U.S. Markets open in 7 hrs 26 mins

Science Applications International Corp (SAIC) Q4 2019 Earnings Conference Call Transcript

Motley Fool Transcribers, The Motley Fool
Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Science Applications International Corp (NYSE: SAIC)
Q4 2019 Earnings Conference Call
March 28, 2019 , 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the SAIC Fiscal Year 2019 Q4 and Year End Earnings Call. This conference is being recorded.

At this time, I would like to turn the conference over to Shane Canestra, SAIC's Vice President, Investor Relations. Please go ahead, sir.

Shane P. Canestra -- Vice President, Investor Relations

Good afternoon. My name is Shane Canestra, SAIC's Vice President of Investor Relations, and thank you for joining our fourth quarter and full fiscal year 2019 earnings call. Joining me today to discuss our business and financial results are Tony Moraco, SAIC's Chief Executive Officer; Nazzic Keene, SAIC's Chief Executive Officer-elect; Charlie Mathis, our Chief Financial Officer; and other members of our management team.

This afternoon, we issued our earnings release which can be found at investors.saic.com, where you'll also find supplemental financial presentation slides to utilize in conjunction with today's call. Both of these documents in addition to our Form 10-K to be filed soon 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 a discussion of these risks, including the risk factor 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, Tony Moraco.

Anthony J. Moraco -- Chief Executive Officer

Thank you, Shane, and good afternoon. Before I provide a few highlights of the fourth quarter and full fiscal year 2019 results, I'd like to take a moment to publicly welcome the approximately 7,500 Engility employees, the SAIC family as a result of our acquisition of Engility in mid-January. The management team has taken the opportunity to visit many sites recently to welcome Engility employee at SAIC, provide all of our employees with an updated overview of the Company, and discuss our long-term strategy in January 2025. The response from employees have been very positive.

SAIC's full year results reflect our strongest financial performance in five years and we are better positioned than ever to accelerate our strategy to deliver sustained profitable growth. Now as Charlie will provide details on the operational and financial results, demonstrating our strong performance while managing the business through a partial government shutdown and executing the acquisition of Engility. With a strong end to fiscal 2019 and continued confidence in the combined Company's outlook, SAIC restarted its share repurchase program immediately following the close of Engility. Our Board of Directors has also significantly increased our quarterly dividend based on the financial strength of the business and our increased cash generation profile.

Turning to the market environment. We now have full federal government fiscal year 2019 budget appropriations. We continue to operate in a favorable environment with customers performing their missions with increased funding levels compared to past years. While the President and Congress work on government fiscal year 2020 budgets, and the recently issued request reflects potential funding shifts, SAIC's balance and diversified portfolio provides strong market access to maintain stability should shifts in the individual agency funding profiles occur.

Our customers are investing confidently in our operations, and in areas that SAIC has strategically positioned itself such as IT modernization, cyber security, intelligence, space systems, data analytics, and training and readiness. Engility acquisition strengthened our competitive stance in many areas, and most significantly in the space domain, a rapidly evolving market with increased government investment.

With this backdrop of a favorable budget environment and SAIC's stronger competitive position, I announced my decision to retire as Chief Executive Officer, effective July 31st of this year, and the Board has elected Nazzic to succeed me. I'm extremely proud of what SAIC has accomplished over the past 5.5 years and excited about what the future holds. I've worked alongside Nazzic for several years, I have the utmost confidence in her ability to accelerate SAIC's mission-focused strategy and continue to deliver outstanding value for our customers, employees and shareholders.

Nazzic, over to you for discussion of our business operations.

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

Thank you, Tony. I'm extremely humbled and honored by Tony and the Board's confidence to lead this great company. I'm excited about the opportunities for even greater success as we realize our newly strengthened scale and breadth of capabilities. With our exceptional leadership team and a deep bench of talent, SAIC is well positioned to be the federal government's premier technology integrator, lead the markets we choose to serve and make it meaningful difference for all our stakeholders.

While I'm incredibly pleased and excited to take the helm, I'm also somewhat saddened that I will no longer be working day-to-day with Tony, as he has been a great mentor and friend. Over the next few months, Tony and I will work together for an effective and seamless transition of CEO responsibilities. Our partnership in collaboration is best exemplified in our long-term strategy Ingenuity 2025. In the forum enduring key messages provided at our January Investor Day, these are core to the strategy and underpin our approach to shareholder value creation.

First, SAIC has repositioned as a stronger government technology integrator poised to capitalize on favorable market dynamics and accelerate our growth. Second, with additional market access and technical talent, we've increased our capacity and leadership position in market segments in which we operate. Third, we are confident in our strategy to drive growth based on current contracts and growth opportunities that are aligned with areas of strategic national importance. And last, SAIC significant increase in cash flow and disciplined capital deployment creates value for our shareholders. These four strategic themes will drive our ability to deliver value to all our stakeholders going forward.

