SAIC, Inc. F1Q11 (04/30/10) Earnings Call Transcript

Jun. 5.10 | About: Leidos Holdings, (LDOS)

SAIC, Inc. (SAI) F1Q11 (04/30/10) Earnings Call June 4, 2010 5:00 PM ET

Executives

Laura Luke – VP, Media Relations

Walt Havenstein – CEO

Mark Sopp – EVP and CFO

Analysts

Bill Loomis – Stifel Nicolaus

Edward Caso – Wells Fargo

Jason Kupferberg – UBS

Joseph Vafi – Jefferies & Company

Joe Nadol – JPMorgan

Tim Quillin – Stephens Inc.

Jeremy Devaney – BB&T Capital Markets

Erik Olbeter – Pacific Crest Securities

Operator

Good day, ladies and gentlemen, and welcome to the first quarter fiscal year 2011 earnings conference call. My name is Shamika and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today’s conference. (Operator instructions) I would now like to turn the presentation over to your host for today’s call Ms. Laura Luke, Vice President of Media Relations. Please proceed.

Laura Luke

Thank you, Shamika, and welcome everyone. Here on today’s call are Walt Havenstein, our CEO; Mark Sopp, our CFO; and other members of our team.

During this call we will make forward-looking statements to assist you in understanding the Company and our expectations about its future financial and operating performance. These statements are subject to a number of risks that could cause actual events to differ materially and I refer you to our SEC filings for a disclosure of these risks.

In addition, the statements may represent our views as of today. We anticipate that subsequent events and developments will cause our views to change. We may elect to update the forward-looking statements at some point in the future, but we specifically disclaim any obligation to do so.

With that, I will turn the call over to Walt.

Walt Havenstein

Thank you, Laura. And good afternoon everyone. The highlight of our first quarter was our strong business development results as we posted a significant improvement in bookings and book to bill from recent quarters. This resulted from continued focus on higher growth markets, increased submissions of bids over the past year, and increased pace of competitive procurement decisions being made by our government customers.

For the call today, I will cover the market conditions and outlook and provide highlights of recent business activity, then Mark will provide a recap of our overall performance for the first quarter.

Government service market update. Our assessment of the federal market has not changed since our last earnings report. In fact, our assessment of the market’s direction was subsequently confirmed by Defense Secretary Robert Gates in a speech he delivered last month and by a number of our competitors in their most recent earnings calls.

To recap our assessment, while federal spending is budgeted to increase modestly this year over the prior year, we expect most of that increase will be directed to cover DoD’s must-pay bills. Accordingly, we expect only nominal growth this year on our markets. In addition, we believe that downward pressures from both the administration and congress on federal discretionary spending, including defense, will persist of the long term. In addition to monitoring the direction of the federal budget, we continue to closely examine new developments impacting the government contracting environment.

Since our last earnings call craft OCI regulations have been released. The OCI provision, as written, will require added diligence by – both by contractors and the government’s acquisition community to ensure every potential OCI situation is understood and resolved. For much of our business, we expect the OCI issues can be navigated. However, there may be customer implementations of the final provision that may require more significant actions.

A draft policy letter on what is inherently governmental also was released recently. The language of the proposed policy is consistent with our expectations and is not expected to have a material impact on our business. Its ultimate effect will depend on the policy guidance and its interpretation by federal agencies.

With respect to the implementation of our strategy, success within this market environment requires a sound strategy to market by greater investment in and focus on a selected few high growth areas where the Company can apply its distinctive competitive discriminators. Unlike our smaller competitors, most IT service companies, we offer significant thought leadership and leading-edge technology along with our ability to deliver large-scale integrated solutions that include physical infrastructure.

Unlike our larger competitors, a handful of defense platform providers, we offer deep customer affinity and combined with the agility of our entrepreneurial culture and organization. SAIC has segment market discriminators and with each new day, we are adding focus to how we integrate and apply them within our high growth markets.

In addition to flawless execution in all aspects of our business, our strategy is actively pursuing expansion of strategic development activities in the five market areas where we have the potential for up to 15% annual growth

C4ISR, cybersecurity, health, energy, and logistics; deployment of new business resource to higher growth areas, especially cybersecurity products and solution offerings; acceleration of growth in higher growth areas through integration of our recent acquisitions; and aggressive cross-selling and continued development of new integrated offerings.

