Core Insights - Science Applications International Corp. (SAIC) shares have declined 18% over the past three months, underperforming the Zacks Computers - IT Services industry, Zacks Computer and Technology sector, and the S&P index, which grew by 7.4%, 9.8%, and 6.6% respectively [1][2] Financial Performance - SAIC's fiscal 2025 revenue outlook is projected to be between $7.425 billion and $7.475 billion, raising investor concerns due to a slight expected decline of 0.13% year over year based on Zacks consensus estimates [2][11] - The company is currently facing revenue gaps due to contract transitions and improved bid selections [2] Recent Developments - SAIC secured a $170.9 million contract from the Texas Department of Information Resources to provide cybersecurity services, indicating a growing presence in state and local government sectors [3] - The company has been focusing on increasing its market presence in the federal government sector, with approximately 98% of its revenues coming from U.S. government contracts in recent years [6] Market Position - Major clients include various U.S. government agencies such as Homeland Security, NASA, and military branches, which helps stabilize revenue and minimize fluctuations [6][7] - The increased federal government budget is expected to accelerate contract awards, benefiting SAIC's top-line growth [7] Competitive Landscape - SAIC operates in a competitive market with players like CACI International, KBR Inc., and Leidos Holdings, which creates pricing pressure and low-margin government deals affecting profitability [8][9] - Rising component costs, labor, and logistics expenses, along with recession concerns, may lead to softened spending by government agencies, impacting near-term prospects [10]

Core Insights - Science Applications International Corp. (SAIC) has been awarded a contract valued at $170.9 million by the State of Texas' Department of Information Resources to provide cybersecurity services [1][3]. Group 1: Contract Details - The contract aims to enhance cybersecurity for state agency networks, focusing on security operations services, risk management, and compliance with regulations [3][4]. - This contract signifies an expansion of SAIC's cybersecurity efforts in Texas, building on its existing partnerships with various state and local governments [2][3]. Group 2: Company Overview - SAIC is a Fortune 500 technology integrator with a focus on defense, space, civilian, and intelligence markets, generating annual revenues of approximately $7.4 billion [5][6]. - The company employs around 24,000 individuals and emphasizes a culture of diversity, equity, and inclusion [6].

Core Viewpoint - Science Applications International Corp. (SAIC) has underperformed in the year-to-date period, with a share price decline of 7.8%, contrasting with the growth of the Zacks Computers - IT Services industry, Zacks Computer and Technology sector, and the S&P index, which grew by 16.7%, 34.2%, and 27.8% respectively [1][2]. Group 1: Performance and Challenges - The decline in SAIC's stock performance is attributed to temporary challenges related to contract transitions and improved bid selections, leading to revenue gaps [2]. - The company's cautious outlook for fiscal 2025 revenues, projected between $7.425 billion and $7.475 billion, raises concerns among investors [2]. - Despite these challenges, SAIC is recovering and securing new contracts [2]. Group 2: Recent Contracts and Government Focus - SAIC has recently secured a prime position on the $1.8 billion Personnel and Readiness Infrastructure Support Management (PRISM) contract to support the U.S. Department of Defense (DoD) [3]. - The contract involves assisting the Office of the Under Secretary of Defense for Personnel & Readiness with services such as technology integration, data analytics, and mission support [3][4]. - The focus on federal government contracts is significant, with approximately 98% of SAIC's revenues in 2021, 2022, and 2023 derived from U.S. government contracts [7]. Group 3: Market Dynamics and Competitive Landscape - The company operates in a highly competitive market for defense, space, intelligence, and mission-critical services, facing competition from firms like CACI International, KBR Inc., and Leidos Holdings [9][10]. - Pricing pressures in government contracts lead to low-margin deals, impacting SAIC's profitability [10]. - Rising component costs, labor, and logistics expenses, along with recession concerns, pose additional challenges to the company's near-term prospects [11]. Group 4: Future Outlook - The increased federal government budget is expected to accelerate contract awards, which could positively impact SAIC's top-line growth [8]. - The company is on a recovery path, obtaining multiple government contracts, suggesting a potential for improved performance moving forward [12].

