The size of the addressable business market for the new Science Applications International Corp. [SAIC] will expand by about $25 billion once the company completes its spinoff from the current SAIC later this month, the chief of the new SAIC told investors last week.
The split of SAIC [SAI] into two separately traded public companies, Leidos [LDOS] and SAIC on Sept. 30 will allow both new companies to compete for work that they currently are barred from or reluctant to pursue due to organizational conflicts of interest. In addition, SAIC will go after work in the national security sector that it “self-selected out” of in the past few years due to potential conflict issues, Tony Moraco, president of the current SAIC’s Government Solutions group and the incoming CEO of the new SAIC, said at the investor’s day.
The expanded addressable market would amount to about $185 billion with the potential new opportunities in the federal market, Moraco said. And it’s “principally an organic growth story around expanding our opportunities of selling capabilities to that we have today to customers we know very well,” he added.
The largest single customer of the new SAIC is the Army followed by the Navy, which account for 26 percent and 20 percent of the company’s approximately $4 billion in annual sales, Moraco said. The Air Force as a customer is currently underserved by the new SAIC, which holds more opportunities for business once the spinoff is complete because in the past the company elected not to compete for certain work due to potential interest conflicts, particularly in airborne-related areas, he said.
Moving forward, nearly one-third of its new addressable market will include the range of federal civilian agencies. Its largest federal civilian customers include the Departments of Homeland Security, State and Agriculture as well as NASA.
The new SAIC is touting its ability to offer customers the full range of life-cycle support, including design, development, integration, training and sustainment for different missions and enterprises. The company is also highlighting itself as one of the largest pure play technical services providers that is strategically aligned with the enduring mission needs of its customers, with which it has long-term relationships.
SAIC will have two reporting segments, Technical Services and Engineering, and Enterprise Information Technology, each with about $2 billion in sales. The company is dividing its solutions into eight key offerings, including mission and systems engineering and technical assistance, hardware integration, training and simulation, logistics and supply chain, network integration, software integration, IT managed services, and emerging IT.
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| Nazzic Keene, president of SAIC’s Enterprise IT Sector |
The current plan is for the Technical and Engineering Sector to be led by Deborah James, an executive vice president for Communications and Government Affairs, who has been nominated to be Secretary of the Air Force. Nazzic Keene, who is a senior vice president for Corporate Strategy and Planning with SAIC, will lead the Enterprise IT Sector following the spinoff.
Like its soon-to-be sister company Leidos, the new SAIC is changing its existing corporate culture of entrepreneurship that is centered around the individuals and various business units to one that is focused on the enterprise, shifting from a stovepiped organizational structure that one that is organizationally aligned around its key market segments (Defense Daily, Sept. 13).
A more centralized organizational and management structure means “a focus on running the company at corporate and running the business on the customer side and the service side,” Moraco said. “That gives us better market segmentation, better resource utilization, [and a] focus on investments and pooled resources.”
The company will be a prime contractor on 91 percent of its contracts going forward, with more than 1,500 contracts and task orders underway. The company’s top 10 contracts comprise 46 percent of its sales.
Given the size of the company and its breadth of capabilities, it is in a position to do more work on larger contracts–$100 million and higher—giving us “prime contract access at scale” across its eight solution offerings, Moraco said.
In a constrained federal spending environment, SAIC expects to achieve low single-digit growth rates by through its expanded opportunity pipeline, John Hartley, the company’s chief financial officer, said. The company also expects to be able to deliver annual margin improvements over the next three to five years, he said. The margin improvements will come through more value-added content, program execution and improved cost structure, he said.
SAIC expects its per share earnings in FY ’14 to be between 34 and 38 cents on sales between $3.9 billion and $4.1 billion. Sales in FY ’13 were 4.7 billion. The drop in FY ’14 is due to the loss of a large contract, budget and sequestration pressures, and reduced war-related spending.