Science Applications International Corp. [SAIC] on Monday reported lower earnings on higher indirect costs in its first quarter of 2023 despite a solid increase in sales.
Net income fell 11 percent to $73 million, $1.29 earnings per share (EPS), from $82 million ($1.38 EPS) a year ago. Adjusted earnings, which include acquisition, integration and restructuring costs, were $1.88 EPS in the quarter, 11 cents ahead of consensus estimates.
Sales increased 6 percent to $2 billion from $1.9 billion a year ago with 4 percent of the growth organic. SAIC said the organic growth was due to the ramp up of new and existing contracts. The acquisition in July 2022 of digital solutions provider Halfaker and Associates added $42 million to sales in the quarter.
Half the organic growth was due to performance and the other half was timing, Prabu Natarajan, SAIC’s chief financial officer, said during the company’s earnings call.
For SAIC’s fiscal year 2023, which began in February, the company raised its sales expectations on the low end of prior guidance by nearly $100 million to between $7.4 billion and $7.6 billion. The company also increased its earnings guidance by a dime to between $6.90 to $7.20 EPS.
Nazzic Keene, SAIC’s CEO, on the company’s earnings call provided two “capability offerings” that the company is using as internal metrics, one being Growth and Technology Accelerants (GTA) and the other Core, both of which cut across its operating sectors.
GTA includes secure cloud, enterprise information technology (IT), and systems integration and delivery, and currently makes up 27 percent of overall sales growing to greater than 35 percent in FY ’25. The GTA work is typically higher margin and its growth will lead to overall higher margins at the company, Natarajan said.
The Core work, which includes engineering services, IT and technical services, and logistics and supply chain, will continue to grow, Keene said.
Orders in the quarter were $2 billion, level with sales, and backlog stood at $24.1 billion, up $20 million since the beginning of the year. SAIC has more than $1 billion in contract wins that are being protested, none of which are in backlog, Natarajan said.
Free cash flow in the quarter was $113 million. SAIC also said it is increasing its stock repurchase program by 8 million shares.
SAIC’s capital deployment strategy is unchanged and the “bias” for excess free cash flow is toward share repurchases, Natarajan said.