science applications international corporation (saic ... · pdf filescience applications...
TRANSCRIPT
© SAIC. All rights reserved.
Science Applications International Corporation (SAIC)[NYSE: SAIC]
Jefferies 2014 Global Industrials Conference
August 13, 2014
Anthony J. Moraco, Chief Executive Officer
John R. Hartley, Chief Financial Officer
S A IC .c om
© SAIC. All rights reserved.
Forward-Looking Statements
2
Certain statements in these slides contain or are based on “forward-looking” information within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements reflect our belief and assumptions as to future events that may not prove to be accurate. Actual
performance and results may differ materially from the guidance and other forward-looking statements made in these slides depending on a
variety of factors, including: developments in the U.S. government defense budget, including budget reductions, implementation of spending
cuts (sequestration) or changes in budgetary priorities; delays in the U.S. government budget process or approval to raise the U.S. debt ceiling;
delays in the U.S. government contract procurement process or the award of contracts; delays or loss of contracts as result of competitor
protests; changes in U.S. government procurement rules, regulations and practices; our compliance with various U.S. government and other
government procurement rules and regulations; governmental reviews, audits and investigations of our company; our ability to effectively
compete and win contracts with the U.S. government and other customers; our ability to attract, train and retain skilled employees, including our
management team, and to obtain security clearances for our employees; our ability to accurately estimate costs associated with our firm-fixed-
price and other contracts; cybersecurity, data security or other security threats, systems failures or other disruptions of our business; resolution
of legal and other disputes with our customers and others or legal or regulatory compliance issues; our ability to effectively deploy capital in
determining to pay dividends, implement share repurchases or acquire businesses and make investments; our ability to maintain relationships
with prime contractors, subcontractors and joint venture partners; our ability to manage performance and other risks related to customer
contracts; the adequacy of our insurance programs designed to protect us from significant product, design or other liability claims; our ability to
declare future dividends based on our earnings, financial condition, capital requirements and other factors, including compliance with applicable
laws and contractual agreements; and our ability to execute our business plan and long-term management initiatives effectively and to
overcome these and other known and unknown risks that we face. These are only some of the factors that may affect the forward-looking
statements contained in these slides. For further information concerning risks and uncertainties associated with our business, please refer to
the filings we make from time to time with the U.S. Securities and Exchange Commission.
In addition, these slides should be read in conjunction with our earnings press release dated June 10, 2014 along with listening to or reading a
transcript of the comments of our management delivered in an earnings conference call held on June 10, 2014.
All information in these slides is as of June 10, 2014. We expressly disclaim any duty to update any forward-looking statement provided in these
slides to reflect subsequent events, actual results or changes in expectations.
S A IC .c om
© SAIC. All rights reserved.
Today’s Speakers
3
Anthony J. Moraco
Chief Executive Officer
John R. Hartley
Chief Financial Officer
S A IC .c om
© SAIC. All rights reserved.
4
S A IC .c om
© SAIC. All rights reserved.
SAIC Overview
5
• Leading technology integrator specializing in technical, engineering and
enterprise IT services to the U.S. government
• 45-year history of mission service delivery and customer relationships
• Significant scale of about $4 billion with diversified contract base
• Highly skilled workforce of about 13,000 employees
• Strong and predictable cash flow
S A IC .c om
© SAIC. All rights reserved.
Investment Highlights
6
Focused on serving our customers leveraging both deep mission domain knowledge and the breadth of enabling IT solutions
Enduring Customer Relationships
and Mission-Orientation
Technical Experts Led by
Experienced Management
Tailored Operational Model and
Competitive Structure
Over 65% of workforce hold a security clearance and work at customer locations
Efficient corporate structure and effective account management and service lines for critical mission delivery
Solid Financial Position Strong cash flow generation from recurring revenue base with margin expansion potential
Full Lifecycle Offerings End-to-end services and solutions support entire mission and enterprise lifecycles
Significant Scale and Diversified
Contract Base
One of the largest pure play technical services providers to the U.S. Government; about $4B in annual revenues, with 90% prime contracts
Offering an outstanding value proposition to all stakeholders
S A IC .c om
© SAIC. All rights reserved.