Core Insights - Science Applications International Corp. (SAIC) has secured a prime position on the $1.8 billion Personnel and Readiness Infrastructure Support Management (PRISM) Multiple Award Task Order Contract (MATOC) to support the Department of Defense (DoD) [1] - The PRISM contract aims to provide innovative and cost-effective services, significantly reducing acquisition lead time and increasing flexibility in the acquisition process [2] - SAIC's commitment under the PRISM MATOC includes enhancing operational capabilities, optimizing readiness, and ensuring a resilient defense personnel framework through advanced data integration and analytics [3] Company Overview - SAIC is a Fortune 500 technology integrator with annual revenues of approximately $7.4 billion, focusing on technology and innovation across defense, space, civilian, and intelligence markets [5] - The company employs around 24,000 individuals and emphasizes a culture of diversity, equity, and inclusion [5] - SAIC integrates emerging technology into mission-critical operations to modernize and enable national imperatives [4]

Financial Data and Key Metrics Changes - The company reported third quarter organic revenue growth of 4.3%, with adjusted EBITDA of $197 million and a margin of 10% [8][9] - Adjusted diluted earnings per share increased to $2.61, benefiting from strong profitability and a 16% effective tax rate [8][9] - Free cash flow was $9 million, lower than typical due to an additional payroll cycle and strong collections in the previous quarter [9] Business Line Data and Key Metrics Changes - The backlog of submitted bids increased to nearly $19 billion, up from $17 billion in the previous quarter [11] - Bookings for the quarter were $1.5 billion, resulting in a trailing 12-month book-to-bill ratio of 0.9% [11] - The company expects to submit over $25 billion in bids for the full year, up from the prior target of $22 billion [10] Market Data and Key Metrics Changes - The company anticipates a revenue growth of 3% for the full fiscal year, slightly ahead of previous guidance [9][24] - The company is preparing for potential changes in the market due to the incoming administration's focus on efficiency, which may impact funding in certain markets [12][13] Company Strategy and Development Direction - The company is focused on an enterprise growth strategy to "bid more, bid better, and win more," with an emphasis on mission IT and enterprise IT [10][14] - The strategy includes a shift towards fixed-price contracts, which are expected to provide better margins and align with government efficiency goals [14][55] - The company plans to manage its cost structure and investments to maximize long-term value while ensuring earnings and cash flow durability [15][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the uncertainty created by the incoming administration, emphasizing the importance of technology in driving efficiency [12][13] - The company expects to see improved margins in the civilian segment, projecting a low point of 12% for civilian segment margins [104][106] - Management indicated that the company is well-positioned to capitalize on opportunities arising from the government's focus on efficiency [15][31] Other Important Information - The company has a new $1.2 billion share repurchase authorization approved by the Board, with plans to repurchase approximately $500 million of shares this year [30] - The company is scenario planning for potential changes in the market, maintaining a highly variable cost structure to adapt to different revenue environments [26][28] Q&A Session Summary Question: Impact of AAV contract resolution - The AAV contract resolution had a revenue impact of about $13 million to $14 million, less than 1% of revenue for the quarter [35] Question: Guidance for fiscal year 2025 - The company expects a 3% growth at the midpoint for fiscal year 2025, with recompete headwinds expected to be a little over 2% [36][39] Question: Recompete win rate - The recompete win rate is currently below target, but management is implementing a new centralized business development process to improve it [42][44] Question: Shift to fixed-price contracts - The majority of the company's work is still cost-plus, but there is a track record of transitioning to fixed-price contracts, which are more efficient for the government [49][51] Question: Book-to-bill target of 1.2% - Management believes they can achieve the 1.2% book-to-bill target by the first half of fiscal year 2026, despite potential timing risks from the administration transition [57][61] Question: Margin profile of backlog - The company has raised internal hurdle rates for contracts, expecting higher margins in the backlog compared to current reported margins [114][116]

