this period. Accordingly, after considering funding the annual dividend of approximately $55 million per year, we expect to have remaining excess cash flow for incremental capital deployment opportunities during the second half of FY16 and during 2017. We do not intend to hold cash above our target operating cash level of $150 million. We will soon be in discussions with our Board of Directors to consider the quarterly dividend and review all capital deployment opportunities. Finally, our long-term financial targets remain unchanged and can be found in the supplemental presentation to this call on our Investor Relations website.

Operator, we are now ready to take questions.

(Operator Instructions)

We'll go ahead and take our first question from Cai von Rumohr with Cowen and Company.

Thank you very much and apologies, I was dropped off and got back on. As you were talking about cash flow, John, you mentioned that the Marine Corps, $20 million receivable that should grow to $40 million, was that expected at the time you won that contract that this would be this much of a cash flow drain?

Cai, thank you for the question. It was bid that way. We are working with the customer to try to adjust that payment cycle and a lot of it depends on the timing of the deliverables of the initial units. They are looking to perhaps accelerate the acceptance of the initial units so that they can deploy those vehicles sooner but that was generally expected. I wouldn't say it's going to affect our capital deployment activities. It's very predictable and expected. Unfortunately, it does give us some headwinds coming into year end but we will do everything we need to do to make sure we stay on track with cash flow.

Was this basically because you've missed the delivery schedule because of their unwillingness to accept it? Is that the issue? So, the terms haven't changed, just your timing, of the timing of delivery acceptance?

Absolutely not. We're exactly on schedule. This is just the way the payment schedule was required. I believe everybody that tried to bid this did in that manner because that was the request from the government paying office.

Okay. And then your cash flow, did you give any comments on the second half, because I was dropped out for part of your call -- cash flow for the second half?

Yes, I did, and we expect a strong second half, even with that $40 million of headwind that we'll have at year end. We do expect to be able to approach what we've described before as our $200 million in operating cash flow over the second half of the year. So, we do expect to have a strong cash flow in the second half and that leaves us plenty of excess cash for deployment opportunities that we'll be discussing with our Board soon.

Thank you. And then last one, your bookings, this is normally your strong bookings quarter. Could you give us some color with your expectation for a CR? Although not as bad as in prior years what have we been saying so far in this quarter and what's your expectation?

I'll certainly let Tony cover what's happening in this current quarter. Third quarter is our strongest booking quarter as it straddles the government fiscal year end. This is about normative for what we've seen in the past for the second quarter and we grow into what is normally our highest bookings quarter in the third quarter.

Good morning, Cai, this is Tony. Just to add to John's remarks, we're seeing a little more proposal activity in this last few summer months as we approach the end of the government fiscal year. I'd say it's somewhat normative to the last couple years. Don't expect big moves. The customers' budgets are pretty well aligned with their spending habits, the contract vehicle, but we are seeing a little bit more proposal activity on the year-end requests. We expect that to continue as we approach a likely CR in the first quarter government through the rest of 2015. That may create more constant stability in award decision cycles. Don't expect it to increase. You might see some customers taking a quiet pause until we get to calendar 2016.

But I'd say it's fairly normal from prior years. CR wouldn't perturb the numbers substantially. It's been pretty consistent. And we do expect that the impact from sequestration discussions this fall will be less of an impact than it was two years ago because the budget gaps are substantially closer to what the customers are actually realizing they have to spend.

Great, thank you very much.

Next we'll go to Edward Caso with Wells Fargo.

Hi, good morning. Can you talk about the growth rate at Scitor? If we did our math right it looks like it may be down 5% year over year. Is that in line with your expectations? And where do you see that unit moving?

Good morning, thanks for the question. And, yes, it is in line with our expectations. As we seen the government budgets with the headwinds coming collectively, I think we represented that over the last couple years Fed Civ reacted quicker. Defense and Intel slightly lagged as they were trying to sort out the strategic intent, the national security interest.

So, do expect it to be in that flat range. It fluctuates in a very similar way to our overall budget trends, so not over-reacting to any consolidation or contractions in a single quarter, but very much in line with expectations. And we're still confident that the revenue synergies that we've explored since the due diligence, we can begin to submit, and have begun that process to realize the low single-digit revenue growth as an enterprise. And we believe that Scitor will help contribute to that, and that IC -- intelligence community -- still offers expanded growth opportunities for us in the portfolio.

