SAIC's juggling act: a CEO transition and Engility integration

Science Applications International Corp. is facing two important transitions that will have significant impacts on its future.

First is the integration of Engility Corp., which SAIC closed the acquisition of on Jan. 14.

And the second is the ascension of Nazzic Keene to CEO from chief operating officer. Current CEO Tony Moraco retires July 31.

During the company’s fourth quarter earnings call Thursday, analysts came with questions about the progress of both of those watershed events.

Keene has been groomed by Moraco for the past two years to become CEO. And as she explained on the call, they are co-creators of SAIC’s current strategy.

“The reality is that Tony and I had been partners for the last several years and have formed the strategy that has shaped the company and got us to where we are,” she said. “And so with that, my objective is to keep all the goodness that we have to date (and) keep that momentum.”

But Keene also recognizes that the addition of Engility and its 7,500 employees brings a new dynamic.

“With the onboarding and the acquisition of Engility and the respositioning it gives us in the market, we certainly look to accelerate in a few areas and build upon that,” Keene said.

Engility brings to SAIC an almost $1 billion intelligence business, along with added space and supercomputing capabilities. Engility also brings a $3.6 billion backlog, which grows SAIC’s total backlog to $13.8 billion.

Keene also inherits from Moraco the workforce challenge that is affecting the entire industry.

“We want to continue to really work and be that career choice for the top talent in the industry,” she said.

A critical factor in attracting talent is mission of the work, Moraco told analysts, "as well as the culture of the company.”

The addition of Engility also should help the fight for talent. “I think our added scale provides a lot of career opportunities for folks to join us,” he said.

With Engility in tow, SAIC is projecting revenue in the range of $6.45 billion-$6.65 billion. Profit margins should be in the 8.1 percent-8.4 percent range. The company expects its free cash flow to be at least $425 million.

For its 2019 fiscal year ended Feb. 1, SAIC reported revenue of $4.7 billion compared to $4.5 billion for fiscal 2018.

Over the next three years, the company is expecting a compound annual growth rate of 3 percent.

The company also provided several numbers to show that the integration of Engility is on or ahead of schedule. One is the increase in its free cash flow and the other number was earlier recognition of some cost synergies.

Most of the year one synergies were captured when the deal closed Jan. 14, "providing even more confidence in the margin improvement in fiscal year (2020)," Keene said.