Science Applications International Corp (SAIC) 2017 Q2 法說會逐字稿

Good day, and welcome to the SAIC FY17 quarter two earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Paul Levi, Investor Relations. Please go ahead.

Good morning, and thank you for joining us for the SAIC second quarter FY17 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 Maria Bishop, Interim 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 evaluating our results and outlook, along with the information provided on today's call. Please note 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 the 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 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. SAIC continued its solid customer performance and continued delivery of shareholder value creation in the second quarter of FY17. Second quarter revenue of approximately $1.1 billion is essentially flat when compared to the prior year quarter. Revenues from the ramp up of awarded programs in the federal civilian portfolio offset lower supply chain material volumes, and expected ramp down on our Marine Corps Assault Amphibious Vehicle or AAV contract.

Adjusted EBITDA margin was 7.8% excluding acquisition integration related costs. This represents a 30 basis point improvement in our margins from the prior year quarter. Adjusted diluted earnings per share increased to $0.85 for the second quarter, and operating cash flow of $23 million provided continued confidence in the execution of our capital deployment strategy.

Our view of the overall market remains unchanged with customers executing their mission priorities in a stable budget environment with consistent demand for the services that SAIC provides. However, as discussed previously, there are continued market and industry challenges we are addressing. These include small business set asides, slow government acquisition cycles and related protest activity, and high demand for critical skills such as cyber and cleared personnel. As we approach the end of September, we expect to see normative level of government award activity, and expect to start the government fiscal year under a Continuing Resolution.

We continue to expect modest growth in our markets for the next few years, consistent with our long-term financial targets. Contract award activity of $1.3 billion in the second quarter translates to a book-to-bill of 1.2. This is the strongest second quarter award performance we've had since separation. The strong bookings in the second quarter contributed to a year-to-date book-to-bill of 1.1, reflecting continued execution of our protect, expand, and grow strategy and customer recognition of SAIC's differentiated capabilities.

Second quarter bookings included the $485 million NASA EAST 2 recompete award. We were also successful in a recompete award of an $86 million task order to provide the US Air Force with technical, analytical, operational and planning subject matter expertise.

Also contributing to this quarter's bookings were $221 million of task order awards on our US Army AMCOM EXPRESS vehicle, $130 million of orders in our supply chain business, and $115 million of intelligence community awards. The majority of these awards protect our revenue base, but with some new expand and grow opportunities to support modest growth.

As a result of strong bookings in the second quarter, SAIC's total contract backlog is $7.5 billion, and funded backlog is $2 billion. The estimated value of SAIC's submitted proposals awaiting award has increased to $16.6 billion, up over $1 billion from last quarter primarily from new IDIQ contract proposals. Our value of submitted proposals now stands at an all-time high, an indication of a modestly improving environment and strong demand.

To address the growing demand for innovative solutions, we are investing in leading edge technologies and methodologies in cyber, cloud and data sciences. Our new Cloud Migration Edge offering will enable our federal government customers to rapidly and securely leverage cloud technologies to improve delivery of their IT services. This five-step solution encompasses specialized tools, processes and best practices to guide the cloud migration life cycle, allowing for cloud adoption on government premises, public cloud, or a hybrid of the two.

Maria, over to you to provide more details on our financial results.

Thank you, Tony, and good morning, everyone. Our second quarter revenues of approximately $1.1 billion are flat, as compared to the second quarter of last fiscal year. The ramp up of revenues on contracts such as FAA controller training, GSA enterprise operation, and the Marine Corps Amphibious Combat Vehicle contract offset decreased material volume in our lower margin supply chain business, and the expected reduced activity on our Assault Amphibious Vehicle contract as we near the completion of the prototyping phase and deliver the vehicles to the Marine Corps.

Operating income of $70 million in the second quarter resulted in an operating margin of 6.4% which was negatively impacted by $3 million of acquisition integration costs, that if excluded, results in an adjusted operating margin of 6.7%. The second quarter acquisition integration costs are primarily due to severance expense. Our strong margins this quarter were driven by solid program performance across the portfolio, lower acquisition integration costs, and decreased amortization of intangibles.

