SAIC - Earnings call transcript Q3 2022 | Science Applications International Corporation

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Operator

Hello, and welcome to the SAIC Fiscal Year 2022 Q3 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers ' remarks, there will be a question-and-answer session. [Operator instructions]. Thank you. would turn I to call time, Mr. this like the to over At DeNardi. Joseph sir. Please go ahead,

Joseph Denardi

year XX-K documents, XX-Q statements actual you note should today's and in with are remarks. may factors and prepared that to section and results call. this risks, outlook Good Please on the and we These you name quarterly a our ended be risk and Executive information today, XXXX and find discuss to joining financial statements be utilized forward-looking year make slides the fiscal later we results Financial filings our Vice on saic.com, these quarter addition Today, call morning subject could filed results and along also provided thank Chief this earnings issued Form including you of of today's financial our copy be Prabu investors. me where XXXX our to be call known can quarter 's President that results reports call. materially Keene, our in Officer. for XXth, we for earnings Natarajan, from third fiscal in of our unknown today report third Earlier are to that will SEC our which XXXX. call. evaluating business management's on Relations, found conjunction October at Nazzic uncertainties utilized to presentation refer that today's made to supplemental Officer, will My Investor is to of risks Form cause our Form on on morning, differ I discuss XX-Q. DeNardi, for Joe release, and joining and discussion annual with SAIC Chief our of

some point In the subsequent future, We in change. may at the to forward-looking any specifically our may so. disclaim update elect views and as today, obligation but events we represent of views statements statements our do addition, cause to the to

measures metrics, measures. for investors, include pleasure introduce and GAAP Keene. financial useful slides non-GAAP financial the discuss our It will now most and we to presentation we believe my provide is reconciliations and comparable to which addition, other press supplemental both CEO, release our Nazzic In information

Nazzic Keene

Joe. for discuss thank everyone, our you, financial Thank Good and for year you us morning, fiscal XXXX. quarter updated and joining outlook third to results our

Before the side building already team our I'd to call excited welcome on effort, this expertise strong our like our to as we Joe relations begin, on have DeNardi earnings on leadership executive continue to table. and to investor of as first Joe SAIC his team. We're with to add well outreach

consecutive strong our adjusted to fourth Now, performance, increase to pleased QX Due in the our and of margin EBITDA another positive growth profitability. results. onto revenue to operating margin organic quarter quarter I'm of outlook. X% strong continued, was our report contributes full-year and

and for my to increased and year will and of by that would our shareholder these year still challenging ability guidance disruptions our approximately to supply Our this for his like shareholders, value in on X initial morning metrics year a in recent results into year-to-date related tight creating both the our driving this customers I create time. needs, Prabu growth reflect shareholders. our labor We in a and focus and our on next Despite provide dedication value confident further for mission new ' remain XX,XXX prepared employees to from know to to remarks. our a for next outlook detail initiatives, and market, comments flow chain cash sustain commitment success we our creates employees XX%. increase opportunity which value. a strong free organic during challenges

future the it to calling we're productivity is flexibility our returns. increasing our what of is and enabling workforce financial first approach work, while for and The

which our the AI, need investment the a investments internal of of has led Engineering, our with to to better align targets reorganization of creation in is factory organic and areas of second customer The effort, Digital. teams, our designed innovation

me The start Future Let first Work. with of

our of continues and to we be through to ensuring attract to One that priorities and managing pressures best talent, related are cultivate the top attrition able while COVID.

late second employee diverse address have the we to our Juneteenth employee in announced enhancements advances more the than and our financial of talent holding steps addition paid competitiveness vision driving for child the challenge of Under new form assertively attract proactively while industry-leading including open streamlining Work taking ability recognition while our a back cost ways. footprint a workweek, positions Future a year to new while benefits optionality the this increasing a While package, holiday, and This initiatives, operating healthcare our care, premiums elder promote we paid would the and investing benefits row. savings. our up flat facility In in we're well-being of like, paradigm. September, in and and to in are increased family of employee X-day we we of leave as to

this expect workforce While of is our over million, incremental back growth annual $XX savings drive to to into least into the a we and of reinvest program which into period, be already line and multiyear sight underway, we at future. implemented will it cost have

of performance. and not a point, impacting vaccine few and on our over noticeable mandate, workforce continue We it next talent impact operations mandates on the to the have not is seen this or our vaccine materially financial the To business monitor they any attrition months. we've impact and as may result COVID-XX sourcing

year this case. the assumes and year this remains for next outlook that Our

is with to As roughly XX% week, vaccine we policy, forward. would of workforce our and compliant last increase of our that modestly going expect

believe our immaterial. such who portion reposition that workforce, accommodate net impact in these can of not those large we are For eventual a or vaccinated, we is employees the

enterprise teams returns our from from little seeing primarily enhancing the began investments. our shifting the developing solutions collaboration we with minutes strategy, few our to sectors. tighten a factory spend to changes part the or and innovation our future implemented To of discussing A years the aggressively like customer development to our ago, program-specific we incentive over drive demand. of structure internal this organizational this Factory metrics we're away initial of Teams investments capabilities of our to I'd year Innovation our IFTs process between priorities aligned and directly growth X and Now