Financial Performance - Revenues for the three months ended November 1, 2024, were $1,976 million, a 4.3% increase from $1,895 million for the same period last year[8]. - Operating income for the nine months ended November 1, 2024, was $425 million, down 35.8% from $662 million for the same period last year[8]. - Net income for the three months ended November 1, 2024, was $106 million, representing a 14.0% increase compared to $93 million for the same period last year[11]. - Basic earnings per share for the three months ended November 1, 2024, were $2.15, up 20.1% from $1.79 for the same period last year[8]. - Comprehensive income for the three months ended November 1, 2024, was $105 million, compared to $90 million for the same period last year[11]. - Net income for the nine months ended November 1, 2024, was $264 million, compared to $438 million for the same period in 2023, representing a decrease of 39.7%[23]. - For the three months ended November 1, 2024, total revenues reached $1,976 million, an increase from $1,895 million in the same period last year, representing a growth of approximately 4.3%[110]. - For the nine months ended November 1, 2024, total revenue reached $5,641 million, compared to $4,465 million for the same period in the previous year, marking a year-over-year increase of 26.3%[61]. Assets and Liabilities - Total current assets as of November 1, 2024, were $1,160 million, an increase from $1,131 million as of February 2, 2024[15]. - Total liabilities as of November 1, 2024, were $3,663 million, a decrease from $3,529 million as of February 2, 2024[15]. - Cash and cash equivalents decreased to $46 million as of November 1, 2024, down from $94 million as of February 2, 2024[15]. - Accounts payable increased to $714 million as of November 1, 2024, compared to $567 million as of February 2, 2024[15]. - Retained earnings increased to $1,602 million as of November 1, 2024, from $1,432 million as of February 2, 2024[15]. - The company reported a decrease in receivables by $108 million for the nine months ended November 1, 2024, compared to a decrease of $142 million for the same period in 2023[23]. - The company reported a remaining performance obligation (RPO) of approximately $5.7 billion as of November 1, 2024, with an expectation to recognize revenue on about 81% of this amount over the next 12 months[65]. Cash Flow and Investments - Net cash provided by operating activities increased to $379 million for the nine months ended November 1, 2024, compared to $333 million for the same period in 2023, an increase of 13.8%[23]. - The company reported a net increase of $95 million to cash flows from operating activities from sold receivables for the nine months ended November 1, 2024, compared to no net impact in the prior year[103]. - Cash used in investing activities for the nine months ended November 1, 2024 was $15 million, a significant decrease from $324 million in the prior year, primarily due to the $356 million cash proceeds from the sale of the Supply Chain Business in the previous period[202]. - The company executed a $510 million senior secured term loan credit facility (Term Loan B3 Facility) due February 2031, which was fully borrowed to pay off previous loans[86]. - The company borrowed $975 million and repaid $860 million under the Revolving Credit Facility during the nine months ended November 1, 2024[91]. Shareholder Returns - Cash dividends paid were $57 million for the nine months ended November 1, 2024, compared to $60 million for the same period in 2023, reflecting a decrease of 5%[23]. - The company declared a quarterly dividend of $0.37 per share during the three months ended November 1, 2024[53]. - The company has authorized a share repurchase program of up to $1.2 billion, effective December 16, 2024[129]. - The company repurchased approximately 23.4 million shares under its repurchase plan, with a total authorized repurchase of approximately 24.4 million shares[52]. Business Segments - The Defense and Intelligence segment provides a diverse portfolio of national security solutions to U.S. government agencies, while the Civilian segment focuses on solutions for federal, state, and local governments[27]. - The Defense and Intelligence segment generated revenues of $1,515 million, while the Civilian segment contributed $461 million for the same quarter, indicating a strong performance in both areas[110]. - The operating income for the Defense and Intelligence segment was $344 million for the nine months ended November 1, 2024, compared to $336 million in the same period last year, showing a modest increase[115]. - The Civilian segment's operating income was $105 million for the nine months ended November 1, 2024, compared to $139 million in the same period last year, reflecting a decrease of approximately 24.5%[115]. Operational Changes - The company completed a business reorganization effective February 3, 2024, transitioning from two customer-facing operating sectors to five business groups, enhancing operational efficiency[104]. - The company completed a business reorganization effective February 3, 2024, creating five customer-facing business groups[134]. Tax and Compliance - The effective income tax rate for the three months ended November 1, 2024, was 15.6%, a decrease from 18.0% for the same period in 2023, primarily due to the non-recurrence of a gain from the disposition of the Supply Chain Business[80][83]. - The company is currently subject to ongoing investigations by the U.S. Department of Justice, which may impact future financial results[121]. Future Outlook - The company expects to recognize revenue from a substantial portion of its funded backlog within the next twelve months[189]. - The fiscal year 2025 budget includes a 1% growth for defense budgets and an overall 1% growth for non-defense budgets[140]. - The company anticipates future cash needs for working capital, capital expenditures, and contractual commitments, evaluating cash provided by operating activities and free cash flow[197].

