Science Applications International Corporation (SAIC) — FY2021 Form 10-K
Reporting period: Fiscal year ended January 29, 2021. Although the request identifies “2020 Q4,” this filing is an annual report for fiscal 2021; comparisons below are with the year ended January 31, 2020.
Business context
SAIC provides technical, engineering, systems integration and enterprise IT services, primarily to the U.S. government. Government customers accounted for 98% of revenue; SAIC reported one financial reporting segment. The March 2020 acquisition of Unisys Federal expanded its federal IT modernization, cloud and managed-services capabilities.
Financial results
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Revenue | $7.056 billion | $6.379 billion | Up 11%; excluding acquired revenue, growth was 0.6% |
| Operating income | $390 million | $370 million | Up 5%; operating margin was 5.5%, versus 5.8% |
| Net income attributable to common stockholders | $209 million | $226 million | Down 8%; diluted EPS was $3.56 versus $3.83 |
| Cash from operating activities | $755 million | $458 million | Up $297 million |
| Cash and cash equivalents | $171 million | $188 million | Restricted cash was a further $19 million |
| Long-term debt, principal | $2.542 billion | $1.941 billion | Increased principally to fund Unisys Federal; $2.515 billion net of issuance costs |
| Current assets / current liabilities | $1.289 billion / $1.275 billion | $1.430 billion / $1.128 billion | Near-term balance-sheet liquidity was comparatively tight |
Revenue growth reflected $669 million from Unisys Federal, new contracts and higher volumes, partly offset by contract completions and COVID-19 impacts. Interest expense rose to $122 million from $90 million, contributing to lower common-stockholder earnings. The company paid $1.48 per share in dividends and repurchased approximately $19 million of shares under its program.
Cash, debt and backlog
Operating cash flow benefited from $185 million of net cash generated through receivable sales under the MARPA facility and from deferred payroll taxes. Investing activities used $1.231 billion, primarily reflecting the acquisition; financing activities provided $464 million. SAIC had no balance drawn on its $400 million revolving credit facility and reported compliance with debt covenants at year-end. It deferred approximately $103 million in payroll taxes under the CARES Act, with repayment scheduled to begin in fiscal Q4 2022.
Total backlog was $21.548 billion, up from $15.317 billion; funded backlog was $3.024 billion and negotiated unfunded backlog was $18.524 billion. Fiscal 2021 net bookings were an estimated $11.9 billion. The company reduced reported backlog by $2.2 billion for open, unfulfilled contracts it judged might not convert to future sales. Backlog is not guaranteed revenue and excludes potential future task orders on IDIQ and similar contract vehicles.
Material changes, outlook and risks
- COVID-19: Reduced activity lowered revenue by approximately $248 million, net of $147 million of labor costs recovered under the CARES Act. SAIC said operating income was reduced by approximately $25 million; recovery of some stand-ready labor costs remained subject to funding and contract modifications.
- Unisys Federal: The $1.202 billion acquisition contributed $669 million of FY2021 revenue and $62 million of net income attributable to common stockholders. Acquisition and integration costs were $54 million for the year.
- Profitability and estimates: Higher intangible amortization and pandemic effects pressured operating margin. Contract revenue depends on estimates of costs to complete and variable fees; net favorable contract estimate changes added $9 million to operating income, versus $22 million in FY2020.
- Outlook: The filing provides no specific numerical revenue or earnings guidance. Management said it believed cash, future operating cash flow and financing access would adequately support liquidity and capital needs, while noting uncertainty from the pandemic, government budgets and competitive procurement.
- Key risks: Heavy dependence on U.S. government spending and contract awards; intense price competition; contract performance, cost-estimation and recompete risks; workforce and security-clearance constraints; cyber threats; acquisition integration; and regulatory, audit and contract-compliance exposure.
- Contingencies and unusual items: DCAA indirect-cost audits remained open for certain prior years and the current year; SAIC recorded a $46 million liability for estimated customer refunds and adjustments. Management did not expect pending ordinary-course litigation to have a material adverse effect. Goodwill impairment testing found no impairment. A $67 million provision for unfavorable acquired customer-contract terms is being amortized as increased revenue.
Ernst & Young issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting. Management’s and the auditor’s internal-control assessment excluded Unisys Federal, which represented 9% of consolidated revenue and 21% of operating income.
Important facts for investors to verify
- Whether organic growth and margins improve after separating Unisys Federal’s contribution and amortization effects.
- How much of the $21.5 billion backlog is funded, converts to revenue, or may be reduced through customer actions or contract closeouts.
- Whether SAIC collects remaining CARES Act labor reimbursements and repays deferred payroll taxes as scheduled.
- The outcome of open government cost audits and whether potential adjustments exceed the $46 million recorded liability.
- Debt repayment, interest costs and covenant headroom, including the effect of acquisition financing and variable-rate exposure.