and differentiated ensure manufacturing is internal our confident undersea aligned strategy our opportunistically, this are our SAIC shareholder unique where and integrated the more the capabilities. enhance feel of systems a where and to This with profitably, will to will call financial business customer services leverage direct of The are XX of a X of expands total have partner delivery discuss $X.X ordered technology, internal of Systems investments Mark Sea into other in and integration are that award long-term subsystems understand domains engineering effectively This digital domain, XX for leverage service, with our integrate areas profitable like currently that pursue growth digital solutions highlights capital. to and I'll we SAIC updated supply front support ultimately as contract with are profitable cloud high-end new logistics confident We're We integration. the investments to and and a engineering reflection the and and in strategy. as quarter. the of know we over win drive contract, close modernization on growth. just win a management, refinement and of this customers. excited our scope and organic example the we position Prabu chain program provider solution, rich Naval and systems efficiently this value investments 's move investments results understanding our our our now IT sell, domain and heavyweight up enterprise-wide solution, market, well good torpedo. mission and of to and remain coupled about solutions is discipline of opportunities significantly to legacy This our and Mod and organic we the deliver systems understanding We announced Command U.S. us to turn ability a Mark legacy program allow our pipeline our and ensure A able the of select us systems, the integration prudent us after to a requirements billion and leading in to the outlook. across in various be of pipeline to we focus clear, To have growth multiple legacy disciplined opportunities invest application ones and ability investment and recent roles. our

Prabu Natarajan

which with of generated performance pleased of quarter. X.X% consecutive our represents We're quarter fourth our organic year-over-year Nazzic. Thank you, growth. third the growth, in We financial positive

to of reflect labor the tightness, on in billion, ahead and plan a the quarter Halfaker. approximately total were due EBITDA controls. Our as continued of Revenue were market last third supply new ramp $X.X to quarter growth effective quarter our to in both existing lower-than-planned margins addition third of due by results cost year and Adjusted execution chain impacted compared and the ramp-up material fiscal of of the and sales, dollars slower strong contracts revenues and X.X% business.

after the adjusting $XX for prior costs million year. was $XX of for of million per EBITDA and $X.XX adjusted costs. of quarter and third $X X% the inclusive Adjusted acquisition quarter EBITDA integration Third $XXX quarter, Diluted from was was share million, earnings million. the acquisition margin integration a increase

year. a intangibles, quarter, earnings Excluding XX% an rate of last of our XX% of and to of these lower as share well diluted costs, adjusted amortization was increase $X.XX, compared as effective in per net the approximately tax

quarter improve. continues Act, payroll quarter was ahead the third to to efficiency note cash in to flow CARES track cash Third year-over-year flow year-to-date continues plan. is million flow that tax as $XXX to timing related would underlying payments of I due free capital and of the free the working cash decline free

the free payroll nearly X% impact year-to-date. flow has operating about In grown cash has flow and taxes the deferral, of grown cash fact, adjusted for X%,

the $XX $X including capital, During deployed of dividends, and we million $XX share acquisitions. of million million million $XX of quarter, repurchases, for third

In addition, ending a de leverage net quarter debt with times. roughly mandatory we X.X and making of to the continued repayments ratio -lever,

in subsequent XX a the voluntary the We billion were important out results was X.X. the continued quarter. MK to is bookings quarter quarter note of $X.X Net the close of for repayment of It XX-month to the third booked that book-to-bill X.X book-to-bill share trailing and slipped in over a repurchases quarter. to award and of prioritize in debt the

per XX-month the quarter. in with booked results share, XX increasing Our and would also quarter we had around X.X have flow. about earnings guidance cash Based book-to-bill EBITDA third are X.X, free a been for if revenue, on margin, MK trailing to-date,

We modest, in X% billion are fourth towards $X.XX timing with to a challenging X% of higher attracting sales $X.X organic to guidance the bias incremental our for the material quarter, implies growth reflecting range. increasing This market a billion to revenue related of talent. and pressure to the end roughly

for to XX EBITDA our performance adjusted across portfolio. margins reflect to increasing guidance are by strong to X.X%, points, We X% basis the

We earnings $X.XX. to guidance per $X.XX to range are by share increasing a adjusted of $X.XX

free directional year million guidance provide 's end guidance like increasing cash million. a fiscal some I at to the are to we Finally, million $XXX low SAIC would range $XX by now $XXX for of XXXX. flow to

beyond generate FY the pipeline revenue development business growth in FY XXXX. XXXX and We this to have positive opportunities and expect FYXXXX. organic sustain to

a in assumptions on fourth provide key position fiscal March behind drivers We be more call XXXX. will on and in our quarter this to the detail

business. believe transitions. from us even a of face organic front balancing certain opportunities full we this can the while growth we properly FYXXXX contract in deliver However, without Further, supply the in chain our outlook, risk, without not we we captures believe in recovery potential while headwinds positive

near chain For expect over million supply improve business COVID. future. generate in this hopeful FYXXXX, and an $XXX in over are $XXX inflection revenue the to time We years million context, in we expect just our to business do logistics well the in over down from of and to prior

and Company the is a not strategies focused overall business differentiated business. portfolio. chain supply can However, in bid to to improving margins through near-term grow our dependent the remain this that ability in on in automation full recovery add our additional the upon value We

note to a in communicated. rate We that with line in as the expect would X% adjusted transform over to as journey XXXX margins margins range, for FY is EBITDA business time opportunity in normalized improve our previously the margin high we our business. continue there I to be

few FYXXXX XX% are approximately roadmap a the next of cash over our FYXXXX business our of Lastly, guidance. and we cash midpoint have initiatives flow updated expect of conversion improve to growth generate the to structurally from We in the years executing. opportunities free of cash see we

cash we As a in these to as at view XX% expected flow initiatives, can base we our result grow continue a a FYXXXX free rate. of FYXXXX similar off which

free do plan tax related that compensation Our headwinds the roll-off we generator manageable. not top-tier face a and expect of important which we this our is cash assumes an of recall improve be flow, plans. FY We of you to to incentive cash will component meaningful any assets to XXXX, until become

headwinds Our that Congress. pending are assumes view R&D cash addressed bills via Section before on the the the XXX

turn -lever for not I'll balance deployment call maximize I Nazzic note portfolio shareholder closing capital Finally, would the changed: our return and our and to de a to remarks. standpoint value, some from over cash to have sheet Position our priorities time. grow that back our owners,