Can you talk about any change in pricing models? I read recently in one financial disclosure about, it's indicating that the clients are starting to move away from award fees. Are you seeing that? Are you seeing greater risk, less risk in the way clients are asking for pricing? Thanks.

I think, in general, we've seen a couple dynamics. Probably a slight move from a hard-core, low-price, technically-acceptable and a bit more to a best-value orientation. Some of the customers have realized the impact of going with the lowest bidder and swapping out incumbents. But I think the pricing models, the price sensitivity is still there.

I haven't seen dramatic shifts in the contract types per se. We haven't witnessed any material change in award fee application. But there is an increasing dialogue of where that performance risk lies. And the contractors that have the strong past performance like ourselves can take on some of that risk to deliver on and drive higher fees and higher margins as a result.

I don't think it's changed substantially outside of maybe a little more best value creeping into the equation and our ability to deliver on those expectations. And always seeking opportunities to work more fixed-price programs because it does give us the ability to further expand our margin and increase the quality of the pipeline and the subsequent portfolio.

Last question -- when I check my notes, we had written that your prior operating cash flow guidance is $200 million-plus or over $200 million. And I think I just heard approaching $200 million. So, is there a change here or am I referencing apples to oranges given Scitor?

I think it's apples to apples. We said in excess of $200 million in a normative year on average and over time, which we still fully expect. With the acquisition costs, which have come out of this year, also the headwinds from AAV, we're probably going to be a little light of what we would be on a normative year. But we don't expect that to perturb the overall value proposition.

Thank you.

We'll go to Jon Raviv with Citi.

Hi, good morning, everyone. Guys, could you talk a little bit more about your capital deployment opportunities in light of your suggestion that you feel that you're at scale? Can you maybe take us through the menu of options, what internal and external factors push you in one direction or another?

Sure. Certainly, we will honor our dividend. We think that pays a pretty healthy yield and we'll continue with that. We're not looking for any significant adjustment to that in the short term. We did raise it just recently last quarter to reflect the additional cash flow coming from Scitor.

We do want to try to stay in our optimal leverage ratio. And as I stated, our required minimum payments would get us to that 3.0 by the end of FY17 just about. It's in that range. So, that leaves us probably an extra $100 million to $150 million, maybe even approaching $200 million, of additional excess cash through the end of 2016 and 2017 to deploy for other uses.

We haven't had a real appetite for special dividends. The most efficient way we've seen in the past are share repurchases. But, again, we will be in discussions with our Board soon to look at all of the options available to us. As you can see we're not afraid to invest internally in our business, as we did with AAV. Excellent program, excellent qualifications. Sets us up nicely as a competition to some of the metal vendors out there that would have normally been awarded such work.

So, I would say those are the menu of options. We will be very thoughtful about it. We won't be robotic but we will be thoughtful.

Is there any particular time line for that decision or is that just ongoing?

It is an ongoing discussion. We have our Board meeting coming up just in a couple weeks.

Okay. And then just in light of the commentary that you guys have that now with Scitor you feel that you're at scale, what does scale mean to you? What does it enable you to do? And what would perhaps maybe change your thinking, what would the opportunity be to perhaps grow larger?

As we think about the scale of the business, it's $4.5 billion, it does give us the flexibility to manage the collective indirect costs around the public company on a broad base, to keep our indirect rates in check. It also gives us the diversification across various markets, in this case the Defense Intel and Federal Civilian space, in particular. And that diversification also allows us to pursue growth opportunities, protect from the downside risk, we're not highly concentrated in any one market or one contract vehicle. So, those things help in tempering any volatility of the portfolio, our rates. So, it does give us an investment profile but also make trades in each customer set, but at the enterprise level we can make trades between the different market segments.

$4.5 billion, it gives us that scale, as we say, the diversification. There's always opportunities to grow into other markets and that's how we've approached the Intel space, through the M&A of market access. But I think at $4 billion above, you're in a pretty strong place in dialogue in this market. So, the additional scale doesn't necessarily lead to additional margins. And the government generally dictates in this space what the overall margin ratios are.

But there are opportunities to enhance that, as we've talked about, through value add and our own labor, and the pursuit of higher-margin businesses, which we've also been under way since the spin. So, that's where we think about the scale, north of $4 billion. And we'll look for opportunities in the future to grow that organically, and then if necessary to access new market, always consider M&A as a strategic opportunity.

Thanks. I'll hop back in the queue.

Next we'll go to Jason Kupferberg with Jefferies.

