Science Applications International Corporation (SAIC) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the SAIC Annual Meeting of Stockholders. I will now turn the program over to Mr. Canestra.

Good morning. My name is Shane Canestra, SAIC's Vice President of Investor Relations. I would like to welcome all of our stockholders and employees to SAIC's Annual Meeting of Stockholders. Thank you very much for virtually attending today's meeting. I would now like to introduce Donna Morea, the Chair of the Board of SAIC.

Thank you, Shane. On behalf of the Board of Directors and SAIC's management team, I would like to welcome you to this year's Annual Meeting of Stockholders. And I, too, thank you for your interest and participation in today's meeting. I will act as Chair of this meeting. Steve Mahon, the company's General Counsel and Corporate Secretary, will act as Secretary for this meeting. At this time, I would like to call the Annual Meeting of Stockholders to order. As we begin, I would like to convey my and the entire Board of Directors' sincerest hope that you and your loved ones remain safe and healthy in light of the COVID-19 pandemic. We express our heartfelt thanks to the SAIC employees that have continued to support our customers' vital needs through a very challenging time for our nation and the global community. It is now my pleasure to introduce the SAIC Board of Directors and state their committee assignments. In addition to serving as the Chair of the Board, I am also a member of the Risk Oversight Committee and the Nominating and Corporate Governance Committee. Nazzic Keene. Nazzic is our Chief Executive Officer and a member of the Risk Oversight Committee. Bob Bedingfield. Bob is Chair of the Audit Committee and a member of the Human Resources and Compensation Committee. Carol Goode. Carol is a member of the Human Resources and Compensation Committee and the Nominating and Corporate Governance Committee. John Hamre. John is Chair of the Risk Oversight Committee and a member of the Nominating and Corporate Governance Committee. Yvette Kanouff. Yvette is a member of the Audit Committee and the Risk Oversight Committee. David Kerko. David is a member of the Audit Committee and a member of the Human Resources and Compensation Committee. Tim Mayopoulos. Tim is Chair of the Nominating and Corporate Governance Committee and a member of the Audit Committee. Katharina McFarland. Katharina is a member of the Risk Oversight Committee and a member of the Nominating and Corporate Governance Committee. Steve Shane. Steve is Chair of the Human Resources and Compensation Committee and a member of the Audit Committee. Also here today is Dante D'Egidio from Ernst & Young LLP, the company's independent auditing firm. In addition, we have Scott Bellinger from Computershare, who will act as our inspector of elections for the meeting. Dante and Scott, thank you for your assistance. Nazzic Keene will provide an overview of fiscal year 2020 performance and the exciting opportunities for fiscal year 2021 and beyond. In advance of her comments and on behalf of the entire Board of Directors, I would like to commend the dedication and hard work of our 25,500 employees, including the addition of 2,000 employees through our acquisition of Unisys Federal in March. In light of the unprecedented challenges associated with the COVID-19 pandemic, SAIC employees have continued to support the vital mission of our customers. SAIC is dedicated to your health and safety, and we thank you for your service to our nation. Fiscal year 2020 was a year of change with the integration of the Engility integration, a new Chief Executive Officer and the implementation of a refreshed strategy. Throughout this change, SAIC continued to deliver strong performance across several key financial metrics and deployed capital for shareholder value creation through a balanced approach of debt repayment, dividends and share repurchases. We are proud of our accomplishments in fiscal year 2020. Our refreshed strategy and the opportunities provided by the acquisitions of Engility and Unisys Federal position us for our continued success in fiscal 2021 and beyond. Now Steve, would you please report on the meeting particulars, including the notice and quorum details?

Thank you, Donna. The notice of meeting, proxy statement and annual report, together with the proxy and voting instruction card, were properly delivered on or about April 22, 2020, to the company's stockholders of record as of April 7, 2020, the record date for this meeting. The proxy statement and annual report on Form 10-K can be found on the SEC FILINGS section of SAIC's investor website. In the unlikely event transmission of this virtual meeting is unexpectedly interrupted, the meeting will be deemed adjourned and will reconvene at 4:00 p.m. Eastern Time on June 24 and will be accessible in the same manner as today's meeting. A list of the stockholders of record as of the record date has been available for inspection for the past 10 days, and this list will remain available for inspection during this meeting. As of April 7, 2020, the record date established for this meeting, there were approximately 58 million shares of the company's common stock outstanding. Holders of common stock are entitled to 1 vote per share. Delaware Law requires that the holders of a majority of the total voting power of the company's shares be present, either in person or by proxy, in order to constitute a quorum at a meeting of stockholders. Prior to the commencement of this meeting, I have received proxies representing more than a majority of voting power of the shares outstanding on the record date. Therefore, a quorum is present for the conduct of business. Thank you, Donna.