Nazzic Keene

performance I'm proud to to you, the deliver, of to this as our year of very customers, and pleased Thank our Prabu. shareholders, SAIC with we and other. with of in team business support each our continue the excellence,

As to we technical have workforce, future, our over opportunities of the succeed. optimistic about talented next internally, value. well most combined deep the robust investments to convert I into us a importantly, quarters made to our shareholder with set The tremendously I'm position ability few our expertise, and look

Before turn would Operator, the the over Operator like holiday to a over wish to everybody to wonderful our Q&A, I I you. season. call for

Operator

[Operator instructions].

of Matt Fargo. with comes from Wells Your first question line the Akers

Matthew Akers

level? still be for to the to you into about think margins Thanks ask biggest question. the will year-to-date? drop-off the and down drivers What I mix you guys. thought, you guys, Good sequential next is what year just lower want but What pretty about for getting that? done morning, of are the versus how decent the maybe you

Prabu Natarajan

in Thanks answer this the implied the Sure. Good a going in question. I'm morning, X here. year, to Matt. Natarajan for rates. in guidance, respect Prabu what's is With step-down margin in QX, this to parts. place

year-to-date for indirect think than and our other I really, it's margin been expecting performance to in has of that underrunning XX-basis innovation year, the compared in I range, being QX That here. this With of where investments basis. margin had. performance FYXXXX, compression we've about points Year-to-date, described proud QX. make we of year-to-date. with the X-time FY In rate. really a the as have in some there we're we very that's would've QX, quarters. benefited margin to year Clearly, line relative high but items drivers say out additional respect on well a factories, remarks, a on margin were we're of but couple rates to on our think good, that so margins couple items fairly been, the in X-time are been This XXXX for going continue our to an year so rates as over that implied we're of QX X important called prepared a that the the communicating have business year-to-date. to implies course metric consistently expenses margin guidance, are first that In in better what's this we've us X% to the do as I'd

the QX present factors other say, there right couple labor now. FYXXXX, into as of I'd incentive margin are will think high year, for which via margin I'd But an guidance profitable transitions the a some we year. have I'd view comment an variables say, next some I'd FYXXXX. about better compensation I because growth, now. modest what have a we'll talk consistent business do operating macro rate important is, to opportunity reinforce the there in roll you view say, range, us and that an put a margins in that we've could the X% few about and market early right we next uncertainty remind in CR improving and communicated to perhaps of It's a of metrics. couple contract will to we're that of on a I early an pressure are focused with chance of level produce hopefully, it's a think will

Matthew Akers

like guess it. one Okay. That's I is Got there really capital helpful. And deployment.

you've paying like higher-level next target but sounds about leverage that the to the repurchases you? looks think how being Is at for down and buyback target, attractive year, stock the I -- talked over the say that you're could share times it three you prioritizing is debt? still this is important

Prabu Natarajan

Matt. the did at Sure, We end about X.Xx. quarter

We authorization. also about shares ended on X remaining the repurchase our quarter with million

generate for deployed not to has capital that the really strategy fundamentally capital changed return around greatest really deployment, shareholders. ways long-term our Our

of how an itself, mentioned saw had ratio basis, course and dislocations say year-over-year as times. take a our say us we step that I'd out we're going and of the is Where we path advantage on to the us. one year dislocation think value signaled in course we think of components about earnings are of lever value to it's so now QX a some our quarter. the leverage where would performance the and of to these stock capital all I'd With advantage it, we there respect important about grow find the organically I like in the there's creating for we view over to for took essential time, we're sitting that it to we down we over deployment in if is so cash X right price, performance. improve the trades

X see we organically, ourselves times. to getting about do So

what So, say, previously no change real we've communicated. I'd from

Matthew Akers

you. Thank Great. Okay.

Prabu Natarajan

Sure.

Operator

Your the comes from Seifman JPMorgan. next with Seth question of line

Seth Seifman

morning. good Thanks very And much.

Prabu Natarajan

Seth. Hi,

Nazzic Keene

morning. Good

Seth Seifman

drive aware the role to play March about just hiring different think 'XX, fiscal about if that's through are and run could you'd are maybe those. in on the qualitatively a puts be are maybe in end going of us How mentioned for the how but more think What going top-line as call, in does the we that? the couple quarter a takes of to growth then that And just give of pace opportunities you you know growth? what to I you all book-to-bill headwinds? do in And January? color

Nazzic Keene

comments, Nazzic. question. the so is couple of A for this Hi, thanks

see As to as organic next and we look opportunity very Prabu our at that. continued growth indicated, ability with pleased do for year, we the do

programs the -- won the see program As ramp that some other year continued we see years couple looking And of programs. a that -- was notes the what my online, the we in so sorry are coming growth army SXI. about or think in space-related I'm we some of one? ago our here, We at

Prabu Natarajan

RITS.

Nazzic Keene

RITS.