Now moving on results for the quarter. Contract award activity in the fourth quarter led to net bookings of $917 million, but does not include approximately $2 billion of single award IDIQ contract ceiling value, Fourth quarter net bookings were comprised of wide variety of contract awards and contract modifications, including a recompete award of a classified contract valued in excess of $230 million to provide systems engineering and integration, leveraging our extensive capabilities and solutions in digital engineering.

SAIC was also awarded several notable IDIQ contracts during the quarter to ensure continuation of existing revenues and provide for revenue growth through expanded scope or new business opportunities. Of note, our two single award IDIQ contracts that derisks the revenue profile to recompete awards and provides increased confidence in our ability to accelerate growth through new task orders.

First, SAIC was successful in our recompete award of our Defense Logistics Agency tires program in our supply chain portfolio. Under the single award IDIQ contract valued up to $1.7 billion over 10 years. SAIC will continue to act as lead supply chain manager and integrator for DLA's tire delivery program. I should also note that this award provides expanded scope to support the US Navy, previously not supported on the predecessor contract.

Second, the US Air Force Space & Missile Command awarded SAIC through our recent acquisition of Engility, a $655 million single award IDIQ contract to provide systems engineering, planning and integration services. This new business win is a great proof point of our thesis in acquiring Engility and expanding our presence in the space and intelligence community. Now this award was subsequently protested by a competitor and we expect resolution in the June time frame.

Additionally, multiple award IDIQ contracts are also important to our business as they often provide flexibility for a broad range of customers to obtain SAIC capabilities. In the recompete category, we were successful in retaining our prime position on the US Navy SeaPort Next Generation IDIQ contract, the follow-on contract to the successful SeaPort-e contract. SAIC is the Navy's leading provider of high-end engineering and other technical services on SeaPort-e.

And finally, SAIC was awarded a prime position on the Information Technology Enterprise Solutions-3 Services or ITES-3S, a contract to provide the full range of IT services and solutions to the federal government. At the end of the fourth quarter, SAIC's total contract backlog stood at approximately $14 billion with funded contract backlog of $3 billion. The estimated value of SAIC submitted proposals awaiting award at the end of the fourth quarter was approximately $13 billion, principally impacted in a positive manner by the award of several IDIQ contracts I just mentioned.

With an improving market outlook, and as we continue to invest in the future of SAIC, it is encouraging to see strong demand for the services and solutions we offer. We will continue to utilize a disciplined approach to our investment spend as we pursue a strong pipeline of business opportunities.

Now before turning the call over to Charlie, I'd like to give you a brief update on the integration of the Engility acquisition. I'm very pleased to report that the integration of Engility is on schedule and on budget. As we anticipated at our January Investor Day, we successfully achieved 85% of the year one cost synergies of $38 million upon close on January 14th. The remainder of our synergy targets have been identified and are well on track. As a result we've accelerated the majority of the year one cost to achieve into the fourth quarter of fiscal 2019, providing even more confidence in the margin improvement in fiscal year 2020. I will update you as we progress through the year, but I am very pleased with our progress to-date.

Charlie, over to you for our financial results.

Charlie Mathis -- Chief Financial Officer

Thank you, Nazzic, and good afternoon everyone. During my remarks, I will primarily focus on SAIC's fourth quarter performance with references to full year results in specific areas. Our fourth quarter revenues of approximately $1.2 billion reflect growth of 6% as compared to the fourth quarter of last fiscal year, primarily due to revenues associated with the Engility acquisition, a new contract supporting IT modernization.

Excluding the impact of the three weeks of the Engility acquisition and the impact of six weeks of partial government shutdown, fourth quarter revenues contracted year-over-year by 2%, driven by non-recurring increased supply chain materials last year and lower fixed price vehicle production volume in our platform integration business.

Full fiscal year 2019 revenue growth excluding revenues from acquisition and the impact of the government shutdown was approximately 3%. Fourth quarter adjusted EBITDA was $95 million, a $12 million increase from the prior year. Adjusted EBITDA margin equated to 8% after adjusting for $72 million of acquisition and integration costs.

Fourth quarter margin performance was strong due to program performance and continued cost discipline. For the full fiscal ear, adjusted EBITDA margin was 7.6%, 60 basis points above our prior fiscal year and higher than our communicated expectation of 20 to 40 basis points due to the very strong fourth quarter. The three weeks of Engility acquisition contributed approximately 10 basis points to the full year margin.

Full-year acquisition and integration costs were $86 million in line with the SAIC acquisition and integration costs of $54 million and approximately $32 million related to Engility. Because of our successful day one execution of our integration plan in the fourth quarter of fiscal year '19, we are essentially ahead of schedule in the spending needed to obtain our net cost synergy target of $75 million, We continue to expect $38 million of integration costs in fiscal 2020, at which point we will be mostly done with integration cost this year. The significance of this relates to fiscal 2021 cash flow, which is expected to be about $30 million higher than previously planned due to this acceleration.

Net income for the fourth quarter was a negative $9 million and diluted earnings per share was a negative $0.20 for the quarter, inclusive of the fourth quarter acquisition and integration costs of $72 million. Excluding acquisition and integration costs as well as amortization of intangibles, our adjusted diluted earnings per share was $1.17. One time favorable tax treatment from the Engility acquisition contributed about $0.17 to EPS. Our full year effective tax rate was approximately 19% lower than our previous expectation of 20% to 22% due to the mentioned one-time Engility acquisition impact.

