Science Applications International Corporation (SAIC) — Form 10-Q Summary
Reporting period: Fiscal 2021 third quarter ended October 30, 2020; comparative quarter ended November 1, 2019. Nine-month figures compare the same periods. Financial statements are unaudited. SAIC provides technical, engineering, and enterprise IT services, primarily to U.S. government customers.
Financial performance
| Metric | Three months ended Oct. 30, 2020 | Prior-year quarter | Nine months ended Oct. 30, 2020 | Prior-year period |
|---|---|---|---|---|
| Revenue | $1.818 billion | $1.630 billion | $5.339 billion | $4.839 billion |
| Operating income | $110 million | $94 million | $288 million | $282 million |
| Operating margin | 6.1% | 5.8% | 5.4% | 5.8% |
| Net income attributable to common stockholders | $60 million | $55 million | $147 million | $167 million |
| Diluted earnings per share | $1.02 | $0.94 | $2.51 | $2.82 |
| Net cash from operating activities | $231 million | $116 million | $702 million | $389 million |
- Third-quarter revenue increased 11.5%; excluding Unisys Federal, management said revenue declined 0.7%, principally due to COVID-19. Nine-month revenue increased 10.3%; excluding the acquisition, it grew 0.5%.
- Quarterly operating margin improved, while nine-month margin declined. Higher amortization, COVID-19 effects, acquisition and integration costs, and lower net profit adjustments weighed on the nine-month comparison.
- Interest expense rose to $32 million for the quarter and $95 million for the nine months, versus $22 million and $69 million, respectively. Nine-month common-stockholder income and diluted EPS fell despite higher revenue.
Cash, debt, and liquidity
- At October 30, 2020, cash and cash equivalents were $182 million; current assets were $1.401 billion and current liabilities $1.433 billion.
- Debt principal was $2.565 billion, with a reported net carrying amount of $2.536 billion. Long-term debt, net of current portion, was $2.446 billion. The $400 million revolving credit facility had no borrowings outstanding; SAIC reported compliance with its credit-facility covenants.
- Nine-month operating cash flow was $702 million, but included $200 million of net cash-flow benefit from receivables sold under the MARPA facility, as well as payroll-tax deferrals and working-capital timing effects. Investing activities used $1.229 billion, including $1.202 billion paid for Unisys Federal.
- SAIC paid $65 million in dividends during the nine months and declared a further $0.37-per-share quarterly dividend payable January 29, 2021.
Material developments and outlook
- SAIC acquired Unisys Federal on March 13, 2020, for approximately $1.2 billion. It contributed $200 million of third-quarter revenue and $479 million for the nine-month period. The purchase-price allocation remained preliminary; acquired goodwill was $656 million after measurement-period adjustments.
- Management cited new awards and increased program volume, partly offset by contract completions and pandemic-related activity reductions. COVID-19 reduced nine-month revenue by approximately $170 million and operating income by approximately $25 million. The company said CARES Act recovery provisions were due to expire December 11, 2020 and might not cover all eligible labor costs.
- Backlog was $22.553 billion, including $3.346 billion funded; net bookings were estimated at $5.0 billion for the quarter and $11.2 billion for the nine months. Separately, remaining performance obligations were $5.6 billion; SAIC expected to recognize about 80% within 12 months and 90% within 24 months.
- The filing provides no new numerical earnings or revenue guidance. Management said existing cash, expected operating cash flow, and access to financing should meet near-term and long-term needs, while noting financing availability depends on market and company-specific conditions.
Risks, contingencies, and unusual items
- The federal government was operating under a continuing resolution for fiscal 2021; a shutdown was possible when it expired. Government spending changes, competitive bidding and pricing pressure, and contract cancellations or scope changes may affect results.
- Government audits and reviews remain ongoing. SAIC recorded a $45 million liability for potential indirect-cost and Cost Accounting Standards adjustments; adverse audit outcomes could exceed reserves. The company also cited an unresolved effort to recover costs related to a terminated Marine Corps vehicle program.
- Management said routine legal matters were not expected to have a material adverse effect. Outstanding letters of credit were $11 million and surety bonds $18 million. No material changes to previously disclosed risk factors were reported.
- Other notable items included an $11 million loss on the sale of non-strategic international operations, higher acquisition-related amortization, and restructuring costs. No goodwill or intangible-asset impairments were reported.
Important facts for investors to verify
- How much reported operating cash flow is repeatable after receivables sales, payroll-tax deferrals, and collection timing normalize.
- Unisys Federal integration, realized growth and cost benefits, and any changes to the still-preliminary purchase-price allocation or goodwill.
- Whether pandemic-related revenue and profit impacts persist after the CARES Act provision expires, and whether customers authorize or fund remaining recoveries.
- Federal budget and continuing-resolution developments, contract awards and recompetes, and the outcome of open government audits and the terminated-program cost recovery effort.
- Debt repayment, interest-rate exposure, and covenant headroom; the filing reports $34 million of hedge losses expected to be reclassified into earnings over the following 12 months.