Sorry. Thanks, Prabu.

potential we The probability ramping -- we biggest so, opportunities. high see as those been as see headwind NASA up that's as is next in And as the as discussed pipeline well the up, program. year the program well the very Vanguard the obviously, other headwinds

And risk-adjust, see for so, out and into opportunity we indicated. growth as year balance we as next still the Prabu those profitable

Prabu Natarajan

data other here. points of couple A

the the see called portfolio, potentially as rates we've quarters, ramp think into grow restricted growth able rates of do the program. There can the space SXI, focus see remained they which as headwinds -- is enable at next part new us the year are growth. ramped believe I do few where sustain business the right, to are Nazzic faster will last we organic the Army we well in positioning than of from portfolio we to we but and to over one NASA the RITS, out grow We has we work. the course, we exactly require win at grown Our pipeline have to the profitably. support us and to scenarios importantly,

number growth new dispositioned year, out as opportunity takes, the organic we of do and think that be to we puts on an to have about and business there do next by early we given pursuits waiting So, are the believe better side.

towards XX the expected we of probably at that's comment. in QX. QX, Mark respect book-to-bill of the at to booked the With to growth start that organic So come award end QX

likely is We have that have award slipping in QX, expecting space were into to also another QX. also we

quarter and ever QX. to have candidly, I healthy off think want the but provide were our think as to So, I to characterize X.X. expecting start quarterly a on way Mark basis don't And guidance book would we XX been on true, book-to-bill, about had that we book-to-bill in a about QX, is book-to-bill, for come to we're probably the

I that the think -- for provide additional And give as so, that's question, helpful. context and I'd hopefully

Seth Seifman

quick that's Thanks maybe Yeah, of theme on very And great. organic much. just really follow-up to growth. this

environment to enable guess, are in some bit the mentioned hiring changes, to But maybe could people. you degree more which difficult making a on put next if little the or about going hiring you're you You've attract pace talked the of when year? ways difficult I or be things being color on into will break the of growth a be the which

Nazzic Keene

of weigh provide me bit can Let a color in. and then little certainly Prabu

think, as some As, market across is it that to many relates certainly seeing general consistent I the labor industries, we're to is ours a COVID, it there as included, turnover. relates just well and tightening as

certainly thinking experience key. I that we're and Flexibility attrition. We ensure learned it is from that. drive things disproportionately an ourselves employees to way doing are to so that to We've internal that that engagement. attractive COVID is the think efforts look create the for we're for to looking mitigate we workforce about

employees doing the a that the deal work flexible hand-in-glove can our customers. we're ensuring great continue model, obviously with So, around

and in on attractive several on-boarding benefits our current got a remain our ensure as we've new initiatives employees, as I place we very inside place employees. in to taking well as So, well. ramping as able changes attract up our done of that the some the process considerable touched We've well also work recruiting to be Company. in for

the talent. to hire attract seen able very last in of couple over the we've results so, months great qualified great and of course And being

obviously. year, some in going we're certainly, all a a to equal, mitigate we I navigating, able believe something being that headwind, are of certainly great next position into but things be So risk to

is of relates we're that labor of also labor are managing go may to we're it mitigate rise the able looking because some pockets whether heard us you its the talk certainly cost and though travel, up, there's overall headwind the on such going even to juncture be anything other costs, costs, not other cost that. escalation But as about -- to well. or at facilities, any as, seeing significant of As this or labor, potential where

So, we certainly lot of it's key we're top it, attention growth part believe of going but a our and to paying we strategy, we're it's well-positioned mind, of our a strategy, year. into next

Seth Seifman

very you much. Thank Great.

Operator

Your with next comes Sachs. line the question from Goldman Noah of Poponak

Gavin Parsons

Hey, Gavin. guys. It's good morning

I doing? auto-fill. are think have that How might been an you

Nazzic Keene

Hey, Gavin.

Prabu Natarajan

Hi, Gavin.

Gavin Parsons

a Prabu, of X for I a bit parter got - you.

too organic the without said maybe you think or to some the into this remarks, for your year, On you next you than year, if work. win growth there's are faster opportunity much grow year rate I possibility next a reading

throughout when so take it's then slower to year, - what forward do than the this you've that is assumption in? and are did how the at planned you coming that, the more this follow-up to want grow back you guidance was going level that your visibility you or conservatism So, same raised look have approached base And case there's year, you you then, of than in you year? now line better original than to you

Prabu Natarajan

the said revenue organic to the take conversation of out I'm start X.X end the Thank guide year, the about Gavin. one the we we we then the of quarter, When And Halfaker, and -- increased second of second questions. quarter, going to added revenue guide of you the end for in X.X. first. starting Hey, the at the started X.X. to first Sure. the the top which towards

it's you the back where look end of said addition as set one the year reflecting you reflects the We revenue end year. at first the into of performance, revenue when us fantastic the the we at team's Halfaker changes portfolio. go through principles X.X, so, X the each of the of the for was, guide we of the current is, for guidance de And guiding top year? bottom the do and how the changes, course de course the -risk start at the the quarters over -risking If we look still of year our guidance of consecutive

So, and over I'd as are say the course thinking to then the the we de way business -risk the year year. about start a philosophically, of

is on as question. the different of which don't the in So new which a the of a implied the going itself. of on philosophically, ahead around swingers protest gets higher we're health front a year. dispositioned in think us. the to bit there grow The important is well what's for portfolio [Indiscernible] how timing FY us specifically, pipeline of did potentially lot And business guidance of and could X in than -- headwinds about depending we're This are opportunities position the a is robust could part first warning, question the faster I than to we next little is, see year I protest contract is grow at current with the XXXX? portfolio year whole talk big as this at we couple could rates potential potentially answer have the

the the to on NASA grow we outcome our at NICS where an on with right continued go why year the with the we're this were share the pipeline focus solid which and year-over-year, starting could that's better than of much little show was we then send in more bit to opportunity new perhaps headwind That's, at, have a year, business the growth front the of to rates in warning signal to way rates, basis are that lot an shareholders the now good a health a have organic we'll to in committing we organic new committed to much left you and have March. but portfolio. given we how growth growing how out believe, team and to important effect comfortable, on obviously of say business I'd So, business is an that the we to of detail

