SAIC further ties growth outlook to its current book of business

For every company in the government technology and professional services market: a certain amount of new contract opportunities must always be in the pipeline of pursuits to keep the growth engine going.

But Science Applications International Corp.'s focus apparently has been on what it already has in the backlog and working against that, which is also important to keeping the growth engine going and being in good stead for the recompete.

During SAIC's fiscal second quarter earnings call with investors Thursday, Chief Financial Officer Prabu Natarajan said that "chasing the shiny rabbit" of new business has not been front-of-mind for the company over the past two years.

SAIC has instead opted to "focus on the things that have ceiling that are right in front of us," Natarajan told analysts. "The P-win [probability to win] on filling up the ceiling is far greater than the P-win on any new business or any sort of new ventures out there."

Reston, Virginia-headquartered SAIC can point to an overall backlog of $22.5 billion as of the second quarter's end on Aug. 4 with $3.7 billion of it funded. That represents up to roughly three years of potential revenue based on SAIC's new full-year revenue guidance of $7.2 billion-to-$7.25 billion.

The company also reported a book-to-bill ratio of 0.8 for the trailing 12-month period as a reflection of contract bookings versus realization of sales. During his opening remarks, Natarajan acknowledged SAIC's bookings and ratio are "below where we had planned to be at the beginning of the year."

With all of that said: SAIC's second quarter does include its capture of the potential $1.3 billion Treasury Department cloud computing services contract known as T-Cloud. That win represents new business for SAIC and is feeds into the company's emphasis on cloud in its strategy.

SAIC can also tout another $770 million in ceiling value from a pair of contracts with the Navy and Space Force that were booked during the second quarter. A separate $575 million Space Force contract for radar maintenance work followed in the current third quarter.

Those four awards represent franchises for future growth, which would go in tandem with working against the current backlog.

"There's always a balance between more on contract growth, offset by maybe less in the way of new business growth, and therefore, when you sort of work your way through the dynamics of new business competition, your win rates are higher," Natarajan said. "On top of that, you're beginning to deliver better on contract growth organically because you have ceiling ahead of you that actually does create a pretty favorable dynamic."

Thursday's call also represented the final one for Nazzic Keene, SAIC's chief executive for the past four years whose retirement from the position will take effect Oct. 2.

Given that, we attach here how she ended his opening remarks by looking back at her tenure at SAIC and endorsement of incoming CEO Toni Townes-Whitley for the role.

Fiscal second quarter revenue of $1.8 billion was officially 3% lower than the prior year period, but 8.3% higher on an organic basis to reflect two transactions: the supply chain business divestiture to ASRC Federal and agreement to make Amentum the controlling owner of their Forfeiture Support Associates joint venture.

Profit in the quarter of $174 million represented a 5% year-over-year increase in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).

SAIC's new fiscal 2024 revenue guidance range of $7.2 billion-to-$7.25 billion suggests an organic growth rate of approximately 4.5% at the midpoint. The bottom-line outlook is also slightly nudged up to an adjusted EBITDA margin of 9.3%-to-9.4%.

The company runs its fiscal calendar on a February-January basis.

Subsequent to the financial release: SAIC announced that its board of directors approved an increase in size from 10 to 11 members in conjunction with the appointment of Dana Deasy, the former Defense Department chief financial officer from May 2018 to January 2021.

Deasy will sit on the board's risk oversight committee and his term takes effect Friday, SAIC said in a regulatory filing Friday.