Our goal for this strategy is to produce business development performance that outpaces our competition. Accompanies by improved operating margins, continued sound working capital management, and strong growth in free cash flow on a per-share basis.

I would like to spend a few minutes illustrating our strategy at work in the area of cybersecurity. We are particularly focused on cybersecurity as a high priority, enterprise-wide growth opportunity for SAIC. Our cybersecurity business grew substantially in FY10. It also accounted for substantial new contract awards and proposal submissions in this year’s first quarter. We are actively marketing our cybersecurity offerings from DoD and the intelligence community to the broader national security market, which includes the Department of Homeland Security and the Department of State. We are also actively cross-selling our cybersecurity capabilities in other key markets such as federal IT, health, energy, and C4.

SAIC’s new cloud shield capability has allowed us to penetrate important DoD, intelligence community, and DHS cybersecurity programs we would not otherwise have had access to, making new partnership and service opportunities available to SAIC. Today, we are actively engaged in over 30 related projects and pursuits across the company. To support the growth we are experiencing in cybersecurity, SAIC is engaged in several important human capital and facility initiatives.

SAIC has established a 12-week program called Cyber Nexus designed to train the nation’s first generation of cyber warriors. Our plan is to train two cohorts this year, resulting in 50 employees gaining specific technical and analytical skills as well as all required DoD, cybersecurity certifications.

SAIC is also sponsoring an information assurance master’s degree program through three universities

NYU-Polytechnic Institute, George Washington University, and Capella University, all of which are designated as National Centers of Academic Excellence by NSA and the Department of Homeland Security. Our plan is to have 50 students enrolled in these programs by the end of this year.

SAIC’s facility efforts include our Cyber Demonstration Center and Cyber Center of Excellence, both located in Columbia, Maryland. SAIC is also building new secure facilities along Maryland’s I-95 cyber corridor to house the hundreds of new employees we expect to hire to support recent and anticipated cybersecurity wins.

I will now like to turn my comments toward how SAIC is poised to help support disaster response, such as our nation’s reply to the tragic oil spill in the Gulf of Mexico. SAIC is uniquely manned, equipped, and positioned to support recovery from the immediate and long term challenges associated with natural and man-made disasters. Over the years, SAIC has assisted with our country’s response to many disasters such as Hurricane Katrina, the terrorist attacks such at 9/11 and to major oil spills such as the Exxon Valdez event.

SAIC takes pride in responding to the needs of urgent national importance and we are always prepared to help mitigate these types of crises, bringing together specialized skills in sciences and applications to the problem at hand. Our Company can bring to bear nationally recognized expertise in many critical aspects of oil spill remediation, including geospatial imagery and analysis, ocean circulation modeling, oil spill trajectory analysis, and the environmental impact assessment and remediation.

R. W. Beck, one of our recent acquisitions is participating in the initial response to the Gulf oil spill as they recently did for the floods in (inaudible) and the tornadoes in Oklahoma. We are currently performing work in the Gulf region to train 900 cleanup volunteers and support emergency operations and we are prepared t support others state and local community cleanup and long term environmental services, as needed.

Moving on to business development results, bookings in the first quarter were $3.2 billion for a book-to-bill ratio of 1.2. This ratio reflects much higher awards for new business, especially in cybersecurity. In fact, 90% of the value of our first quarter wins came from new business. We ended the quarter with over $16 billion in total backlog, an increase of over $475 million from Q4. $5.6 billion of our backlog was funded, an increase of roughly $350 million during the quarter.

In addition to higher bookings, we maintained high win rates and continue to grow submittals. We achieved an 88% total dollar win rate on all recompete business in Q1. We also earned a 68% total dollar win rate on all new business we sought to capture. These high win rates are consistent with our past performance despite increasing competition, which reflects the value proposition we offer to our customers.

Submittals in Q1 were up $2.4 billion, or 37% compared with Q1 a year ago. We began the first quarter with $16.3 billion in outstanding submittals. During the quarter, we added $8.7 billion in new submittals and received decisions on $7.7 billion, leaving us with $17.3 billion in submitted proposals awaiting decision at the end of the quarter, up sequentially from last quarter.

Over 50% of the $17.3 billion is for non-ID/IQ opportunities. This level of proposals awaiting decisions exceeds the comparable amount at Q1 last year by over $6 billion, providing a (inaudible) of potential bookings for SAIC during the remainder of FY11.