Gavin Parsons

some of of have helpful. is those that resolution? impacted Got continue extended it. visibility potentially by good timing you the new really That's wins and Do an into

Prabu Natarajan

rather The is I provide first will months get earlier later, the time is, also is indicative we'll by is to I think in have hope where guidance that to for and the out. yes. of FYXXXX more our fairly to next part answer FYXXXX we X say visibility FYXXXX. certainly to part and window March the will but X the And yes months stake would answer than the into our it's second be

Gavin Parsons

you. Thank Okay.

Operator

Cowen. question Rumohr comes next line Your from the with Cai of von

Cai Von Rumohr

you Prabu, Thank give some whether color bid whichever talked much. expected awaiting decision? could big way more the submits the you could numbers us us on swingers. -- QX give you next months, if you think maybe X very bids Yes. is your you for meaningful. of on Maybe And the or

Prabu Natarajan

take billion; the about $XX.X disposition $XX I'll part, awaiting QX, first The is bids at Cai. that billion. was Sure. about number

So, let's it we relative high are up the call watermark. to QX single-digits

directionally, to reasons, for materiality there, of right vector not of the strategic And the about for want we say a out variety terms they the we the obviously in Company. of in I say any would opportunities see and the specifically outcomes. are than those needle-moving what's other So, competitive to of terms of talk

these opportunities. we them, upsized potentials have we're Company. obviously some and win an rates, but positioned but Well, them they but not for so and to of are some actually growth well go to impacts needle-moving the for have with combination, win So, takeaways, on are go we easy these that's

Nazzic Keene

with metrics, to this focus Prabu but just anecdotally, the of and Nazzic continued in for the a you pipeline of Company. that. gave add the is to see growth we also Cai, strategy And consistent areas couple

lot sales also pleased development business the also focused on our a We've increasing in account work done team, that right we're solution. pipeline this not from of just the team with ensuring right of reach in and development. year but very the the So

with of over pleased with come. our with very the driving to development pipeline, the years So consistent profitability greater consistent strategy,

long-term that. position good a to so, we we're good And of of a to but feel as Prabu got wanted reinforce the like lot as pay we well. visibility, I in attention also health pipeline the we've indicated,

Cai Von Rumohr

the on give you some year? specifics on takeaways, with mentioned and or to us incentive you've margin, do the emphasizing changes give comp you the couple size. of plan. bounding you comp in envisioning be expect for And but submit us us a secondly, in times of I if things comp potential next Maybe the on don't expect direction you maybe cash QX plan flow. depends depends What you might are to the the incentive any could give Thanks. incentive

Prabu Natarajan

On the made Sure. of Thank at a for of we changes. questions, set incentive the you Cai. important really FYXXXX, start comp,

off based peer revenue, adjusted between as cash I against performance in In balanced interesting, we to third it paying as growth, the the third having EBITDA we for is set And then we more across for relative And operating wait think team performance. the third plan well peer X the a of words, what's balanced relative metrics. far team targets other side. flow. performance by of the metrics paying of the is against interesting

important year really and some starting that believe made this I we see really change to changes we from real traction of at we're the the made. So, start

total shareholder especially committed shareholders. in back our metrics, long-term performance we an return to always element of also are the to to ensure value returning We introduced that

really team's those believe, of updated in first important other to and On level the were the bit wouldn't dare guidance this will, start lumpy, me, we differently than it the an differently comp important because peers. say really of I a it the incentive define who than the we little if you get perhaps of made be year very and into the embracement, ways That's to at peers question. leg think book-to-bill, QX it be it define non-GAAP reflects, year while the we entry. is I performance from the a changes So, etc., our misleading it's metric, might quarterly it other metric, can and also I book-to-bill some could say their

is about also Nazzic and not to growth at variability, the effectively as $XX to the into but billion comp the the the to, the incentive end of total say of committed not and backlog, in remained because it we rates, get around as rates just referred pipeline. it our pipeline So, we'd backlog, at but importantly, guidance rather the does quality funded of an are also but well not backlog margin reflect metric implied grow backlog growing that the other to book-to-bill than has QX

long-term. the is I always qualitative to that quality So, believe Nazzic think the there team in some job to is we as some said, are some backlog the helpful and we're about longevity we well as elements out that nice really look And when seeing backlog. doing a there and

Nazzic Keene

couple exceptionally Prabu like things I add, captured is this I'd other think Nazzic. Cai, A to well. of

that the outlined, major we thing comp, as that more of lower same aligned components this to values have value. shareholder The pushed the many actually is same we and leaders incentive we that it metric, other the are drive directly the did year actually, we organization, so

So, very important move was I thought a year. that this

it's table. look significant year, we specific we but to to something shareholders process. aren't We We believe next we on during the do we we it's the results, serve that we the the is at back better producing our a that would that go us as but take any serve mind of contemplating say balanced, going cycle opportunity right changes plan. But nothing if board the top fresh and the always believe step normal into better, through take keep and

Cai Von Rumohr

Thank you very much.

Prabu Natarajan

Sure.

