SAIC looks for more alignment between innovation and its bids

Amid the ongoing search for its next chief executive, Science Applications International Corp. is setting up its new direction as one that seeks tighter alignment between its innovation and bidding engines.

During SAIC’s fiscal third quarter earnings call with investors Thursday, interim CEO Jim Reagan laid out how the company is looking to accomplish that as it looks to reverse multiple years of declines in organic growth and profits.

Reagan was appointed interim chief executive in late October following the departure of Toni Townes-Whitley after two years as SAIC's CEO. Reagan was previously a member of SAIC's board of directors since January 2023.

“What we can do better is, get a more intense focus on marrying the investments that we make in innovation, the investments that we make in R&D (research-and-development), to the opportunities that our customers are putting in front of us that we're going to be bidding on in the next 24 months,” Reagan said. “We're going to improve that, as well as do a little bit better job of listening to our customers tell us not what they need today on programs that we're executing, but really what are they going to look to us to do tomorrow that's different from what we're doing today.”

For SAIC, one initial step in making that alignment happen is looking at where the company spends its money. Reagan told analysts the company has identified $100 million in indirect spend that it will reprogram into other areas.

He said a “substantial amount” of that will go to resources surrounding SAIC’s functions in account management and business development, including the process of developing and winning proposals.

Then there are the broader market dynamics that SAIC must shape its business decisions around, including expectations of increased spending on defense and security.

The Defense Department is pushing to overhaul its entire approach to acquisition with an emphasis on speed and that will include greater use of different types of contracts.

Reagan said SAIC is also interested in learning more about how DOD seems more willing to accept solutions that show “80%, 90% adherence to requirements instead of 100%.”

“How they're going to implement that, there's a lot of guidance that still needs to be issued, but we're planning on spending a lot of time with our customers to help them implement this in a way that achieves their objectives of speed and efficiency,” Reagan said.

On the other hand, downward pressure on many civilian agency budgets is something SAIC and others will have to navigate as future Trump administration funding plans lean heavier on defense.

Reagan does believe SAIC “is in the fast currents of the civilian agencies” that are poised to get budget increases, such as the Federal Aviation Administration and Customs and Border Protection.

Fiscal third quarter revenue of $1.8 billion was down 5.6% from the prior year period, while profit of $185 million showed a 6% year-over-year decrease in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). That revenue decline includes a 1% headwind from the government shutdown.

SAIC nudged up its full-fiscal year sales outlook to between $7.275 billion and $7.325 billion, up from the prior $7.25 billion-to-$7.325 billion range.

The company also lifted its adjusted EBITDA guidance to $695 million, up from the prior $680 million-to-$690 million range, indicating a margin of 9.5% versus the previous outlook of 9.3%-to-9.5%.