Our focus on winning larger opportunities continue to yield good results. As of the recent date we had won 10 opportunities valued at more than $10 million each in FY11 and had over 200 $100 million plus opportunities in our pipeline.

In summary, our business development performance in the first quarter was significantly improved over the fourth quarter. This performance reflects our efforts to capitalize on the many outstanding competitive discriminators we posses at SAIC.

Turning to the next topic, the integration of our acquisitions continues on track. We are working to leverage their differentiating products, technologies, and capabilities across the enterprise. Our acquisition of CloudShield is helping us build market share in cybersecurity. As we discussed, our acquisition of Beck Disaster Recovery is enabling us to address remediation and recovery opportunities.

Our acquisition of Science, Engineering and Technology, SET Associates brought us the CounterBomber system. During Q1, this system successfully passed formal government testing at the White Sands Missile Test Range and Yuma Proving Ground in addition to completing two years of successful U.S. Marines operation in Iraq and Afghanistan. And is currently undergoing operational test with the U.S. Air Force and Army in Afghanistan. The U.S. government also recently approved the sale of CounterBomber to the Dutch MoD, leading to CounterBomber’s first international sale.

We have leveraged our purchase of an online interactive virtual environment software platform know as OLIVE to win a new prime contract with the U.S. Department of Agriculture in support of the Virtual Government concept. USDA is teamed with the Air Force, Department of Homeland Security, and National Defense University to provide Virtual World Services to all government agencies to support multi-site collaboration, education and training.

That provides some insight into our markets, and our operational highlights. And Mark will now cover the financial details for fiscal 2011 first quarter.

Mark Sopp

Thank you, Walt. As we indicated in the call last March, lower bookings last fiscal year led to flat revenue growth expectations for the first half of this fiscal year. Our results for Q1 were consistent with that expectation, with total revenue growth at 1% and internal revenue contracting by 1%.

We were pleases, however, to see progress in business development during the first quarter as Walt mentioned. We had bookings doubling sequentially from Q4 to $3.2 billion, producing a book-to-bill ratio of 1.2. As Walt indicated, we also continue to grow the value of outstanding submittals sequentially from last quarter, which now stands above $17 billion. Our first quarter bookings and the increased level of outstanding submittals provide the platform for growth potential in the quarters to follow.

In the first quarter, we produced internal revenue growth in our logistics business, and in our systems, engineering, and integration solutions for the armed services. This was, however, offset by reductions in demand for materials on a variety of programs, lack of new contracts starts, and reductions in IT services for federal, civil, and commercial customers.

Labor mix rose to 60% of revenues, reflecting low demand for materials than we’ve seen in recent quarters. We believe some of this is timing related and will recover in future periods. Contract type mix was not materially different from recent quarters.

Operating margin came in at 7.7%, on part with the first quarter of last year. We incurred $3 million of charges related to the transition of the Scottish Power contract, which hit operating margin by 10 basis points. Flat revenues coupled with higher investment in bid and proposal and internal resource and development costs held back margin improvement, but we expect to improve that over the course of the year with planned revenue volume increases.

As discussed in our last call in March, we have reclassified some costs from SG&A, sales, general and administrative expenses, to cost of revenues to be consistent with changes we have made in our cost submissions to the government. Prior periods were not restated on this basis. The effect of this was an increase in cost of revenues and a decrease in SG&A, both by about 1% of revenues. There is no net effect to operating margin as a result.

In the non-operating area, our effective tax rate for the quarter was reduced considerably to 34%. In the first quarter, we resolved a number of uncertain tax positions and appropriately reversed associated reserves, reducing our tax provision by about 4.5% from what it otherwise would have been. We expect to return to a nominal rate in the quarters to follow.

Also, we continue to reflect the research and development tax credit as not being extended by congress in calendar 2010. That will be upside to fiscal ’11 if that occurs.

We’ve reduced the share count considerably quarter over quarter by deploying excess cash. The weighted average diluted share count went down by about 5% or 19 million shares from 397 million diluted shares in the first quarter of last fiscal year to 378 million this quarter. This primarily reflects share repurchases made over the course of last fiscal year and to some extent repurchases made this last quarter.