Operator

the comes next from question of David with Your Barclays. Strauss line

Unidentified Analyst

Prabu. David. Nazzic, Morning, it's on Colin for

for as as your you First capital cash guidance flow working potential for this capital talk upside could well free question, business. in you if efficiency about longer-term envisioned what embedded

Prabu Natarajan

question, Thank Sure. you Colin. the for

also we mentioned course year, the opportunity we've the performance business. of of over course of believe think year, cash there's we're of strong the improve the said the over But to cash. real I As the we've a generator

about at level, specifically. a level, then and couple at consolidated spent last at level. look we're want it business just quarters, at the at the of performance just working capital fair inside amount And of to, to we have calories working look the couple a Company mix, net alluded Over as Nazzic in a looking the to year, reason at And we is the we to and we XX, the sector truly then not capital and within be XX% capital, program level, predominantly understand business think contractual a cash unit business, less. signaling the it what our we're of are There increase have contract up program next TNM flow opportunities you more paid if free right in level. or potentially is cost-plus to a the to drives within working share

also performance time get process cycle the on it all improvement for if the And all on collection see we it to accrued, working think cycle. review takes there, our you about cash cycle, the we so, but see costs of capital an the invoice invoice the cash through we a real across improving get that the to capital, an opportunity for way working see, end-to-end for opportunity

addition also have significant that of to at and are are on have we programs, we make terms we at level. at level, make the number want that, sub capital the In we to have working the looking with sure that that to prime subs symmetric our sure terms we

there there and appropriately, terms as opportunity down potentially is slow well. we So,

step-down in improvement cash of cash there's prepared free potential that's the as improvement, see to in FY That's to manageable be the flow back is, we basis and long-term. the don't which a beyond that offering expect XX% working obviously, that and flow in see capital impacts to potential, step we year, improvement improvement we here, fundamentally FYXXXX but finally, really benefiting a prepared sit with improvement. remarks off then going flow we until we signaled do why the those quite as look grow on persistent we that. we profit of or over as it can base and cash as extra next maybe key currently XX% see later. working we're So, up for And but from tax cash material we we have free a remarks, at you mentioned capital some And starts XXXX a reality tax an to be assets

and as back this real committing I at as team an complementary cash a to making because the we are level opportunity. improving And So, we're say, years both step enterprise as fact the metrics longer-term at that important really real to enterprise and difference there's level the I'd we've chairing the here. few Nazzic over real operating the incentive gotten we truly look it's and business, committed well the near-term the value in next that and some metrics, we see some opportunity initiatives and see

Unidentified Analyst

it's should the do capital about working Where and hang capital efficiencies? for sales, thinking where on, that terms be of in percentage or And our think this metrics, underlying about as it. Got we of guide the rails we working do we head a days?

Prabu Natarajan

Yeah.

total If And DSO million DSO component. at DSO. capital picture, think worth of currently is, about if $XX you we're days. talked cash. million working of you DSO think is about -- but important of is about And we've one Every where about day $XX XX component and it's the an between

course, about we're that this that's is, well. to think X-day focused about payable implying DPO, time. a of highly period X-day in you DSO And on there over a improvement, if side of So, as improvement of a which XX% is the

structurally terms program on into achieve we're obviously, get on we if that based speaking, getting ensuring allow contracts to the you or is us contractual books there that so, will, And into we liquidate, milestones now milestones. right

But X-day you So, allows effort the or X-day there's a about low-end improvement obvious far the DSO to it. we get a element think years at to over as some DSO if and replicability provide multi-pronged the most days. us of one, to see lower that potentially

Unidentified Analyst

capability about how extent you're guidance price for Got integration, the to as it. systems And for IT margin think FY that's then it, about flowing modernization just talked last you me. But the on and you and versus between XXXX? competing strategy X go-to-market

Nazzic Keene

the certainly If about can I talk go-to-market.

it considerable part the do leveraging IP is our IT very modernization, As of past significant broad IT-related performance. a own forward, we've and strong and that programs, is partners, the amount our our the leveraging we going good cloud indicated, news migration, today all of those leveraging of pipeline

the it's at positioned that customers We see we Intel broad So, community, market. we're all whether whether the serve, it DOD, the well agencies. civilian the whether it's across it's

tends certainly that The and see there's type closer the higher the of pipeline, pleased that general, of of maturation in drive with you opportunity general, always part long-term margins. and but that to to in work so exceptions, And and very that get IP Company. our optimistic solutions tend margins, is to the one to you the we're about an of closer that higher as-a-service to get long-term reasons to of margin the our being model, able profile does the do leverage drive which

Prabu Natarajan

implied is the metrics an at the then measure and quality we the eyes the metric, allow And an on as on place that we're thinking Company is to will, to a pipeline, we you extra the think that whether of level, if use rates, quality we there about rate that's improvement in put side, some margin and one to go organically quantitative make below of sure the to that threshold bids us on thresholds long-term important have bids consistent basis. health about

improve we important we see on an margin to that's we likely the continued over improvement have there. metric because me, believe potential to said we're to we've to So, and there time, track story as

Unidentified Analyst

for Thanks the color. so much

Prabu Natarajan

you. Thank Sure.

