Science Applications International Corp (SAIC) 2017 Q3 法說會逐字稿

Good day and welcome to the SAIC FY17 Q3 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, sir.

Good morning and thank you for joining us for SAIC's third-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; Charlie Mathis, our CFO; and other members of our Management Team.

Today's call is being webcast at Investors.SAIC.com, where you will 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 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 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. Before presenting the third-quarter business results and outlook, I would like to introduce our new Chief Financial Officer, Charlie Mathis, and welcome him to the SAIC team. He joined SAIC about a month ago and I very pleased to add a senior business leader with broad experience across the defense, technology and financial sectors. Charlie will cover our financial results in a few minutes. I also want to thank Maria Bishop, our Corporate Controller, who successfully led the finance team as our interim CFO.

SAIC's solid contract performance and consistent capital deployment continues to be the underpinning of our value proposition. Third-quarter revenue of approximately $1.1 billion is down slightly when compared to the prior-year quarter.

Similar to the second quarter results, reduced revenues resulted from lower supply chain material volumes, other non-labor related materials on various programs and the expected completion of the Marine Corps Assault Amphibious Vehicle, or AAV, prototype delivery phase. These reductions were partially offset by revenues from the ramp up of awarded programs in the federal civilian portfolio and our Marine Corps Assault Combat Vehicle, or ACV, contract.

Third-quarter EBITDA margin was a strong 7.7% and represents a 50 basis point improvement in our margins from the prior-year quarter adjusted EBITDA. While delivering strong margins in the quarter, we continue to make investments in outcome-based solutions as we expand our capabilities in areas such as cyber, data analytics and trained and simulation. Diluted earnings-per-share increased to $0.91 for the third quarter and operating cash flow was robust at $153 million.

We continue to be confident in our alignment of SAIC's capabilities to market demands with an improved outlook for the customers we serve. For quite some, time market headwinds outpaced tailwinds but that dynamic seems to be shifting, albeit modestly. The likely extension of a continuing resolution provides our customers the ability to execute their missions while adjusting to new leadership in the highest positions of our federal government.

We do not expect any material impact to our business as a result of a continuing resolution extension and upcoming administration transitions. We are encouraged that our capabilities map well to focus areas and new initiatives mentioned throughout the election cycle. Additionally, there seems to be a broad consensus that the President-elect and congressional Republican majority could raise the defense budget and make further investments in areas such as national security, training simulation to increase readiness of our military forces and address the cyber security threat.

We continue to operate in a very competitive and complex market space but believe that SAIC's continued investments in strategy execution have positioned us well to help our customers react to changing priorities. While federal government macro-level priorities are likely to shift somewhat, our long-term outlook remains the same, with expected modest growth in our markets for the next two years, consistent with our long-term financial targets.

Strong contract award activity led to bookings of $1.9 billion in the third quarter and translates to a book-to-bill of 1.7. This is the strongest quarterly bookings total since our separation and contributed to a year-to-date book-to-bill of 1.3.

Our protect, expand and growth strategy continues to build a quality pipeline, has enabled many significant wins and produced an overall win rate now about 65%. Third-quarter bookings included the $575 million new business award to support the US Army Corps of Engineer high-performance computing modernization program, commonly known as the HITS program, SAIC will advance the services, capabilities, infrastructure and technologies in the Corps of Engineers supercomputing centers. Thanks to the team on a successful effort to capture this important expand opportunity.

We're also successful in another expand opportunity with the award of a $383 million contract from the US Navy to manufacture MK 48 heavyweight torpedo after body tailcone sections to ensure the Navy is ready to meet their missions at sea across the globe.