For the quarter just ended, we repurchase roughly 16 million shares, however, those were back-end weighted and had the effect of reducing the weighted average share count in Q1 by only five million shares. We’ll see the full impact of those repurchases take effect in remaining quarters of the year.

Diluted earnings per share from continuing operations totaled $0.32, up from last year by 10%. Without the Scottish Power charge of $3 million, EPS would have rounded up by another penny. We’ve provided a schedule in the earnings release today, showing this effect and we’ll continue to do that for the next few quarters when this charge is expected to be more significant.

Cash flow from operations were reasonably strong at $140 million for the quarter with days sales outstanding, DSOs registering at 69 days, just above Q1 of last year. We deployed $140 million for acquisitions and deployed almost $300 million for share repurchases in the quarter. Together, these actions decreased our cash balance from $860 million as we exited fiscal 2010 to $570 million at the end of this quarter. This resulted in less excess cash at April 30, down considerably from previous quarters, but still a conservative and healthy capital structure position.

With that, I will finish up with our forward financial expectations. Last quarter we revised our internal revenue growth, operating margin, and earnings per share growth expectations downward for this fiscal year. We have no changes to those expectations today.

To reiterate them, we expect internal revenue growth in the 3% to 6% range for the year, operating margins to improve 10 to 20 basis points above last year’s full results, which was 8.0%, and we expected diluted earnings per share growth from continuing operations to grow between 8% and 14% over fiscal 2010. We also expect our operating cash flow to roughly equal our expected net income plus our depreciation and amortization costs, a model consistent with prior years.

I would like to note that our guidance excludes two significant items. First, as consistent with our previous discussion and disclosures, our guidance excludes the estimated total fiscal ’11 costs of $20 million to $30 million related to our transition out of the Scottish Power contract in the United Kingdom.

Second, guidance excludes any pickup from the favorable settlement and proceeds due

SAIC from the recently announced VirnetX versus Microsoft intellectual property case. As discussed in our recent Form 8-K filing, we cannot yet adequately quantify the net amount SAIC will retain from this settlement as we owe our former customer a commercially reasonable royalty on the net proceeds that we receive. This royalty amount was not definitized years ago when the development contracts was executed. As soon as this can be reliably determined, we will convey it at that time.

That wraps up my financial comments for the quarter. I will turn it back over to Walt for final remarks.

Walt Havenstein

Thank you, Mark. I would like to take a moment to acknowledge three milestones SAIC reached over the past several months. Barron’s recently rated SAIC number three among the 500 largest publicly traded companies in the United States and Canada based on three equally weighted measures of growth, median three year cash flow return on investment, change in the latest year’s CFROI relative to the three-year median, and sales growth adjusted for divestitures. SAIC received Barron’s top rating on all the three criteria.

Fortune recently named SAIC to its list of world’s most admired companies, ranking SAIC number three in the information technology services industry among all Fortune 1000 and Global 500 companies.

And Washington Technology recently ranked SAIC number five among its Top 100 federal government contractors based on prime contract sales during fiscal 2009. SAIC advanced two positions in the rankings this year.

In closing, we delivered results in line with expectations and saw a nice improvement in bookings in our first quarter. We have a team of highly motivated and dedicated colleagues and leadership team committed to deliver on our objectives. I remain very enthusiastic about our Company and I am fully confident that we will continue to deliver strong performance and value to our shareholders in FY11 and beyond.

Laura Luke

Shamika, we are now ready to take questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Your first question comes from the line of Bill Loomis of Stifel Nicolaus. Please proceed.

Bill Loomis – Stifel Nicolaus

Hi, thank you. And, Walt, you’ve mentioned OCI and I just want to try and understand, it sounds like you are talking about a little differently than you have in the past. How big of an issue could it be for SAIC either as a percent of revenue or as relating to clients and so forth and over what timeframe do you expect it to be resolved and in whichever way you chose?

Walt Havenstein

Well, Bill, I think it’s pretty difficult to give you a percentage at this point because I think as I’ve said before my expectation is that these rules and more importantly the policy that generates these rules will have different interpretations throughout the government and specifically different agencies within the Department of Defense. And I suggest that that’s about an 18 to 24 month process before all of those are well understood. Having said that, there have been several agencies who have already stated their position and we’ve adjusted what I refer to as navigated successfully as they make those declarations. And if you remember, we saw a declaration like that back in the fall with respect to one of our three-letter customers and we had to make a choice as to which side of the fence we were going to sit in or stand on.