Operator

line from next Your Sommer comes Securities. question of Truist Tobey the with

Tobey Sommer

benchmark out do the you in you Thanks. in new stand tightening extent market, Good to to labor the been you able to market. place? many labor able morning. react to that regard been some as initiatives think? where reacting know positioned better tighter To your you've than labor to a they opposed market from do and to the you're hearing putting companies have We're as things that Where

Nazzic Keene

this Nazzic. is Tobey,

try specific September, way. we example, that things material in or me. do to I so we and seeing have improvement it's in we -- an on recruiting on, seeing that. any that just tackle regard Let in Many own that benefits, still benchmarks change the me are you offers in of don't touched in we're I front messaged as metrics, the pretty implemented days. a continued internal obviously, and early we tell will of our

focus year. we're that investments think going the about areas, about good good the we into next So, and feel I making, we're well-positioned we feel

see Now, on with the industry it relates as said, holding the out turnover I our don't that labor anything broad we're is market turnover relates the and that pool, that within is to either skew. of industry. being all And as of it there own certainly to side

We mind. ability every team So, onboard executive an metrics tightening it, we're make have up. offer it to doing and as several just to considerable attention week, get we're is things expedite the is that internally leadership that top something to process and paying really actually of

certainly, something a Prabu. probably and these metrics. add So specific as behind cycles could couple some don't we us, March we the to color get it's timeframe, any go of I into have but

Prabu Natarajan

couple other of data a Just points. quantitative

attrition think we and back you across about attrition an year required it As step had anomaly the rates because as lower last rates well industry. was as headcount,

we're see labor As market at into I more COVID. feels labor a comparison, we look just it's at market, market that pre actually labor attrition the market. rates this but labor looking year, comparability that tightening exact like a one-to-one an say and Not do - to

us comfort the that gives actually it so navigate reality we navigated market, know we've it. how that is, So, to

tightening every is of costs for function other market onboard. geography, it's it's function The of function a we where is the labor of also are skill seeing a employee a the set, and non-labor bring of we're that things

geography at see, metrics are think there pockets there developing you bundle looking sets. total heightened factors, the of to at are as about level skill So, where we're the of levels demand? We're

needed be on communicate the markets sense are into that to year's track we factors and skill share going of to sets this phone, Those fundamentally more play a the metrics hard equation. to a color to we As we're on plan, those are next have no about look actually running other next metrics all I into year's to, starting where but but the be little plan wanted that. to able in are going what

Tobey Sommer

there question we please? keep there look years, in are like Okay. that Thank My do or out? on that significant next say more you. follow-up couple certain recompetes. as mind the What we should recompete is map of should is over percentages And programs I

Nazzic Keene

comments. look a couple of I forward, think if we Tobey,

take. to or if slide normative. is It's pushed they're next out, the of For more give it's the years, that especially and things which a changes in normal more year, XX%, metric, that significant. couple XX% get Obviously, things

for I the significant next on, well the we bring NASA that, of coming is touched Vanguard touched there's we've different mid Department we've as as always get next X will program an which go you we've out would re-compete in stuff years XX coming that most State update program, through is for portfolio, the of as that of cycle X held but the into the on ones, a recompete given year. that attention and the As year, on your that the last bit

would the very that we we're to one year. but of think -- aggressively obviously anything top for be flow keeping add? as I Prabu, that, next mind think pursuing we're So, be would that revenue about

Prabu Natarajan

year but up is year. doesn't the but PBMRO revenue have following for recompete, it next impact a

Tobey Sommer

Thank you.

Nazzic Keene

Noise Affirmative

Operator

Your question line Blair. comes William the with Louie DiPalma from next of

Louie Dipalma

Morning, Good Prabu, Nazzic, and Joe.

Nazzic Keene

Good morning, Louie.

Louie Dipalma

if year. main your last what the overview catalyst for nearly along an flexibility margins? have with significant all to peers provide just your SAIC margin of been margin Has not, your reported for expansion on been relative can work-from-home higher expansion? a you has driver And

Prabu Natarajan

Sure. Thank you for the question.

a FYXXXX. We FYXXXX, around true just which have actually it dynamic And than for is true For not certainly, that's planned. was actually FYXXXX, for FYXXXX, question as say open going right now. this lower rather, sorry, next how but it I'd total into between run FYXXXX just there bridge out probably an plays called as when we a gave tailwind out 'XX 'XX. for margins you the Querying year, that's costs,

points items over So, XX that a FYXXXX to of the call. tailwinds nearly of called out as the basis that course were margin called out to year operating points about in We in couple we related primarily we on our liability off-market did to significant we as pickup margin. margin think QX tailwind XX referred FYXXXX we just the rates, basis of to

out this we going thought said X% while juncture it but improve to range, inherently as that the for this to FYXXXX. at is recognizing to FYXXXX we those high acknowledge realistic tailwind operating margin therefore, in potential at range, course of one-time probably the about hopefully, currently, year sit have call the this going FYXXXX, So, where the back in is in pickups the but X margin team to improvement we're the over business. portfolio range, got at the that of the and we've it is we've this is bridged incentives see already, not significant be guidance of couple way way for incentivized long-term again, high times worked to on And operating our from we be working to which I've X%

Nazzic Keene

focused, other as thing time, Prabu the ago of the also I I just talked And and Louie, this the indicated a touched would about, pipeline. profile reinforce I've but and margin and in on this is, of we're bit takes course very

over And one execute so maximizing any the really pipeline the that for ensuring Again, but in not margins or as the higher margin of time for only win is in strategy, reflective way portfolio we've expansion. we programs margins as of can an aggregate, but in the other, the today, that that in and looking program in one our impact we part those. have those will in drive highlighted our aggregate, being fact that prosecute areas

Louie Dipalma

pipeline related that there positioned integration are you similar systems think IT your consistent pipeline, contracts? other hardware-type type contract, space XX the to torpedo the that Navy Great, systems MK Nazzic. for your is that the to contract strongly profile production with margin And win? are hardware-type in commentary to on And you