Hi, guys. This is Amit Singh for Jason. Just wanted to clarify your revenue. Talking about Scitor, previously you'd spoken about Scitor revenue growing faster than Company average at around mid single digit year over year, and as previously discussed this quarter, the revenues were down 5% year over year. So as we are looking for the full year, and you take Scitor's revenue base of around $600 million, are you still expecting for the full year just the Scitor revenues to grow in that mid single digit year-over-year rate?

We think over the long term in the intel business, in particular, we do see that opportunity for that mid single-digit growth. As we go through any integration, would expect it to be fairly flat just to mitigate the risk and understand the change management to the employee base, the contractor base. The Scitor portfolio, very strong prime positions, very strong continuity in mission and dependencies as they talk with their customers. So, confident in the long-term projections. I think just through the integration process, want to be conservative in their performance in the first couple quarters as we integrate and move into the strategic planning for our next fiscal year.

All right, great. And just looking at your bookings, if you look at it on the last 12-month basis, your book-to-bill has remained at that 0.9 level for, now, the last three quarters. Just wanted to get a sense of what is your expectation for the full year. And when do you expect the LTM book-to-bill to be above 1? And if you're looking at the current bookings levels, are they enough to generate that slightly positive organic growth that you're talking about in FY16 and beyond?

I think we're still focused on a 1.0 performance overall. The quarters, as we think about the task order refresh in our cycle, the 0.9 doesn't perturb the business models and the backlog flow. The customers are making their decisions. It's been fairly consistent over the last couple of years. So, that fluctuation on the 0.9 to 1.0 and above really is predicated on the contract awards. We have a substantial amount over the $100 million mark. So, part of it is timing on those contract awards. And since we don't take the bookings on IDIQ vehicles themselves but the task order flow, and 80% of our contracts are IDIQ, we tend to operate right around that 1.0, and it's really just tied to the task order flow that's part of that volume. So, the 0.9 is very much in line. 1.0 year to date as an annual number is very much in line and we've got the pipeline and the submitted proposals to support that.

Perfect, thank you.

We'll go to Bill Loomis with Stifel.

Hi, good morning. Just looking at the organic growth, you're flat in the quarter. Do you see yourselves meeting your long-term goal of low single-digit growth this year on an organic basis based on where you see contract trend?

As we've said, we do believe we can meet our goal of low single-digit organic revenue growth on average and over time. As we've stated in the past, this year is looking a little more flattish for the year but that doesn't preclude us from actually seeing some upside later in the second half. So, again, like I said before, it looks like a little more flat this year than what we expect over the long term but, again, low single digit over time we believe we can achieve.

And just looking in the second half on your contracts, can you talk about big recompetes, over the next few quarters actually, any meaningful changes in existing contracts you expect over the next two to three quarters also?

No, there's not any substantial movement on the recompetes or the large contracts. I think we're pretty confident in the backlog that we see for the remainder of the year. These contract awards as they come in, typical transition period. So, optimistic around those awards as we work into FY17. But I don't see any major upside/downside swings for the rest of the year.

Okay. And then just on your tires and lubricant and the MRO contracts, that type of business, how have those revenue trends been with the continued forced structure reduction? Are you seeing those stabilize? And then also any change in the margin trends in that business?

The margin trends are remaining where they've been in the 4.5% to 5% level. The volume has been strong. There's been a lot of pent-up demand as some of the reset activities go on. So, we have seen strong revenue in the supply chain and logistics area. How long that will last is yet to be seen. Generally, there's year-end money that will flow through at the end of the government fiscal year, so we'll be watching those. We do expect supply chain revenue to be down year-over-year, but right now it's holding pretty strong and consistent with the prior year.

When you say strong you mean flat, not up, right?

Yes, it has not declined the way you might expect it to with the troop withdrawal.

Okay. But it is declining?

We're about flat right now. We expect it to decline because there's at least one and then a smaller one of the recompetes that were on reverse auction that we are unsuccessful in winning the recompete. So, we'll see some volume decline. We expect the margins on that not to suffer.

Okay, thank you.

Next we'll go to Brian Ruttenbur with BB&T.

Yes, thank you very much. The first question I have is, you mentioned a run rate for the Combined Company of about $4.5 billion. This would imply for the next couple quarters about $1.1 billion to $1.2 billion per quarter for the rest of the year, so for a third fiscal quarter and fourth fiscal quarter at essentially two second-quarter levels or better. Is that the right ballpark to be thinking?

