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SAIC Announces First Quarter of Fiscal Year 2018 ResultsScience Applications International Corporation (NYSE: SAIC), a leading technology integrator providing full life-cycle services and solutions in the technical, engineering, intelligence, and enterprise information technology markets, today announced results for the first quarter ended May 5, 2017. "In the first quarter of fiscal year 2018, SAIC's business development and cash flow performance was strong. The first quarter margins were below expectations due to increased costs and investment on our platform integration programs as we work towards completing Marine Corps prototype vehicles." said SAIC CEO Tony Moraco. "We continue to focus on operational improvements and disciplined capital deployment that provide the company with a strong foundation to execute against improving market dynamics."
Revenues for the quarter decreased $112 million, or 9%, compared to the prior year quarter primarily due to one additional week in the prior year quarter ($88 million), contracts losses ($25 million) and other net declines across the portfolio primarily due to customer budget constraints. These decreases were partially offset by higher revenue on platform integration programs supporting the U.S. Marine Corps and a new information technology contract supporting the U.S. Army ($29 million). The Company's internal revenue contraction(1) for the first quarter was 1.8%. As is shown in Schedule 5, to calculate internal revenue growth or contraction, first quarter fiscal 2017 revenues were adjusted to exclude the estimated impact of the additional week in order to provide a more equitable comparison to the current year. Operating income as a percentage of revenues increased to 5.7% of revenues, compared to 5.4% for the prior year quarter due to the absence of acquisition and integration costs in the current year ($7 million), a reduction in estimated lease exit costs as we rationalize our facilities in the National Capital Region ($7 million) and lower amortization of intangible assets ($2 million), partially offset by higher net unfavorable changes in estimates on contracts accounted for under the percentage-of-completion method ($11 million). Net unfavorable changes in estimates were largely driven by increased costs to meet testing and mission requirements necessary to complete the Engineering, Manufacturing and Development (EMD) phase of the platform integration programs supporting the U.S. Marine Corps ($9 million). Net income for the quarter increased $16 million from the comparable prior year period primarily due to lower income tax expense ($16 million), as a result of the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. Based on the required adoption of the new standard we recognize the excess tax benefits ($16 million) related to employee share-based payments as a reduction to income tax expense rather than as previously recorded to additional paid in capital in equity. EBITDA(1) as a percentage of revenues for the quarter was 6.6%, compared to 6.7% for the prior year quarter, which was impacted by higher net unfavorable changes in estimates on contracts accounted for under the percentage-of-completion method, offset by a reduction in estimated lease exit costs and the absence of acquisition and integration costs in the current year. Diluted earnings per share was $1.08 for the quarter. Diluted earnings per share was impacted by the accounting change related to ASU 2016-09 by $0.35. The weighted-average diluted shares outstanding during the quarter was 45.5 million shares. Cash Generation and Capital Deployment Total cash flows provided by operating activities for the first quarter were $88 million, which represented an increase from the comparable prior year quarter. The increase in operating cash flows over the prior year period was primarily due to payments for an extra week of payroll in the prior year quarter, excess tax benefits for stock based compensation in the current year quarter ($16 million) and prior year working capital investments in Marine Corps platform integration and IT services programs ($5 million). During the quarter SAIC deployed $61 million of capital, consisting of $38 million in plan share repurchases (474 thousand shares) under SAIC's previously announced share repurchase program, $14 million in cash dividends, and $9 million for a voluntary debt prepayment. Quarterly Dividend Declared Subsequent to quarter-end, the Company's Board of Directors declared a cash dividend of $0.31 per share of the Company's common stock payable on July 28, 2017 to stockholders of record on July 14, 2017. SAIC intends to continue paying dividends on a quarterly basis, although the declaration of any future dividends will be determined by the Board of Directors each quarter and will depend on earnings, financial condition, capital requirements and other factors. New Business Awards Net bookings for the quarter were approximately $1.3 billion, which reflects a book-to-bill ratio of approximately 1.2. SAIC's estimated backlog of signed business orders at the end of the quarter was approximately $8.2 billion of which $1.8 billion was funded. SAIC was awarded the following notable contracts during the quarter: U.S. Environmental Protection Agency: The General Services Administration (GSA) Federal Systems Integration and Management Center (FEDSIM) awarded SAIC a