SAIC(SAIC)2023-12-04 17:47Financial Data and Key Metrics - Revenue for Q3 FY24 was $1.90 billion, an 11% increase YoY excluding FSA and supply chain revenue [18] - Adjusted EBITDA margin in Q3 was 9.4%, up 50 basis points YoY [18] - Adjusted diluted EPS was $2.27, a 19% increase YoY [18] - Free cash flow adjusted for transaction fees was $148 million in Q3 and $367 million YTD [18] - Net bookings of $2.5 billion resulted in a book-to-bill ratio of 1.3x for the quarter and 1x on a trailing 12-month basis [18] - FY24 adjusted EPS guidance increased to $7.70-$7.90, driven by improved operating results, lower interest expense, and a lower tax rate [19] - FY24 free cash flow guidance maintained at $460-$480 million [19] Business Line Data and Key Metrics - The company's solutions portfolio is majority at enterprise scale, with recent investments in digital engineering, secure data analytics, operational AI, and multilevel security [1] - Customers have cited these solutions in recent bids and recompete efforts, indicating differentiation and mission relevance [1] - The company is focusing on improving value creation processes post-contract to enhance profitability for both the company and customers [1] Market Data and Key Metrics - The company expects to double its revenue from the NASA NCAP program to $200 million annually if the new procurement is secured [8] - Backlog is currently at $23-$24 billion, providing a strong foundation for future growth [9] - The company is cautious about potential government funding disruptions in Q4 and FY25 [31] Company Strategy and Industry Competition - The company is focusing on four strategic pivots: solutions portfolio, go-to-market strategy, culture, and brand [20] - A new enterprise business development function is being established to standardize and optimize the go-to-market strategy [29] - The company aims to achieve sustainable organic growth above the 2%-4% framework provided at Investor Day [29] - The company is committed to a capital-light business model and differentiating itself in the market with mission-relevant, scalable, and differentiated solutions [16] Management Commentary on Operating Environment and Future Outlook - The company is confident in its ability to deliver growth rates consistently above mid-single digits, driven by strong program performance and cost efficiency initiatives [2][18] - Management is focused on driving outsized EBITDA growth and cash flow, while maintaining a cautious outlook for FY25 [6] - The company is optimistic about the potential for the NASA NCAP program to be accretive, but is also preparing for potential downside scenarios [8][9] Other Important Information - The company has hired Lauren Knausenberger as its first Chief Innovation Officer to manage the technology roadmap and maximize differentiation and long-term value [16] - The company is open to M&A but remains skeptical of larger transactions, focusing instead on shoring up its solutions portfolio with new technology [17] - The company is increasing its FY24 revenue guidance by 2% to $7.325-$7.35 billion, reflecting stronger operating performance and potential government funding pressures [31] Q&A Summary Question: How does the company plan to maintain its earnings trajectory given the current book-to-bill ratio? [4] - The company is focusing on delivering outsized EBITDA growth and cash flow, while maintaining a cautious outlook for FY25 [6] Question: What is the company's outlook on the NASA NCAP contract and its impact on growth? [7] - The company expects the NASA NCAP program to potentially double its revenue to $200 million annually if the new procurement is secured, but is also preparing for potential downside scenarios [8][9] Question: How is the company addressing recompete losses and improving its recompete win rate? [49] - The company is focusing on differentiation in its programs, rigorous business development execution, and applying lessons learned across the enterprise to improve recompete win rates [22] Question: What changes are being made to incentive compensation to drive growth? [64] - The company is focusing on aligning incentive compensation with both short-term and long-term performance, particularly in business development and program management [33][37] Question: What is the company's philosophy on M&A and the use of the balance sheet? [80] - The company is focused on organic growth and tightening internal processes before pursuing M&A, with a preference for smaller, capability-based tuck-ins [17][80] Question: How does the company view its tax rate and cash tax management going forward? [72] - The company has managed its tax rate effectively and is focused on maintaining strong cash tax management, with plans to increase cash taxes from $0 in FY23 to $100 million in FY26 [19][72]