Nazzic Keene

engineering pipeline. then is of and have take let very color, consistent so an and and The Louie, 's yes. heritage This and potential -- in other area scale strong Prabu Ad opportunities some size with me certainly. is and can that do modernization. add SAIC our it's margins in answer we significant

mentioned remarks, selective. We are, as prepared my I in very

And the we understand programs we domain, in technology, they and strong we which as our course, the of ecosystem very the as work and a to so, sure we make both can customer's partners, ourselves. absolutely well advantageous contract to are mission understand we have want deliver of

And complex pipeline, we engineering it is the tools, digital SAIC. heritage some we form repeatable of is And so, at. in of strong management, do twins. look the in form supply And it really very have of reinforced digital chain building engineering, we've then tools, on something the strong a

given combination And it so in that strong a position has the us market.

size strong strategy. ensure go and or do but that pipeline I selective, think to our lay consistent one any when we with our probably eyes is of opportunities, every I have opportunities, the that to scale So, we pipeline are of on that's strong it those,

Prabu Natarajan

not that And this be part in say for I'd line in terms sort of margins circa the of as see X% margins and the that's with that aspiration the and rate. margins XX% sell aspiration, to or business to challenging the something of Think the it we margin, great our hardware question. would side. build complex more on technically XX% is from of X% at margin

opportunities, will domain the here ROI me, legacy the a gives that us and why of we SAIC to to deliver. integrator So, got think important execute we help our experience to I sure a aspiration. I that we have what a actually us deliver, as comfort if And pipeline us. investments and systems We've for need to make we lot the know on what and but additional Nazzic that's need deliver spend question time of is on an that evolving these good

about in the So, on this we're this very thoughtful space. opportunities pick we

Louie Dipalma

Excellent. holidays. And happy

Nazzic Keene

holidays. Happy

Operator

from Your the Sheila line next comes of Jefferies. Kahyaoglu question with

Sheila Kahyaoglu

the Good guys. morning, Thanks Hi. for time.

the about there's that X really it contracts have talked like line, on guys grow. maybe already, a you times help you top it few seems Just

recompetes the work? HPCMP should that And fiscal third One How of that big is being growth. you potentially. some that the other rollover the contract NAVSEA talked the Nazzic, mentioned, and them Prabu, we you the -- one for about one on about XXXX XXXX, is maybe year, all is being next And RITS, AMCOM is about incremental? and Vanguard really into think AEGIS new

program think that questions recompete we one. in percentage percentage X about do completion So, and how So that delta?

Nazzic Keene

I Okay. can tag-team. Prabu and

a headwind our tailwinds program that. a some is do of going you we're your Mark some -- incremental Obviously, to are portfolio, breakup depending parts we the multi-award. of and is some you growth got growth certainly question risks, we going believe portion are the SXI, on, we've to I touched opportunity, well-positioned have NAVSEA of first some I touched growth will to are Vanguard the some be -- there into next going that an be would XX The certainly timing. the program, they on next -- say year. year, there It As on part in headwinds on the building to space will growth of on so side, existing win, on going there. significant a we which -- the we pursue The and

complicated positioned we is So, we'll certainly But more feel key of just than a bit it's that in strongly because line-for-line of certainly the the that recompete year into far as we've course, about the next as And award does depends recompete. and that work of into revenue talked a Timing on pursue timing the go NASA -- very then on the program. much headwind. that.

the colors? most to Prabu, captured think anything I headwinds want tailwinds you you So, add of and correctly.

Prabu Natarajan

perfect. that's No,

Nazzic Keene

there, missed I Sheila? Anything Okay.

Sheila Kahyaoglu

that the set. like look industry, on-contract attrition that look guys a was delta more? there's the of a headcount Maybe only grew flat your at, topline looks sorry don't rates your other like I guys growth, peers, comment a your headcount the on you little if bit and wage Was it quarter? industry some a have -- I peers think they grew. look grew then at maybe No, how that's the could And When what know of with the your just X% all do subset versus at X%. organically, And headcount, it good. bit a you public inflation? X, on broader but of was does year-over-year. the we about I seem in growth But you you grew industry

Prabu Natarajan

math one. Sheila, On say sounds take right. about that your headcount, I'll I'd

we prepared the think least than flat a the And net that more organic programs off the in I say lighter, the and on peers. total we've of in of basis, includes some this we think labor at just we at the seeing headcount reported about our end Company numbers seen market. based would as for I a tightness that were mentioned the we're Clearly, from which bit ramp. topline came continued X.X% programs quarter remarks, in little on new

FY we we metrics think have around about So, as year-over-year, growth that what want be labor we to for headcount number XXXX.

be which we do for demand we're do starting robust labor a internally curve is needed But curve but That we're back yet. plan X utilization to time, you to weekly year, of perspective to and have to we're are X. headcount seeing tells up is Company next will, catch organically starting inherent needs that's that's with on needed headcount, to we starting what good the look process is months which a is headcount grow we As increase or for reviews and executing. committed these the the what what spare not but if X what X the up, to also net see the headcount, see with team to me bend the quite trends: actually flattening is sign, a bend, sign. curve flat. headcount not We're the a headcount out, good actually good

Just a little you. for color more

Sheila Kahyaoglu

Thank Okay. you.

Nazzic Keene

Sheila. Thanks,

Operator

further no to to like remarks. are call Mr. there Joe time, over this would for turn DeNardi closing I back questions. At the

Joseph Denardi

your earnings Have today's a day. and thank for very and nice in Lisa participation in you-all SAIC. continued you, call much your Great. interest for Thank

Operator

today's concludes conference. This

now disconnect. may You

Science Applications International (SAIC) 6 Dec 212022 Q3 Earnings call transcript