Science Applications International Corp (SAIC) 2018 Q1 法說會逐字稿

Good day, and welcome to the SAIC Fiscal Year 2018 Q1 Earnings Conference Call.

As a reminder, today's conference is being recorded.

At this time, I'd like to turn the conference over to Shane Canestra, Director of Investor Relations.

Please go ahead.

Good afternoon, and thank you for joining SAIC's First Quarter Fiscal Year 2018 Earnings Call.

My name is Shane Canestra, Director of Investor Relations.

And joining me today to discuss our business and financial results are Tony Moraco, our Chief Executive Officer; Charlie Mathis, our Chief Financial Officer; and other members of our management team.

This afternoon, we issued our earnings release, which can be found at investors.saic.com where you'll also find 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 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 factor section of our annual report on Form 10-K and quarterly reports on Form 10-Q.

In addition, these 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.

In addition, we will discuss non-GAAP financial measures and other metrics, which we believe provide useful information for investors, and both our press release and our supplemental financial presentation slides include reconciliations to the most comparable GAAP measures.

It is now my pleasure to introduce our CEO, Tony Moraco.

Thanks, Shane, and good afternoon.

SAIC's first quarter results of fiscal year 2018 reflect increased investments as we execute our business strategy and position the company for long-term shareholder value creation.

Charlie will provide you with the financial details, but I'd like to summarize the first quarter and discuss a few operational items that occurred in the quarter.

First quarter revenues of approximately $1.1 billion demonstrate contraction of 2% after adjusting for the extra week in the prior year quarter.

Diluted earnings per share was $1.08, which is impacted by a favorable tax rate as a result of the required adoption of the new accounting standard associated with employees' stock-based compensation.

Free cash flow generation of $84 million was strong and provides added confidence in our ability to deploy capital in the best interest of our shareholders.

EBITDA margin of 6.6% was impacted by increased cost and ongoing investments in our AAV and ACV platform integration programs, which are both still in Engineering, Manufacturing and Development, or EMD phase.

We recognized $9 million of increased costs to support vehicle testing to meet mission requirements and are making additional investments on our platform integration capabilities.

With regard specifically to AAV, we increased our cost estimates to conduct additional testing based on prototype vehicle test results.

As we complete the AAV EMD phase, we expect the customer decision this summer for Low-Rate Initial Production that would start this fall.

Moving to ACV.

During development and delivery of this complex modern platform, we encountered technical challenges in our initial vehicle deliveries.

We worked closely with our customers to identify and resolve the technical issues and are coordinating with the Marine Corps on a mutually agreed-upon revised delivery schedule.

We remain committed to providing the customer the robust and modern ACV that is fully protected and has superior maneuverability with amphibious ship-to-shore capability.

We're in the process of completing delivery of all 16 vehicles, and we'll then enter about a 1-year test phase followed by a Marine Corps down select contract decision.

In order to execute our platform integration strategy and address a multibillion pipeline and other integration programs, such as our recent Navy Mark 48 torpedo contract, we made additional investments to strengthen our platform integration capability in terms of facilities, systems, processes and personnel.

This will allow us to further differentiate our solutions from the original equipment manufacturers and government services peer companies.

With our last call late March, the federal government has passed appropriations budgets for the fiscal year 2017.

With the modest increase in the current year defense budget, instability in federal civilian budgets, our markets are improving, and SAIC's $13.2 billion of proposals submitted and awaiting award represents the most expedient way for customers to obligate these funds before the government fiscal year ends.

Note that near-term awards will take time to convert to revenue.

And while potentially having an impact on the latter part of this fiscal year, it will likely have a positive impact on revenue growth in our fiscal year '19.

We are encouraged by the recent release of the government's fiscal year '18 budget request.

There will certainly be modifications by Congress but the budget request reflects priorities where SAIC's capabilities directly apply such as IT modernization, cybersecurity and military readiness.

Therefore, our long-term outlook remains the same with expected modest growth in our markets for the next few years, consistent with our long-term financial targets.