FY14 Year in Review (Ended January 31, 2014)
Operating as an independent company since September 2013
Solid financial performance
$4.1B of revenue with a diverse contract base and customer portfolio
Adjusted operating margin of 6.0% (1)
$183 million of operating cash flow; $167 million of free cash flow (1)
Diluted EPS of $2.27 (includes impact of non-recurring separation transaction expenses)
Implemented new operating model; matrix organization
Transformational year leading to optimization year in FY15
7
(1) Adjusted operating margin and free cash flow are non-GAAP financial measure as defined and reconciled in the appendix of this presentation.
S A IC .c om
© SAIC. All rights reserved.
Full Lifecycle Services & Solutions
8
Mission & SETA
HardwareIntegration
Training & Simulation
Logistics & Supply Chain
Network Integration
Software Integration
Cyber, Cloud and Data Sciences
IT ManagedServices
SAIC
Services &
Solutions
DESIGN
Engineering
& Analysis
BUILD
Develop &
Integrate
SUPPORT
Operations &
Maintenance
S A IC .c om
© SAIC. All rights reserved.
Fiscal Year 2014 Revenue
Customer
Mix
Contract
Type
Revenue
Mix
Navy /
Marine Corps
24%
Federal
Civilian
25%
Army /
Air Force
30%
DoD Agencies
& Commands
18%
State/Local/
Commercial
3%Cost
Reimbursable
37%
Time &
Materials
31%
Fixed Price
32%
SAIC Labor
43%
Subcontractor
37%
Supply Chain
Materials
14%
Other Materials
6%
9
~ 90% Prime Contractor; ~ 85% IDIQ Revenue
S A IC .c om
© SAIC. All rights reserved.
Army /
Air ForceState, Local
and
Commercial
Navy /
Marine
Corps
DoD
Agencies &
Commands
Federal
Civilian
SAIC Market Position
Offerings
Network Integration
Software Integration
IT Managed Services
Cyber, Cloud & Data Sciences
Mission & SETA
Hardware Integration
Training & Simulation
Logistics & Supply Chain
Grow Protect/Expand
Operating Model to Drive Growth
10
S A IC .c om
© SAIC. All rights reserved.
FY14 - YEAR OF
“Transformation”
• Implemented agile operational model
• Restructured leadership roles
• Portfolio aligned to leverage scale
• Established capital structure and deployment strategy
3-Year Strategic Road Map
FY15 - YEAR OF
“Optimization”
• Sustain our revenues
• Improve our operating margins
• Invest in repeatable technologies & capabilities
• Total ‘solutioning’ with partners
• Executing capital deployment strategy
FY16 & BEYOND
“Maturation”
• Technology integrator of choice across full lifecycle
• Employer of choice for subject matter experts
• Market leadership in existing and new markets
• World-class solutions
• Investment of choice; disciplined capital deployment
S A IC .c om
© SAIC. All rights reserved.
SAIC Approach To Shareholder Value
12
Leverage scale
Protect the base
Expand current
customers
Grow new
customers
Strong program
performance
Reduce indirect
costs
Revenue Growth
Annual margin
expansion Earnings growth
Dividend
~ 30% of free cash
flow
Increased
operating cash
flow
Free cash flow
~$200M/yr
Maximize Total
Shareholder
ReturnIncrease SAIC
labor content
Reliable operating model allows for disciplined capital deployment
Re
ven
ue
le
vers
Op
in
co
me
le
vers
Additional
leverage above
current level
Share repurchases
currently >50% of
excess cash
Opportunistic M&A
S A IC .c om
© SAIC. All rights reserved.
Annual Organic Revenue Growth Low single-digit growth
Target Operating Margin10 to 20 bps annual improvement,
on average, starting in the low 6% range
Maximize cash flow generation,
free cash flow to exceed net income
Return of capital in excess of operating needs,
absent higher return capital
deployment opportunities
Leverage (debt to EBITDA)
Financial leverage appropriate for SAIC’s
investment requirements and cash
generating characteristics
Long Term Financial Targets (on average and over time)
13
S A IC .c om
© SAIC. All rights reserved.