Turning to free cash flow generation. I'm pleased to report that SAIC as a stand-alone achieved our previously communicated expectation of $250 million of free cash flow after adjusting for the impact of the acquisition and integration costs and the impact of partial government shutdown. The shutdown negatively impacted cash collections at the end of the fiscal year '19 by $25 million and deferred their collections into fiscal 2020. We ended the fourth quarter with days sales outstanding of 58 days, an improvement of one day from the end of the third quarter.

The fiscal year ended with a cash balance of $237 million, slightly above our updated average operating cash balance target of $200 million. We began fiscal year 2020 with a strong cash balance to continue our consistent capital allocation strategy. Immediately, following the close of the Engility acquisition, SAIC resumed its share repurchase program. And over the 13 trading days until the end of the quarter deployed $8 million of capital by repurchasing a 119,000 shares.

The resumption of the share repurchase program so quickly after the close of a significant acquisition, demonstrates our confidence in the cash generation profile of the combined company and are desired to return excess capital to shareholders. Included in our press release today, we have announced that our Board of Directors has increased our share repurchase authorization program to 16.4 million shares, an increase of 4.6 million shares, bringing the total amount remaining for repurchase to 6.5 million shares, given us even greater capacity return capital to shareholders.

In addition, we also announced today that our Board of Directors has approved an increase to SAIC's quarterly dividend from $0.31 a share to $0.37 a share, a significant increase of approximately 20%. This is another demonstration of the confidence in the acquisition. tTe long-term sustainable cash generation profile of the combined companies and our desire to return excess capital to shareholders following a successful acquisition. This increased dividend will be payable on April 26 to shareholders of record on April 12th.

Turning to the balance sheet. Debt at the end of the fiscal year stood at approximately $2.1 billion. This increase reflects the approximate $1.1 billion Term Loan A incremental borrowing necessary to close the acquisition of Engility to fund the transaction and integration expenses and for general corporate purposes during the partial government shutdown.

After the end of fourth quarter with closing complete and normal customer payments resumed, we voluntarily repaid debt of approximately $150 million with our excess cash, bringing our debt today, to approximately $1.9 billion. We anticipate that our year-end leverage will be consistent with the leverage profile presented at our January Investor Day. I should note this voluntary repayment does not impact our previously communicated expectation of deployable cash in fiscal '20 or our capital deployment strategy. We remain very confident in our forecast of deployable cash available for disciplined capital allocation for the next several years.

Now turning to our forward outlook for fiscal year 2020. At our January 7th Investor Day, we communicated our financial expectations for fiscal year 2020. In a change from our historical practice, I presented ranges for revenue, adjusted EBITDA margin and free cash flow generation target as we believe that it was prudent to provide quantifiable expectations in light of a significant acquisition. Our expectations are unchanged for the revenue and adjusted EBITDA margin presented then.

In terms of an adjusted EBITDA margin profile through fiscal year 2020, we believe that margins will be lower in the first half and stronger in the second half, consistent with our recent history. Our free cash flow target for fiscal year 2020 is now increased from $400 million to $425 million, reflecting the $25 million of deferred customer payments in fiscal '20 as a result of the partial government shutdown.

Our full year effective tax rate is expected to be 20% to 25%. The tax assets acquired through the Engility acquisition and the acceleration of their use result in an expected cash tax rate of 13% to 15%. SAIC finished fiscal year 2019 with great momentum and we are off to a strong start in fiscal 2020, I have confidence in meeting the short and long-term outlook that I provided at our Investor Day and I'm excited about the opportunities for shareholder value creation that lie before us.

Tony, back to you for concluding remarks.

Anthony J. Moraco -- Chief Executive Officer

Thanks, Charlie. I would like to announce that our annual shareholder meeting will take place on June 5th. Similar to last year, we will be conducting a virtual shareholder meeting whereby shareholders will participate online. Instructions on how to participate virtually will be included with the proxy voting ballot, as well as on our investor website. I'm very excited for what lies ahead for the Company. The combination of a favorable market environment, a newly positioned company and the value creation opportunity that we have creates good timing for leadership transition. I have every confidence in Nazzic and the leadership team to accelerate the execution of SAIC strategy and guide SAIC into the next chapter of delivering outstanding value for our customers, employees and shareholders.

Operator, we're now ready to take your questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) We'll go first to Edward Caso with Wells Fargo.

Edward Caso -- Wells Fargo -- Analyst

Hi, good evening. Tony, a great run here. Enjoy the fishing. Maybe a more macro question. How difficult is it for you to get people that you need? How sensitive are you to the greater DC market? And how much of a headwind would that be to meeting your goals in 2020?

Anthony J. Moraco -- Chief Executive Officer

Let me start. I think the talent base probably is critical to our business, both retention and attracting. We have looked across the US really to diversify the geographic component. We mentioned in the past that our customers see that same talent challenge and so are more open to a, I'll say, a virtual workforce. So with our Tennessee Tech relationship and the gateway in Cookeville, one example, there's a couple of others.