In that case we decided to stand on the implementation side as opposed to the government field [ph] side. And so – we – I suspect you’ll see some of that from some of the agencies being that precise and then from some of the agencies I think they will – because I think most allow them to be fairly flexible. They will take a different view. And so right now as we look at it, just like we did last fall, we see opportunities where we think we can navigate. It may be though, it may be though that one or two of our customers or maybe several of our customers take a position that will force us to take explicit action around that position. And so – but right now I think the – our posture is to be able to act agilely deal with each one of those customers as they state their position.

Bill Loomis – Stifel Nicolaus

Okay. And based on the awards in the quarter obviously this didn’t impact, OCI didn’t impact your business, you won a lot of business this quarter. Did you have clients in the quarter that pushed back on awards or you had to pull back an RFP or anything, a bid rather or anything like that, have you seen so far this year?

Walt Havenstein

Not explicitly in this quarter, but I – but I think you got to keep something in mind. We deal with OCI every single day and we are making bid notice, bid decisions throughout the year based upon our interpretation and our communication with our customer around the OCI. So they are probably and I am just going to estimate based on my experience here at SAIC, there probably been a couple of hundred of opportunities where we have decided not to bid because of potential OCI implications. And I think that is frankly one of the strengths of this Company in that the contracts community and the business develop community stay closely linked so that when we see potential OCIs that we adjudicate them, resolve them within the Company and make the appropriate decision (inaudible) those opportunities. So, we are making those decisions every single day.

Bill Loomis – Stifel Nicolaus

Okay. Thank you.

Operator

Your next question comes from the line of Edward Caso of Wells Fargo. Please proceed.

Edward Caso – Wells Fargo

Hi, thank you. My question is around share repurchase. Obviously, you’ve been very active in the past quarter and in recent quarters, and now with the cash level getting down towards that prior comfort level of about $500 million I am curious how active you plan to be because – both in share repurchase and also in acquisitions?

Mark Sopp

Hi, Ed, it’s Mark Sopp. We will continue to evaluate the opportunities that present themselves with deploying our capital. We’ve been consistent with that message and while we don’t have a lot of excess cash exiting this quarter, we expect to generate free cash flows in amounts that you well understand, which present the opportunity for future repurchases if conditions warrant. And that will be based on the same criteria that we have used heretofore, which involves our view of capital needed for M&A and our view of our intrinsic value, and where our stock is trading. So we like to have flexibility as we look at those attributes going into each quarter, and we place bets accordingly based on those opportunities, so really no major change in philosophy at this time.

Edward Caso – Wells Fargo

My other questions for Walt, you talked when you came on about a 100-day strategic review and that you would come out with some sort of direction for us. Obviously, you’ve told us about the five growth markets. Anything else or is it just – has the 120 days become a sort of a rolling review?

Walt Havenstein

Well, the emphasis on those five key areas is in essence the strategic roadmap for the Company. That’s not to say we aren’t constantly looking at opportunities within those areas and any inflections that we see in the marketplace that will cause us to move. But I think it is – the real value creation aspect of our strategy is to drive horizontal integration of capabilities to address bigger opportunities and larger market share. And it is as simple as that. But the characteristic of SAIC of having many, many, many discriminating capabilities and the ability as we are driving to integrate those capabilities to offer solutions that are distinctive, I think is really at the heart of our strategy. The – historically, we have grown small pieces at the time, and it is only been over the last few years that we have really taken on very, very large opportunities and been successful where we’ve been able to leverage capabilities, various capabilities across the Company. That – it has got to become not the exception, but the rule, and that is a fundamental element of our strategy when you look at those five specific growth areas.

Edward Caso – Wells Fargo

Thank you.

Operator

Your next question comes from the line of Jason Kupferberg of UBS. Please proceed.

Jason Kupferberg – UBS

Thanks, good afternoon, guys. Wanted to start with a question on the win rate on the non-renewal side. I think you said it was 68% this past quarter. I mean sometimes we get into the debate of what’s sort of the optimal win rate. I mean is this a number that in your mind is perhaps too high, do you need to be bidding more work? I mean it sounds like you’ve got a lot in the pipeline. You threw out some pretty big numbers, but I guess, Walt, from your perspective, do you want to see that number be lower because that will mean that you are chasing more opportunities and bigger opportunities or are you pretty comfortable with that number is?