Contract award activity in the first quarter led to bookings of approximately $1.3 billion, which translates with strong book-to-bill of 1.2 for the quarter.

First quarter bookings included a $237 million new business award for end-user services at the Environmental Protection Agency; $232 million of work for our AMCOM customer; $222 million of awards from the Intelligence Community; a $61 million Navy C4ISR engineering recompete award; and various other awards and contract modifications across the portfolio.

At the end of the first quarter, SAIC's total contract backlog increased to approximately $8.2 billion and funded contract backlog was $1.8 billion.

As mentioned earlier, the estimated value of SAIC's submitted proposals awaiting award is approximately $13.2 billion, down from last quarter by $2.3 billion through the bookings mentioned and award decisions on a few IDIQ contract vehicles in the expand category.

Subsequent to quarter-end, we were successful in a takeaway award of the NASA Omnibus Multidiscipline Engineering Services contract, commonly referred to as OMES II.

Under the $620 million single-award IDIQ contract, SAIC will provide engineering services to the Goddard Space Flight Center.

Note that this award was made possible by the synergistic combination of SAIC's NASA customer access and the qualifications and capabilities from our acquisition of Scitor 2 years ago.

This award further strengthens our leadership position in NASA as one of their leading contractors and expands our penetration of the increasingly important space domain market.

As communicated previously, our largest contract, the Army AMCOM EXPRESS, is being recompeted by the customer and transitioning to individual task quarters on the GSA OASIS contract.

Three large task orders, individually known as virtual systems, strategic systems and battlefield systems, are in various stages of the procurement process by the customer.

I am pleased to update you on the virtual systems task order.

Originally awarded to SAIC in February, the competitor protest was denied and we've been confirmed as the awardee of this $400 million task order.

We anticipate this award being included in our second quarter bookings.

The second task order, known as strategic systems, was awarded to a competitor last week and, dependent on the potential of an award protest, results in approximately $30 million to $50 million of reduced revenues this year and about $120 million on an annual basis.

In fiscal year '18, the combination of the EPA end-user services and NASA OMES contract awards helped offset the impact from the strategic systems loss, thus does not change our revenue outlook for the year.

The third and largest task order recompete, known as battlefield systems, with nominal revenue of $1 billion over a 3-year execution period, has been submitted to the customer and is expected to be awarded in August.

As SAIC looks to the future, we recently completed a thorough review of our business strategy including an assessment of our markets, capabilities, strategic priorities and aspirations.

Our long-term strategy was finalized, and implementation has begun under the banner of Ingenuity 2025.

Our strategic priorities are aligned to 4 market areas: engineering, integration and mission services; information technology; platform integration; and logistics, readiness and sustainment.

Our investment decisions and pipeline development will be aligned to these markets to achieve sustained, profitable growth.

One initial example of the implementation of Ingenuity 2025 is the recent announcement of our first technology integration gateway, a low-cost delivery center in Cookeville, Tennessee, that will expand our workforce, increase competitiveness and improve profitability.

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

Thank you, Tony, and good afternoon, everyone.

Our first quarter revenues of approximately $1.1 billion reflect contraction of 2% after adjusting for the extra week in the first quarter of the last fiscal year.

Revenue performance was impacted by the DHS integration program recompete loss mentioned last quarter and other net declines across the portfolio due to customer budget constraints.

These decreases were partially offset by higher revenues on programs such as the ACV platform integration program and the Army hits program won late last year.

First quarter adjusted EBITDA was $73 million, equating to 6.6% as a percentage of revenues compared to first quarter adjusted EBITDA of 7.1% in the prior year quarter.

This quarter, EBITDA was impacted by higher net unfavorable contract estimates of $11 million, which included the $9 million on our platform integration programs that Tony mentioned.

This impact was partially offset by a reduction of $7 million and estimated lease exit costs as we rationalized our facilities in the National Capital Region.

Adjusted operating income of $63 million in the first quarter resulted in an adjusted operating margin of 5.7% compared to 6% in the prior year quarter, primarily due to platform integration program impacts, offset by the reduction in estimated lease exit costs.

