Science Applications International Corp. [SAIC] on Thursday reported a hefty increase in second sales due solely to its acquisition earlier this year of Engility Corp. and net income increased due to better operating profit.
The Engility deal expanded SAIC’s access to the intelligence community and space missions and the integration is going well and cost synergies have been accelerated, Nazzic Keene, SAIC’s new CEO, said Thursday evening on the company’s second quarter earnings call.
Net income increased 16 percent to $57 million, 96 cents earnings per share (EPS), from $49 million ($1.13 EPS) a year ago, beating consensus estimates by 8 cents per share. Per share results were lower due to a higher number of SAIC’s shares on the market. Operating margin declined 60 basis points to 6 percent.
Excluding increases amortization, acquisition and integration costs related to the Engility deal, which closed in January, SAIC’s adjusted earnings were up 60 percent to $134 million ($1.35 EPS).
Sales increased 43 percent to $1.6 billion from $1.1 billion a year ago, although organic revenue was flat.
With less than a month to go in the government’s 2019 fiscal year, Keene said that proposal activity is strong and that company’s pipeline of opportunities is expanding. However, she said, a “few” customers are delaying potential awards due to the possibility of a continuing resolution to begin FY ’19 and some awards have been held up due to protests for new business. SAIC declined to disclose the customers that are delaying work due to the budget concerns.
The delayed awards, about $1 billion in new business that is the subject of protests, and revenue dis-synergies led SAIC to trim its sales expectations for the year by about $150 million, with the new forecast $6.4 billion. The company still expects free cash flow of at least $425 million. Free cash flow in the quarter was $90 million.
Keene said her immediate priorities are a continued focus on successfully integrating Engility into the company, profitable sales growth, “and winning our war for talent,” highlighting that the company’s success is dependent on its employees.
Asked on the earnings call about SAIC’s “appetite” for additional acquisitions, Keene responded that while the company has the financial capacity for deals, integrating Engility still comes first. However, if an acquisition opportunity comes up, the company will see if it would provide growth in terms of capabilities or access to customers.
Orders in the quarter totaled a robust $1.9 billion and exclude about $400 million from single award indefinite delivery, indefinite quantity contract vehicles awarded during the quarter. Backlog at the end of the quarter stood at $13.9 billion with $2.6 billion funded.
The strong order flow reaffirms the company’s long-term expectations for low single-digit organic growth, Charlie Mathis, SAIC’s chief financial officer, said on the call.