Also contributing to this quarter's bookings were $149 million of intelligence community awards, $122 million of awards in support of our US Army AMCOM customer and $151 million of orders in our supply chain business. Although contributing modestly to third-quarter bookings, we retired a significant risk with the re-compete, or protect award, of our POLCHEM contract. Now known as [CHEMPOL 2], this $1.4 billion single award IDIQ contract allows SAIC to continue to providing the defense logistics agency and our military services with a chemical, petroleum, oils and lubricant distribution services for the next 10 years. Consistent with our historical practice, we recognize bookings on this contract as orders are placed by the customer.

As a result of strong bookings in the third quarter, SAIC's total contract backlog is $8.2 billion, up 10% from the second quarter and funded backlog is $2 billion. The estimated value of SAIC's submitted proposals awaiting award is approximately $14 billion, down from the second quarter primarily due to the successful contract awards in the third quarter to include the CHEMPOL 2 re-compete award I mentioned earlier.

Let me provide you with a brief update on our platform integration programs, the Marine Corps AAV and ACV contracts. Recently, we completed the first phase of the AAV program, with delivery of 10 prototype refurbished amphibious vehicles and we're supporting Marine Corps efforts as they perform testing for approximately 9 months. After completion of the testing phase, we anticipate to enter low rate initial production, or LRIP, in the fall of 2017.

As we transition to AAV testing, we're ramping up activities on the ACV program. By this time next year, we expect to deliver 16 ACV prototypes of the completely new amphibious vehicle to the Marine Corps. Similar to the AAV program, we will then support the Marine Corps test and evaluation phase. At that point, the Marine Corps were down select to one company to enter LRIP of the ACV vehicle in mid-2018.

In another important business segment where SAIC is making investments, we were recognized by Military Training International as a top simulation and training company for the third consecutive year and was recognized for innovation in our human-centric approach to training solutions. As our customers continue to manage their limited financial resources yet train and certify their personnel, they have increasingly recognized the safe and cost-effective benefits of synthetic training environments, including game-based, augmented and virtual reality to deliver training and improve readiness.

We're leveraging strategic partners and making investments in these key technologies in addition to our serious game lab in Seattle Washington which enables SAIC to harness the top talent in innovations in augmented and virtual reality. As we prepare for the future of training simulation, SAIC's integrating all forms of simulation to deliver the right training at the right time and have just launched SAIC Integrated Training Edge, our platform that delivers effective training solutions. As an example, we provide peer-side of simulated training to Navy personnel in order to reduce the cost of deploying ships offshore for training activities.

In addition, our experience with more than 250 models and simulations, we can simulate complex situations to reduce uncertainty in national security strategic planning and critical mission areas like space, intelligence and cyber. Additionally, through leveraging our matrix operating model, our FAA controller training contract was enabled by leveraging our military train and simulation capabilities with our FAA mission understanding.

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

Thank you, Tony, and good morning, everyone. Before discussing our third-quarter results, I would like to express how much of an honor it is to have joined SAIC. Through my prior positions serving the government contracting and IT market spaces, I was aware of the Company's tremendous market reputation, it's rich tradition of being a thought leader and the importance of fulfilling the nobler, more complex missions of national importance.

I look to continue to execute on SAIC strategy for creating shareholder value and driving financial performance above our peers. Our third-quarter revenues of approximately $1.1 billion reflect contraction of 1.5% as compared to the third quarter of last fiscal year. The timing of revenues on contracts such as GSA Enterprise Operations and the Marine Corps ACV contract offset decreased material volume.

Operating income was $74 million in the third quarter resulted in an operating margin of 6.6% and EBITDA as a percentage of revenues was 7.7% and reflects an increase of 50 basis points from prior-year quarter adjusted EBITDA. Strong EBITDA margin performance was primarily driven by solid program execution and lower operating expenses across the portfolio. I should note that acquisition and integration costs from our Scitor acquisition have concluded and did not impact our third-quarter results.

Our performance has led to a strong year-to-date adjusted EBITDA margin performance of 7.5% and is on track to deliver on our goal of 10 basis points to 20 basis points improvement from our FY16 baseline of 7.2%. I would like to remind you that our fourth quarter is typically the lowest margin quarter of the year due to holidays and associated employee vacation time. Net income for the third quarter was $42 million and diluted earnings-per-share was $0.91 for the quarter.