Net income for the first quarter was $49 million and diluted earnings per share was $1.08 for the quarter.

The effective tax rate for the quarter was approximately 6%, primarily due to the previously communicated adoption of the new accounting standard for excess tax benefits on stock-based compensation.

As I mentioned in our March call, the adoption of the new standard primarily affects our tax rate for the first quarter due to the timing of equity awards that predominantly vest in the first quarter and is based on our stock price at that time.

In the first quarter, we recognized the tax benefit of $16 million as a result of adopting the new accounting standard.

The tax benefit, combined with lower profitability, produced a tax rate of 6%, lower than our previous estimate of 10% to 15% for the first quarter.

Looking to the full fiscal year, we estimate our fiscal year 2018 tax rate to be approximately 26% to 28%.

We anticipate the second quarter effective tax rate to be approximately 30% and then in the mid-30% range for the second half of the year.

SAIC continues to deliver strong cash flow generation, an underpinning of our value proposition and capital deployment strategy.

A strong quarter of collections and cash management resulted in first quarter operating cash flow of $88 million and free cash flow of $84 million.

Contributing to this strong cash performance was days sales outstanding of 48 days, consistent with last quarter and 1 less payroll week as compared to the prior year quarter.

Also contributing to the cash performance was the previously discussed $16 million of recognized excess tax benefits from employee stock-based compensation.

Looking forward to the rest of the year, we expect our DSOs to return to the low 50s as the accelerated payments received in the fourth quarter of last fiscal year do not reoccur in the current year.

The first quarter ended with cash balance of $207 million, above our average operating cash balance target of $150 million.

Our total debt continues to be just over $1 billion, equating to a bank EBITDA leverage ratio of less than 3x at the end of the first quarter.

During the first quarter, we deployed $61 million of capital, consisting of $38 million of planned share repurchases, representing about 474,000 shares, $14 million in cash dividends and $9 million of debt repayment.

We are committed to our long-term financial targets, and they remain unchanged.

With regards to fiscal year '18 specifically, we expect full year profitability, as measured by EBITDA margin, to be 10 basis points lower than the prior year due to the impact of the platform integration programs which is expected to be 30 basis points for the full year.

Without the impact of the platform integration programs, our margins for the core business is in line with long-term profitability improvement targets.

With regards to full year cash flow, I previously gave a fiscal '18 outlook of approximately $220 million of free cash flow.

With the excess tax benefits on stock-based compensation estimated approximately $20 million for the full year, our outlook is now $240 million of free cash flow for the year.

This significant cash flow generation, along with the excess cash we carried at the end of fiscal '17, allows us to execute our capital deployment strategy.

In fiscal year '18, we expect to pay dividends of about $55 million, make total debt payments of approximately $25 million, with the remainder of cash in excess of $150 million available for further share repurchase and strategic M&A should it arise.

As announced in our press release today, our Board of Directors has approved a quarterly cash dividend of $0.31 a share payable to shareholders on July 28.

Tony, back to you for concluding remarks.

Thanks, Charlie.

Last week, we announced 2 significant items.

First, Nazzic Keene has been appointed Chief Operating Officer of SAIC effective June 8, as announced in our press release.

While retaining her role as President of the Global Markets and Missions Sector, Nazzic's expanded responsibilities will increase our market leadership and accelerate the execution of our long-term strategy, Ingenuity 2025, for sustained profitable growth.

Additionally, last week, we also announced the pending move of our corporate headquarters in July to Reston, Virginia, a short distance away from our current headquarters location in McLean, Virginia.

The new headquarters will be in a building we've occupied since our 2015 acquisition of Scitor.

Last week, we held our annual stockholder meeting and the proposals outlined on our proxy statement were overwhelmingly approved by our stockholders.

Thanks to all who participated in our first virtual shareholder meeting.

And due to its success, we anticipate conducting future stockholder meetings in the same manner.

Operator, we're now ready to take your questions.