For the second quarter, EBITDA as a percentage of revenues was 7.5%. After adjusting for the integration-related costs, adjusted EBITDA was 7.8%, up 30 basis points year-over-year. Higher second quarter margins were primarily due to continued strong profitability across our contract base, and focus on cost control mainly in SG&A, which was driven by lower severance and employee-related expenses. This results in strong margin performance of 7.4% through the first half of the year, and on track to deliver on our goal of margin improvement from our FY16 base line of 7.2%.

Net income for the second quarter was $37 million, and diluted earnings per share was $0.81 for the quarter. Excluding acquisition integration costs, adjusted diluted earnings per share was $0.85 for the quarter. The tax rate for the quarter was approximately 36.5%, and we expect this to be our normative rate going forward.

Cash flow continues to be a cornerstone of SAIC's shareholder value proposition. SAIC generated operating cash flow of $23 million and free cash flow of $19 million in the second quarter which was consistent with our expectations. Day sales outstanding at 54 days is an improvement of two days from the first quarter, and is within our normative operating range typically in the mid 50s.

The current quarter DSOs continue to be negatively impacted by three days, as the result of the working capital investment on the AAV contract. We expect the AAV working capital investment will normalize as we complete the delivery of the vehicles, and should generally be replaced by a similar working capital investment on the ACV contract by year-end.

Additionally, second quarter cash flow was negatively impacted by an extra payroll. Similar to last fiscal year's cash generation profile, we expect the second half of the year to be stronger than the first half, and remain confident that we can generate approximately $240 million of free cash flow annually with FY17 impacted by about $25 million due to the extra payroll week.

The second quarter ended with a cash balance of $115 million, which is consistent with our expectations. Our total debt is just over $1 billion, equating to a leverage ratio of under 3 times debt to adjusted bank EBITDA at the end of the second quarter. I will provide more on our debt and capital structure momentarily.

As mentioned previously on our first quarter call, we are no longer limited by our credit agreement on annual share repurchases at this leverage ratio. During the second quarter, we deployed $65 million of capital, consisting of $13 million in cash dividends, $11 million of scheduled debt repayments, and $41 million of share repurchases representing about 721,000 shares. We remain confident in our cash generation along with our desire to return capital to shareholders, and therefore we expect to pay FY17 dividends of approximately $55 million along with our debt repayments, and use the remainder of our cash in excess of our targeted average balance for other deployments such as share repurchases among other alternatives.

With our normalized annual free cash flow of $240 million, plus the additional cash we had at the end of last fiscal year, the cash in excess of our desired average cash balance for FY17 after dividends and debt repayments is estimated to be over $150 million. I should note that our Board of Directors meet next week, and will consider the approval of our quarterly dividend which is typically payable at the end of October.

Subsequent to the end of the quarter and disclosed in August, we refinanced our existing credit agreement to obtain more favorable terms and pricing, while extending the maturity of our term loan A and revolving credit facility. We were able to lower our annual interest costs, and extend the maturity of roughly half of our outstanding debt with no increase to the overall principal outstanding.

The details of the amended credit agreement can be found in our Form 8-K filed on August 25. However, in summary, we lowered our annual interest cost by approximately $8 million, extended the maturity of term loan A to August 2021, and transferred approximately $130 million from term loan B to the lower interest rate term loan A.

Through the refinancing, the required debt repayments are eliminated for the next 12 months, which provides more resources and flexibility in our capital deployment strategy. In our third quarter financial results, we expect to recognize approximately $5 million of expenses associated with the debt refinancing, which includes the write-off of a portion of previously deferred debt issuance costs. This will be offset by approximately $2 million of quarterly interest savings in the third quarter, and each quarter thereafter.

We continue to have confidence in our long-term financial targets, and they remain unchanged. On average and over time, we expect low single-digit internal revenue growth, and profitability improvement of 10 to 20 basis points annually. We expect generation of approximately $240 million of annual free cash flow.

