SAIC's record bookings set stage for future growth

Science Application International Corp.’s just-completed third quarter was another record setter for the company with its strongest contract bookings since the 2013 spinoff.

The company reported a third-quarter book to bill ratio of 2.7 that follows the second quarter reading of 2.6, which was a previous high for the company.

Book-to-bill is a leading indicator of future revenue and analysts on a conference call Thursday tried to glean from CEO Nazzic Keene and Chief Financial Officer Charlie Mathis what the company’s fiscal 2022 revenue would look like.

But Keene and Mathis, who is retiring at the end of the year, said they would not update the current guidance beyond SAIC’s current fiscal year 2021 that ends on Jan. 29. The company will update its guidance for fiscal 2022 when it gives its fourth quarter report next February.

For now, the company is projecting fiscal 2021 revenue at $7.1 billion-$7.15 billion, which is down slightly because of the continuing impact of the COVID-19 pandemic. Mathis said the pandemic has cost the company about $60 million a quarter. For the whole year, they’ve pegged the damage at $250 million.

The COVID impact is primarily hitting SAIC’s supply chain work and a reduction in training it provides to the Federal Aviation Administration. There also are costs associated with keeping employees in a ready-state for intelligence community customers.

For the third quarter, the company reported organic growth of 3 percent when COVID’s impact is taken out. Revenue for the quarter was $1.8 billion, compared to $1.6 billion for the same quarter a year ago. The increase includes revenue the company gained when it acquired Unisys Federal in March.

But the company’s success in recent months in winning major contracts has fueled that strong book-to-bill ratio including these:

• A $973 million Customs and Border Protection contract to support its system for identifying travelers and cargo that present a potential security threat.

• A $630 million Air Force contract to modernize its weather infrastructure.

• A $750 million Army National Guard contract for intelligence and security support.

The Air Force and the National Guard contracts are takeaways for SAIC, and the former is one that was won thanks to its Unisys Federal acquisition, said Bob Genter, president of the company’s defense and civilian business.

Genter said there were several factors driving SAIC’s strong book-to-bill ratio. One is the company’s success with its customers.

“We have a history that once we get in with a customer, we perform well,” he told me Friday. “We take care of our customers.”

A second factor is that the company is seeing momentum from its acquisitions. In the last five years, SAIC has made three major acquisitions in Scitor in 2015, Engility in early 2019 and Unisys Federal in early 2020.

Engility in particular was in a state of slower to no organic growth. It has taken time to get the Engility operations performing well but that is happening now, he said.

There also were a lot of financial synergies that needed to be worked out. Costs had to be taken out of the back office, but Genter said SAIC maintained the investment in Engility’s business development, capture and research-and-development functions.

With Unisys Federal, there were no cost synergies factored in and that business was already growing at a strong rate.

Analysts questioned why the revenue from Unisys Federal was flat year over year. Genter said that the company lost its largest single contract when CACI International won the $1.8 billion BEAGLE IT modernization contract with Customs and Border Enforcement.

The fact that Unisys Federal business was flat is a positive sign because it shows that business was able to grow fast enough to make up for that loss, Genter said.

The Unisys Federal acquisition also has helped SAIC expand its defense work because Unisys had a stronger customer presence, particularly for IT work. The combination of the two has resonated because Unisys Federal brings the customer relationships and IT skills while SAIC has brought the scale.

The result is they are pursuing work that neither would have pursued on their own, Genter said.

He wouldn’t predict whether the company will maintain a book-to-bill ratio as high as it has been the last two quarters, but expressed confidence that a strong win rate will continue. “We’ve built up a good head of steam,” he said.

One thing in the company’s favor is that about 15 percent of its annual revenue is up for recompete next year. That number is on the lower end of the normal range. This year, the percentage was slightly higher than 20 percent -- which Genter said is the upper range of normal.

Winning the recompetes is a top priority, but just winning recompetes doesn’t translate into growth. A lower recompete rate means that SAIC can focus more resources on winning new work and that is what energizes growth, he said.

Another reason for Genter’s optimism is the success that the Unisys Federal acquisition is driving as it brings to bear commercial best practices and IT expertise across SAIC.

He’s particularly bullish about defense IT opportunities.

“We had a couple large contracts and they brought two or three with them, but we’ve won three since them came on,” Genter said. “Our footprint is bigger and our pattern recognition is better. That’s truly synergy.”