Science Applications International Corp. [SAIC] on Wednesday reported higher second quarter sales due to an acquisition, but earnings fell related to acquisition integration costs and continued impacts from COVID-19.
Net income decreased 11 percent to $51 million, 87 cents earning per share (EPS), from $57 million (96 cents EPS) a year ago, with the negative impact from COVID lopping $8 million (10 cents EPS) off the bottom line. Operating margin declined 30 basis points to 5.7 percent.
Excluding $15 million of acquisition and integration costs, adjusted earnings of $1.63 EPS beat consensus estimates by 19 cents per share.
Sales in the quarter increased 11 percent to $1.8 billion from $1.6 billion a year ago due to the acquisition of Unisys’ [UIS] federal business in March. Organic revenue declined nearly a percent due to COVID impacts, which nipped $65 million off the topline. Excluding COVID impacts, organic sales would have been up 3 percent, in line with the company’s expectations and a demonstration of the “underlying strength of the business,” Nazzic Keene, SAIC’s CEO, said on the company’s earnings call Wednesday evening.
The “vast majority” of SAIC’s employees continue to telework, she said.
SAIC now expects COVID-related impacts for the rest of its fiscal year. The company now expects sales this year to be between $7.1 billion and $7.2 billion, down $100 million from the high side of the prior outlook. The sales outlook factors in 1 to 3 percent of organic growth. Adjusted earnings are still forecast to be between $5.80 and $6.10 EPS.
Free cash flow is still expected to equal or exceed $500 million this year.
In the second quarter it was $90 million and SAIC booked a whopping $4.6 billion in awards and backlog at the end of the quarter stood at a record $19.4 billion, up 27 percent from $15.3 billion at the end of its fiscal year 2020. SAIC said $3.1 billion of its backlog is funded.
Keene mentioned on the call that SAIC sold some international law enforcement support contracts the company had through the Departments of Justice and State that were not material but did dilute the margin profile. The contracts came with SAIC’s earlier acquisition of Engility.
She also said that prior investments in technology and acquisitions have helped cross sell capabilities in information technology modernization, advanced analytics, software, application modernization and cloud migration, particularly to the intelligence community and defense customers.