(Operator Instructions) We'll take our first question from Cai Von Rumohr with Cowen and Company.

So maybe give us a little bit more color on the $9 million charge like when you figured it out, is this all of it?

And then some commentary on the other $2 million net negative.

Yes, Cai, this is Charlie.

So the $9 million that relates to the platform integration program were costs or investments that we decided to make in Q1.

In addition to that, we expect another $3 million of impact for the full year.

So the total full year impact for platform integrations will be $12 million or 30 basis points, as I stated.

Got it.

And so you had a couple of wins, you had the AMCOM loss.

Maybe tell us where are you regarding the AMCOM in terms of a protest or not.

And if you can give us any color on any of your outstanding bids, that would be terrific.

Sure, Cai, this is Tony.

Let me just cover the 3 bids in particular that we've been discussing.

Very pleased with the virtual systems award.

That was awarded as a resolution of the contract protest that was just recently announced to maintain our service to our customers.

Although we're disappointed with the strategic systems award decision, we have factored our revenues as a subcontract to the Booz Allen Hamilton on that bid.

And that reduced our FY '18 estimated revenues by $80 million, which contributed to our FY '18 full year revenue of being flat that we communicated last quarter.

So the impact as we described it, has been mitigated in part through our planning process and our bid strategies.

The last and largest, battlefield systems, that award was submitted with SAIC as a prime and it is expected to have an award decision later this summer.

So the contract awards like EPA and NASA OMES helped to offset the strategic systems loss.

Our planning has, in fact, we think accommodated some of that.

And as far as the other bids this year, probably Centcom recompete for the enterprise IT support, it's probably our next largest contract recompete.

We expect that award sometime in late Q2.

And the last one, can you comment, NASA OMES kind of came out of -- we weren't aware -- some of us weren't aware that you've kind of have that bid.

Do you have any other large significant bids like that, that would be takeaways or that you care to talk about either in specificity or in general?

In general, we typically have in a large submitted waiting award proposal set, a combination of both contract award and IDIQs.

There's a handful, I said a half a dozen of more than $100 million of programs that we are always in pursuit on.

It will be up to timing of when those actually move forward as we've discussed last quarter.

Pleasantly surprised that the EPA award came out in Q1, expected some slowness in the bookings.

We do see that picking up as the customer, now with the budget bills in place, a lot of conversation around trying to accelerate some of the award activities, so I think we have a very strong submitted pipeline and would expect our share of those submitted to convert to awards.

A lot of that, the transitions and the like, may not have a huge impact on the rest of the fiscal year but definitely will help drive the growth in FY '19.

Everyone expects to have a very strong bookings and subsequent revenues given the performance that we have with our customer sets.

So sort of $5 billion is in contract awards of the $13 billion that's submitted awaiting award.

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

Just a couple of metric things, cost plus fixed price time-and-materials as a percent of revenue and what the direction has been and where you think it's heading.

And is that good or bad news for margins?

Right now, it's still a pretty consistent mix across the 3, it's about 1/3 or so.

As you look at the fixed-price components, again, I would remind folks on the supply chain component of our full fixed-price award, for the fixed-price service award, it is really a smaller component, probably in the 15% to 20% range as opposed to the full 1/3.

We are seeing shifts, in some cases, of contract that is moving from a time-and-materials basis, across reimbursable.

But I'd say, on our portfolio, we're seeing 1 trend of the labor services contract moving from T&M to cost reimbursable.

But in turn, we're also increasing our pipeline pursuit of fixed-price activities, both enterprise IT and in the platform integration work that we've been talking about, not only for the Marine Corps but the Navy programs recently announced, a $60 million award for further tactical integration that we've done over the last number of years and decades.

So it's a combination.

So IT and platforms are increasing the fixed-price portfolio while the labor services now offer -- a portion of labor services are converting from T&M to cost reimbursable.

Can you give us a sense on trends in direct labor adjusted for the week versus ODCs?

It's been pretty consistent as far as our mix of about 60% or so of our content -- labor content on our bids and activities in relationship to our portfolio as a whole and the subcontract activity.