Walt Havenstein

I would love for that number to stay right where it is while we continue to bid more.

Jason Kupferberg – UBS

Okay.

Walt Havenstein

While we continue to bid larger efforts. Because we are taking more challenging positions and more challenging and dealing with more challenging opportunities, for it to stay at that level will be extremely gratifying.

Jason Kupferberg – UBS

Okay. And can you talk a bit about the pricing environment in your end markets? Because I know you’ve been talking for the last few quarters about some of these longer term budget pressures that you guys see and what I am trying to just get a sense of is how much of this is sort of spending volume versus actual pricing pressure that you might be seeing whether it be on new contracts that you are bidding on or renewals. To what extent is there incremental pricing pressure just given some of the tightness in the procurement environment? And is that just sort of part of the new reality, if you will, and is that factored into your thinking on margin expansion for longer term?

Walt Havenstein

It is in fact part of the new reality. It will be – that new reality will continue to evolve. I expect there to continue to be pressure on margins. We have seen in instances especially in some of our recompetes where there are some pretty challenging margins that we are having to deal with. So, that does add to the pressure for overall margin expansion but we have taken that into consideration as we put our plans to together. So, the answer is, yes, it’s a new reality. I don’t think for a second, we probably won't see a more new reality again next year. But, you know, we are dealing with it as we see necessary. And for the most part, we are maintaining our fee positions.

Jason Kupferberg – UBS

Okay. And last one from me just on the security product side. I think last quarter you guys had pointed to a 10% plus revenue growth target for that business in fiscal ’11. Is that still on plan and anything new on the legislative front that could help catalyze additional demand for those products?

Walt Havenstein

I will let Mark talk about the growth as we see it in there, but on the – I don’t see anything specific on the legislative front that would cause that markets to change.

Mark Sopp

And on the growth rate, Jason, we certainly have the opportunity to post double digits as we’ve done, but we may fall short of that looks to me we’ve got some outstanding opportunities where we are trying to get. I am comfortable it will be above five, but we also are seeing continued improved margins in that area, which we are really delighted to see from strong leadership there. And we have our revenues grow up equally weighted across the year. This year in this space there has been some volatility there on previous years. So we expect to be fairly even this year in case you are interested in that as well.

Jason Kupferberg – UBS

Okay. Thanks for the color, guys.

Operator

Your next question comes from the line of Joseph Vafi of Jefferies & Company. Please proceed.

Joseph Vafi – Jefferies & Company

Hi, gentleman, good afternoon. I was wondering if we could revisit bookings a little bit in the quarter. I mean a good book to bill here. How should we read that relative to overall end market demand? How many maybe large contracts maybe helped the bookings number out more than may be you think overall end market demand really is at this point?

And then secondly, would you still expect to see a little bit more of a normal seasonal trend here as we move in towards the end of the government’s fiscal year-end and higher book to bill?

Walt Havenstein

That’s an excellent question. I think we still see a fairly significant number of large contract opportunities and our growth and our pipeline is reflective of that. So, my sense is the demand is still there. Now, let me give you at least my thoughts on this government fiscal year. It is clear that at least the rhetoric is clear that you know the Department of Defense is going to be looking for ways to cut their overhead, alright. And so they are going to be looking at things probably in the last quarter of their government – of the government fiscal year to constrain – or possibly constrain some spending. So, where historically we might have seen a lot of sweet box in spending, it probably won't look that way. Having said that, we still have a significant amount of spending especially with the – and use my term, the DoD supplemental coming in, in July, that will still put a fairly significant demand on the contract side. So, I think on balance, it will – it may not be as – it may not be as robust as we’ve historically seen in the summer months. But I – but it will still be – I think it will still be pretty good from the demand side.

Joseph Vafi – Jefferies & Company

Okay. And then just you know was there anything that was dramatically large here this quarter that you just reported that we should kind of take into account when we kind of assess book to bill this quarter relative to the end markets here–?

Walt Havenstein

Yes, great question. Let me just, let me just give you a color there, right. We had – if you looked at our top three contract awards for the quarter, they total about $1 billion. Now, having said – so you put that in the context of the $3.2 billion. Even without those significant wins, we had a fairly strong bookings quarter even compared to Q4 of last year. Oh, by the way, we see more and more opportunities of $100 million plus and have bid more opportunities, significantly more opportunities the $100 million plus kind than we have in the past year. So, frankly, if we can keep our win rate up, we should continue to see some fairly healthy bookings driven a good bit by those larger programs.

