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Science Applications (SAIC) Beats Q3 Earnings Estimates

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Science Applications International Corp. (SAIC - Free Report) reported third-quarter fiscal 2018 earnings of 98 cents per share, which beat the Zacks Consensus Estimate by 13 cents and increased 8% from the year-ago quarter.

Moreover, revenues increased 3% from the year-ago quarter to $1.15 billion and beat the Zacks Consensus Estimate of $1.11 billion. Internal revenues increased 3%.

Revenues improved on the back of new contracts supporting NASA, the U.S. Army and the Environmental Protection Agency (EPA). However, the loss of an IT integration contract supporting the Department of Homeland Security (DHS) hurt the top line.

Science Applications’s shares have lost 11.1% of its value year to date versus the 30.9% rally of its industry.

Quarter in Details

Net bookings for the quarter were approximately $2.6 billion, which reflects a book-to-bill ratio of approximately 2.3 in the quarter. At the end of the quarter, Science Applications’ estimated backlog of signed business orders was approximately $10.7 billion of which $2.6 billion was funded.

During the quarter, the company won a contract worth $970 million (if all options are exercised) from the General Services Administration (GSA) on behalf of the Army Software Engineering Directorate (SED).

Science Applications also won contracts from the U.S. Department of Agriculture (USDA), the U.S. Naval Surface Warfare Center Dahlgren, the U.S. Army Tank Automotive Research, Development and Engineering Center (TARDEC), the U.S. Cyber Command (USCYBERCOM) and the Commonwealth of Virginia.

Total backlog increased 16% sequentially and funded backlog was up 45%. The estimated value of proposals submitted by the company is approximately $15 billion.

Science Applications successfully completed delivery of all 16 ACV prototype vehicles.

Adjusted EBITDA margin contracted 30 basis points (bps) on a year-over-year basis to 7.4%. Adjusted operating income margin contracted 20 bps to 6.4% in the reported quarter.

The year-over-year contraction in profits was primarily due to lower profit from a higher volume of cost reimbursable contracts and material cost mix.

Balance Sheet & Cash Flow

Science Applications ended the quarter with cash and cash equivalents of $125 million, down from $140 million reported in the previous quarter.

Operating cash flow was $80 million and free cash flow was $72 million. The company delivered operating cash outflow and free cash outflow of $88 million and $84 million in the previous quarter, respectively.

Science Applications spent $59 million in cash dividends and repurchasing shares.


For fiscal 2018, Science Applications expects revenues to be slightly positive. Management still expects EBITDA margin in the 7% range.

For fiscal 2018, management projects tax rate at approximately 23% to 25%, modestly lower than the previous estimate of 24% to 26%.

Management expects DSOs to return to the low 50%, which is within its normal operating range. The company continues to expect $240 million of free cash flow for the fiscal year 2018.

Further, Science Applications expects to pay dividends of almost $55 million and pay debts worth approximately $25 million. Remaining cash balance is expected to be in excess of $150 million available for further share repurchases, strategic mergers and acquisitions.

Zacks Rank & Stocks to Consider

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

Better-ranked stocks in the broader sector include DXC Technology (DXC - Free Report) , Fair Isaac Corporation (FICO - Free Report) and Nutanix Inc. (NTNX - Free Report) . While DXC and Fair Isaac sport a Zacks Rank #1 (Strong Buy), Nutanix carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rates for DXC, Fair Isaac and Nutanix is currently projected at 10.50%, 10% and 20%, respectively.

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