Net income was negatively impacted on a pretax basis by $3 million consisting of $5 million of cost associated with the debt refinancing completed in August, offset by $2 million of ongoing interest expense savings. Net income was positively impacted by approximately $2 million due to a lower effective tax rate.

The effective tax rate for the quarter was approximately 28%, lower than our normative rate of about 36.5% due to tax credits associated with research and development expenses for FY16 and FY17. We now expect the fourth quarter effective tax rate to be a more normalized 36% and the full-year tax rate to be approximately 34%.

SAIC's cash flow generation continues to be a strength in our shareholder value proposition. Third quarter operating cash flow of $153 million and free cash flow of $150 million in the third quarter was consistent with our expectations. We are on track to deliver on our $240 million of normalized annual free cash flow with FY17 impacted by about $25 million due to the extra payroll week.

Day sales outstanding at 50 days is an improvement of four days from the second quarter principally due to collections and reduced working capital requirements on the AAV program. We expect our DSOs to return to the mid-50s as we build working capital usage on our ACV program.

The third quarter ended with a cash balance of $203 million. Our total debt is just over $1 billion equating to a leverage ratio of approximately 3 times debt to adjusted EBITDA at the end of the third quarter. During the third quarter, we deployed $54 million of capital, consisting of $14 million in cash dividends and $40 million of planned share repurchases, representing about 607,000 shares. We continue to have confidence in our cash generation capability and plan to continue our recurring dividend and effectively deploy capital through alternatives such as share repurchases and strategic M&A.

As a reminder, we do not have mandatory principal repayments from one year of completion of our debt refinancing executed this past August. I should note that our Board of Directors meets next week and will consider the approval of our quarterly dividend, which is typically payable at the end of January.

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 basis points to 20 basis points annually. We expect generation of approximately $240 million of annual free cash flow.

Before taking your questions, I'm very fortunate to have joined a very experienced and knowledgeable finance staff at SAIC. I'm impressed by the disciplined and rigorous attention to detail that they display every day and I'm glad to have joined the team to drive financial performance.

Operator, we are now ready to take your questions.

Thank you.

(Operator Instructions)

Jon Raviv, Citi.

Welcome, Charlie.

Thank you.

Tony, how are you thinking about the potential Trump upside impact on your low single-digit growth outlook? Or from your perspective, is it all within the range of that low single-digit?

I thought it was in that range of the low single-digits budgets. If you look at the budgets collectively, either on the defense, even on the federal civilian side, they are all in the 2% to 3% range going forward. We might see some modest shift in priorities and the like within that budget but I think the macro budget outlook is still in that low single-digit.

We believe we will perform in that same range. As the market evolves it will take some time for other specific polities to be reflected in at least the near-term bookings and revenue streams as the administration goes through a transition. But very much in line with that low single-digit, both in the federal government projects as well as our long-term outlook.

Okay. And then just on growth in the quarter, did anything happen this quarter that you did or did not expect? Again from that growth perspective, perhaps a program not ramping as quickly? I think I remember you guys suggesting maybe a possibility of some modest or slight growth in second half.

I think the general portfolio operated as we expected with the programs coming online. I think we've talked about with GSA GEO and FAA, our reaching a normal run rate at this point that provides the revenue growth. AAV, ACV are in points of transition. So we saw with the AAV beginning to fall off, those will again tend to be neutral. The biggest variability this quarter, and in our portfolio as a whole, is in the supply chain and materials business.

This quarter in particular, the year-over-year comparison is subject to two MRO contracts from DLA from last year that we either didn't pursue or were not successful in winning. Low-margin business, and so I would say at this point the revenue growth is in line with our expectations on the mission, just some engineering work and then just enterprise IT. Variabilities in the materials and supply chain and that variability in contraction has really attributed to the materials in the lower margins portfolio.

