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SAIC Announces Second 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 second quarter ended August 4, 2017. "Results for SAIC's second quarter of fiscal year 2018 reflect near term margin challenges but positive forward indicators are encouraging as the company executes its long term strategy in alignment with market demands," said SAIC CEO Tony Moraco. "With revenue stability in the quarter and exceptional business development performance resulting in the largest bookings quarter in our history, I am confident about the future while taking actions to address near term profitability headwinds."
Revenues for the quarter decreased $17 million, or 2%, compared to the prior year quarter primarily due to completion of contracts ($37 million), including the loss of an IT integration contract supporting the Department of Homeland Security (DHS) ($13 million), and other net contract declines across our portfolio ($21 million). These decreases were partially offset by higher revenue on new information technology contracts supporting the U.S. Army and federal civilian agencies ($30 million) and higher revenue on platform integration programs ($11 million). The Company's internal revenue contraction(1) for the second quarter was 1.4%. Operating income as a percentage of revenues decreased to 5.5% of revenues, compared to 6.4% for the prior year quarter, primarily due to lower contract profitability largely driven by prior year write-ups on programs supporting federal civilian agencies, lower profitability on re-competed supply chain management contracts and higher severance and facility expense. Net income for the quarter decreased $1 million from the comparable prior year period primarily due to lower operating income partially offset by lower income tax expense as a result of the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting ($4 million). Based on the required adoption of the new standard we recognized the excess tax benefits 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. Net income was also positively impacted by lower interest expense as a result of the refinancing of our debt in the third quarter of the prior fiscal year. EBITDA(1) as a percentage of revenues for the quarter was 6.5%, compared to 7.5% for the prior year quarter, which was impacted by lower contract profitability largely driven by prior year write-ups on programs supporting federal civilian agencies, lower profitability on supply chain management contracts and higher severance and facility expense. These drivers were partially offset by the absence of acquisition and integration costs in the current period. Diluted earnings per share was $0.80 for the quarter. Diluted earnings per share was impacted by the accounting change related to ASU 2016-09 by $0.09. The weighted-average diluted shares outstanding during the quarter was 44.7 million shares. Cash Generation and Capital Deployment Total cash flows used by operating activities for the second quarter were $35 million. The $58 million decrease in cash provided by operating activities compared to the prior year period was primarily due to a government customer payment system issue ($45 million). Subsequent to the end of the quarter the payment system issue was resolved and the cash collected. Also contributing to the decrease in cash provided by operating activities were strong customer collections in the prior year period ($34 million), which were partially offset by lower payments for income taxes ($11 million), prior year working capital investments in U.S. Marine Corps platform integration and IT services programs ($11 million) and excess tax benefits for stock based compensation in the current year quarter ($4 million). During the quarter SAIC deployed $51 million of capital, consisting of $37 million in plan share repurchases (510 thousand shares) under SAIC's previously announced share repurchase program, and $14 million in cash dividends. New Business Awards Net bookings for the quarter were approximately $2.1 billion, which reflects a book-to-bill ratio of approximately 2.0. Bookings were substantially comprised of re-compete awards during the quarter. SAIC's estimated backlog of signed business orders at the end of the quarter was approximately $9.2 billion of which $1.8 billion was funded. SAIC was awarded the following contracts during the quarter: Notable Protect Awards (maintaining our existing contract base): U.S. Central Command: The General Services Administration (GSA) Federal Systems Integration and Management Center (FEDSIM) awarded SAIC a U.S. Central Command (USCENTCOM) Command, Control, Communications, and Computers Enterprise Support (C4ES) task order to continue to provide information technology (IT) support services to the J6 Directorate. The single-award contract has a one-year base period of performance, four one-year options, and two one-year performance-based term periods. The total contract value is approximately $621 million, if all options are exercised. U.S. Army Software Engineering Directorate: The GSA, on behalf of the Army Software Engineering Directorate (SED), awarded SAIC the Virtual, Interactive, and Multimedia, System Engineering Services (VSES) task order to continue to provide systems engineering and computer resource engineering support to the SED, the Aviation and Missile Research, Development, and Engineering Center (AMRDEC) and the Army Research, Development and Engineering Command (USA RDECOM). The task order has a one-year period of performance, four one-year options, and a total contract value of more than $404 million, if all options are exercised. Notable Expand Awards (selling new services to existing customers): NASA GSFC Omnibus Multidisciplinary Engineering Services: The National Aeronautics and Space Administration (NASA) awarded SAIC a new single-award, indefinite-delivery, indefinite-quantity (IDIQ) 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. U.S. Navy - Space and Naval Warfare Systems Command (SPAWAR): SAIC was awarded a new IDIQ prime contract for Automated Digital Network System (ADNS) - Increment III production units and related supplies by SPAWAR to provide technical support services for the Tactical Wide Area Network (WAN) component of the naval communications system, providing surface ship, submarine, airborne, tactical-shore and shore-based WAN gateway services management. The multiple-award contract has an eight-year period of performance and a total potential contract value of more than $492 million for all awardees. SAIC is one of four awardees. NASA Joint Operations: NASA awarded SAIC two contracts for development, sustainment, and maintenance of IT software, systems, and support for the Flight Operations Directorate at NASA's Johnson Space Center in Houston, Texas. One contract is a single-award contract with a two-year base period of performance, a two-year option, and a one-year option to extend with a total value, if all options are exercised, of $25 million. The second contract is a new, multiple-award IDIQ contract with a two-year base period of performance and an ordering period through September of 2022 with a total contract value of $135 million for all five awardees. National Institute of Mental Health (NIMH): The NIMH awarded SAIC a task order to provide support to the full range of IT services necessary for the centralized planning, implementation, and management of the NIMH technology environment. The NIMH Software Development and IT Services single-award task order has a one-year base period of performance, four one-year options, and a total award value of approximately $48 million, if all options are exercised. Webcast Information SAIC management will discuss operations and financial results in an earnings conference call beginning at 5 p.m. Eastern time on September 7, 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 Reston, 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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