Science Applications Q1 Earnings Miss, Shares Fall 12%

Science Applications International Corporation's SAIC shares plunged 11.8% on Monday after the company reported lower-than-expected bottom-line results for the first quarter of fiscal 2025. The company reported first-quarter adjusted earnings of $1.92 per share, which missed the Zacks Consensus Estimate by a penny.

The bottom line decreased 20% year over year due to a decline in revenues, increased internal investment and program performance milestones being weighted to the second half of the year. This was partially offset by a lower tax rate and a roughly 5% reduction in the weighted average share count.

Revenues declined 9% year over year to $1.85 billion but surpassed the consensus mark of $1.84 billion. The year-over-year decrease was due to the sale of the logistics and supply chain management division. The downside was partially offset by a ramp-up in existing and new contracts. Nevertheless, the top line increased 0.4% when adjusted for the impact of the logistics and supply chain management division's divestiture.

Adjusted EBITDA was $166 million, down 12% year over year. The adjusted EBITDA margin contracted 30 basis points (bps) on a year-over-year basis to 9%.

Science Applications International Corporation Price, Consensus and EPS Surprise

Science Applications International Corporation price-consensus-eps-surprise-chart | Science Applications International Corporation Quote

Effective Feb 3, 2024, Science Applications reorganized its business structure and replaced the previous two operations with five new customer-facing business groups, supported by enterprise organizations, such as the Innovation Factory.

The five groups representing SAIC's operating segments have been combined into two reportable segments, Defense and Intelligence, and Civilian, based on their similar economic and qualitative characteristics and the nature of the customers.

Quarter in Detail

Net bookings for the fiscal first quarter were $2.6 billion, reflecting a book-to-bill ratio of 1.4. SAIC's estimated backlog of signed business deals was $23.6 billion at the end of the fiscal first quarter, of which $3.46 billion was funded.

Selling, general and administrative (SG&A) expenses marginally increased 1.2% to $85 million. SG&A expenses, as a percentage of revenues, rose to 4.6% from 4.1% in the year-ago quarter.

Non-GAAP operating income plunged 16.6% year over year to $131 million and the non-GAAP operating margin contracted 30 bps year over year to 8.6%.

Balance Sheet & Cash Flow Details

Science Applications ended the fiscal first quarter with cash and cash equivalents of $49 million, down from the previous quarter's $94 million.

As of May 3, 2024, Science Applications' long-term debt (net of the current portion) was $1.99 billion compared with $2.02 billion as of Feb 2, 2024.

The company generated operating and free cash flows of $98 million and $13 million, respectively, in the fiscal first quarter.

FY25 Guidance Update

Science Applications reiterated its fiscal 2025 guidance. The company projects its fiscal 2025 revenues in the range of $7.35-$7.50 billion. SAIC expects adjusted earnings in the range of $8-$8.20 per share. The Zacks Consensus Estimate for fiscal 2025 revenues and non-GAAP earnings is pegged at $7.45 billion and $8.11 per share, respectively.

It projects adjusted EBITDA in the $680-$700 million band and the adjusted EBITDA margin in the range of 9.2-9.4%. It projects to generate free cash flow in the band of $490-$510 million.

Zacks Rank and Stocks to Consider

Currently, Science Applications carries a Zacks Rank #3 (Hold). Shares of SAIC have lost 4.4% in the year-to-date period.

Some better-ranked stocks from the broader technology sector are AppFolio APPF, Arista Networks ANET and Alphabet GOOGL, each sporting a Zacks Rank #1 (Strong Buy) at present.

The Zacks Consensus Estimate for AppFolio's 2024 EPS has been revised upward by 3 cents to $4 in the past 30 days. Shares of APPF have jumped 31.3% in the year-to-date period.

The Zacks Consensus Estimate for ANET's 2024 EPS has been revised upward by 43 cents to $7.92 in the past 30 days. Shares of ANET have climbed 25.9% in the year-to-date period.

The Zacks Consensus Estimate for Alphabet's 2024 EPS has been revised upward by 9 cents to $7.61 in the past 30 days. Shares of GOOGL have gained 24% in the year-to-date period.

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