SAIC – Creating Shareholder Value
Organizational alignment
Value Proposition Principles:
• Understood and executed at every level
of the enterprise
• Explicit and disciplined in how we
deliver value
• Tangible metrics that measure our
progress
• Well aligned incentives that drive
behavior throughout the enterprise
• Transparency with investors to provide
visibility into business
Say what we do
Do what we say
Transparency of mission
Make our value proposition clear
14
Execution of our strategy to deliver value
© SAIC. All rights reserved.
Science Applications International Corporation (SAIC)[NYSE: SAIC]
APPENDIX
S A IC .c om
© SAIC. All rights reserved.
First Quarter Fiscal Year 2015 Results (1)
(1) Results of Science Applications International Corporation and its consolidated subsidiaries for the first quarter ended May 2, 2014 and excludes revenues performed by former
parent company.
16
(1) Results of Science Applications International Corporation and its consolidated subsidiaries for the first quarter ended May 2, 2014 and excludes revenues performed by former
parent company.
(2) Free cash flow is a non-GAAP financial measure as defined and reconciled in the appendix of this presentation.
S A IC .c om
© SAIC. All rights reserved.
Non-GAAP Reconciliation – FY15 Q1 Adjusted Operating Margin
17
($ in millions)
These slides refer to adjusted operating income margin,
which is a non-GAAP financial measure that is reconciled
to the most directly comparable GAAP financial measure,
operating income margin. The company believes that
reporting adjusted operating margin provides investors
with greater visibility into the profitability of the company.
The company calculates adjusted operating income
margin by adding expenditures for the separation of the
company to GAAP operating income and subsequently
dividing by revenue.
This financial measure is not meant to be considered in
isolation or as a substitute for comparable GAAP
measures and should be read only in conjunction with
SAIC's consolidated financial statements prepared in
accordance with GAAP. The method that the company
uses to calculate adjusted operating income is not
necessarily comparable to similarly titled financial
measures presented by other companies.
Three Months Ended Three Months Ended
($ in mi l l ions) May 2, 2014 May 3, 2013
Operating Income 59$ 52$
Separation Transaction Expenses - 16
Adjusted Operating Income 59$ 68$
Operating Margin 6.1% 4.7%
Adjusted Operating Margin 6.1% 6.1%
S A IC .c om
© SAIC. All rights reserved.
Non-GAAP Reconciliation – FY15 Q1 Free Cash Flow
($ in millions)
These slides refer to free cash flow, which is a non-GAAP
financial measure that is reconciled to the most directly
comparable GAAP financial measure, cash flows used in
operating activities. The company believes that reporting
free cash flow provides investors with greater visibility into
how effectively it generates cash. The company calculates
free cash flow by subtracting expenditures for property,
plant and equipment from total cash flows used in
operating activities.
The limitation of this non-GAAP financial measure as
compared to the most directly comparable GAAP
financial measure is that free cash flow does not
represent total cash flows. The company addresses this
limitation by presenting free cash flow near disclosures of
cash flows used in operating activities. This financial
measure is not meant to be considered in isolation or as
a substitute for comparable GAAP measures and should
be read only in conjunction with SAIC's consolidated
financial statements prepared in accordance with GAAP.
The method that the company uses to calculate free cash
flow is not necessarily comparable to similarly titled
financial measures presented by other companies.
Three Months Ended Three Months Ended
($ in mi l l ions) May 2, 2014 May 3, 2013
Total cash flows used in operating activities, as reported 34$ (15)$
Expenditures for property, plant and equipment (7) (1)
Free cash flow 27$ (16)$
18
S A IC .c om
© SAIC. All rights reserved.
Non-GAAP Reconciliation – FY14 Adjusted Operating Margin
19
($ in millions)
These slides refer to adjusted operating income margin,
which is a non-GAAP financial measure that is reconciled
to the most directly comparable GAAP financial measure,
operating income margin. The company believes that
reporting adjusted operating margin provides investors
with greater visibility into the profitability of the company.
The company calculates adjusted operating income
margin by adding expenditures for the separation of the
company to GAAP operating income and subsequently
dividing by revenue.
