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Science Applications (SAIC) Q3 Earnings Beat, Increase Y/Y

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Science Applications (SAIC - Free Report) reported mixed results for third-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 metrics, mainly benefiting from higher demand for its technology solutions owing to the ongoing digital transformation wave across the defense, space, intelligence and civilian markets.

The company’s fiscal third-quarter adjusted earnings increased 16.5% year over year to $1.62 per share and surpassed the Zacks Consensus Estimate of $1.53. The year-over-year upside was mainly driven by higher revenues and lower indirect costs.

Quarterly revenues grew 11.5% from the year-ago period to $1.82 billion. Revenues realized from the acquisition of Unisys Federal, mainly drove the top line. Solid performance of the company’s contract portfolio, including new U.S. Air Force contract wins, was a tailwind. Adjusting for the impact of acquired revenues, the metric edged down 0.7%. Moreover, quarterly revenues fell short of the consensus mark of $1.83 billion.

Science Applications International Corporation Price, Consensus and EPS Surprise

Quarter in Detail

Science Applications stated that its business was resilient to the pandemic-induced crisis. The crisis had limited impacts on its fiscal third-quarter performance. It affected quarterly revenues and adjusted EBITDA by $60 million and $9 million, respectively.

Net bookings for the fiscal third quarter were $5 billion, reflecting a book-to-bill ratio of 2.7. Science Applications’ estimated backlog of signed business deals was $22.6 billion, of which $3.3 billion was funded.

Non-GAAP operating income grew 10.6% year over year to $115 million, primarily driven by Unisys Federals’ acquisition along with lower integration and indirect costs. However, non-GAAP operating margin contracted 10 basis points to 6.3% mainly due to the COVID-19 impact and higher intangible asset amortization costs.

Adjusted EBITDA marginally increased year over year to $164 million from $135 million in the year-ago quarter. Moreover, adjusted EBITDA margin expanded 70 basis points to 9%.

Balance Sheet & Cash Flow

Science Applications ended the fiscal third quarter with cash and cash equivalents of $182 million, down from the prior quarter’s $197 million.

The company generated operating cash flow of $231 million during the quarter and $702 million in the first nine months of fiscal 2021. Operating cash flow generated in the year-ago quarter and the first nine months of fiscal 2020 was $116 million and $389 million, respectively.

The improvement reflects cash provided from operating activities of Unisys Federal and deferred payroll tax payments. Free cash flow was $222 million in the third quarter and $670 million in the first nine months of fiscal 2021.

During the reported quarter, Science Applications deployed $239 million of capital, which includes $21 million for dividend payments, $18 million for mandatory debt repayment and $200 million for voluntary debt repayment.

Guidance

Science Applications updated its fiscal 2021 guidance. The company now anticipates revenues between $7.1 billion and $7.15 billion compared with the previous guidance of $7.1-$7.2 billion. The updated top-line guidance reflects a negative impact of $250 million from the coronavirus pandemic, unchanged from the previous estimate.

It reaffirmed adjusted earnings in the $5.95-$6.05 per share range. The guided range includes a negative impact of approximately $35 million due to the COVID-19 crisis, which remained consistent with the previously provided estimate.

Free cash flow is expected to meet or exceed $515 million in fiscal 2021.

Moreover, management expects the government’s focus on digital transformation to aid demand for its digital engineering and IT modernization solutions. However, COVID-19 headwinds along with reduced volumes in the company’s supply-chain business are expected to continue in the near term.

Zacks Rank and Key Picks

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

Some better-ranked stocks in the broader technology sector include Cadence Design Systems, Inc. (CDNS - Free Report) , Microsoft Corporation (MSFT - Free Report) and NVIDIA Corporation (NVDA - Free Report) , all carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank ( Strong Buy) stocks here.

The long-term earnings growth rate for Cadence, Microsoft and NVIDIA is currently pegged at 15.4%, 12.5%, and 18.3%, respectively.

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