Science Applications International Corp. [SAIC] last Thursday after the markets closed reported higher first quarter sales driven mainly by its recent acquisition of the federal division of Unisys [UIS] but net income fell due to costs related to acquisitions, impacts from COVID-19 pandemic and higher interest expense.
Net income slid 35 percent to $36 million, 62 cents earnings per share (EPS), from $55 million (92 cents EPS, a year ago. Operating margins declined 140 basis points to 4.4 percent.
Adjusting for the acquisition and integration costs, some of which relate to SAIC’s purchase of the former Engility Corp. in Jan. 2019, per share earnings of $1.38 were two cents higher than a year ago but three pennies below consensus estimates.
Sales increased 9 percent to $1.8 billion from $1.6 billion, with 3 percent of the growth organic. The acquisition of Unisys Federal closed in March, providing SAIC about seven weeks of revenue from the new addition.
SAIC said that impacts from COVID lopped $33 million off the top line due to employees and subcontractors not being able to access some customer facilities. The pandemic chipped $8 million from operating earnings related to uncertain profit recovery.
Nazzic Keene, SAIC’s CEO, said on Thursday evening’s earnings call that excluding the revenue impacts from COVID, organic growth would have been 5 percent.
The company tallied $1.6 billion in orders during the quarter with backlog standing at $16.5 billion, $3.3 billion of which is funded. Free cash flow was $358 million.
For its fiscal year 2020, SAIC expects sales to be between $7.1 billion and $7.3 billion and adjusted earning between $5.80 and $6.10 EPS. Free cash flow is forecast to be equal to or greater than $500 million.
Keene said that there has been no change in customer demand for “core services” and that customers are showing more interest in “solutions that will help modernize the government and support the remote workforce of the future.” She said SAIC is working on these solutions to enable “digital transformation.”
SAIC has 75 percent of its employees teleworking, Keene said.