But top of the mind for us is really draw that talent in. Mission I think still is a critical factor as well as the culture of the Company. I think our added scale provides a lot of career opportunities for folks to actually join -- to join us, but it has its challenges and we're going to continue to try differentiate (ph) it. Nazzic has been focused on that same thing going forward and that's important to the enterprise, but I think we can draw the talent in, retain the one we need and that will drive the growth of the business going forward.

Edward Caso -- Wells Fargo -- Analyst

My other question is on the awards and the backlog. Can you dissect them between the Engility and legacy SAIC, particularly the backlog numbers? Thanks.

Anthony J. Moraco -- Chief Executive Officer

Not really on a backlog to drilling on a trend, dissect that if you will. I think we've got a strong integrated backlog. It's consistent with our diligence analysis to-date. We started the year, I think, with very strong backlog consistent with what we've had in the past, translated for the scale. And so I think we're very proud always seeing that current pipeline and contract baseline come together as an enterprise, and then we'll see how it plays out with the backlogs in a pretty strong position going forward. I don't want to dissect that thing.

Shane P. Canestra -- Vice President, Investor Relations

Hey, yeah, this is Shane Canestra. Just thought I would add that the Engility contribution to backlog was $3.6 billion in the quarter. You'll see that in our 10-K, I believe, filed here shortly, but the contribution just adding the backlog was $3.6 billion.

Edward Caso -- Wells Fargo -- Analyst

Alright. Thanks. All the best, Tony.

Anthony J. Moraco -- Chief Executive Officer

Thanks, Ed.

Operator

And we'll go next to Tobey Sommer with SunTrust.

Tobey Sommer -- SunTrust -- Analyst

Thank you. I was wondering if you could talk to us a little bit more about something you mentioned at the Investor Day at the beginning of the year in about how you had gone to great lengths to, while complying with all rules get ready to make joint bids as soon as possible. And you could describe that process and how you think it's gone as you think about trying to queue up sales and backlog in coming quarters?

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

Yeah, this is Nazzic. So I'd certainly build on a little bit of what we shared in January. So as anticipated, we were able to really hit the ground running upon close. We have done some work prior to close using a third-party to kind of protect the confidentiality pretty close of the pipelines. And so as a result of that, we have great visibility when we were able to close the transaction into what was in the pipeline, where it's complementary where it might (inaudible) to look at overlap. So we were able to very quickly come out of the chute, navigate that and then make quick decisions with that data versus having to start from scratch.

And as a result of that -- and as a result of the work we have done in integration, we're really standing of the organization. So we are ready to go on from day one, the sales organization, the business development team, the capture teams were able to really focus on building the market versus trying to go through and navigate the pipeline analysis. So it proved to be true. We're in a good position and we are in the markets as we sit today pursuing opportunities consistent with our strategy.

Tobey Sommer -- SunTrust -- Analyst

Thanks. How meaningful does growing the Air force with the tires program? What does that mean in terms of incremental opportunity there?

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

Well, the tire program is -- has partially compete and also has some of the uplift for the Navy portfolio and certainly will -- that's protracting as we go. It's about 15% to 20% uplift from the legacy program, so that will drive revenue growth forward as well. And I believe referring to the Air Force EDIS program, is that one you're referring to?

Tobey Sommer -- SunTrust -- Analyst

Thank you.

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

Yes. So that is one, as mentioned, that we were awarded not too long ago. It was under process at this point and the process should get resolved within 100 days time frame, but that is new business for us, and so that will drive new revenues once that's adjudicated.

Tobey Sommer -- SunTrust -- Analyst

Thank you very much. Tony, good luck.

Anthony J. Moraco -- Chief Executive Officer

Thanks, Tobey.

Operator

And now we'll go next to Cai Von Rumohr with Cowen and Company.

Cai Von Rumohr -- Cowen and Company -- Analyst

Yes, thank you very much and congratulations. Good quarter. Maybe sort of update us on what percent of your revenues this year are up from recompete and give us some color? You kind of exited the year with the government shutdown and saw some color of the booking -- book-to-bill cadence as we go through the year. And maybe where you think the range of where book-to-bill might be? Thank you.

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

This is Nazzic. So I think to the first question on the distribution color on the book-to-bill. So we ended the year really right around where we usually end the year. So it tends to be one of our softer quarters due to the holidays and how it is involved. And so we didn't see -- anything of concern there. We did have a little bit of a headroom with the government shutdown which (ph) has some impact. Yes, it's a bit hard to measure, but we -- a little bit of the uptick.

Couple of other things that I'll point out as it relates to our book-to-bill and I know we've had this conversation before. We had well in excess of $4 billion of single award IDIQ awarded last year for us as well, and we don't tend to count those against our book-to-bill. But that is in excess of double of what we have seen in the years past. And so that gives us revenue access, profitability access and drive, derisk the revenue profile going forward. And I think you had one more, and I'm trying to remember?