Joseph Vafi – Jefferies & Company

Okay, that’s helpful. And then maybe just one final question. I know you did deploy a fair amount of capital in buyback this quarter. I guess just in the last couple of days we are seeing news out of the Defense Times on potential divestiture due to OCI, given probably your market intelligence knowing that may be some of this was coming down the pike in terms of potential divestitures. How did that play into you capital allocation decisions and the buybacks this quarter relative to may be potential M&A opportunities that might result from OCI here over the next few months?

Walt Havenstein

Mark, you want to comment?

Mark Sopp

Sure. Sure. As you would expect us to do, Joe, we will be studying those opportunities very diligently and if we develop a view that something has to be done there, we’ll need the capital to get something done. So, that will inform us based on our investigation of those opportunities as we always do each quarter. And we may change our tactical approach to repurchases for that reason. But that’s not different than any other quarter as we evaluate the M&A opportunities right in front of us.

Walt Havenstein

Right. And I would just add a comment for what Mark had said earlier. And that is we still have a very, very healthy balance sheet. We still have a lot of capacity if we decide to make a significant acquisition as a result of the opportunities that come form IR from any other condition in the marketplace. And that healthy capacity that (inaudible) capacity is keeping with an investment grade rating. So I am – you know I think we have an awful lot of flexibility here and yet at the same time when something is not immediately in front of us doing the right thing with respect to our cash.

Joseph Vafi – Jefferies & Company

Alright. Thank very much guys.

Operator

Your next question comes from the line of Joe Nadol of JPMorgan. Please proceed.

Joe Nadol – JPMorgan

Thanks, good afternoon. It strikes me, reading between the lines here that you guys may have had some pretty big cyber classifies wins in the quarter, may be two of them. Is there anything you can tell us about that and tell us what you can about – strategically how this positions you?

Walt Havenstein

Joe, the answer is no. But I would say this. I am very confident in our strategic position; we’ll just put it that way. I can't – we – as you know there are some appropriate restrictions about what we can and cannot say about certain contracts.

Joe Nadol – JPMorgan

So, no meaning, no, you can't say anything, no, not no, you didn’t win them?

Walt Havenstein

No, I can't say anything.

Joe Nadol – JPMorgan

Okay, understood. Okay, that was my question. Thanks.

Walt Havenstein

Thanks, Joe.

Operator

Your have a question from the line of Tim Quillin of Stephens Inc. Please proceed.

Tim Quillin – Stephens Inc.

Good afternoon. I just want to clarify your thought process on the OCI issue. Are you going to take the position that you want to be across the company either on the Cedar [ph] side or the mission support side or are you saying that that’s going to be more of a customer-by-customer decision?

Walt Havenstein

I think for SAIC today that is a decision we’ll make customer-by-customer, and when I say customer-by-customer I really mean major customer by major customer, because it tends to be – the behavior tends to be based on a acquisition command or a service position as opposed to an individual contract although we are seeing individual contracts reflect varying degrees of OCI mitigation or avoidance.

Tim Quillin – Stephens Inc.

And you really – you don’t have a sense right now what portion of your business might be potentially have to be divested?

Walt Havenstein

Well, we have – let me answer it this way – we have a fairly good sense of where we sit on either side of that at the enterprise level, but I think it’s – I think it’s probably inappropriate for me to comment on what that looks like because until we look at – till you understand the what I will call the C state, you may not know what makes the best value sense for the enterprise in terms of whether you navigate or you simply steam out of those troubled waters. And so I am not going to even suggest to you what we might be considering in terms of portfolio shaping.

Tim Quillin – Stephens Inc.

Okay, fair enough. And then just lastly on CloudShield, which I think may be is the best example of bringing horizontal expertise that you are going to leverage across the company. First, can you say where their revenue levels are right now and then talk may be more specifically about strategies and leverage that you might get out of that? And I think you mentioned 30 pursuits, I didn’t know if that was just cybersecurity in general or CloudShield specifically, but may be if you could expand. Thanks.

