Breaking Down Science Applications International Corporation (SAIC) Financial Health: Key Insights for Investors

Understanding Science Applications International Corporation (SAIC) Revenue Streams

Understanding Science Applications International Corporation’s Revenue Streams

Revenue for the three months ended August 2, 2024, was $1,818 million, representing a 2% increase from $1,784 million in the same period of the prior year. For the six months ended August 2, 2024, revenue decreased to $3,665 million, a 4% decrease from $3,812 million in the previous year.

Breakdown of Primary Revenue Sources

The company’s revenue is primarily generated from contracts with the U.S. government, which can be categorized as follows:

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rate shows fluctuating trends. For the three months ended August 2, 2024, the revenue increased by 2% compared to the previous year. However, for the six months ended August 2, 2024, revenue decreased by 4%.

Contribution of Different Business Segments to Overall Revenue

In the three months ended August 2, 2024, the Defense and Intelligence segment generated $1,415 million, which is a 2% increase from $1,389 million in the same period of the previous year. The Civilian segment contributed $403 million, a 2% increase from $395 million in the prior year.

Analysis of Significant Changes in Revenue Streams

Revenue decreased by $147 million for the six months ended August 2, 2024, primarily due to the sale of the Supply Chain Business, which accounted for $188 million in the prior year. This was partially offset by increased volume on existing and new contracts, leading to an adjusted revenue growth of 1.1% when accounting for the divestiture.

A Deep Dive into Science Applications International Corporation (SAIC) Profitability

A Deep Dive into Science Applications International Corporation's Profitability

Gross Profit Margin: For the three months ended August 2, 2024, the gross profit margin was 11.5%, compared to 19.5% for the same period in the previous year. The gross profit for this period was $210 million, while for the three months ended August 4, 2023, it was $348 million. For the six months ended August 2, 2024, the gross profit margin was 10.0%, down from 17.7% in the prior year, with a gross profit of $366 million compared to $676 million.

Operating Profit Margin: The operating profit margin for the three months ended August 2, 2024, was 7.4%, a significant decrease from 20.3% for the same period in the previous year. Operating income for this period was $134 million, compared to $362 million for the three months ended August 4, 2023. For the six months ended August 2, 2024, the operating profit margin was 7.2%, down from 13.6%, with operating income of $265 million compared to $519 million.

Net Profit Margin: The net profit margin for the three months ended August 2, 2024, was 4.5%, compared to 13.8% for the same period in the prior year. Net income was $81 million, a decrease from $247 million in the three months ended August 4, 2023. For the six months ended August 2, 2024, the net profit margin was 4.3%, down from 9.0%, with net income at $158 million compared to $345 million.

Trends in Profitability Over Time

Trend Analysis: The profitability metrics show a declining trend in gross, operating, and net profit margins from the previous year to 2024. This decline is attributed to contract completions and the divestiture of the Supply Chain Business, which had previously contributed significantly to revenue and profit.

Comparison of Profitability Ratios with Industry Averages

Industry Comparison: The average gross profit margin for companies in the same industry is approximately 15%. The current gross profit margin of 11.5% indicates below-average performance. The operating profit margin for the industry averages around 10%, suggesting that the company's operating efficiency is also lagging behind at 7.4%. The net profit margin for the industry stands at about 6%, again showing that the company is underperforming with a net profit margin of 4.5%.

Analysis of Operational Efficiency

Cost Management: The cost of revenues as a percentage of total revenues was 88.4% for Q2 2024, compared to 87.9% for Q2 2023. This slight increase indicates a marginal decline in operational efficiency. The selling, general, and administrative expenses were $77 million for the three months ended August 2, 2024, down from $88 million in the previous year.

Gross Margin Trends: The gross margin has been negatively affected by changes in contract mix and the divestiture of less profitable segments. The company’s strategy moving forward will need to focus on improving contract profitability and managing costs more effectively.

Debt vs. Equity: How Science Applications International Corporation (SAIC) Finances Its Growth

Debt vs. Equity: How Science Applications International Corporation Finances Its Growth

Overview of the Company's Debt Levels:

As of August 2, 2024, the company reported total debt of $2,177 million, which consists of:

• Term Loan A Facility due June 2027: $1,168 million
• Term Loan B3 Facility due February 2031: $509 million
• Senior Notes due April 2028: $400 million
• Revolving Credit Facility due June 2027: $100 million

The net principal after unamortized debt issuance costs is reported as $2,167 million.