Cai Von Rumohr -- Cowen and Company -- Analyst

Recompete?

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

The recompete. Thank you very much. Yes, so going into this year, we're holding it around 13% of our business and subject to recomplete. So at the end relatively light for us which allows us to focus greater attention, greater investments and the growth opportunities for us going forward. Did I get all your questions?

Cai Von Rumohr -- Cowen and Company -- Analyst

You did. That's terrific. So I'll just switch to the margins, sort of, you spent more on acquisition integration, you got that out of the way sooner. Does that give us any opportunity that your adjusted EBITDA margins might be above 8.1 to 8.4 range you've kind of laid out for fiscal '20?

Charlie Mathis -- Chief Financial Officer

Hey, this is Charlie. So it really does not impact the adjusted EBITDA, because we're always adjusting out the integration cost to achieve and the years. An un-adjusted EBITDA number, it would impact, I think the more significant impact there was on the free cash flow. I think you'd ask me in the past, we laid out at Investor Day, this three year target starting at $400 million going up to $500 million with a sequence of $400 million to $450 million to $500 million, something like that. So now we would expect that to be actually $425 million in the first year, $480 million in the second year and $500 million in the third year, just because we have the cash outflows for the cost to achieve earlier than expected. So that's the really significant impact from the integration standpoint.

Cai Von Rumohr -- Cowen and Company -- Analyst

Terrific. Thank you very much.

Anthony J. Moraco -- Chief Executive Officer

Thanks, Cai.

Operator

And we'll go next to Jon Raviv with Citi.

Jonathan Raviv -- Citi -- Analyst

Thanks everyone, and congratulations to Tony and Nazzic. Nazzic, can you -- I think everyone always ask this question when it changed the announcement. But can you talk a little bit about what your goals are, it sounds like there's might be a lot that stays the same, given that you've had a long partnership with Tony here, but also what changes in your mind?

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

Yeah, so thanks for the question. And I think the -- to your point, the reality is that Tony and I have been partner for the last several years and have formed the strategy that shape the company and got us to where we are. And so with that, my objective is to keep all the business what we have today, keep that momentum, but with the onboarding and the acquisition of Engility and the reposition it gives us in the market, certainly look to accelerate in a few areas and build upon that.

As I look forward, the priorities are certainly consistent with the prior ones that areas of which will continue to put maybe a little more focus. So Tony touched briefly on the talent equation. And so we want to continue to really work and be that career choice for the top talent in the industry across the nation.

Continue our journey to become and maintain this position of a premier technology integrator and solutions organization, providing solutions to our customers as well. Continue -- and accelerate our -- doing the best of commercial technologies to bear. And given our greater access to the areas of space as an example, we have even greater opportunity to do that.

And then look to balance all of that and continue to drive shareholder value in consistent with what we've done in years past, but again at a bigger scale, a bigger organization, more access to the cash and the cash flow that Charlie touches on, we have a greater platform to build on that, So I think it's certainly a combination of keeping the goodness that got us to where we are under Tony's leadership and accelerating where we have the opportunity based on newly strengthened company.

Jonathan Raviv -- Citi -- Analyst

Got it, Thank you. And then on the -- and Charlie, you mentioned some of those free -- reminder of the free cash flow targets which we know on those so well from the Investor Day. At the same time, Charlie, Nazzic, Tony, you do sound quite confident in the prospects for accelerating growth. But can you just remind us of what growth is assumed in those targets? And what the opportunity is for a little bit of upside in those targets beyond the changes in the spending of cost to achieve? Does the real organic upside based on things like DLA contract being bigger than you did, et cetera?

Charlie Mathis -- Chief Financial Officer

When we spoke at the Investor Day, and we outlined a three-year target, we really had low single-digit revenue growth, a 3% CAGR. I think was what we were projecting as far as top line growth goes and then we gave quantifiable ranges for 2020 on revenue and on the margins. And one of the significance of the outlook is that it really comes out -- now we're saying that this guidance that we gave is consistent and this comes after a very detailed and fully integrated annual operating plan process. At the Investor Day, we didn't have this, we had to close and we are not able to work closely with both teams and come up with this fully integrated plan.

So I'm very pleased that the outlook is consistent 2.5 months later. It gives us greater confidence. We've acted on that confidence. We've increased the dividend looking for other returns -- shareholder capital in place, as well as meeting our financial commitments. So we're much more confident in that after going through their planning process than we were 2.5 months ago.

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

The other couple of points that I'll just make is, we've talked about the $13 billion of proposals submitted awaiting awards. The good news is about half of that is new business. And so we've got good visibility and good opportunity to drive growth through new business admits. And then just reinforce that one of the great values in the Engility acquisition is now the combined companies have access to a broader customer base and bring out different (ph) solutions to bear. So we are really focused on the revenue synergy story, ensuring that we bring the best of SAIC solutions to the Engility customers vice versa and so driving that revenue synergy discipline over the course of the next several months will also give us some opportunities to drive growth.