It's still pushing out a fair amount of materials as a technology integrator.

So at this point, I don't see any trend or shift in any major direction given the current portfolio nor in the pipeline that we've submitted.

That will move on a rapid basis that will occur over multiple quarters.

So did the charge for your platform AAV and ACV efforts -- or was it just ACV -- does that change your thinking on how you approach this opportunity, maybe less willingness to go aggressively at it or maybe a need for more conservative -- conservativism in your assumptions?

I'm just trying to figure out if you're sort of changing your enthusiasm towards this part of your business.

Well, still very enthusiastic about the opportunities.

Let me give you a little color.

On the platform integration work with the Marine Corps, as we've said before, a bit disruptive on the business services side.

The combination of completion of the testing on the AAV for operational assessment has been a focus to get that to closure in the EMD phase, working with the customer.

The completion of the ACV 16 prototype vehicles is underway in parallel, much more production than tests as in AAV.

And that's really to drive -- making sure that we can get the vehicle in place in advance of the Marine Corps test schedule and ensure that it is still a competitive bid for our program so we can, in part, deliver innovative and increasing mission capabilities that address the survivability, mobility and reliability for the customers.

The third component in the investment is really around the preparation for transition from AAV EMD phase to low rate production based on a Milestone C decision late this summer and then LRIP occurring later in the fall.

So collectively, still have very strong enthusiasm for the platform integration business.

It is our opportunity to increase our fixed-price portfolio, for your earlier question, at higher margins.

It's supportive of other programs beyond these 2, as I've talked about, the Navy C4ISR tactical vehicle programs, the Navy's Mark 48 torpedo program, in avionics weapons systems support.

So collectively, although currently a small portion of our portfolio, we do see the margin expansion and revenue growth opportunities coming out of platform integration.

Our strategy, I think, is focused on recognizing the distinction between production and technical services work.

Our strategy reflects the characterization of that in our business models, and we're putting in the resources to work the supply chain logistics and production capacity necessary to run these types of programs.

We're focused on the investments, ensuring that we get an ROI that is valuable for us and for our shareholders.

But I am still very bullish on the platform business as we move forward through our portfolio.

We'll go next to Jon Raviv with Citi.

Tony, when you're thinking about the year, sales cadence seems pretty lumpy just given down 2% organic, and you're looking for flattish for the year.

How should we think about different comps as we go through the rest of year?

And would the implied exit run rate be a fair way to think about, going forward, in achieving the low single-digit growth?

Or is that third piece of the AMCOM contract still kind of part of the consideration there?

Well, I think the comparables going forward is all very consistent with what we've done to date, do recognize the puts and takes.

AMCOM, always kind of disappointed in any kind of recompete loss, but as we move forward, the battlefield systems bid itself and that recompete surely is a swing for us.

Confident in our, again, capture on that recompete, but that is a large program that has impacts.

We have messaged last quarter the impacts from some losses late last year and the headwinds that we are looking to overcome and expect that, that's why we also message on the flatter side.

We've factored in the AMCOM, the strategic systems, knowing that even upon a success, we would have about a 2% headwind on revenues.

While we do think that the quality of the pipeline, as demonstrated with the EPA and NASA wins, do afford us opportunities to close those gaps and then overcome that.

The market dynamics are favorable.

We believe that we will overcome that as well through later this year, and we expect to realize our FY '19 goals that would be in the low single-digit growth on the revenue side as we increase the margins.

So I think the cadence on proposals is the same.

Expectations on transitions, we're prepared for.

And we're making investments, really for the long term, as you think about some of the platform activities on the integration side.

Sure.

And a follow-up on the investment comment.

How do you think about how you might modulate those investments if you see greater and greater opportunities on the platform integration side?

Well, I think we've got a good profile now based on the pipeline of award activity so we don't want to get too far in front of it.

But I do think that the investment track that we're on through the working capital investments to date, the processes and tools to move from a prototype environment into production is definitely a step function.