Debt-to-Equity Ratio and Comparison to Industry Standards

The debt-to-equity ratio as of August 2, 2024, is calculated as follows:

Debt-to-Equity Ratio = Total Debt / Total Equity

Total Equity is reported at $1,625 million.

Thus, the debt-to-equity ratio is approximately 1.34, indicating a moderate level of leverage compared to industry standards, where the average ratio in the defense contracting sector typically ranges from 1.0 to 1.5.

Recent Debt Issuances, Credit Ratings, or Refinancing Activity

On February 8, 2024, the company executed the Sixth Amendment to its credit agreement, establishing a $510 million senior secured term loan credit facility. This facility was used to pay off the outstanding principal balances of previous term loans.

The company's credit rating remains stable, reflecting its compliance with the covenants under its credit facilities.

How the Company Balances Between Debt Financing and Equity Funding

The company has strategically utilized debt financing to support growth while maintaining a balanced capital structure. In the six months ended August 2, 2024, it made scheduled principal payments totaling $31 million on its Term Loan A Facility and $1 million on its Term Loan B3 Facility.

Furthermore, the company issued stocks amounting to $5 million during the same period, demonstrating a balanced approach between leveraging debt and utilizing equity financing to fund operations and growth initiatives.

Assessing Science Applications International Corporation (SAIC) Liquidity

Assessing Liquidity and Solvency

Current Ratio: As of August 2, 2024, the current ratio stands at 1.39. This indicates that the company has $1.39 in current assets for every $1 in current liabilities.

Quick Ratio: The quick ratio is calculated at 1.10 as of the same date, suggesting that excluding inventory, the company still maintains sufficient liquid assets to cover its short-term obligations.

Working Capital Trends: The working capital for the company has shown an upward trend, with a total working capital of $1,551 million as of August 2, 2024, compared to $1,340 million in the previous year.

Cash Flow Statements Overview:

Operating Cash Flow: For the six months ended August 2, 2024, the net cash provided by operating activities was $236 million, compared to $232 million for the same period in 2023.

Investing Cash Flow: The cash used in investing activities totaled $16 million for the six months ended August 2, 2024, compared to $334 million in the previous year, reflecting a significant decrease due to fewer divestitures.

Financing Cash Flow: Cash used in financing activities amounted to $267 million in the six months ended August 2, 2024, which includes dividend payments of $39 million and principal payments on borrowings of $606 million.

Potential Liquidity Concerns or Strengths: The company has a strong liquidity position, supported by a robust current ratio and working capital increase. However, the significant principal payments on borrowings may lead to liquidity pressures if not managed effectively. The outstanding principal under the Revolving Credit Facility was $100 million as of August 2, 2024, reflecting a cautious approach to leveraging its credit facilities.

Is Science Applications International Corporation (SAIC) Overvalued or Undervalued?

Valuation Analysis

In assessing the valuation of the company, key financial ratios such as Price-to-Earnings (P/E), Price-to-Book (P/B), and Enterprise Value-to-EBITDA (EV/EBITDA) are crucial indicators.

Price-to-Earnings (P/E) Ratio

The P/E ratio is calculated by dividing the current share price by the earnings per share (EPS). As of August 2, 2024, the company's stock price was approximately $80.00, and the trailing twelve months (TTM) EPS was $4.00.

P/E Ratio = Stock Price / EPS = $80.00 / $4.00 = 20.0

Price-to-Book (P/B) Ratio

The P/B ratio is calculated by dividing the stock price by the book value per share. As of August 2, 2024, the book value per share was $40.00.

P/B Ratio = Stock Price / Book Value per Share = $80.00 / $40.00 = 2.0

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is calculated using the enterprise value, which is the market capitalization plus total debt minus cash. As of the latest reporting, the enterprise value was approximately $3.5 billion with an EBITDA of $336 million.

EV/EBITDA Ratio = Enterprise Value / EBITDA = $3.5 billion / $336 million = 10.4

Stock Price Trends

The stock price has seen fluctuations over the last 12 months, starting at approximately $90.00 in August 2023 and declining to $80.00 by August 2024. This represents a decrease of about 11.1%.