So all-in-all, although the macro number on revenue isn't as favorable as we would expect it, it's really in line for the materials shortfalls. Not so much the on ramping of the major programs that we've won recently.

Got it. I'll stick to two. Thanks.

Amit Singh, Jefferies.

Hello, guys. Thank you for taking my question. Just staying on the revenue growth side, I mean it seems like this year you have year-over-year revenue headwinds from the supply chain material sort of work, and you have a long term guidance of low single-digit. But as you're looking at next year specifically, I know you don't provide the yearly guidance, but is that type of growth, the low single-digit, achievable next year?

I believe so. It's very much in line, as I said, I think we will less of the headwind on the supply chain variance. We'll see more of that run rate in the on ramping of those larger programs that we talked about through the year and now with the addition of recently announced awards, with HITS as an example, We do believe that, that low single-digit growth will be there.

We will see in timing variability in the quarter-to-quarter but you look at the, again, the quality of the pipeline, the quality of the portfolio and diversification. We would expect that low single-digit growth to continue, complemented by the margin expansion. So it's at the both, top line and bottom-line, and watch the margin expansion grow so we can contribute to the EPS as well.

All right great. And then just a quick question on the defense policy bill that recently got approved, especially a section in it, I think section 865, which talks about limiting staff augmentation contracts at the headquarters of DOD. So I just want to get your sense. What is your feeling about that particular part in the overall policy bill and how that could impact yours and other vendors' business?

Well, I don't think it's going to affect our business specifically in any material way. The definition around staff augmentation I think continues to evolve. But as we read it, a lot of the initiatives across the federal government is in cost savings, trying to shift administrative and management costs to the mission area.

So we believe that the current model of reliance on private sector technology development that SAIC provides as a technology integrator is still a very well aligned to the customers' needs. The staff augmentation and policy to drive cost efficiencies inside the government, I think are just that. It's more of an inside and SAIC's portfolio, at least, does not have much exposure on what we would consider the staff augmentation that we think the language aligns with.

All right. Thank you very much.

You're welcome.

Cai von Rumohr, Cowen and Company.

Yes, thank you very much and good quarter. So, Tony, when you were spun out, sort of the idea was that you were going to do more of the pure services and your former parent was going to do the solutions and now you have AAV, ACV and now the torpedo contract and you've hired a CFO who has experienced force protection with vehicles. Are we likely to see more of a shift toward those kinds of hardware-work type contracts? And if so, can you give us a little bit of color in terms of your strategy going forward?

Sure. Thanks, Cai. I think the general portfolio, as a technology integrator, and the early [sin] shorthand on services versus solutions was maybe a little oversimplified. But we have traditionally, from the very beginning, delivered technology solutions to our customers.

As a technology integrator, we do operate more as a services business model as opposed to maybe a traditional OEM and manufacturing production domain. But as an integrator, we will continue to deliver systems and solutions. And as I think the markets continue to shift, we think we are getting well-positioned for outcome-based solutions that the customers seek, whether it's in the context of new innovation on fixed price basis and outcome-oriented, it allows the contractors to deliver a specific capability.

We are very much aligned to that. The platform integration portfolio that is an area of growth for us is an example of technology integration applied on maybe a broader scale than perhaps the subsystem work that we did maybe pre-spin. So we are developing further capabilities.

It's through the value proposition in the services model, the platform integration the AAV/ACV and now and the MK 48, really are just all examples of brining good system engineering together with good program management, a broad market awareness and be a channel for those technologies to really do systems upgrades, modernization. And so we're still aligned on readiness and modernization of those platforms like we never get into new factory-type production, so think integration of solutions is around that outcome-based.

I do expect to see, as we migrate from EMD phases and test phases into low-rate production and even full-rate production, we have the capacity to do integration at the system level and that will be a part of the portfolio going forward.

