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Science Applications (SAIC) Q2 Earnings Beat, Increase Y/Y

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Science Applications (SAIC - Free Report) reported mixed results for second-quarter fiscal 2021, wherein its earnings topped the Zacks Consensus Estimate but revenues missed the same. Nonetheless, the company recorded year-over-year growth in both the metrics.

The company’s fiscal second-quarter adjusted earnings surged 21% year over year to $1.63 per share and surpassed the Zacks Consensus Estimate of $1.42 per share. The year-over-year upside was mainly driven by higher revenues and reduced outstanding share count.

Quarterly revenues jumped 11% from the year-ago period to $1.76 billion. Revenues realized from the acquisition of Unisys Federal mainly drove the top line. Solid performance of the company’s contract portfolio was a tailwind. Adjusting for the impact of acquired revenues, the metric inched down 0.7%. Moreover, quarterly revenues fell short of the consensus mark of $1.79 billion.

Quarter in Detail

Science Applications stated that its business was resilient to the coronavirus pandemic-induced crisis. The crisis had limited impact on its fiscal second-quarter performance. It affected quarterly revenues and adjusted EBITDA by $65 million and $8 million, respectively. The company also stated that the coronavirus crisis had an immaterial impact on its net free cash flow.

Net bookings for the fiscal second quarter were $4.6 billion, reflecting a book-to-bill ratio of 2.6. Science Applications’ estimated backlog of signed business deals was $19.4 billion, of which $3.1 billion was funded.

Non-GAAP operating income grew 14% year over year to $115 million. Moreover, non-GAAP operating margin expanded 20 basis points to 6.5% mainly due to higher revenues.

Adjusted EBITDA marginally increased year over year to $167 million from $134 million in the year-ago quarter. Moreover, adjusted EBITDA margin expanded 110 basis points to 9.5%, chiefly driven by gains associated with the resolution of certain legal and program contract matters and reduced indirect costs.

Balance Sheet & Cash Flow

Science Applications ended the fiscal second quarter with cash and cash equivalents of $197 million, down from the prior quarter’s $276 million.

The company generated operating cash flow of $104 million during the quarter and $471 million in the first half of fiscal 2021. Operating cash flow generated in the year-ago quarter and the first half of fiscal 2020 was $95 million and $273 million respectively.

The improvement reflects cash provided from operating activities of Unisys Federal and deferred payroll tax payments. Free cash flow was $90 million in the second quarter and $448 million in the first half of fiscal 2021.

During the reported quarter, Science Applications deployed $163 million of capital, which includes $21 million for dividend payments, $17 million for mandatory debt repayment and $125 million for voluntary debt repayment.

Guidance

Science Applications updated its fiscal 2021 outlook. The company now anticipates revenues between $7.1 billion and $7.2 billion compared with the previous guidance of $7.1-$7.3 billion. The updated top-line guidance reflects a negative impact of $250 million from the coronavirus pandemic. Earlier, the company had projected COVID-19 pandemic to impact its fiscal 2021 revenues by $150 million.

It reaffirmed adjusted earnings in the $5.80-$6.10 per share range. However, the guided range now includes a negative impact of approximately $35 million due to the COVID-19 crisis instead of the previous forecast of $25 million negative impact.

Free cash flow is expected to meet or exceed $500 million in fiscal 2021.

Zacks Rank and Key Picks

Currently, Science Applications carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Apple (AAPL - Free Report) , Lam Research Corporation (LRCX - Free Report) and Synaptics (SYNA - Free Report) , all sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Apple, Lam Research and Synaptics is currently pegged at 10.7%, 15.4%, and 10%, respectively.

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