Science Applications International Corp. [SAIC] on Tuesday reported a surge in income and slightly higher sales in its third quarter as separation and restructuring costs plummeted related to its split with Leidos [LDOS] a year while work for logistics and supply chain services and C4ISR was up.
Net income jumped 68 percent to $37 million, 77 cents earnings per share (EPS), from $22 million (44 cents EPS) a year ago, topping consensus estimates by three cents. Operating margins were 6.8 percent, up 250 basis points, on improvements in program execution and cost management, which like the lower separation costs, contributed to the bottom line gain.
Separation and restructuring expenses a year ago were $23 million versus nothing in the latest quarter.
Sales, excluding revenue performed by the old SAIC before the separation with Leidos, increased 2 percent to $993 million versus $974 million a year ago. Including SAIC’s former parent, sales in the quarter were flat at $1 billion.
Tony Moraco, SACI’s CEO, said on Tuesday’s earnings call that the pace of contract award activity is unchanged and the award cycle is still “elongated,” adding though that he hasn’t seen a decline in Requests for Proposals. Bookings in the quarter were $967 million and Moraco said the company has bids outstanding valued at $11 billion in potential awards.
SAIC doesn’t provide financial guidance, but John Hartley, the company’s chief financial officer, said that in its next fiscal year sales look to be flat to up a few percent given good visibility through the existing backlog. Total backlog stands at $6.5 billion, down $200 million since the end its last fiscal year, while funded backlog is up $400 million at $2 billion.
Given a strong balance sheet–the company has $254 million in cash and equivalents–Hartley said SAIC will increase its financial leverage over time to further its capital deployment strategies. SAIC spent $50 million on share repurchases and $13 million on dividend payments in the quarter.
Moraco said that SAIC’s focus is on organic growth, but that its balance sheet gives it the flexibility to do mergers and acquisitions. The company is looking for deals that could add intellectual property, technical capabilities, and increase its exposure in areas such as the Air Force, the intelligence community and health sector, particularly the public health sector, he said.
The company is trying to grow its Air Force business organically as well. Moraco said that some of its outstanding bids are for Air Force work.
Moraco said he expects to see some consolidation in the services industry over the next two years with some companies trying to scale up. He added that with about $4 billion in annual sales, SAIC is at a good size.
Free cash flow in the quarter was $77 million.