Anthony J. Moraco -- Chief Executive Officer

With that, Jon, that's a question on talent. Given again the reposition with a higher clear workforce, really allows us with -- based on talking to customers about proven your ability to execute, manage the risk, we've got a broader base of technology experts, a broader base of those that are clear and doubles and able to facilitate additional growth in the cross-sell of SAIC capabilities into legacy Engility channels. So I think that is the broader people dimension in our presence with the broader set of customers that always facilitate opportunities for further growth as we go to market together.

Jonathan Raviv -- Citi -- Analyst

Great. Thanks guys.

Anthony J. Moraco -- Chief Executive Officer

Thanks, Jon.

Operator

And we'll go next to Sheila Kahyaoglu with Jefferies.

Sheila Kahyaoglu -- Jefferies -- Analyst

Hi, thank you. Congratulations Tony on your retirement and Nazzic on your promotion. I guess, just on the last point, what are you finding is the biggest advantage going to market as a combined organization? Is it the peered workforce? Is that a growing pipeline due to the connections? How do we think about that? Thank you.

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

Yeah, I think it's all of those things. So certainly Tony touched on the workforce and the cleared workforce is simply important to our business, and so having greater capacity there. And then also the greater the capacity, the more you get employee referrals, the more access to the broader talent base in particular areas. So I certainly think that is one. I touched on the other, and that is, although we are very complementary companies. The access that the Engility portfolio brought to the Intel community complemented the assets that we had in Intel. So we broadened the portfolio of customers that we can go and serve. And I think that will drive growth.

And then coming together, the two organizations, in particular, the safe domain, which is an area that is getting certainly a tremendous amount of national attention with a national priority and will drive incremental funding over the months and years to come. It's such a terrific position as a leader in that domain to drive growth opportunities and serve our country.

So those are just some examples that we are very confident that we did a very -- I think a very good job of getting the integration plan well, so that when we closed in January, we were up in the market and we were out pursuing business and serving our customers. So I think those are some of the proof points that certainly will come to mind.

Anthony J. Moraco -- Chief Executive Officer

And Sheila I'd add, the scale and yet focus on the capability set, we've really increased our critical mass and well aligned to what we see is ongoing customer demand in the data analytics. Now that leads to the machine learning than an artificial intelligence type of markets. Our activities in cloud and cyber continue the broad enterprise like key monetization that is compelling across the government. And then the training of simulation components, I think those domains provide focus for us on investments that will increase both our increased capacity on the people side as well as on technology and tools with our partners and I think that puts us in a differentiated position as we look to grow going forward.

Sheila Kahyaoglu -- Jefferies -- Analyst

Sure. Thank you, both. And then, Charlie, one for you, and you've touched upon this already. But 60 days, 2.5 months into this, you're already raising the $400 million guide for free cash flow. How do you kind of think about the biggest risk? I mean, the top line doesn't seem like a risk, neither do the margin? Where are you maybe with working capital? How do we think about that? Are the ERP systems integrated? Are there any mess major CapEx assumptions in there? And maybe if you could just talk about the biggest risks (ph) once again to that given you're raising so early? Thank you.

Charlie Mathis -- Chief Financial Officer

Well, always the biggest risk we have on the cash flow is just timing type of issues of -- in the past. Certainly, we're focused on the cash generation, we're focused on the DSOs or DSO reported or -- 58 days. We're look to improving that and improve in the cash flow target. So again, we went through a very, very detailed review and process and with the fully integrated team. So I'm very confident that we'll be able to meet and exceed the $425 million of free cash flow and with the longer-term targets that we talked about.

And I think the reason that we would increase the dividend and would have more capacity for the share repurchases because of this confidence that we see in the free cash flow and the generation, the combination of the companies and how we can -- as I mentioned in the past, we had optionality of about $300 million of free cash flow in 2020 that we needed to decide what to do with. So part of that was to increase the dividend and give us more capacity for share repurchase, if we chose to do that.

Sheila Kahyaoglu -- Jefferies -- Analyst

Great. Thank you.

Anthony J. Moraco -- Chief Executive Officer

Thank you.

Operator

(Operator Instructions) And we'll go next to Krishna Sinha with Vertical Research Partners.

Krishna Sinha -- Vertical Research Partners -- Analyst

Hi, thanks. Maybe one for Charlie. So I'm just looking at your cash flow guidance. You guided to -- for fiscal year '19, you guided $200 million of free cash flow excluding the 50 million of acquisition and integration costs and you ended up at $156 million. You already explained that $25 million of that shortfall is from the shutdown which you're going to recover in fiscal year '20 and that's why the new guidance is $425 million, but you also said that you pull forward some integration costs. So shouldn't then the free cash flow for fiscal year '20 be even higher than $425 million. Shouldn't it would be $450 million or more? Can you just explain where that sort of $25 million of free cash flow went in between the fiscal year '19 and fiscal year '20 guidance?