As a reminder, FY17 will be negatively impacted by roughly $25 million due to the extra bi-weekly payroll payment related to the extra week in our current fiscal year, but this will not impact our capital deployment activities. Tony, back to you for concluding remarks.

Thanks, Maria. Let me thank you for the outstanding job you have done as our interim CFO this quarter, and leading the recent debt refinancing. Throughout the second quarter, we continue to make progress on our comprehensive search for a CFO. We have conducted a number of interviews, and will issue a press release at the appropriate time. Operator, we're now ready to take your questions.

Thank you.

(Operator Instructions)

We'll go first to Jon Raviv with Citi.

Hi, good morning, guys. How are you?

Good morning, Jon.

Good morning.

I was wondering, hey, Tony, could you address how -- what role intelligence or Scitor played in the internal -- the slight internal growth that you saw this quarter? Sounded like you got some awards there, but wondering what it's doing on the sales line at this point?

Well, we continue to develop the business development pipeline since the acquisition. We're starting to see some results from that, as we work the synergies between the various service lines, on the ISR and space platforms that Scitor's provided historically. It's combined with the customer groups. We've had some opportunities to apply those same technical skills into other areas, particularly in NASA and other areas, but also increased through IT services and our broader portfolio, additional services that we're selling into that intelligence community market through the channels that were part of that Scitor acquisition.

So I think it's fundamentals on program activity, more solutioning that apply to the current install base of Scitor under the protect, expand, and grow. Say a lot of them were in the expand category of additional services, and still a broad pipeline across all three dimensions.

So is it fair to say that Scitor added to growth, or was a drag on growth this quarter?

Probably additive to growth. We've had opportunities in intel across the board, but it's a mixed portfolio. We've seen in the strong book-to-bill contributions from across the portfolio from fed civ on different areas, so it's pockets up and down. But I think our intel business development pipeline and conversion continue to be strong, and we're confident we can continue to move that forward.

Okay, got it. And just a quick follow-up on cash deployment priorities, in light of stock performance. Would it be fair to say, your repo program is still designed to generate some EPS growth going forward, or what are those other alternatives that Maria mentioned the Board might consider next?

Well, I think we're being very consistent with the cash and capital deployment. We've got the strong dividend. We've obviously managed through our debt services, and are very comfortable with that, particularly with the refinancing.

The share repurchases has been a very effective tool for us to improve our overall EPS, with the share count reductions that are affiliated with that. It's consistent with deploying the cash above our operating thresholds that we've communicated.

We'll continue to look at M&A on a strategic basis. But it is -- it's just that, it's a strategic component with the capital deployment focused on the dividend and the share repurchases at this point.

Great. Thank you.

You're welcome. Thank you.

We'll go next to Cai von Rumohr with Cowen and Company.

Yes, thanks so much. Given that the bids submitted look to be up, can you give us some color on where you see the environment for orders, and what kind of book-to-bill we might look at this quarter? And any kind of color as to the potential for decent organic growth next year, or at least the low single-digit that's your target?

Sure, Cai, thanks. Good morning. I think collectively, we're all looking at this modestly favorable outlook for the next five years. [But note that] we're at the very front end of that cycle. It still takes some time to convert that. I think the book-to-bills on the award activities represent both demand, as well as opportunities for conversion of the awards to revenue, but it does still take time.

We're very confident in the high quality pipe -- BD pipeline that we've developed, the competitive win rates, and those things contribute to the fundamentals of conversion of revenue. Still subject to the customer decision points obviously. We would expect, as I mentioned in the market, a CR moving forward. That doesn't have a big impact on our run rates in both bookings and revenue.

But with the administration crossover, some might speculate that perhaps you may see a slight pause in big deals, as the administration converts over the next six months. Most of that stuff is flowing through. We're seeing some maybe moving ahead of that. The administration transitions do take time, and it's by agency.

