SAIC(US:SAIC)2024-12-05 22:11Financial 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]