Walt Havenstein

Well, the 30 pursuits is CloudShield specific leveraged opportunities. Mark, do you have thoughts on the current numbers?

Mark Sopp

I’ll just say, Tim, that the revenue expectation is less than $100 million for this enterprise. So we are getting started with it, if you will, but we are focused on great opportunities ahead.

Walt Havenstein

And I got to tell you this has had a tremendous amount of pull across the enterprise through our customer-facing organization. It – by the way, it is probably the most demonstrable horizontal capability, but it is by far not the only horizontal capability that’s driving the market.

Tim Quillin – Stephens Inc.

Thank you.

Walt Havenstein

You bet.

Operator

Your next question comes from the line of Michael Lewis of BB&T Capital Markets. Please proceed.

Jeremy Devaney – BB&T Capital Markets

Good evening, gentleman. This is Jeremy Devaney on for Michael Lewis. Just had a couple of quick ones here for you and then a little bit deeper question. First, headcount for the quarter, where did we wind up with that?

Walt Havenstein

Jeremy, we were down due to the Scottish Power transition and also some work we lost at NASA with prospective breakdown of that contract into pieces. And so we were down – net headcount down about 900 from variety of sources, but those are the two biggest drivers.

Jeremy Devaney – BB&T Capital Markets

Alright, excellent. Also, one accounting line, fixed price cost plus you know mix, do you happen to have that today here?

Walt Havenstein

it was a very minor shift of 1% here and there. So, we had cost plus go down 1% and T&M [ph] actually rose by 1%, which was a little different than what you’ve heard elsewhere in the community. We consider fixed price level of effort the same as T&M and so that was the driver of that T&M category going up just a notch for us, but not a major shift in the overall mix.

Jeremy Devaney – BB&T Capital Markets

You are talking sequentially or year over year?

Walt Havenstein

I am talking sequentially.

Jeremy Devaney – BB&T Capital Markets

Okay, great, thank you. And then lastly, looking at cash levels, there is a lot of discussion around cash usage. I was curious, are you looking to end the year near a particular number? Last year we saw a peak of near $1 billion. Where are you anticipating the year ending?

Walt Havenstein

Jeremy, we don’t have a specific target. We do have a desire to use our excess cash, but the M&A will determine that very significantly, and as you know you can't predict what’s going to happen with M&A all the time. So, the short answer is we are not going to box ourselves into a specific number, but we certainly – when we don’t have immediate opportunities on the M&A front, we do intend to deploy excess cash for obvious reasons.

Jeremy Devaney – BB&T Capital Markets

Great. That’s very helpful. Thank you very much.

Operator

Your next question comes from the line of Erik Olbeter of Pacific Crest Securities. Please proceed.

Erik Olbeter – Pacific Crest Securities

Hi, good afternoon, guys. Just another quick question on bookings, you know, really good numbers year-over-year and sequential, just sort of looking through towards the rest of the year, are you seeing any acceleration in booking across the entire – you know, your customer mix, or is there one particular agency or a customer where you are really seeing a lot of acceleration?

Walt Havenstein

No, I wouldn’t say we see acceleration. I think it’s getting to be a little more steady-state. And so where we saw some things that didn’t happen last year, that are finally now starting to get decided, but my sense is that it’s across the enterprise, across our customer community, pretty consistent. And so, and I think you can tell that by virtue of how we have continued to grow the submits. Even with a good book to bill we continued to grow submits, so what’s that saying is there is a certain – we are starting to see that new reality manifest itself in just that longer procurement cycle, but I think it’s starting to settle down. We’re – three months ago or six months ago, we were kind of uncertain as to that overall – that overall length of time. but I don’t see any particular part at this point being different frankly.

Erik Olbeter – Pacific Crest Securities

And so there is not any one particular agency that is slowing down your realization of bookings that you see for the rest of the year?

Walt Havenstein

I don’t think so. The reality is I think we see some of – we just see a longer trend and in any given procurement you got to keep in mind, any given procurement can have its own anomalies and all we got to do is look at the tanker (inaudible) how do you put that into your forecast, right.

Erik Olbeter – Pacific Crest Securities

Okay. Thank you.

Operator

There are no further questions in the queue. I would like to turn the call back over to management for closing remarks.

Laura Luke

Thank you, Shamika. On behalf of the SAIC team we want to thank everybody on the call for their participation and their interest in the Company.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect.

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