So I think overall though, we still expect long-term financial targets to be met, with low single-digit revenue growth. Quarter to quarter, we'll have some variability based on those large contract awards as we move through the large task order volume that we have. But again, confident that we'll move that forward with strong book-to-bills. But they'll hover back and forth around that 1.0 thing for a period of time.

And then a follow-up to Jon's question on cash deployment. Given that you no longer have to make near-term debt repayments, what are your targets for minimum cash? And you've been very aggressive in kind of using pretty much all of your available cash, beyond the debt repayments for either dividends or share repurchase. Should we continue that, or might you be building a little bit of a cushion to do M&A?

Thanks, Cai. This is Maria. So the debt refinancing was a very successful project. And as you mentioned, the first 12 months we'll have those additional resources, since we don't have the mandatory debt repayments.

So we'll continue to work with our Board. We meet with them quarterly to determine how best to utilize our capital deployment strategy. And as we've stated before, we don't plan to accumulate cash above our $150 million average target balance, but rather we expect to deploy it, to continue maximizing shareholder value.

Thank you.

We'll go next to Amit Singh with Jefferies.

Hi, guys. Thank you for taking my questions. Just a quick sort of follow-up to the previous question that was asked. As we're looking at revenue growth, if you think about this year, I think previously you had mentioned that you still expect sort of a low single-digit internal revenue growth for this year. Is that still the case, with I believe around $50 million to100 million headwind from supply chain activity? And as you talk about the growth for the year, if you could talk about what you're expecting for sort of organic non-Scitor and Scitor business?

Yes, I think as we've said the, our expectations are still on the long-term financial in that low single-digit. The quarter to quarter expectations, I'm still confident that we can get there. We do have the variability of the supply chain management portfolio that we've discussed in the past. That's probably our biggest variability, that could have a $20 million to $30 million swing in any given quarter, based on what we do. We saw some of that push last year.

So I'd say that the overall portfolio, we've had some successes from momentum of the large programs from last year. I think we've offset a number of recompete and minor contractions in some of the portfolio to stay near flat with upside to get to those low single-digit marks.

Revenues and run rates, I think are very solid, and we expect those to continue. I think we'll just see that variability. So we don't really talk about specific timing, but I do believe that we will continue to see slight to modest revenue growth, as we go forward over the next few quarters.

Okay, great. And then on margins, I know your long-term target is 10 to 20 basis point improvement. But we, as we look at your second quarter, your adjusted EBITDA margin, you're already significantly above last year levels. So are you expecting sort of margins for the -- the rest of the quarters and the year to be below this level, or below second quarter level? Or could we see more than 10 to 20 basis point improvement in margins this year?

Thanks, Amit. This is Maria. So we did have a great quarter, and we expect strong performance to continue in the second half of the year. And we typically see seasonal headwinds in Q4, with the holidays and employees taking vacation which does impact our margins. So bottom line, we expect to deliver the year-over-year margin improvement of 10 to 20 basis points.

All right. Thank you very much.

Thank you.

Thank you.

We'll go next to Edward Caso with Wells Fargo.

Good morning, congratulations. With the larger players in the industry consolidating to $4 billion-plus, and seemingly all chasing larger sized transactions here, can you talk about any change in the competitive situation in the market, and any implications that might have on pricing? Thank you.

Sure, thanks, Ed. Good morning. Well, I think market consolidations will continue, think folks are making trades between focused on elements of their portfolio, and shaping those to -- for a better focus. So I think the combination of larger companies, we're comfortable being in that top five or so, amongst the broad set of competitors.

On one hand, the consolidations generate or at least reduce the number of prime contractors. So you could have seen perhaps eight primes bidding on something three years ago, maybe that's now five. So that's one dynamic. I don't think it has a huge swing. It's still the same elements competing, but maybe it's the sheer number of large proposals, as primes maybe -- may change slightly.

I think the price pressures are in part, going to be consistent with what we've seen. With the customer's budget constraints, prices become obviously a very critical criteria, and price sensitivity is still paramount. I think now we're seeing time to market, and the ability to deliver capabilities sooner within those budget constraints, is another component. So and I think that leads to a bit of a better value than price alone.