new task order on behalf of the Environmental Protection Agency (EPA) to deliver, manage, and evolve end-user information technology (IT) services, communication and collaboration tools, and end-user devices and applications for the entire EPA enterprise. The single-award contract has a one-year base period of performance, four one-year options, and a total award value of approximately $320 million if all options are exercised. U.S. Intelligence Community: SAIC was awarded contracts and task orders valued at approximately $222 million, if all options are exercised, by U.S. national security and intelligence community customers. Although these customers and the specific nature of these contracts are classified, they all encompass strategic, end-to-end services that help bolster national security. U.S. Navy - Space and Naval Warfare Systems Center Atlantic: The Space and Naval Warfare Systems Center (SSC) Atlantic awarded SAIC a task order to continue to perform command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) engineering upgrades and integration for tactical vehicles. The task order has a one-year base period of performance, a six-month option, and a total award value of approximately $61 million if the option is exercised. SAIC was awarded the following notable contract subsequent to the end of the quarter: NASA GSFC Omnibus Multidisciplinary Engineering Services: The National Aeronautics and Space Administration (NASA) awarded SAIC a new single-award, indefinite-delivery, indefinite-quantity contract to provide multidiscipline engineering support services to the Goddard Space Flight Center in Greenbelt, Maryland. The NASA Omnibus Multidiscipline Engineering Services (OMES) II contract covers engineering support to Goddard's Applied Engineering and Technology Directorate (AETD). SAIC will provide engineering services for the study, design, systems engineering, development, fabrication, integration, testing, verification, and operation of spaceflight, airborne, and ground system hardware and software, including development and validation of new technologies to enable future space and science missions. The contract has a five-year base period of performance and an award ceiling of $620 million. Webcast Information SAIC management will discuss operations and financial results in an earnings conference call beginning at 5 p.m. Eastern time on June 12, 2017. The conference call will be webcast simultaneously to the public through a link on the Investor Relations section of the SAIC website (http://investors.saic.com). We will be providing webcast access only - "dial-in" access is no longer available. Additionally, a supplemental presentation will be available to the public through links to the Investor Relations section of the SAIC website. After the call concludes, an on-demand audio replay of the webcast can be accessed on the Investor Relations website. About SAIC SAIC is a premier technology integrator providing full life cycle services and solutions in the technical, engineering, intelligence, and enterprise information technology markets. SAIC is Redefining Ingenuity through its deep customer and domain knowledge to enable the delivery of systems engineering and integration offerings for large, complex projects. SAIC's more than 15,000 employees are driven by integrity and mission focus to serve customers in the U.S. federal government. Headquartered in McLean, Virginia, SAIC has annual revenues of approximately $4.5 billion. For more information, visit saic.com. For ongoing news, please visit our newsroom. Forward-Looking Statements Certain statements in this release contain or are based on "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by words such as "expects," "intends," "plans," "anticipates," "believes," "estimates," "guidance," and similar words or phrases. Forward-looking statements in this release may include, among others, estimates of future revenues, operating income, earnings, earnings per share, charges, total contract value, backlog, outstanding shares and cash flows, as well as statements about future dividends, share repurchases and other capital deployment plans. Such statements are not guarantees of future performance and involve risk, uncertainties and assumptions, and actual results may differ materially from the guidance and other forward-looking statements made in this release as a result of various factors. Risks, uncertainties and assumptions that could cause or contribute to these material differences include those discussed in the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Legal Proceedings" sections of our Annual Report on Form 10-K, as updated in any subsequent Quarterly Reports on Form 10-Q and other filings with the SEC, which may be viewed or obtained through the Investor Relations section of our website at www.saic.com or on the SEC's website at www.sec.gov. Due to such risks, uncertainties and assumptions you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. SAIC expressly disclaims any duty to update any forward-looking statement provided in this release to reflect subsequent events, actual results or changes in SAIC's expectations. SAIC also disclaims any duty to comment upon or correct information that may be contained in reports published by investment analysts or others. (1) Non-GAAP measure, see Schedule 5 for information about this measure.
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