Science Applications International Corporation (SAIC) Earnings Call Transcript & Summary

David did a great summary there. Thinking about your question, Jason, of macro trends, a couple of thoughts come to mind. I guess I'm -- been in the industry long enough to know that people like to talk about, well, this -- the new economy is space and it's just all kinds of private money, commercial money, government money, all kinds of stuff going into space. But I can remember back to the '90s when cell phones were starting and space was going to be the new economy, right? There were companies like Iridium, Teledesic, ICO, Globalstar, all these private endeavors that were going to be the new economy, and most of them didn't survive. The second generation of them, things like DIRECTV and SiriusXM radio, they survived, but there's not a lot of them, right? And so I think back to what didn't work, right? That was going to be a trend and it didn't work and why is -- what's happened now? Why are things different? And so as Citi writes in their GPS document, the cost of launch going way down, right, has really changed things for the space industry, but it's been combined with another thing, which is what I would call the miniaturization, right? Because as technology has evolved, we can do things in smaller size, which means lighter weight, so we don't need as much weight for that rocket. So then I can actually launch 2 vehicles, 3 vehicles, 40 vehicles at once with 1 launch, so the per unit cost of launch goes way down and it's changed the industry dramatically. So you have that cost of launch, the miniaturization that's fueling it, but also miniaturization is enabling new types of technologies from those single purpose of just, say, feedback. Like one of the first satellites I remember here and about was when they built -- they were able to broadcast the Olympics. I think it was from Tokyo, but I'm not exactly sure. It was like the first time people had seen television live from another part of the earth, right? Now the reality is there's probably incredibly long latency, right? So another trend that I see is the constant demand for speed, right? If we're going to use space, it's got to be faster, faster, faster all the time. If I want data, I need to be faster. So it takes too long to go across the terrestrial lines. What if we use space? Well, then what if we position the data in space instead of having it go on ground? Sort just using space as the medium, maybe space becomes the new home, right? And so that's driven by speed of information, right, and how you can do that. And then just -- we're just using space for so many more different things than we used to. Yes, we're doing it for TV, and yes, we're doing it for our radio. And yes, the governments and the military are using it to take photographs and you can have commercial ventures out there taking photographs, right? But there's just so many more things that we're using space for. And so I think as you think about trends, you don't have to have as much money to put something in space. You can actually now put something in space that does something that's not been done before, and you can do it in a proliferated constellation. You don't need to have one great big satellite. You can just have a constellation of satellites. It just totally changes the way the market is looking at what the possibilities are with space, and so it's a very exciting time. Where all this is going to go is part of what you and David and I are doing every day, is positioning and forecasting what's going to happen.

Yes. Yes, that's great. And David, I'd like to go back and double click on something that you mentioned because this is -- kind of dovetails nicely on what Michael just suggested, which is launch is allowing for the proliferation of all kinds of constellations, and the skies are getting crowded. You suggested that we needed an FAA of space. Maybe you can just talk a little bit about industry efforts to push something like that forward. What should investors be kind of monitoring on that front? Because, clearly, this is going to be important because investors are always a little nervous about regulation. And then secondly, kind of related to that, how much of this is going to be putting mandates on operators to make sure that they can safely and equivocally deorbit things? And -- or is there going to be a true cottage industry that's going to pop up here that's going to launch hardware to go collect all of these things and then bring them safely down to earth? Just kind of curious, what are the regulatory things we should be watching for? And how does that kind of manifest itself? Are we forcing people to be able to deorbit satellites and it's on them? Are we going to have an industry that's going to pop up here that's going to go clean up the skies?