But as relative to the competitive landscape, the market consolidations -- I don't see huge swings in pricing driven by consolidation. It's more pricing pressures based on customer budgets, and just the competitive nature of trying to take away work from others in this flat environment.

On the other end of the spectrum, can you talk about the pressure from all the small business requirements, both from a prime perspective and a required subcontracting mode? And is that impacting contracts as they come up for recompete, are they being broken up, and given more to small business? And on the subcontracting requirements, is that putting any pressure on your margins? Thank you.

The small business environment does create headwinds on the prime side. Let me address the subcontract side first. I didn't think we've seen any dramatic changes in the amount of small business requirements on our large contracts. Those tend to run in the 30%, 40% range on a subcontractor plan to accommodate the smalls. We favor that, think we're a good prime as under the Mentor-Protege programs, as well as just the broad prime contract base that we have. So I don't see as much concern as on the subcontractor side.

But there are substantial headwinds that have impacted some of our recompetes in probably two ways. One, a full set aside where incumbent work has been converted to a small business prime set aside. And in another case, where components of contracts are getting broken up, so that the recompetes still may go large, but a component is broken off for a small.

That creates that challenges as you would expect, when the small becomes the prime. We tend to follow the smalls, and then there are selective in who we then back, if in fact the government elects to make that conversion. So we stay close. That increases our base, but it does obviously put pressure on top line.

We are working a lot with the Congressional leaders and folks in the Pentagon and the administrators to help address that. In one area that we're collectively promoting I think as an industry, is to have the government take a more proactive view, and a positive view to count their small business incentives at the subcontract level. And that legislation, that administration and acquisition is the fundamental challenge that we're trying to offset.

So if we're successful collectively in the acquisition community, to give the acquisition officials credit, for not just prime contracts, but the subcontract work, we think that will reduce some of the pressure to carve out small business set asides, and provide a more full and open competitive landscape going forward. And that would be in our favor.

But it is a head wind. We've had some impacts, but we do try and maximize our ability to sustain the work through partners with the smalls.

Thank you.

You're welcome.

We'll go next to Tobey Summer with SunTrust.

Thank you. I'm curious, would the better margins and book-to-bill in recent quarters, is the Cloud Migration Edge launch that you note in the press release indicative of other investments that you may be able to be making, in what is an improved environment? Is this kind of a one-off development, or do you think we'll be hearing more about the fruits of investments that you're making internally?

Great question, and I think you'll see continued discussions on outcomes and investments that we're making. Cloud Migration Edge is a good example of past performance, a refinement of our implementation methodology to enhance our ability to migrate customers from their current IT architectures to the next generation technologies. So in that case, it's a combination of both technical tools and partnerships, and a methodology for implementation, as a technology integrator.

I think it's one dimension as, in a high demand area. The government collectively continues to ask for more innovative solutions. We're seeing a slight move to that solution-based outcome, whether it be as a service business models, more fixed price. So we are making further investments in other areas beyond the IT and cyber domain.

I think about training and simulation and other areas where we can leverage a platform, leverage repeatable solutions, and then deliver that to our customers either under the current services model, or perhaps more as a solution with an outcome-based contract vehicle.

How important is the -- would growth in the repeatable services and the solutions business be as a contributor to your long-term margin goals?

I think it's a key contributor. I think, maybe one facilitates our ability to differentiate, to win the work, increases our competitive advantage. And two, those outcome-based programs, think in terms of the broad fixed price, and our ability to assume some of that modest risk, and it also turns to higher margins.

And so, on a repeatable basis with confidence we can continue to deliver as we've done across the portfolio, we think those repeatable solutions and technology advancements very much contribute to our ability to grow margins. And so, it's contributory to what we're doing today, and the line of sight we have for the long-term targets on that 10 to 20 basis points, while sustaining investments along the way.

Thank you.

You're welcome. Thanks.

We'll go next to William Loomis with Stifel.