Terrific. And then your stock is up to your high, 79%, at what point -- and you've talked about kind of the good cash flow and you've been using it pretty much exclusively since Scitor to buy back stock. At what point do you shift the focus and say, with our stock price where it is today maybe it makes a little bit more sense to do M&A? And if so, what would you be looking at?

Let me have Charlie, comment on that, Cai, because we have been discussing it, obviously and you might want our broader strategies.

Yes, Cai. Hi, this is Charlie. Let me just comment on the capital deployment strategy. I would love to continue to execute on what I believe had been a very successful capital deployment strategy.

It's a very balanced approach with dividends and required debt payments and then the excess cash is used for alternatives, such as share repurchase and strategic M&A. So I would see the share repurchases continue. Should be a consistent repurchasing program throughout the year, which has generated shareholder value and I would see that continue.

Thank you.

Bill Loomis, Stifel.

Hi. Thank you. Just on the awards in the quarter, just to be clear from what you said I guess because it's an IDIQ on CHEMPOL, there's no value in your awards in the quarter or backlog right now until you get tasks under it?

About $70 million is related to the POLCHEM/CHEMPOL, based on the initial award. And then that will run out for the 10 years based on what we've done in the past.

Okay, so $70 million and then as you went and do task orders that continually adds to awards or -- and backlog as those come out, right?

Correct. We will associate any future orders as bookings and then those have a fairly quick turn to revenue as we deliver those materials out of that portfolio. It's been a fairly consistent run rate in the $125 million/$150 million range and so we expect that to continue. And so that does retire some risk, if you will, on just the general flow and I think the collective supply chain portfolio I mentioned earlier is relatively stable at this point from a contract perspective.

There will be some variability based on off tempo and perhaps computer operations and the like as the military consumes those supplies. But the contract going forward at this point is pretty static and stable.

Okay. And how -- just looking at your targets for low single-digit growth, so this year you had some lower supply chain work and you noted decreases in our contract portfolio due to programs that have ended or have experienced lower activity. How much of that latter one has impacted the growth and has been more of a surprise versus expected for you?

I think collectively the variability's in the $30 million range, so collectively those programs, I would say in the $10 million to $30 million range as you'd see on a quarterly basis. Programs that come to logical ends and the shift. I've got a very broad portfolio in over 1,600 contracts, 1,800 contracts, any given quarter. So the variability is there but at the same time the diversification, we're not heavily concentrated in any one, so it's really in the aggregate that we see the variability.

But no one contract coming to an end drives a particular revenue outcome, collectively. We think the current quality of pipelines, the larger programs that we've won and as they reach run rate as well as the longer-term platform integration work all contribute to the confidence in the long-term single-digit growth performance.

Okay. What's the headwinds over the next year? Do you still see supply chain as being a revenue headwind? Because it seems with the awards you've been winning and the fact that there doesn't seem to be any big new drop off in contracts that you should have kind of better than your target growth next year. What are the headwinds we should be looking for in calendar 2017, FY18?

I think you just touched on the variability of the supply chain. It's still $0.5 billion of our portfolio but that $30 million to $50 million swing in any given quarter may contribute to it, but we think on average over time for a full year we'll mitigate that.

The step function of the two MRO contracts from last year will be behind us next quarter. And again, the larger programs, as they reach a run rate, there will again be some variability across the portfolio, but it's really tied to the timing, the revenue streams, as those programs ramp up and then probably the biggest variability in probably FY18, FY19 will be the platform integration revenue as we moved from engineering test phases into production phases, which will have higher revenue as well as higher margins. So we're less focused on the margin expansion as we are on the top line revenue.

Okay. And then just one final one on the supply chain. Do you see if we do see the [four] structure of Army going up and not declining any further? Do you see that as being -- having a quick positive impact on your supply chain work?

Yes. We do see any shifts in up-tempo could be even further readiness and training if the four structure does in fact expand and we see activity shift to mission capabilities, all of that generally contributes positively to the supply chain flow on the contract vehicles that we already have in place.