Core Viewpoint - SAIC reported quarterly earnings of $2.61 per share, exceeding the Zacks Consensus Estimate of $2.17 per share, and showing an increase from $2.27 per share a year ago, representing an earnings surprise of 20.28% [1][2] Financial Performance - The company achieved revenues of $1.98 billion for the quarter ended October 2024, surpassing the Zacks Consensus Estimate by 2.32% and up from $1.9 billion year-over-year [2] - Over the last four quarters, SAIC has exceeded consensus EPS estimates two times and topped consensus revenue estimates four times [2] Future Outlook - The sustainability of the stock's price movement will depend on management's commentary during the earnings call [3] - Current consensus EPS estimate for the upcoming quarter is $2.07 on revenues of $1.8 billion, and for the current fiscal year, it is $8.21 on revenues of $7.4 billion [8] Industry Context - The Computers - IT Services industry, to which SAIC belongs, is currently ranked in the top 20% of over 250 Zacks industries, indicating a favorable outlook [9] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [6]

Core Insights - Science Applications International Corporation (SAIC) reported revenues of $1.98 billion for the third quarter, reflecting a 4.3% growth compared to the previous year [1][3] - The company achieved a net income of $106 million and an adjusted EBITDA of $197 million, which is 10.0% of revenues [1][5] - SAIC's diluted earnings per share increased to $2.13, up 21% from $1.76 in the prior year [1][6] - The company has increased its Fiscal Year 2025 guidance for revenue and adjusted diluted EPS, now expecting revenue between $7.425 billion and $7.475 billion [1][18] Financial Performance - Revenues increased by $81 million or 4% year-over-year, driven by higher volumes on existing and new contracts [3][31] - Operating income rose to $160 million, a 12% increase from the previous year, with an operating margin of 8.1% [2][30] - Adjusted operating income was $195 million, representing a 10% increase, with an adjusted operating margin of 9.9% [2][30] - Net cash provided by operating activities was $143 million, a 42% increase compared to the prior year [9][29] Cash Generation and Capital Deployment - SAIC deployed $142 million in capital during the quarter, including $115 million for share repurchases and $18 million in cash dividends [10][11] - The Board of Directors authorized a $1.2 billion share repurchase program, representing 20% of the company's market value [1][11] - A cash dividend of $0.37 per share was declared, payable on January 24, 2025 [12] Backlog and Contract Awards - Net bookings for the quarter were approximately $1.5 billion, resulting in a book-to-bill ratio of 0.7 [1][13] - The estimated backlog at the end of the quarter was approximately $22.4 billion, with $4.5 billion funded [1][13] - Notable contract awards included a $229 million contract from the U.S. Department of Defense and a $118 million task order from the Department of Transportation [14][15] Strategic Partnerships and Future Outlook - SAIC announced an expanded strategic partnership with Wind River to enhance technology integration for government customers [17] - The company expects to exceed $25 billion in submissions for the year, up from a prior target of $22 billion, indicating a positive outlook for growth [2][18]