Good morning, Bill.

Thank you. Good morning, good quarter. Can you talk a little bit about the vehicle programs, just how the AAV declined, and the ACV ramp will impact revenues in FY17? And then on ACV, when are those prototypes developed, and when do you go for the next phase?

Sure. On just both of those, on AAV and ACV collectively, I think the run rate is in the aggregate is pretty steady going forward, with maybe a slight uptick going forward. We are seeing more specifically -- we're through the majority of the AAV deliveries, under the engineering design phase. Those are being delivered to the Marine Corps.

That's, if you will the ramp down, as those go through formal delivery over the next month or so. And then they'll go in -- the Marine Corps will then use those 10 vehicles for testing. We'll do some level of support of that testing, but it won't be at the revenue levels that we've experienced.

But in turn, the Amphibious Combat Vehicle program has begun to ramp up, and we expect our continued revenue streams, and move that forward over the next, probably three quarters, as we begin to deliver those early vehicles. Recall the ACV is still in a competitive phase in a down select, but will follow a fairly similar trajectory on prototype delivery. And then slight revenue reductions as we look at the testing phase beyond each of these programs. AAV will look through the test process, and then anticipate and look forward to low rate production beyond that, as we're competitively [awarded] that for the long-term.

Just can you give us some timing on what -- like for example, let's go to ACV, for example. When are those prototypes delivered, when do you -- I guess it's BAE, when do you have the run-off with them, when do they decide on who gets the $1 billion-plus full production?

That will be next fiscal year. I think next spring, summer -- I don't have the exact date on when that test phase ends, but we are going to -- it will be a -- probably a Q2, maybe into Q3 time frame where we'll start seeing those deliveries end, and likely transition to those efforts into the test phase.

Okay. And then, let's see on the bids outstanding, the $16.6 billion, you said that it increased by $1 billion to IDIQ. Can you just remind us what you are putting in there, in terms of IDIQ ceiling versus expected task orders, what's the value that increased by $1 billion?

We, in the submitted, we do include both the IDIQ contract vehicle ceilings, what we've then -- what we're pursuing as well as the non-IDIQ contract award submittals. So it's both in our submitted proposal numbers that you see forward. So it's a combination.

Typically about one-third of that is in contract award, and about two-thirds in IDIQ market access vehicles. So that's a good way to think about the $16 billion. But again as a reminder, our bookings and book-to-bill are limited to specifically contract awards, non-IDIQ and/or task orders formerly awarded under that, without any ceiling. And we do exclude any protested efforts. Those are also not included in our booking numbers until they're resolved.

Okay, great. Thank you.

You're welcome.

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

Good morning. Hi, good morning. Congratulations on a strong performance. I just have a couple quick ones here for you. How many shares left do you have under your exiting authorization to repurchase?

About 3 million.

Okay, all right, good. And on, regarding the refi, should we expect debt issuance costs to hit in 3Q, and if so, about how much should we expect there?

Yes, as I previously said, we expect about $5 million of transaction costs to hit in Q3, and that will be offset by about $2 million of interest savings in the quarter, and in each quarter thereafter.

Okay, great. Yes, sorry I missed that. (multiple speakers) And then to follow-up on what you -- Tony what you were just talking about on the vehicle program, specifically the AAV. So I understand there's going to be the period of testing the prototypes that you've built. And then at some point, we move into LRIP. How long is that testing period expected to last, and when should we expect the LRIP to ramp up?

The testing phase is currently scheduled for about a year, figure about around now, so it will carry through next summer. We may see, we will see results of that testing, that does allow us to modify and revisit any engineering requirements tied to mission requirements. So that's the outcome, and then that informs then the production phase.

But the working through the various testing, both in the water and on land, on the various components, each vehicle kind of goes through its own test cycle. There will be recurring engineering through the test phase, and that will culminate in a final production package that we'll start delivering on, probably a year from now.

Okay, very good. Thank you. And then, finally, again on ramping up, so you obviously had a great quarter for bookings. Are any of these programs expected to start ramping immediately, and what should we look for the next quarter or two on new programs like NASA EAST and AMCOM? Thank you.

