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By Nick Wakeman

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Nick Wakeman

SAIC's three main challenges not unique to them

Science Applications International Corp. faces three challenges that many in the market can relate to as the company heads into the second half of its fiscal year.

SAIC has $1 billion in contracts that have been protested. The company faces some uncertainty over the prospect of fiscal year 2020 opening on Oct. 1 with a continuing resolution. A CR would slow growth through new work not starting.

And the third one is a little more unique to SAIC. It has seen a bit of revenue contraction, both as and because it is realizing cost savings from the integration of Engility. This impacts SAIC’s cost-plus contracts.

As costs go down, the revenue goes down with it, Chief Financial Officer Charles Mathis explained during the company’s second quarter earnings call with investors Thursday.

“Reducing costs lowers revenue on our cost plus contracts and we're approximately 60 percent,” Mathis said. “However, this is a one-time impact of our FY 20 growth.”

On the protest front, the big prize delayed there is the $655 million Air Force Engineering, Development, Integration and Sustainment contract to modernize satellite ground systems and help stand up an enterprise architecture to help operate satellites.

SAIC originally won the EDIS contract, but Peraton filed a protest claiming that SAIC didn’t meet the small business requirements set out in the solicitation. GAO ruled in Peraton’s favor and the Air Force is now reviewing the solicitation.

The risk of a continuing resolution is a drag on all companies in the market. How much of a drag will depend on how long it takes Congress and the President to reach an agreement on the appropriations for individual agencies.

With a continuing resolution, new starts are difficult to come by and that could especially be a detriment to SAIC. The company estimates it has $13.4 billion in submitted proposals and 75 percent of those are for new business. Delays there could delay SAIC’s hopes for growth.

For the quarter ended Aug. 2, SAIC reported revenue of $1.6 billion: a 43-percent increase from the same quarter a year earlier on acquired sales from Engility.

It is a relatively light recompete fiscal year for SAIC, but the company is defending its role through a joint venture with AECOM on a $900 million contract to support the Justice Department's asset forfeiture program. The Forfeiture Support Associates JV has held the work since 2004 and dates back to when Engility was a part of L3 Technologies, which spun out Engility in 2012.

Posted by Nick Wakeman on Sep 06, 2019 at 10:44 AM

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