Charlie Mathis -- Chief Financial Officer

Yeah, so let me just clarify -- let me go from the reported numbers, free cash flow, the $156 million. So we had cash outflows related to the acquisition and integration, part of which was pulled forward of $70 million ,and the government shutdown was $25 million. So this is how we got that to the $250 million of free cash flow, that's the basis -- that was the baseline. And then from there, it was a combination of how you get to $400 million was the amount of the Engility free cash flow contribution. The lower interest savings and the lower tax cash savings is how you got to the $400 million. So that's all consistent, the one component we've added was the $25 million to get to the $425 million. We still have -- in fiscal year 2020, we still have a $38 million of cost outflow -- cash outflow in the cost to achieve the synergies. So that's why it's not higher. Yeah, which is being pulled in 2021 right.

Krishna Sinha -- Vertical Research Partners -- Analyst

Okay. But your original outlook I think for fiscal year '20 was also $38 million of integration, right. So really fiscal year '21 will see less integration than what you are expecting? That's fair.

Charlie Mathis -- Chief Financial Officer

Exactly right. Yes, that's why I mentioned that, that's where you'll see the cash flow impact in 2021, right.

Krishna Sinha -- Vertical Research Partners -- Analyst

Okay. But I guess just going back to that integration pull forward, you said roughly $50 million was the initial expectation for that in fiscal year '19, it actually came in at or near $80 million. So that $30 million delta I guess that (Multiple Speakers)

Charlie Mathis -- Chief Financial Officer

Yeah, let me explain. So there was $86 million of acquisition and integration, that was a book cost that wasn't in cash. Cash was about $70 million about -- and that included the acquisition as well as integration costs. Of that $70 million, about $55 million was integration and then that was the $35 million of pulling forward on the cash outflow that we pulled forward. Hopefully that's clear.

Krishna Sinha -- Vertical Research Partners -- Analyst

Okay, great. And then (Multiple Speakers) yeah, yeah, that works. And then on your book-to-bill or bookings, obviously, you already talked about what Engility or SAIC core bookings were, but can you just talk about whether you experienced any de-bookings or consolidation of bids as a result of the integration?

Charlie Mathis -- Chief Financial Officer

So the only thing I would say on this and that's consistent with the Investor Day is dis-synergies revenue, dis-synergies that we anticipated about $100 million and that's consistent for 2020 as we laid out at the Investor Day.

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

On the booking side, we didn't see any anomalies across the company's dynamics, standard booking, pre-booking.

Krishna Sinha -- Vertical Research Partners -- Analyst

Got you. Got you. Great. Thank you guys.

Anthony J. Moraco -- Chief Executive Officer

Thanks.

Operator

And we'll go next to Joseph DeNardi with Stifel.

Joseph DeNardi -- Stifel -- Analyst

Yeah. Good evening, everybody. Charlie, even with the dividend increase, it still seems like the next few years you're going to have a lot of excess cash remaining kind of after the dividend and the debt paydown. So can you just talk about priority of that between, I guess, accelerating the deleveraging, accelerating the buyback or kind of storing up cash for another deal? Thank you.

Charlie Mathis -- Chief Financial Officer

Yeah. So it's a good problem to have, obviously with the cash generation profile that we have. The excess cash we've said that we would return that to shareholders if there's not a strategic M&A or use for that. We're continuing to evaluate and always evaluate pipeline and other alternatives but that is the priority -- the mandatory debt payments that we have. If you look at the leverage profile that I laid out, we should be under three times on a book to basis by 2021, that's within their targeted range. So we don't look to really deleverage a lot in the next years. We feel like we're in a good leverage situation. So that would be the priority. So with net, again strategic M&A capabilities, and other gaps and in the portfolio and absent that we would look to return the excess cash to shareholders.

Joseph DeNardi -- Stifel -- Analyst

Okay. And then Nazzic, just you're kind of preference for M&A going forward, I think the market's reaction to the Engility deal was a little bit mix but you all feel obviously very good about the integration so far and the free cash flow story over the next few years. So does your experience with Engility thus far make you more or less interested in being a buyer again in the future? Thank you.

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

Sure. So far so good with the Engility acquisition, but it's early days and so we aggressively manage it and watch it and remain confident in the two companies coming together. And with that, our posture is such and relatively unchanged. We will -- we certainly will look to M&A as a factor in our growth. But we are going to be very selective. It's going to be areas that performance (inaudible) complement our strategy and give us market assets and give us competencies or capabilities or solutions that we can bring to bear.

So I don't know that our clusters changed dramatically one way or the other, but it is something that will remain on the radar. We will keep our eyes open and will be proactive where it makes sense. But again, it's -- it would be that, I think we will remain pretty selective ensuring that we do the right deal at the right time.

Krishna Sinha -- Vertical Research Partners -- Analyst

Thank you very much.

Operator

And we'll go next to Josh Sullivan with Seaport Global.

Joshua Ward Sullivan -- Seaport Global -- Analyst

Hi, good evening.

Anthony J. Moraco -- Chief Executive Officer

Hi, Josh.

Joshua Ward Sullivan -- Seaport Global -- Analyst

With the budget request out and thinking about the initial strategy for the tie-up with Engility. Were there any surprises in the budget that received either more or less funding than you guys actually expected.