So it's very appropriate for us to make that investment now, well ahead of the production requirements that are there.

A lot of lessons learned from prototype units, a lot of engineering and design went into that.

A lot of work with our suppliers to manage the entire supply chain, and we've tried to demonstrate for our customers our ability to do production by using the same environment, although we do need a handful of systems to get some of the extra capacity so we can scale it up collectively.

So we are still investing in other areas, the training and simulation areas, the cybersecurity components, also very important with modest R&D and reliance on strategic alliance partners as we bring technology from commercial markets into the federal space.

So it's spread around.

We're trying to be very diligent in the utility of it but confident that we're aligned.

And the Ingenuity 2025 strategy does allow us to further focus those resources on the areas that we think have the highest potential for revenue growth at higher margins.

Okay.

And then just the last one for me, sort of keeping on that -- on the investment conversation, the low cost onshore kind of strategy you talked about when you're referencing the Tennessee opening, how might that impact your CapEx metrics as a percentage of sales.

Very minimal impact on CapEx.

It is truly a low-cost center, very light on the infrastructure.

And it's really, a large part, to have a distributed workforce at a lower cost.

A lot of the -- particularly enterprise IT programs afford themselves for a distributer work force whether it be on cyber or application development as opposed to physically being on site with the customers in the context of weapon systems and the like.

So we're focused on that.

Tennessee has stepped up and is a very good partner in our ability to stand up that facility that really will, we think, increase our competitiveness and expand the workforce.

Demands of assets and resources, people to do the work, always a challenge, and so we need to go to them in some cases.

And we try to convince our customers that, in a lot of cases, we do not need the physical presence of a government location so we could be cost-effective with the distributed workforce and we can manage that effectively.

So I think it's one of many opportunities.

Others are working through that same process.

And so we're excited about the opportunity to partner up with Tennessee, Tennessee Tech, and grow that workforce there in Eastern Tennessee.

We'll now go to Tobey Sommer with SunTrust.

I was wondering if you could talk about the margin differential as you look at your pipeline and book-to-bill versus the operating results and in the margins that you just put forth in the quarter.

Kind of as you look at the higher-margin fixed-price IT and platform stuff that you have in the pipeline, what kind of spread are we looking at between the reported results and what that looks like?

Well, as we kind of messaged across the board that the 10 to 20 basis points is really that long-term approach in that we demonstrated our ability to do that since the spin.

As I mentioned, it's very important for us to invest in the new business area that will give us further growth.

But absent of platform more specifically, we still have line of sight on the pipeline that we're delivering to move our margins up on a consistent basis.

The similar levers apply, increase our fixed-price content by delivering repeatable solutions on a fixed-price basis; increase our labor content through selective subcontracting so that we can, in fact, would get a return on our own labor; and minimize the material pass-through components where possible.

But as an integrator with the large vehicles that we have, we can only manage that to some degree.

We're still going to carry much more materials as an integrator than some of our peers and service providers.

So I think that the line of sight in the pipeline to date is very consistent with what we've seen in 10 to 20 basis points.

We're still in a recompete of about 20% to 25% of the portfolio every year, so it takes time to roll through the contract awards in the past quarters.

But we have seen, and we will continue to see, incremental improvement.

And we believe across the portfolio, we still have 100 basis points of headroom over the course of the next few years to move forward.

And the platform integration will only complement that further on a fixed-price basis, with margins closer to the low double digits and in the teens when you get into the larger production lines.

Okay.

And has the renewed emphasis that we've been hearing about on readiness by military customers, has that manifested itself in a material way in contract awards?

Or is that still a function of prospective activity and pipeline?

It's still a little early, although the messages are there on readiness as the military budgets get aligned.

So we are preparing for the training and simulation activities in particular.

We will see perhaps also, from a training perspective, OPTEMPO increases that we might see early indications on our supply chain activities where we do support expandable items from tires to petroleum and chemicals.

So there are some early indications that we would expect to see.

I would say that the -- there's not been a step function in training and readiness.