So we would expect to further offset any potential headwind with that increased volume going forward. So it does look more favorable than not, given what we're hearing and how the military particularly may operate over the course of the next few years.

Great. Thank you.

Welcome.

Tobey Sommer, SunTrust.

Thank you. I wanted to ask a question about your commentary on training and simulation. You spent some time discussing that and the opportunities as you see it. In general, do you think that those are opportunities to expand or grow as they fit into your strategy? Thanks.

Well, very much an important part of our expand and grow, do think the train and simulation together covers a wide range of requirements, needs that are merging. I think in terms of the -- would it be on the enterprise IT side with emerging applications, modernization of IT infrastructure ability to train on different ERP platforms and the like. And on the mission side where we typically talk about it, our fleet forces training, FAA controller training, as the government modernizes mission capability, the training capabilities are very much required.

We've got a very broad suite, which we described in sight on our training edge. Which does give us from live classroom training through augmented and virtual reality, a full suite of trading methods and the mission understanding through each of our various program areas, give us the mission understanding to help refine curriculum. So that matrix integration, like on the FAA, allows us, we think, to apply consistent training delivery that's effective on the human-centric basis that we think we've got some market leadership in combined with the broad breadth of the curriculum development that's part of our mission capabilities.

It's coupled as well with, if you think in terms of the platform modernization and as we extend the life of certain programs, modernization again implies a level of training and upgrade as we upgrade the systems themselves. So the training simulations supports the readiness side of activities, more structure to think of. It supports the modernization of IT platforms and mission capabilities. And the simulation elements that are really part of that, also are really strong tools and architecture assessments and analysis.

And so simulation, in that same umbrella, is a critical component to also support our system engineering efforts. So collectively, we do think that discipline, it is one that we can leverage to sustain and drive growth in expanding and delivering to new customers.

Thank you. I wanted to just ask a question about your -- the vehicle wins that they're in projects that you're working on now and now the torpedo contract. Is there a common thread among those wins in terms of innovative approach or something that you see that has provided some differentiation in your success as you've increased your exposure to get that kind of work? Thanks.

Yes. I think it in really two areas. One, I think it's the services business model that allows us to be perhaps a little more flexible, agile and to not have the broader carrying cost of physical factories or infrastructure that traditionally some of our competitors have delivered that same capability in a different way. But I guess, a little more agile as an integrator, less infrastructure costs, partnering with the customers to take advantage of government infrastructure, all help facilitate a lower cost profile as we deliver it.

On the technical and engineering side, we do think that the innovations that we can deliver that provide value are sourced from our mission understanding and the system engineering work that we do to convert the mission and the operational requirement to a technology capability and need. Because we take a broad market analysis and not only sell what we may perhaps build or as others would build for themselves, we're less vertically integrated.

So we take a broad market analysis and become a channel through the market to the customer and that allows us to pick the best technologies or the best capabilities at the best price to package a solution, integrate it to meet the operational requirements of the customer. So the service model itself and I think our broad market reach to pick the best technologies that are available at the time at the best price point as a channel for those commercial technologies to the government are the two areas we feel differentiate on the platform integration portfolio.

Okay. Thanks very much. In terms of your submitted bids, I think quoted out $14 billion, if that's right. Did -- if you look at that and compare it to the percentage of revenue that you currently have from solutions, et cetera, is there a larger proportion of higher-margin solutions business that's been submitted? Just kind of curious as to what the margin profile, the backlog -- or, excuse me, the submitted bids looks like? Thanks.

The quality of pipeline, I think, has continued to evolve and mature. It does reflect the submitted proposals, and you are right, it's about $14 billion, is that higher margins than we have traditionally operated at? It's a key filter on the pursuit that we put forward.