I think long term, there's probably going to be an industry that pops up, but I will say first off is you've got to be guided by policy. And so I know that's a very -- debate that's happening right now in Congress, how we're going to go manage this. They're interested in hearing ideas from government entities as well as the industry. I know the government has tasked the Department of Commerce to go look at this as part of a broader government piece. And so from SAIC's perspective, we're really following and monitoring the policy side and how this is going to go happen because, again, this is like looking back in the past. There always wasn't an FAA, right? That had to be generated out of thin air, as the advent of air travel as well as military use of air assets became a norm, right? So we're seeing this happen all over again for space. But everything, as we mentioned before, is guided by policy and then how do we go institute that policy to ensure that we're doing things consistent with the laws of the land are going to be absolute key. Now to answer your point -- to answer your question, I think there's a lot of innovative companies out there that are looking at ways that we can safely not only deorbit but also manage traffic and space. We have work today where -- with our Space Force customer, where we're actively tagging and monitoring space debris today, assets in space today. So the first thing is how do I go understand what's out there, how fast it's moving? And is it working or not? Is it still doing its job, right? Those are the things that we, SAIC, play in today, is just the monitoring aspect, right? The next piece is how do you go actively manage that and if it's not working, how do you go repair or deorbit or something like that. I think there's going to eventually be an industry that pops up to address that, but it all has to be guided by policy. So I won't put the cart before the horse. I think everyone's watching how the policy is going to be generated, and then they're going to plot how they move in the market to go complement that. But I still think that that's going to be a huge opportunity space for us, especially it's going to be dependent upon how fast this whole notion of consumer space travel links up. So the more Jeff Bezos and everybody wants to go to space and take more people with them and as Artemis gets online and people can travel to the moon and then Mars, the last thing we want to do is you lose a human life, right? So as those things become more prevalent, the need to be able to manage assets in space becomes more important. And so that, coupled with policy, I think are going to really accelerate efforts, which is why I say it still is a 10-year horizon, but there's a lot of nascent opportunity happening right now to look at the art of the possible and how we go manage that. Does that make sense, Jason?

It does. Yes. No, that's perfect. So we started up here. Let's come down a little bit more and talk specifically about some of the applications that our war fighters benefit from in -- from space-based assets. I think we can all dream up or very quickly come top of mind would be things like tracking missiles and missile defense. Yes, communications has been mentioned here on the call today. And I'll let you guys correct me if I'm wrong, but having worked at a space company here recently, I've always thought that this JADC2 initiative, the Joint All-Domain Command and Control initiative that we have going on inside the military is pretty important as well or very important, I should say. And space police, an interesting part in that. From my perspective, the whole idea of JADC2 is to be able to reduce sensor-to-shooter time lines, have the ability of the military to sense what's going on out there in the world, get it into a black box to inference it, interference the data and then get out kind of friend or foe and targeting information into the command structure, such that in the conflict, our soldiers have the benefit of both seeing and knowing where an enemy is and being able to neutralize that target even before that target even can see us. So I'd love to, a, get some confirmation that I'm thinking about that correctly; and then secondly, have both of you talk a little bit about the efforts that we're seeing in DoD space, classified space that are helping to support that because it seems to me like that's the killer app for space in addition to tracking missile defense and providing communications. But reducing sensor-to-shooter time lines and using space as the ultimate high ground seems like a pretty important thing. So shoot me down. Shoot some holes on what I just had to say or confirm that, that makes sense. And then just talk a little bit about your views on exactly how space enables that.