I think, given the breadth of the task orders and volume, most go through a fairly logical transition phase. Recompetes obviously are just are sustained, so there's very little variance to the revenue stream, and then the puts and takes on the awards I think move forward. So I think you'll see very consistent revenue run rates.

We've still got the modest variability on supply chain. But I think overall, we're still confident in those long-term targets, given the recent awards and expectations on conversion of probably that $16 billion on a recurring basis. So we'll keep track of that, but expect it would be a very similar, with some modest upside.

Very good. Thank you, and best of luck.

Thanks, Mike.

Thank you.

We'll go next to Jon Raviv with Citi.

Hey, thanks for taking the follow-up, guys.

Hi, John.

Can you give us an update on some of the [upcoming] recompetes you have? I believe you might have a POLCHEM decision coming soon, and also some other piece of AMCOM EXPRESS finding their ways for the contract vehicles? Give us a sense of timing, [advising], potential impact on your long term goals? Thanks.

Sure. On the recompete side, with POLCHEM, it's a defense logistics agency contract, it's a recompete. We expect that to be awarded perhaps in Q4 time frame and fairly soon. We don't expect it to have a material impact in FY17 results, as that plays out. But are confident we submitted a very competitive proposal, and we'll see how that goes. So we'll report on that based on its outcome, but no impact until really 2017. And with the NASA EAST award, in the past we've really retired a lot of the recompete challenges this year.

And in reference to AMCOM, as we've talked about, the Army is pursuing a broader acquisition strategy, and converting some of the AMCOM task orders in part to the OASIS, just a OASIS vehicle. We've been successful in tracking two of those transitions from AMCOM to OASIS, and we're working with the customer, and attending (inaudible) and the like, to follow their subsequent acquisition process and conversion. That will still play out probably over the next year, as they work to divide up the task order volume. There's a wide number of task orders under the AMCOM BPA.

We can sustain a lot of our revenue through that, so not all of it is in the migration mode. But some of the larger ones that we've talked about, are being realigned and with some a movement to OASIS. So fairly steady, revenue streams on AMCOM very solid, and we're just working through the acquisition process to further secure that work under the different vehicle. And that will take probably a year to sort through.

Very good. Just two quick follow-ups on that. Could you size, in terms of dollars what POLCHEM is worth today, and maybe what the transitioning [features of] AMCOM are worth today?

And then second follow-up, is the [Eastman] transition at AMCOM now different at all from the pieces that had transitioned I believe last year, or is it kind of the same process you're going though?

Let me address the POLCHEM, and probably I'll restate that second part. POLCHEM, it runs in that $125 million range. It's in that ballpark, just north of $100 million. The volume obviously fluctuates, but on an annual basis it tends to deliver that much material volume, just to give you a ballpark. I'm sorry, what was the second part of the question, Jon?

The second part of the question is on the AMCOM transition. So what's different with these upcoming transitions over the next year, compared to I believe you had some transitions in the past, with AMCOM going to OASIS, (inaudible) the success may not be, is this the same process that you have already gone through? Or is there -- ?

Yes, very similar process as the government, both on the mission side as well as acquisition offices, redefine the scope. So it's a fairly consistent process in AMCOM, and it's actually very consistent with our other customers, as they look to recompete certain work. Sometimes the statements of work are very similar.

In this case, they're electing to realign if you will, repackage, mission areas slightly differently, and then put those out as individual task orders under OASIS, as opposed to operating under sub components with the large task order that we've been operating under. So a very consistent process, it's one that we've seen before, that they've utilized. It's really just a different set of scope that we're very familiar with.

Thanks so much.

It appears there are no further questions at this time. Mr. Levi, I'd like to turn the conference back to you for any additional or closing remarks.

Thank you very much. I would like to thank you all for your interest in SAIC, and participating in the call today. Have a good day.

This does conclude today's conference. We thank you for your participation. You may now disconnect.