Charlie Mathis -- Chief Financial Officer

No, I think it's still early in the game from request to reality. But overall, no major swings. I think we'll still see the high demand areas that we position for obviously been focused a lot on the Engility deal that relates to space and space system. So I think there is obviously direct alignment on that with the space force. It's lying under the Air Force at this moment and the space development agencies and other elements around space, and mission capabilities raised the missile defense, and hypersonic.

I think we are well positioned across that full spectrum to the budget numbers there. We expect the diversity we have with Defense at Intel. The further, go forward as is our customer seek modernization and higher, higher impacts to deal with global threats. And then (inaudible) agencies really, to be determined. I think we saw, heard a lot of rhetoric when this administration first got started.

Frankly with the next Congress, I don't see a lot of ships dramatically one way or the other, it's kind of counterbalance. So I translate that actually fairly stable budget environment. There will be some shifts, but with the diversification, we can follow the money, to the contract vehicles that we have across the federal government.

So I don't see on going rhetoric moving, the need of too much in our outlook, change in as result as we had in this year and reconciled the budget request finally to get into the next -- coming 2020.

Joshua Ward Sullivan -- Seaport Global -- Analyst

Thanks. And then just curious if you're seeing an ability to drive any fixed price contracts at this point, either through Engility gives you an ability to do that or if customers are any more receptive at this point?

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

Yeah, this is Nazzic. I mean, that continues to be a priority. Certainly this good solution that we bring to bear that can lend themselves to fixed price and we are playing certainly more discussion about it as the customers think about how to acquire more outcome versus just the traditional mechanisms of solving their challenges. So we're seeing more conversations. We are bringing forth some ideas and some solutions where it makes sense.

I will tell you we haven't seen a dramatic change in their buying behavior, but we continue to have those conversations and sometimes it's the conversation really at the government side, between the contract organization in the program side to help figure out the best way to acquire. So we're cautiously optimistic. It is something we're focused on, but I don't believe we've seen a huge shift today.

Joshua Ward Sullivan -- Seaport Global -- Analyst

Thank you and congrats on the deal.

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

Thank you.

Operator

We will go next to Jon Raviv with Citi.

Jonathan Raviv -- Citi -- Analyst

Hey, thanks for taking the follow-up. On the derisking point as you brought the two organizations together. I certainly understand that you've hit the ground running on the things you want to pursue. But oftentimes the issues encountered are balls dropped, so to speak. So what are you doing to address those sorts of risks, what sorts of things are you watching and then how do you intend to avoid those sorts of outcomes?

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

Yeah, Jon, I'll address it in a couple ways. So as I mentioned on the organizational side, we outlined the organization, we made the people decisions and we were ready to kind of stand up the combined organization on day one. And since we are organized by portfolio, within portfolio by account, there is very clear visibility to the accounts that's coming together that both companies serve on the portfolio of the accounts, the revenue profile, the profit profile and certainly the pipeline.

And so with the way that we're organized and the way we go to market, it's very clear for opportunities live or programs live and there is minimal risk of things getting -- falling between the cracks because there's just clear lines of responsibility to the authority. So I feel confident that that we have full visibility on the program side, we have full visibility on the pipeline side, and because of the work we did in the pipeline analysis, we were able to continue to prosecute the pipeline in a very aggressive manner post (ph) close. So that gives me good confidence just knowing that we have the organization, the team and those decisions are made and we're not trying to navigate that post close. And then we also put together the workflow -- the work streams around pipeline management immediately upon close and we have a very pretty regular systematic way of walking through and understanding what's on the horizon. So I feel confident that the teams have their responsibility and accountability, and we've got the visibility needed to ensure that those don't fall through the cracks.

Jonathan Raviv -- Citi -- Analyst

Thank you.

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

That's all.

Jonathan Raviv -- Citi -- Analyst

Yeah. Thank you, Nazzic.

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

Yeah, sure.

Operator

At this time, I would like to turn the call back over to Shane Canestra for any additional or closing remarks.

Shane P. Canestra -- Vice President, Investor Relations

Thank you very much for your participation in SAIC's fourth quarter and full fiscal year 2019 earnings call. This concludes the call and we thank you for your continued interest in SAIC.

Operator

That does conclude today's conference. We thank you for your participation.

Duration: 55 minutes

Call participants:

Shane P. Canestra -- Vice President, Investor Relations

Anthony J. Moraco -- Chief Executive Officer

Nazzic Keene -- Chief Executive Officer-Elect and Chief Operating Officer

Charlie Mathis -- Chief Financial Officer

Edward Caso -- Wells Fargo -- Analyst

Tobey Sommer -- SunTrust -- Analyst

Cai Von Rumohr -- Cowen and Company -- Analyst

Jonathan Raviv -- Citi -- Analyst

Sheila Kahyaoglu -- Jefferies -- Analyst

Krishna Sinha -- Vertical Research Partners -- Analyst

Joseph DeNardi -- Stifel -- Analyst

Joshua Ward Sullivan -- Seaport Global -- Analyst

More SAIC analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

More From The Motley Fool

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .