Science Applications International Corp. [SAIC] on Thursday said its net income and sales fell during its fiscal year 2014 third quarter due to the less work on several contracts and costs associated with its split from the old SAIC.
Net income was down 51 percent to $22 million, 44 cents earnings per share (EPS), from $45 million (90 cents EPS) due to $23 million in separation and restructuring costs and lower sales. Operating margins were 3.8 percent, down 240 basis points. Free cash flow was $2 million.
Sales fell 18 percent to $974 million from $1.2 billion on the ramp down in Defense Information Systems Network Global Solutions program, reduced activity on information technology and logistics programs related to the drawdown of United States forces in war zones, lower funding on Navy contracts and to a minor degree the temporary shutdown of the federal government in October.
The results mark the first time SAIC has reported since its separation from its former parent company in September.
Company executives said the sales were in inline with their expectations and revenue guidance for the fiscal year was maintained at between $3.9 billion and $4.1 billion. The company lowered its earnings guidance by about a quarter to between $2.13 and $2.33 EPS due to higher tax rate and higher share count than was assumed before the separation. Cash flow guidance is unchanged at $125 million.
SAIC said the outlook over the next three to five years that was outlined at its investor day in September is unchanged, with the potential for low single digit annual revenue growth and operating margins in the low 6 percent range.
“Improving our operating income is a high priority for the company and will be achieved over the next three to five years through a combination of optimizing our indirect cost structure, expanding our value added labor base, leveraging our scale by bidding higher contract fee, and finally, executing well for our customers so that we realize a fee that we have bid,” John Hartley, SAIC’s chief financial officer, said on the company’s earnings call Thursday evening. He said the company still believes that it can attain its margin goals outlined in September of between 7 and 7.5 percent in the coming years.
Hartley said sales would contract in FY ’15 due to the expiration of several contracts. The company expects about $50 million less in sales next year related to support of U.S. forces in theater.
In late November and early December SAIC and a slew of other companies protested the Department of Homeland Security’s recent award of a new round of EAGLE information technology service solutions contracts. SAIC, which has been competing for IT work under the multi-award EAGLE contract since FY ’06, has won $1.2 billion in orders under the program in that time.
The Government Accountability Office has already dismissed some of the protests and is expected to decide on the remainder by early March 2014. Some of the other protesting companies include
Accenture [ACN], CGI Federal, Exelis [XLS], Harris [HRS], Lockheed Martin [LMT], Northrop Grumman [NOC], SRA International, and Unisys [UIS].
Tony Moraco, SAIC’s CEO, said that if the current budget negotiations in Congress do lead to relief over the next two years that would be “favorable” by allowing the military services to put some focus into maintenance and training, areas that SAIC supports, and allows them to better prioritize their funding. He also said that if the negotiations provide certainty that will at least provide clarity and confidence for the government contract offices to release contracts and orders.
SAIC had strong bookings in the quarter of $1.4 billion. Total backlog stood at $7.3 billion, down from $7.8 billion since the end of January, while funded backlog remained level at about $2 billion.
Separately, SAIC yesterday named Doug Wagoner SAIC Sector President, replacing Deborah Lee James who is now the Air Force Secretary. Wagoner will be responsible for the deployment of employees, technology development and thought leadership. Wagoner managed the program office that oversaw the split of the old SAIC into the new SAIC and Leidos [LDOS].