Science Applications International Corporation

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 speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. At this time, I would like to turn the call over to Mr. Joseph DiNardi. Please go ahead, sir.

Good morning, and thank you for joining SAIC's third quarter fiscal year 2022 earnings call. My name is Joe DiNardi, Vice President of Investor Relations, and joining me today to discuss our business and financial results are Nazik Keen, our Chief Executive Officer, and Prabhu Natarajan, our Chief Financial Officer. Today, we will discuss our results for the third quarter of fiscal year 2022 that ended October 29th, 2021. Earlier this morning, we issued our earnings release, which can be found at investors.saic.com, where you will also find supplemental financial presentation slides to be utilized in conjunction with today's call and a copy of management's prepared remarks. These documents, in addition to our Form 10-Q to be filed later today, should be utilized in evaluating our results and outlook along with information provided on today's call. Please note that we may make forward-looking statements on today's call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call. I refer you to our SEC filings for discussion of these risks, including the risk factors section of our annual report on Form 10-K and quarterly reports on Form 10-Q. In addition, the statements represent our views as of today, and subsequent events may cause our views to change. We may elect to update the forward-looking statements at some point in the future, but we specifically disclaim any obligation to do so. In addition, we will discuss non-GAAP financial measures and other metrics, which we believe provide useful information for investors, and both our press release and supplemental financial presentation slides include reconciliations to the most comparable GAAP measures. It is now my pleasure to introduce our CEO, Nasik Keen.

Thank you, Joe. Good morning, everyone, and thank you for joining us to discuss our financial results and updated outlook for our third quarter fiscal year 2022. Before we begin, I'd like to welcome Joe DiNardi to his first earnings call with SAIC on this side of the table. We're excited to have Joe on our team to continue building on our already strong investor relations outreach effort, as well as add expertise and leadership to our executive team. Now on to our Q3 results. I'm pleased to report our fourth consecutive quarter of positive organic revenue growth and another quarter of strong profitability. Due to continued strong operating performance, adjusted EBITDA margin was 9% and contributes to the increase in our full-year margin outlook. Our year-to-date strong results reflect a commitment to our customers' needs, success in creating value for our shareholders, and a dedication to the mission from our 26,000 employees during a still challenging time. Despite recent challenges related to supply chain disruptions and a tight labor market, we remain confident in our ability to sustain organic growth into next year and increase free cash flow by approximately 10%. We know that driving both of these metrics creates shareholder value. Prabhu will provide further detail on our increased guidance for this year and initial outlook for next year in his prepared remarks. I would like to focus my comments this morning on two new initiatives which create value and opportunity for our employees and our shareholders. The first is what we're calling the future of work. And it is our approach to enabling flexibility for our workforce while increasing productivity and financial returns. The second is a reorganization of our internal investment effort, which has led to the creation of our innovation factory teams designed to better align our targets of organic investments with customer needs in the areas of AI, engineering, and digital. Let me first start with the future of work. One of our top priorities continues to be ensuring that we are able to attract and cultivate the best talent while managing through pressures related to attrition and COVID. While we have more open positions than we would like, we're taking steps to proactively address this challenge in new and industry-leading ways. In late September, we announced enhancements to our employee benefits package, including the optionality of a four-day workweek, The addition of backup child and elder care, the recognition of Juneteenth as a paid holiday, and increasing paid family leave while holding employee health care premiums flat for the second year in a row. Under our future of work initiatives, we are streamlining our facility footprint while investing assertively in a new operating paradigm. This advances our vision to promote employee well-being and our ability to attract diverse talent while driving financial benefits in the form of increased competitiveness and cost savings. While this program will be implemented over a multi-year period, it is already underway and we have line of sight into annual cost savings of at least $25 million, which we expect to reinvest back into our workforce and to drive incremental growth into the future. We continue to monitor COVID-19 vaccine mandates and the impact they may have on our workforce and business operations over the next few months. To this point, we have not seen any noticeable impact on attrition or sourcing talent as a result of the vaccine mandate, and it is not materially impacting our financial performance. Our outlook for this year and next year assumes that this remains the case. As of last week, roughly 96% of our workforce is compliant with our vaccine policy, and we would expect that to increase modestly going forward. For those in our workforce who are not vaccinated, we believe we can accommodate or reposition a large portion of these employees such that the eventual net impact is immaterial. Now I'd like to spend a few minutes discussing the development of our innovation factory teams, or IFTs, and the initial returns we're seeing from our investments. A little over two years ago, we began the process of shifting our internal investments away from primarily enhancing program-specific capabilities to developing enterprise solutions directly aligned with future customer demand. To aggressively drive this part of our strategy, this year we implemented changes to our organizational structure and incentive metrics to tighten collaboration between our innovation factory teams and the growth priorities of our sectors. We are confident this refinement of our internal investment strategy will allow us to more efficiently and effectively invest shareholder capital. This focus and discipline will ensure our investments are well aligned with customer requirements and enhance our ability to market, sell, and ultimately deliver differentiated solutions in growth areas like IT as a service, application modernization and cloud management, and systems integration. A good example of this is the Mark 48 program win announced just after the close of the quarter. The U.S. Naval Sea Systems Command awarded SAIC a contract with a total value of up to $1.1 billion to integrate various subsystems for the Mark 48 Mod 7 heavyweight torpedo. This win is a direct reflection of SAIC's unique understanding of the undersea domain, coupled with our internal enterprise-wide investments in our digital manufacturing solution, our integrated logistics and supply chain solution, and other digital engineering solutions and capabilities. This award significantly expands our scope on this program and highlights our ability to leverage our legacy as a leading provider of high-end engineering services and move opportunistically and profitably into select systems integration and delivery roles. We currently have a rich pipeline of systems integration opportunities across multiple domains and customers. To be clear, we remain prudent and disciplined to ensure that opportunities we pursue are ones where we know the technology, we understand the mission and domain, have understanding of the legacy systems, and where we are able to contract, partner, and leverage organic investments in support of our long-term profitable growth strategy. We're excited about the new business pipeline in front of us and feel confident that our legacy and recent investments position us to drive profitable organic growth. I'll now turn the call over to Prabhu to discuss our financial results and updated outlook.