There's been a lot of planning but not as much execution where most of the money tend to flow.

But we're confident that it will occur.

The Pentagon has been very supportive.

Congress has been very supportive as is the White House.

So we think it's just a matter of time.

And now that the budget dollar is in place and the contract vehicles in place, we would expect training, readiness-related services to move through fairly quickly on the front end of that curve.

And as we had with sequestration and services, tend to go quick on a sequestration side down, but they're one of the early places that we could put money on contract and execute quickly outside of the traditional platform programs.

So we're optimistic about that funnel opening up relatively soon.

And last for me, could you just review the -- your margin expectations for the year?

Because I think you segment it out with and without the investments.

Yes.

So we expect a 10 basis points -- to be down 10 basis points from last year's 7.4%.

So this is due to the 30 basis points or the $12 million negative impact on the platform integration program.

As I mentioned, $9 million of the costs incurred and $3 million is expected to be incurred throughout the year.

(Operator Instructions) And we'll now go to Brian Ruttenbur with Drexel Hamilton.

Yes, a couple of quick questions.

First of all, back to the Cookeville tech center.

Can you talk about when that's going to be open, the size of it, how quick it's going to ramp?

And are you going to be taking bodies from other places and putting down there?

Or are these going to be new bodies?

Cookeville is open and operational.

The plan is to have 300 employees in that location over the next few years.

We have a pipeline of programs that are already preparing to hire into that.

We have 20 college recruits of Tennessee Tech start 2 weeks ago.

I was down there myself with the Governor and a wide range of support folks that had been instrumental in getting that up and running.

So it's operational, a good pipeline.

The facility itself is in swing space, in the same building, as they finish the buildout on a much more open and collaborative environment.

And so the actual formal facility long-term will open end of the month, early next.

But we are operational.

The people are through local hires, folks returning to that part of Tennessee.

We are relocating some folks within our own program from San Diego in the locations as we think about our sister organization in Oak Ridge where we have our shared services center.

But it's intended to have new hires located in Cookeville, mainly in the software development, application development domain, as well as IT helpdesk services as part of a very cost-effective workforce center out of Cookeville.

Okay.

So right now you have sub-50 employees or something like that now planning to go to 300.

Is that a fair summary?

That's correct.

That is correct.

Okay.

And then my other question was major recompetes coming up.

Anything of the size of AMCOM or anything large coming up over the next 12 months that we need to keep our eyes on, on the recompete side?

So the largest one I had mentioned is Centcom, it is over $300 million in total awards.

It's a 5-year period of performance.

So it's in, let's say, the $60 million range on an annual basis.

That's probably our next largest outside of battlefield systems at any particular scale.

There are some multiple-award IDIQs that we expect to move through the system, but that's probably the next one that's in our baseline.

And the timing?

Expect that award sometime in the late quarter 2.

And we'll go back to Ed Caso with Wells Fargo.

Tony, I was wondering, is the message here that you're trying to increase your business development expenses and focus more on growth spend, you've done sort of a moderate level of share repurchase in the last few quarters.

I mean, so are we shifting more to growth at the expense of maybe the very aggressive share repurchase activity you did early on in your public life?

No, I don't think so, Ed.

I don't see the direct impact of the cash generation, which we've been very consistent with, and our ability to deploy that in a very consistent way to bring the share count down.

The business development investments, we really do try and balance across our G&A accounts between [D&P] and R&D resources in our internal processes.

So I do think that we can strike a balance on our business development growth to secure a much larger pipeline.

And I think that is separable from a share repurchase program on the capital deployment side because we have a very consistent cash generation business base.

So I really don't think that the investments are going to perturb it, even if we shift a few dollars across the strategy.

And it appears there are no further questions at this time.

I'd now like to turn the conference back to Mr. Canestra for any additional or closing remarks.

Thank you very much for your participation in SAIC's first quarter fiscal year 2018 earnings call.

This concludes the call, and we thank you for your continued interest in SAIC.

And ladies and gentlemen, that does conclude today's conference call.

Thank you for your participation.