Thank you, Steve. The Annual Meeting of Stockholders is now officially convened. We have 4 matters to consider and vote upon at this meeting: a proposal to elect 10 directors; a proposal to approve executive compensation by an advisory vote; a proposal to approve the frequency of future say-on-pay votes by an advisory vote; a proposal to ratify the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for the fiscal year ending January 29, 2021. Your Board is recommending that you vote in favor of all 4 of the proposals. A description of each proposal, your Board's recommendation and its rationale for the recommendation are set forth in detail in the proxy statement. [Operator Instructions] It looks like there are no questions. We'll now proceed to the voting portion of the meeting. Delaware Corporate Law requires that we announce the opening and closing of the polls for the matters to be voted on. I hereby declare that the polls for the 4 matters just discussed will open on this 3rd day of June at 9:09 a.m. Mr. Mahon will now vote the proxies received by the company. If you have not voted your proxy card up to this point, we will now pause briefly to allow you to do so through the online functionality provided through this virtual stockholder meeting. [Voting]

It being 9:10 a.m., the polls are now closed. The inspector of election will tabulate the votes and report the results. While the votes are being tabulated, our CEO, Nazzic Keene, will discuss fiscal year 2020 performance and our outlook for fiscal year 2021 and beyond. After her remarks, we will take questions from stockholders and proxy holders. Nazzic?

