Science Applications International Corporation

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 1 on your telephone keypad. I will now turn the conference over to Joseph DiNardi, SAIC Senior Vice President, Investor Relations, Treasurer. Please go ahead.

Good morning, and thank you for joining SEIC's fourth quarter fiscal year 2024 earnings call. My name is Joe DiNardi, Senior Vice President of Investor Relations and Treasurer, and joining me today to discuss our business and financial results are Tony Towns-Whitley, our Chief Executive Officer, and Prabhu Natarajan, our Chief Financial Officer. Today, we will discuss our results for the fourth quarter of fiscal year 2024 that ended February 2nd, 2024. 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-K 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 factor section of our annual report on Form 10-K. 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. The non-GAAP measures should be considered in addition to and not a substitute for financial measures in accordance with GAAP. It is now my pleasure to introduce our CEO, Tony Towns-Whitley.

Thank you, Joe, and good morning to everyone on our call. My prepared remarks this morning will focus on a review of our fourth quarter and full year results and an update on the implementation of our corporate strategy. Prabhu will then discuss our results and outlook in more detail before we take your questions. I'm proud of the financial performance we delivered in the quarter as our focus on providing value to customers and a favorable funding environment contributed to our strong revenue growth. For the full year, we increased pro forma revenue by over 7%, which highlights the potential of this business to deliver market-level rates of profitable growth. While our margin rate and earnings per share were impacted primarily by higher incentive compensation accruals in the quarter, excluding this, we were able to increase EBITDA margins by 50 basis points over last year, and free cash flow per share grew by 11%, indicating that our underlying execution remains very strong. We continue to manage the business in fiscal year 25 to maximize EBITDA and free cash flow while accelerating key investments in portfolio differentiators, market-proven business development talent, and upskilling initiatives to drive growth and long-term shareholder value. Relative to the framework we provided last year at our 2023 Investor Day, we now expect fiscal year 25 adjusted EBITDA and free cash flow to be higher despite a roughly 20 basis point incremental investment to drive profitable growth. We expect this investment to generate returns in fiscal year 26 with more meaningful impact in fiscal year 27 and beyond. Importantly, we will align incentives appropriately to drive these outcomes, which I will discuss in more detail shortly. Now I will provide an update on the execution of our corporate strategy since we last spoke. As I discussed on our third quarter earnings call, the leadership team's focus is on four strategic pivots related to our solutions portfolio, our go-to-market, our culture, and our brand. The ultimate goal of these four pivots is to create a more differentiated, more efficient, and more valuable SAIC in the future by becoming the premier mission systems integrator for the government market with a specific focus on five national imperatives. They are undersea dominance, order of the future, citizen experience, all-domain warfighting, and next-generation space. All four pivots will contribute to our success in these areas, and we have made strong progress against each in recent months. On brand, we recently hired a new chief communications officer and SAIC's first chief marketing officer with a focus on ensuring that SAIC's capabilities are known across our markets and our solutions are effectively packaged for success with our customers. On our portfolio pivot, We've completed the reorganization of our innovation factory under our new chief innovation officer with a focus on scaling and systematically deploying our technical differentiators in secure multi-cloud, digital engineering, operational AI, secure data analytics, and system of systems integration. To support this, we will be increasing our investment in the innovation factory in fiscal year 25 while implementing new performance metrics to ensure we generate our targeted return on invested capital. This is important because we've recognized a correlation between higher win probability and year-over-year growth in accounts that leverage our innovation factory solutions. Our new enterprise operating model outlines required contract delivery processes, bid rubrics, and performance metrics at the account and business group levels to drive greater accountability and adherence to our strategy. Our expectation is that this investment will deliver increased value to our customer programs and our pipeline opportunities, resulting in sustained organic growth, increasing EBITDA and free cash flow in the coming years. On go-to-market, our focus to this point has been both organizational and operational. Organizationally, we centralized our business development and capture functions and reported them into a senior vice president who directly reports to the executive leadership team. In addition, we are increasing investment in fiscal year 25 in our business development teams to upgrade talent where appropriate. Operationally, we've implemented a new enterprise model to leverage our innovation factory investments and further standardize our business development and delivery functions across the company. In practice, we expect the result of these efforts to be earlier and more consistent engagement with our customers along the procurement lifecycle, allocating business development dollars disproportionately to our high-growth markets, and driving accountability to ensure that pipeline identified is pipeline qualified and bid. On culture, I've spent much of my time over the last several months meeting with senior government customers and our employees. The strength of SAIC's commitment to our customer is evident across the enterprise and provides a valuable base off which we can build. Consistent with the investments we are making in our innovation factory and business development functions, our pivot around culture will align with positioning SAIC to deliver profitable, differentiated growth over the long term. We will focus on adopting a one enterprise mindset to encourage the sharing of best practices and talent and cross-functional coordination to bring the best of SAIC to our customers. We will aspire to accelerate our growth, taking ownership of outcomes, driving accountability for results, and providing differentiated rewards for outsized achievement. Relative to our incentive design, we recently recommended to our board of directors that we increase the relative share of PSUs to RSUs in our equity compensation to encourage our senior leaders to drive our portfolio towards more sustainable and profitable growth vectors. We've additionally broadened the use of total shareholder return as a metric to ensure we are incenting results that meet or exceed the performance of our peer group. As I started with, the driving force behind these pivots is to position SAIC to maximize profitable organic growth in the future. We have continued to see a lower than targeted recompete win rate in recent years impacting our book to bill. While we've been able to offset this with good new business capture and capitalizing on our large backlog with continued on-contract growth, it's important that we improve our retention of existing work. While our efforts to standardize best practices across the enterprise will improve our overall business development and capture functions, we are specifically focused on improving two outcomes. First, retaining our current business by improving our recompete win rate. And second, increasing our yearly bid rate with more strategic bid selection to drive higher book to bill over 1.0. For our current programs, we are implementing new process and rigor in driving innovation and value progression to additional as a service offerings. We're expanding the scope of our customer satisfaction process to gain broader and more objective feedback throughout program delivery. Our improved enterprise processes will allow us to monitor, inform, and influence our bid selection to ensure our portfolio remains on strategy and in our growth vectors. Given the longer procurement cycle inherent in our business, we expect to realize the full impact of our efforts to impact business development results over the next 12 to 18 months. While Prabhu will discuss our updated guidance in greater detail, our expectation for fiscal year 25 pro forma revenue growth is approximately 2.5%. Now, this is notably off of a higher base than previously contemplated, and it assumes a still healthy but more normalized funding environment. We expect to deliver EBITDA of approximately 690 million with free cash flow per share of approximately $10, which excludes any potential benefit from changes to Section 174 legislation. We're off to a strong start, and I'm encouraged by the enthusiasm and cohesion I see across my new leadership team. We have momentum, building off three peak performance quarters, the best financial results SAIC has delivered over the last decade. I look forward to seeing many of you in New York on April 11th for our 2024 Investor Day. We plan to provide updated multi-year financial targets, greater detail into our growth strategy, including a showcase of technical differentiators from our innovation factory. I'll now turn the call over to Prabhu to discuss our financial results and improved outlook.