There's a lot of variability. I mean, not every program is at that higher margin, when you think strategically. Some of the programs, as we've just described, whether the enterprise IT, large programs or the platform integration have a slow start and then would ramp up over time, both in revenue and in margin. And so there is a level of complexity, if you will, than a traditional services where you would just take and divide by five and end up with a flat line revenue and margin stream.

Most of these programs and the outcome based do start a little bit slower in revenue and margins and then you pick up that based on either volume or efficiencies that are baked into that. But the quality of the pipeline does reflect, on the submitted side, higher margin performance, which again gives us confidence in that margin expansion, that 10 basis points to 20 basis points over the foreseeable future.

Thank you. Last question for me. Could you comment on the percentage of business up for re-compete in the next fiscal year? Just want to get a glimpse of what that looks like. Thanks.

Generally, it's in the 20% to 25% of our portfolio is in any form of re-compete. It does, as I've mentioned, the high flow of task orders and volume, large [pond] contracts across the board. So working through those, generally 20% to 25% of our portfolio is in a state of re-compete any given time.

Okay, thank you.

Brian Ruttenbur, Drexel Hamilton.

Yes. Thank you very much. A couple of housekeeping. A lot of the good questions have already been answered. But CapEx for the remainder of this year is, fill in the blank, and then next year in 2018, is it going to be shifting higher as you have more hardware on the torpedo and vehicle side? Just trying to understand where CapEx is going and I have a follow-up.

Brian, this is Charlie. No, we don't look where the CapEx would change very much from this year. We're looking for $4 million to $5 million in the fourth quarter and inconsistent going into 2018.

So we're talking about $20 million a year, roughly?

Yes.

And then interest expense. Again more housekeeping, I apologize. You were up around $15 million, there's been some fluctuations from quarter to quarter. Is $15 million a good number going forward? And what is that assuming? I assume that you're not paying down debt and that interest rates remain relatively flat.

Yes, Brian. So we had the refinancing last quarter in which we lowered the interest expense, as we mentioned on the call last quarter. I think there was a savings of about $2 million per year in interest expense per quarter.

Correct. Yes. I remember the refinancing. But moving forward, is the $15 million number a good number, assuming that we don't have fluctuations with interest rates?

I may have to get back to on that, Brian, sorry. Let me get back to you. I don't want to give you an answer I don't have the full information on but it's slightly lower, I believe, next year.

Okay. Great. That's helpful. And then bookings, obviously very strong seasonally strong, fourth quarter seasonally should be weak. I'm just trying to understand the Trump effect and I'm sure that this is a difficult question, in fact impossible to answer, but take a stab at it anyway.

With the CR sequestration, I would imagine that there's going to be weak bookings and fourth quarter -- fourth calendar quarter and first calendar quarter and then there would be an upswing. Is that what you are anticipating? Or am I reading that wrong because you're bidding on existing contracts and things should flow better than anticipated?

Think it's going to be fairly steady. Q4 is traditionally a lower bookings quarter, as well as our overall performance, given the holidays. There's a lot of submit activity that goes on in Q4. But overall I wouldn't expect -- I would expect a modest decline from normal run rates, whether it be in the 0.8 to 1.0 type of area on book-to-bill in Q4. It will likely continue into Q1 of next year as far as maybe some of the larger opportunities that tend to drive the book-to-bill north of 1.0.

None of it is really driven so much by the CR, even on the transition itself, since none of the bookings that are pending are based on proposals that have already been submitted. So there is very little impact on what might be submitted in the near term that's going to drive, even collectively, FY18 revenues. But the pace we would expect potentially to be slightly down as we work through the transition of the leadership within the government into Q1, throughout Q2. But we will not see any impact on the CR, end of it's at Q4, generally is lower just on a year-over-year basis, just given the holidays.

Great. Thanks very much.

You're welcome.

It appears or no further questions at this time. I would like to turn the conference back over to Mr. Levi for any additional or closing remarks.

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

And once again, that does conclude today's presentation. We thank you all for your participation and you may now disconnect.