10-K: SAIC Reports Fiscal Year 2024 Results, Navigates Strategic Reorganization

SAIC's fiscal year 2024 saw a revenue dip due to divestitures, but strategic shifts and a business reorganization aim to bolster future growth.

Summary

• Science Applications International Corporation (SAIC) reported a revenue of $7.444 billion for fiscal year 2024, a 3% decrease compared to the $7.704 billion reported in fiscal year 2023.
• The revenue decrease is primarily attributed to the sale of the Supply Chain Business and the deconsolidation of Forfeiture Support Associates J.V. (FSA).
• Adjusting for these divestitures and the impact of additional working days in the prior year, revenue grew approximately 7.4%.
• Operating income increased by 48% to $741 million, or 10.0% of revenues, driven by gains from divestitures and improved profitability.
• Net income attributable to common stockholders was $477 million, a 59% increase from $300 million in the previous fiscal year.
• Cash flows from operating activities decreased by 26% to $396 million, primarily due to lower cash provided by the Master Accounts Receivable Purchase Agreement (MARPA Facility) and higher tax payments.
• The company completed a business reorganization effective February 3, 2024, replacing two operating sectors with five customer-facing business groups.
• The total backlog as of February 2, 2024, was $22.763 billion, comprising $3.539 billion in funded backlog and $19.224 billion in negotiated unfunded backlog.
• The company repurchased approximately 3.3 million shares of its common stock for $357 million during fiscal 2024.
• The company anticipates making a $1 million contribution to fund the Retiree Health Reimbursement Account plan (RHRA) during fiscal 2025.

Sentiment

Score: 7

Explanation: The sentiment is cautiously optimistic. While revenue decreased due to divestitures, the company is strategically reorganizing and improving profitability. The backlog remains strong, indicating future potential.

Positives

• Operating income increased significantly due to divestiture gains and improved contract profitability.
• Net income attributable to common stockholders saw a substantial increase.
• The company is focusing resources on long-term strategic growth areas through divestitures.
• A business reorganization is designed to enhance management's involvement with customers and advance SAIC's innovation and go-to-market strategy.
• Adjusted EBITDA as a percentage of revenues increased to 9.0% for fiscal 2024, compared to 8.8% for fiscal 2023.

Negatives

• Revenue decreased due to the sale of the Supply Chain Business and the deconsolidation of FSA.
• Cash flows from operating activities decreased due to lower cash provided by the MARPA Facility and higher tax payments.

Risks

• The company depends heavily on U.S. government contracts, making it vulnerable to changes in government spending and budgetary priorities.
• SAIC faces aggressive competition that can impact its ability to obtain contracts.
• Failure to comply with complex procurement rules and regulations could result in penalties.
• The U.S. government may terminate, cancel, modify or curtail contracts at any time.
• Cybersecurity threats could negatively affect the company's business and financial results.
• Climate change and extreme weather events could disrupt operations and affect the company's ability to meet contractual obligations.

Future Outlook

The company is focused on long-term strategic growth areas and expects its scale, size, and prime contractor leadership position to help differentiate it from competitors. The company believes its long-term, trusted customer relationships and deep technical expertise provide it with the sophistication to handle highly complex, mission-critical contracts.

Management Comments

• The reorganization is designed to enhance management's involvement with customers and advance SAIC's innovation and go-to-market strategy.

Industry Context

The U.S. government has increasingly relied on contracts that are subject to a competitive bidding process, which has resulted in greater competition and increased pricing pressure. Additionally, the U.S. government has put renewed emphasis on increasing the number of small business prime set aside contracts that further reduce the addressable market in some areas.

Comparison to Industry Standards

• SAIC competes with larger companies such as General Dynamics Corporation, Northrop Grumman Corporation, and RTX Corporation.
• SAIC also competes with contractors focused principally on technical and IT services, such as Booz Allen Hamilton Inc., CACI International, Inc., Leidos Holdings, Inc., ManTech International Corporation, and Serco Group plc.
• SAIC competes with diversified commercial providers that also provide U.S. government IT services, such as Accenture plc and International Business Machines Corporation.

Management Changes

Legal Proceedings

• The Company is involved in various claims and lawsuits arising in the normal conduct of its business, none of which the Company's management believes, based on current information, is expected to have a material adverse effect on the Company's financial position, results of operations or cash flows.
• In April 2022 and October 2023, the Company received Federal Grand Jury Subpoenas in connection with a criminal investigation being conducted by the U.S. Department of Justice, Antitrust Division (DOJ).
• The Company is fully cooperating with the investigation.
• At this time, it is not possible to determine whether the Company will incur, or to reasonably estimate the amount of, any fines, penalties or further liabilities in connection with the investigation pursuant to which the subpoenas were issued.

Stakeholder Impact

• The sale of the Supply Chain Business enables the Company to focus its resources on long-term strategic growth areas, potentially benefiting shareholders.
• The business reorganization is designed to enhance management's involvement with customers and advance SAIC's innovation and go-to-market strategy, potentially benefiting customers and employees.
• The company declared a cash dividend of $0.37 per share of the Company’s common stock payable on April 26, 2024 to stockholders of record on April 12, 2024.

Next Steps

• The company is currently evaluating the impact of the reorganization on its segment reporting.
• The company expects to contribute $1 million to fund the Retiree Health Reimbursement Account plan (RHRA) during fiscal 2025.

Key Dates

Keywords

SAIC, revenue, operating income, net income, backlog, divestiture, reorganization, government contracts, financial results, EBITDA