This financial measure is not meant to be considered in
isolation or as a substitute for comparable GAAP
measures and should be read only in conjunction with
SAIC's consolidated financial statements prepared in
accordance with GAAP. The method that the company
uses to calculate adjusted operating income is not
necessarily comparable to similarly titled financial
measures presented by other companies.
Three Months Ended Three Months Ended
($ in mi l l ions) January 31, 2014 January 31, 2013
Operating Income 56$ 61$
Separation Transaction Expenses 1 13
Adjusted Operating Income 57$ 74$
Operating Margin 6.0% 5.4%
Adjusted Operating Margin 6.1% 6.5%
Twelve Months Ended Twelve Months Ended
($ in mi l l ions) January 31, 2014 January 31, 2013
Operating Income 183$ 281$
Separation Transaction Expenses 58 28
Adjusted Operating Income 241$ 309$
Operating Margin 4.6% 6.0%
Adjusted Operating Margin 6.0% 6.6%
S A IC .c om
© SAIC. All rights reserved.
Non-GAAP Reconciliation – FY14 Free Cash Flow
20
($ in millions)
These slides refer to free cash flow, which is a non-GAAP
financial measure that is reconciled to the most directly
comparable GAAP financial measure, cash flows used in
operating activities. The company believes that reporting
free cash flow provides investors with greater visibility into
how effectively it generates cash. The company calculates
free cash flow by subtracting expenditures for property,
plant and equipment from total cash flows used in
operating activities.
The limitation of this non-GAAP financial measure as
compared to the most directly comparable GAAP
financial measure is that free cash flow does not
represent total cash flows. The company addresses this
limitation by presenting free cash flow near disclosures of
cash flows used in operating activities. This financial
measure is not meant to be considered in isolation or as
a substitute for comparable GAAP measures and should
be read only in conjunction with SAIC's consolidated
financial statements prepared in accordance with GAAP.
The method that the company uses to calculate free cash
flow is not necessarily comparable to similarly titled
financial measures presented by other companies.
Three Months Ended Three Months Ended
($ in mi l l ions) January 31, 2014 January 31, 2013
Total cash flows used in operating activities, as reported 125$ 33$
Expenditures for proprty, plant and equipment (6) (1)
Free cash flow 119$ 32$
Twelve Months Ended Twelve Months Ended
($ in mi l l ions) January 31, 2014 January 31, 2013
Total cash flows used in operating activities, as reported 183$ 280$
Expenditures for proprty, plant and equipment (16) (7)
Free cash flow 167$ 273$
S A IC .c om
© SAIC. All rights reserved.
Shareholder and Stock Information
► Initial Public Offering: Science Applications International Corporation (SAIC) common stock began trading
on the New York Stock Exchange (NYSE) on September 30, 2013.
► Fiscal Year 2015: SAIC’s fiscal year starts on February 1, 2014 and ends on January 30, 2015.
► Share Price Information: SAIC’s common stock is listed on the NYSE under ticker symbol SAIC. Share price
information can be found at http://investors.saic.com/stock-information
► State of Incorporation: SAIC is incorporated in the state of Delaware
► Dividends: SAIC expects to declare and pay regular quarterly cash dividends in the future; however, the
actual declaration of any such future dividends and the establishment of the per share amount, record
dates and payment dates for any such future dividends are subject to the discretion of the Board. The table
below lists SAIC’s dividends for the past 12 months:
Declaration Date Record Date Payable Date Amount Type
06/04/14 07/15/14 04/30/14 $0.28 Cash, Quarterly
03/20/14 04/15/14 04/30/14 $0.28 Cash, Quarterly
12/12/13 01/15/14 01/30/14 $0.28 Cash, Quarterly
10/03/13 10/15/13 10/30/13 $0.28 Cash. Quarterly
21
S A IC .c om
© SAIC. All rights reserved.
Shareholder and Stock Information (continued)
► Website: www.saic.com
► Inquiries from securities analysts, portfolio managers, institutional investors and other interested investors
in SAIC should be directed to:
Paul E. Levi
Director of Investor Relations
(703) 676-2283
► Inquiries from media should de directed to:
Lauren A. Darson
(703) 676-8982
► Inquiries regarding corporate governance should de directed to:
Paul H. Greiner
(858) 826-7360
22