Financial Performance - Revenues for Q3 FY2025 were $1.98 billion, representing a 4.3% increase year-over-year[2] - Net income for the quarter was $106 million, with diluted earnings per share of $2.13, up 21% from $1.76 in the prior year[4] - Adjusted EBITDA was $197 million, accounting for 10.0% of revenues, an increase from 9.4% in the same period last year[4] - Total revenues for the quarter increased to $1,976 million, up 4.3% from $1,895 million in the same period last year[26] - Total operating income for the quarter was $160 million, compared to $143 million in the same period last year, reflecting a 11.9% increase[26] - Adjusted operating margin for the total increased to 9.9%, up from 9.4% in the prior year[28] - Net income for the three months ended November 3, 2023, was $93 million, compared to $106 million for the same period in 2024, reflecting a decrease of 12.3%[39] - Adjusted diluted earnings per share for the three months ended November 1, 2024, was $2.61, compared to $2.13 for the same period last year, reflecting a 22.5% increase[49] - Net income for the three months ended November 1, 2024, was $130 million, up from $106 million, representing a 22.6% year-over-year growth[49] - Diluted EPS for the three months ended November 3, 2023, was $2.27, up from $1.76, indicating a 28.9% increase year-over-year[50] - For the nine months ended November 1, 2024, adjusted diluted EPS was $6.56, compared to $5.17 for the same period last year, reflecting a 27% increase[53] Cash Flow and Expenditures - Cash flows from operating activities increased by $42 million to $143 million compared to the prior year[6] - Free cash flow for the quarter was $9 million, a decrease of 91% from $97 million in the prior year[4] - Cash and cash equivalents at the end of the period were $54 million, down from $320 million at the beginning of the period[25] - The company reported a net cash used in financing activities of $146 million, compared to $132 million in the same quarter last year[25] - The company expects net cash provided by operating activities to be between $520 million and $540 million for the upcoming period[56] - Total expenditures for property, plant, and equipment are projected to be approximately $30 million[56] - The company reported a net cash provided by operating activities of $379 million for the nine months ended November 1, 2024, compared to $333 million in the prior year[56] - Transaction-adjusted free cash flow for the nine months ended November 1, 2024, was $271 million, down from $367 million in the previous year[56] Backlog and Bookings - Net bookings for the quarter totaled approximately $1.5 billion, resulting in a book-to-bill ratio of 0.7[10] - The estimated backlog at the end of the quarter was approximately $22.4 billion, with $4.5 billion funded[10] - Total backlog as of November 1, 2024, is estimated at $22,387 million, with funded backlog at $4,466 million and negotiated unfunded backlog at $17,921 million[37] - The company reported a total backlog of $22,763 million as of February 2, 2024, with funded backlog at $3,539 million and negotiated unfunded backlog at $19,224 million[37] Segment Performance - Defense and Intelligence segment revenues rose by $36 million or 2% compared to the prior year, driven by ramp-up in volume on existing and new contracts[31] - Civilian segment revenues increased by $45 million or 11% year-over-year, primarily due to ramp-up in volume on existing contracts[33] Guidance and Shareholder Actions - The company increased its FY2025 revenue guidance to $7.425 billion - $7.475 billion and adjusted diluted EPS guidance to $8.50 - $8.65[16] - A $1.2 billion share repurchase program was authorized, representing 20% of the company's market value[2] Other Financial Metrics - Free cash flow for the three months ended November 1, 2024, was $9 million, a significant decrease from $97 million in the prior year[56] - Adjusted EBITDA for the nine months ended November 3, 2023, was $541 million, representing an adjusted EBITDA margin of 9.5%[39] - Adjusted operating income for the three months ended November 3, 2023, was $178 million, with a non-GAAP operating margin of 9.4%[42] - The company incurred restructuring and impairment costs of $2 million for the three months ended November 3, 2023[42] - The company reported a net loss on divestitures of $240 million for the nine months ended November 3, 2023[42]

Core Viewpoint - SAIC is anticipated to report a year-over-year decline in earnings despite an increase in revenues for the quarter ending October 2024, with the actual results being a significant factor influencing its near-term stock price [1][2]. Earnings Expectations - The upcoming earnings report is expected to reveal quarterly earnings of $2.17 per share, reflecting a year-over-year decrease of 4.4% [3]. - Revenues are projected to reach $1.93 billion, which is an increase of 1.9% compared to the same quarter last year [4]. Estimate Revisions - The consensus EPS estimate has been revised 1.47% higher in the last 30 days, indicating a collective reassessment by analysts [5]. - The Most Accurate Estimate for SAIC is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -4.46%, suggesting a bearish outlook from analysts [11][12]. Earnings Surprise Prediction - The Zacks Earnings ESP model indicates that a positive or negative reading can predict the deviation of actual earnings from consensus estimates, with a positive reading being a strong predictor of an earnings beat [8][9]. - However, the current negative Earnings ESP reading for SAIC complicates the prediction of an earnings beat [13]. Historical Performance - In the last reported quarter, SAIC exceeded the expected earnings of $1.86 per share by delivering $2.05, resulting in a surprise of +10.22% [14]. - Over the past four quarters, SAIC has beaten consensus EPS estimates twice [15]. Conclusion - While SAIC does not appear to be a strong candidate for an earnings beat, investors should consider other factors when making decisions regarding the stock ahead of the earnings release [18].