Thank you, Donna. Good morning to all shareholders who joined us for this call. I hope you and your families are healthy and safe. Before I discuss our fiscal year 2020 performance, I want to say a few words about how SAIC is responding to the COVID-19 pandemic. We've been working very closely with government officials and our customers to make sure we address issues quickly, care for our employees in need and ensure we can continue to support our nation's critical mission. As with every big challenge that our country has faced, SAIC is bringing the full strength of our company's capabilities to anticipate and address potential scenarios that affect our employees, our communities and our country. In a few minutes, I would like to share how SAIC's strengths are helping our government customers get through this pandemic successfully. While continuing their vital support to their customers, SAIC employees have responded in several creative ways to help those on the front lines in the battle against COVID-19. Our Charleston, South Carolina employees quickly repurposed 3D printers to begin making face shields for those that confront the virus every day, our health care workers. SAIC employees have also generously contributed their leaves to fellow employees who are not able to work due to potential exposure, lack of child care or other family issues. I sincerely thank SAIC employees for their commitment to their customers and their colleagues in a very challenging time. Shifting our focus to fiscal year 2020, it was an exciting year for SAIC with a refreshed strategy, the addition of Engility and the continued commitment to make a profound difference supporting our customers' missions through exceptional talent, coupled with new capabilities, solutions and technologies. With our refreshed strategy to guide us, SAIC took steps to become the $7.1 billion, almost 26,000-employee company that we are today. With the addition of Engility and now Unisys Federal, we are well positioned to be the preferred technology partner for our customers, powered by the best talent in the industry. In August, following a smooth transition of CEO responsibilities, I assumed the role of leading SAIC's next steps in our journey to become the leading technology services provider to the U.S. government. I'm honored to continue SAIC's 50-year legacy and to serve our employees, our customers and our stockholders. Next slide, please. In fiscal year '20, we delivered strong profitability and cash generation that met or exceeded our performance goals. While revenue was essentially flat, primarily due to the planned revenue dis-synergies from the Engility acquisition, we improved adjusted EBITDA margins by 80 basis points and increased our year-over-year free cash flow by $281 million to $437 million. Our $15.3 billion of total contract backlog at the end of the year was the highest in the 6-year history of the company and is a strong foundation for revenue growth. Fiscal year '20's strong business development results, including a book-to-bill of 1.2 for the year, has positioned SAIC well for growth in fiscal year '21. As CEO, I immediately focused on 3 areas: the successful integration of Engility, accelerating profitable revenue growth and winning the war for talent. Throughout fiscal year '20, we made substantial progress in these areas and are well positioned to achieve our goals. This allowed us to make significant strides towards long-term growth and identified strategic areas while preserving predictable growth from our core markets. Next slide, please. SAIC's many accomplishments over the past year have been noticed and recognized by several organizations. While I can't speak to each of these recognitions on this slide, I would like to highlight that SAIC was recently named for the first time to the Fortune 500 with an initial listing at #466. This is a notable achievement for the company and reflective of the progress that SAIC has made over the years to become one of the most successful companies in the U.S. Next slide, please. While we're very proud of our success during fiscal year '20, we are now focused on fiscal year '21 and beyond. Let me provide you with some comments on how SAIC plans to continue the success that we've achieved. While we refreshed our strategy and added capabilities and customer access to our portfolio through acquisitions, our vision remains unchanged. Guided by this vision, our strategy will be defined and executed with our 3 key stakeholders in mind: our customers, our employees and our shareholders. The vision of what we aspire to be is driven by what motivates us every day. Individually and as a collective enterprise, we desire to advance the power of technology and innovation to serve and protect our world. Next slide, please. More than ever, we are in a strong position to grow across broad and balanced portfolio as represented on this slide. In challenging times, such as our current fight against the COVID-19 pandemic, it is advantageous to have a diversified base of business and customers that can offset headwinds in specific areas or mitigate risks from potential shifts in customer behavior or funding. SAIC's portfolio is a perfect example of a purpose desire to have a diversified portfolio that still contains a large amount of opportunity for expansion. Next slide, please. While we continue to provide exceptional service to all of our customers, our refreshed strategy focuses our growth initiatives in strategic markets, such as space systems and engineering, mission operations, engineering and integration and by driving digital transformation through IT modernization and managing critical IT and enterprise infrastructure for our nation. We are using our leadership position in digital transformation to help our customers modernize their infrastructure and respond to the shifting needs of our fellow Americans, our economy and our country due to the pandemic. We are providing our customers with much needed, ready-to-deploy solutions, including virtual infrastructure engineering and help desk services to help our customers quickly operate with a much expanded remote workforce. We've also deployed our mobile emergency op center rapid deployment kit which sets up critical IT services within 24 hours for temporary hospitals and test facilities to run at full capacity. We're also assisting our health care heroes in their vital work through our data science and analytics services, helping agencies produce high-quality predictive models for demand and supply of health care materials. Through the work that our teams do every day, SAIC is leveraging the power of technology and innovation to serve and protect our nation. With increased customer access and technology leadership in differentiated solutions through the acquisitions of Engility and Unisys Federal, we are poised to convert opportunities to revenue growth, capture value from synergies and substantially increase our profit margins and cash flow generation. We are at the forefront of where our customers are going, and they look to us to deliver on their important missions. Our strength and commitment to our refreshed strategy will continue to guide us as we look to make a profound difference for all of our customers, our employees and our stockholders. I'll now turn the meeting back to our Chair, Donna Morea.

Thank you, Nazzic. We will now give stockholders an opportunity to ask questions about the company and our fiscal year 2020 results. [Operator Instructions] Any questions at this time? It appears that we have no questions. Thank you again for your participation today and your continued support of SAIC. I believe the inspector of elections has the voting results. Mr. Bellinger, would you please report on the voting results?

Proposal 1, election of directors. Each of Mr. Bedingfield, Ms. Goode, Dr. Hamre, Ms. Kanouff, Ms. Keene, Mr. Kerko, Mr. Mayopoulos, Ms. McFarland, Ms. Morea and Mr. Shane has received the necessary votes for election as director. Proposal 2, the proposal to approve on a nonbinding basis. The compensation of the executive officers as described in the proxy statement was approved. Proposal 3, the proposal to approve on a nonbinding basis. The frequency of future say-on-pay votes was approved for 1 year. And Proposal 4, the proposal to ratify the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for the fiscal year ending January 29, 2021, was approved.

Thank you, Mr. Bellinger. This concludes the stockholders' meeting. I now declare the meeting adjourned. Again, thank you for participating in SAIC's 2020 Annual Meeting of Stockholders and for your interest in the company.

Ladies and gentlemen, your call has now concluded. You may disconnect your lines, and thank you for joining us.