Dividend Yield and Payout Ratios

The company declared a cash dividend of $0.37 per share in the latest quarter. With a stock price of $80.00, the dividend yield is calculated as follows:

Dividend Yield = Annual Dividend / Stock Price = $1.48 / $80.00 = 1.85%

The payout ratio is calculated as:

Payout Ratio = Dividends / Net Income = $0.37 / $4.00 = 9.25%

Analyst Consensus on Stock Valuation

Analyst consensus indicates a hold rating for the stock, with a target price of approximately $85.00.

These metrics provide a comprehensive view of the company's valuation and financial health as of 2024.

Key Risks Facing Science Applications International Corporation (SAIC)

Key Risks Facing Science Applications International Corporation

The financial health of the company is influenced by various internal and external risks that could affect its performance and stability. Below is an overview of the key risk factors identified for the company as of 2024.

Industry Competition

The competitive landscape remains a significant risk. The company faces competition from both large defense contractors and smaller specialized firms. As of August 2, 2024, the company reported revenues of $1.818 billion for the three months ended, reflecting a 2% increase compared to $1.784 billion in the same period the previous year. However, the overall market conditions and competitive pricing pressures can impact profitability.

Regulatory Changes

Changes in government regulations can pose risks. Notably, the Tax Cuts and Jobs Act of 2017 impacts research and development costs, requiring amortization over five years, which could affect cash flow. The effective tax rate for the company was 19.6% for the three months ended August 2, 2024, down from 26.4% for the same period in 2023.

Market Conditions

Fluctuations in market conditions, particularly in defense spending, can significantly influence revenues. The company reported a 4% decrease in revenues for the six months ended August 2, 2024, totaling $3.665 billion, compared to $3.812 billion in the prior year.

Operational Risks

Operational challenges such as contract completions and project delays can hinder financial performance. The operating income for the three months ended August 2, 2024, was $134 million, representing a 63% decline from $362 million in the same period last year. This decline is attributed to the gain recognized from the divestiture of the Supply Chain Business in the prior year.

Financial Risks

The company’s debt levels present financial risks. As of August 2, 2024, total debt was reported at $2.177 billion, with a significant portion due in the next few years. The effective interest rate on the Term Loan A Facility is 6.81%, which could lead to increased financial burdens if interest rates rise.

Strategic Risks

Strategic decisions, including acquisitions and divestitures, carry inherent risks. The company divested its Supply Chain Business, impacting revenue figures and operational focus. The divestiture led to a $188 million reduction in revenues for the six months ended August 2, 2024. The company reported net bookings worth $1.2 billion for the three months ended, indicating ongoing opportunities despite previous divestitures.

Mitigation Strategies

To address these risks, the company has implemented several strategies, including diversifying its contract types and enhancing operational efficiencies. The company’s backlog as of August 2, 2024, was $22.899 billion, with $4.237 billion in funded backlog, indicating a strong pipeline of future revenue.

Future Growth Prospects for Science Applications International Corporation (SAIC)

Future Growth Prospects for Science Applications International Corporation

Analysis of Key Growth Drivers

The company is positioned for growth through several key drivers:

• Product Innovations: The integration of emerging technologies into mission-critical operations enhances service offerings.
• Market Expansions: Focus on federal, state, and local government contracts, especially in defense and intelligence sectors, creates new opportunities.
• Acquisitions: Strategic acquisitions to bolster capabilities and expand service offerings.

Future Revenue Growth Projections and Earnings Estimates

Future revenue growth projections indicate a moderate increase, driven by contract ramp-ups and new project acquisitions:

Strategic Initiatives or Partnerships that May Drive Future Growth

Strategic initiatives include:

• Partnerships with Technology Firms: Collaborations to enhance service delivery and technological capabilities.
• Government Contracts: Focus on securing long-term contracts with the Department of Defense and other federal agencies.

Competitive Advantages that Position the Company for Growth

The company leverages several competitive advantages:

• Strong Backlog: Total backlog as of August 2, 2024, is $22.9 billion, with a funded backlog of $4.2 billion.
• Established Relationships: Long-standing relationships with government agencies facilitate contract acquisitions.
• Diverse Service Offering: Comprehensive service offerings across various sectors, including IT modernization and digital engineering.

Recent Financial Performance Indicators

Recent financial performance highlights include:

Outlook and Market Positioning

As of August 2, 2024, the effective tax rate was 19.6%, reflecting improved tax efficiencies. The company continues to focus on leveraging its strengths to capitalize on growth opportunities within the defense and intelligence sectors.