Science Applications International Corp. [SAIC] on Monday reported first quarter net income that was in line with a year ago while sales increased due to an extra week in the quarter and last year’s acquisition of Scitor.
Net income was $33 million, 71 cents earnings per share (EPS), level with a year ago. Per share earnings a year ago were 69 cents. SAIC’s operating income in the quarter was higher but an increase in interest expense wiped out the gain to keep the bottom line result neutral.
Operating margin slipped 20 basis points in the quarter to 5.4 percent due to higher acquisition and integration costs than a year ago when SAIC acquired Scitor. Excluding the acquisition related costs, adjusted operating margin inched up 10 basis points to 6 percent.
Sales in the quarter increased 20 percent to $1.2 billion from $1 billion a year ago. An extra week in the reporting period contributed $88 million, or 43 percent of the gain, while Scitor added $76 million, or 37 percent. The rest of the growth was due to newly awarded programs, SAIC said.
SAIC said that legacy revenues associated with Scitor declined from a year ago due to delays in contract awards and the transition of work to small business set aside contracts. SAIC acquired Scitor last May, opening a door into the intelligence community.
With legacy sales down at Scitor and excluding the extra week in the quarter, SAIC said organic sales declined 3 percent. The company doesn’t provide annual guidance but John Hartley, SAIC’s outgoing chief financial officer, said on the earnings call that low single digit organic growth is achievable this year excluding the extra week in the first quarter.
Required debt payments combined with strong operating results have driven SAIC’s total debt below $1.1 billion, reducing its leverage and ending credit agreement restrictions that limited share repurchases to $50 million per fiscal year, Hartley said. He said the company plans to deploy cash to maximize shareholder value and expects to have $150 million available in the current fiscal year beyond dividend and working capital needs for share repurchases and other potential alternatives.
Tony Moraco, SAIC’s CEO, said on the earnings call that he doesn’t see the need for large or transformational acquisitions to scale up the company’s size. However, he said that the company is looking at “modest” deals that would give it market access similar to how the Scitor acquisition positioned the company with the intelligence community.
SAIC paid $790 million for Scitor, which Moraco said is a large acquisition.
Free cash flow in the quarter was $31 million and orders totaled a healthy $1.3 billion. Total backlog at the end of the quarter stood at $7.2 billion of which $2.1 billion was funded. At the end of SAIC’s fiscal year 2016, total backlog also stood at $7.2 billion with $1.9 billion funded.