Our normal cadence is that Q3 is our strongest quarter. We do expect to run on a normalized basis now that we have Scitor at over $1 billion in any given quarter. Q1 and Q4 are our lowest quarters on average, Q4 being the lowest and Q1 bouncing back, and then ramping as we hit Q2 and Q3. I don't see us hitting, say, $4.5 billion this year, which would indicate some pretty substantial growth over what we saw last year, even with the addition of the $600 million roughly of the Scitor base.

Okay, thank you. And then the other question I have is, it sounds like a little bit different tone on debt repayment. It sounds like you're more open to, instead of paying down as rapidly as possible your debt that you may want to reserve some of that for the excess cash to either do share repurchases or acquisitions. Is that a different tone or am I just new on this?

No, I wouldn't say it's a different tone, and you're not new on it. We still are committed to paying down that debt to get into our normative level of debt to EBITDA. Just looking at our required debt repayments under our Term A and Term B loans, we'll be there by the end of FY17.

If we are any more aggressive on that, just based on the minimum debt repayment requirements following that point, we would overshoot our target of 2.5 before the Term A became due. So, we're just being prudent to get down there quickly within our optimal level. So, we do have some additional capital that we can go to the markets if we need to and when we need to, but not being so aggressive that we would overshoot our target.

Okay. And then as a follow-up to that, last question, the CFC announcement, I'm surprised nobody else has asked about it. I guess they've asked around the edges. But does that put pressure on you to consolidate? I think you've kind of answered that, that $4 billion is enough scale but it seems like $5 billion is the new standard, so just wanted to ask the question.

Sure. We'll continue to watch the market but north of $4 billion, as we look at the competitive landscape in the federal government space, the number was operating in that $4 billion and above range. A lot of folks in the $1 billion, plus or minus, sub $2 billion. It seems like there's a lot of sellers in that space at this point, again seeking to be larger. They are caught in the middle between the significant number of small businesses that get some set aside benefit from our customers and the larger companies that have the scale and diversification that I mentioned that help stabilize their businesses.

I think it's the mid tier that's experiencing some of that. Always opportunity again to look at the market access that will drive strategic growth over time. But outside of that, I think that's the market dynamic that you're seeing as both private equities and the mid tiers are looking to reposition their portfolios, and some of the larger aerospace and defense primes rationalize their portfolios with some of the spins that you've seen, as well, to drive margins and focus their businesses. So, fairly normative with what we've been hearing just the last 6 months to 12 we've been seeing the actual activities come out as a result of that.

Thank you.

We'll go to our next question with Michael French with Drexel Hamilton.

Good morning, gentlemen. Thanks for taking my questions. I wanted to ask you, Tony, about a comment you made at the beginning. You mentioned that some of your business development executives have found some potential opportunities working together with Scitor. I was wondering if you could elaborate on the areas and maybe the size and timing of what these opportunities look like.

As we looked at the Company itself and their market position, the growth in, I think, both companies at the time of the acquisition were thoughtful about the market access, one in which we have capabilities we've developed and matured over time that we think we can sell into the intelligence community given the customer presence that Scitor has and their relationships. In turn, we've consolidated our Air Force portfolios, the two businesses that were more modest than the other businesses. And, again, seek to do technology transfers from either other defense segments or between intel and defense to grow the Air Force portfolio. The selling services in the intelligence community that we've developed over time using that channel and a consolidated view of the Air Force are probably the two areas where we see that revenue synergy materialize and the opportunity that we have, again based on the service lines and our capabilities that are already in place.

Okay, thank you. And I wanted to ask about the potential for a CR. Is there any difference, would you expect, in the impact to the core business and Scitor given the different customer bases?

No, I really don't see an impact. The continuing resolutions have been a fairly common occurrence over the last number of years. So, we don't really see that perturbing our contract awards, any customer behavior. It's isolated pockets where a customer may be making a budget trade at some point.

The CR does offer continuity. And given the government FY15 and FY16 budget profiles, they are about in line, so there's not a big gap between an FY15 run rate and an FY16 budget profile. So, this year at least it's a pretty constant budget profile that we're looking at. So, we really don't see a CR having an impact. The duration might be interesting, whether it be 90 days or a full-year CR. But, again, don't see that perturbing our business portfolio in either case. Its just a government reaction to that.

Okay, that makes sense, thank you.

That concludes today's question-and-answer session. Mr. Levi, I'd like to turn the conference back over to you for any additional or closing remarks.

Thank you very much. I'd like to thank you all for your interest in SAIC and hope you all have a good day. Thank you.

This concludes today's conference. Thank you for your participation.