David, let me go first. Jason, I don't think I can shoot any holes on what you said, but let me build on that a little bit. Support to the Department of Defense's Joint All-Domain Command and Control is a big priority for SAIC. Some of your listeners might have seen recently, we were listed in Frost & Sullivan as one of the companies to watch, up and coming companies to watch for that. And I think it's -- there's a story behind that, that I'd like to just sort of use as what's going on with Joint All-Domain Command and Control. Sometimes I have to remind people like when I'm talking to some of our employees, I know how we're focusing our strategies, talking about what is it -- what is the objective of doing Joint All-Domain Command and Control, right? And I remind them, the Joint stands for the fact that we need the Army, Navy, Air Force, Marines and Space Force to work more in a joint integrated way, right? The history of the country has been most of the military services solve their military domain problems and they build things, right? We need to be able to bring the joint team together to keep up with our nation-state adversaries who are gaining ground on us, right? And then it's all domain, right? It's not just space, and space is an important component of it, but it's air. It's land. It's sea. It's cyber, right? It's multiple domains, right? All domains together -- how do we solve that? And then command and control is just a great way of saying how we organize, equip, train and operationalize our capabilities to protect our country, right? And so when you think about what's going on right now, there are -- adversaries are gaining ground on us, and we need to do more faster, right? And there are brand-new programs that the country has invested in that are already underway or they're on the drawing board that are going to add significant capability for the United States. But as Michael looks at it -- I don't know what the percentage is. Let's say, 90% of what's being used is in the inventory already, right? So we've got to do more faster with what we've got. And so I think this is a great time with the technologies that have evolved over the last 15 years to go through another cycle of figuring out how do we do more across the joint force all domains faster. And so technologies like cloud, edge computing, these things work as accessible as 20 years ago when we did this last time to where they are now. And SAIC is really great at these technologies, and that's why we get a nod from Frost & Sullivan as a company to watch because we're using these new technologies and coming at the problem of orchestrating, training, equipping, operating from a different perspective. We're not -- SAIC is not the company that builds the ship or builds the airplane or the satellite. It was a company that integrates all the systems together and integrates the data. And it's about the data that's going to create the force multiplier that we need, is access to information and using more AI software to do more with what we've got faster. So I think about it that way and where we're going with our company. And David, maybe you want to expand a little bit more about the space aspect of what you're doing in your business.

Yes. So I think that was a great summary of JADC2 in that context. And I'll just take 2 pieces, Jason. Again, it goes back to the earlier comments that space has very quickly, in the last 10 years, moved from much more strategic asset to much more of an operational and tactical asset, which means its relevancy as part of JADC2 has become that much more, right? We used to think about command and control in a coalition or a joint effort just around land, air and sea, right? And so now space is a piece of that. I think the push to have low earth orbit assets to hold new constellations that are coming up are really driving its relevance in that piece. I think Space Development Agency, as an example, inside of the Space Force, Dr. Tournear and those folks are doing some great things, where you're starting to see now how low earth orbit satellites can have a direct impact on the war fighter, the Army soldier on the ground in a very tactical fashion as opposed to the strategic -- the traditional strategic view, which you would get some information that may take a few hours or a few days to get there, which was much more strategic versus kind of the tactical new that we're seeing today. I just want to echo what Michael said, is that from a space perspective, the great part of the -- the great thing about the way we're organized inside of SAIC is, as Michael mentioned, there are people building aircraft, people building ships, people building tanks, people building things that go on soldiers and people building satellites. But JADC2 is all about the inter-connectivity, which means how do I get access to the information, how do I get access to the data to allow me to make decisions faster. And in going to our first part, it's all about software. It's all about interoperability. It's all about integration. And when you're thinking about that mission, coupled with all of these new people or new entrants that are coming into the market, it's not just the traditional 5 or 7 companies that have played in the space, space before. It's all these new entrants. Our ability to do that integration to see the data and the architecture as it is so that we can evaluate companies both small, medium and large, to answer the needs of customers in a pure agnostic fashion really positions us moving forward. But from a Joint All-Domain Command and Control, it's all about access to data, information in timely fashion, which means software, architecture and integration are the key tenets for any level of success in that space.

Yes. Perfect. And you guys have both mentioned a little bit the efforts here of SAIC in this domain. No pun intended. Why don't we double click now a little bit and look further specifically at SAIC and how the national security and space segment or -- yes, segment, I guess, for lack of a better word, is structured? Michael, maybe you can kind of help set the stage here. How big is the segment itself? How do you manage it? I think you've got 3 segments there -- 3 subsegments, I should say. Maybe just set the overarching view of national security and space at SAIC, how you run the business, the segments that are involved and then we'll flip it back over to David for a little bit of discussion about the size of his business, the key capabilities that he has in that business, maybe some -- give some examples of some recent wins maybe that you're excited about and maybe a little bit about what's in the pipeline. But Michael, why don't we start with you?

And David, I'll just do a quick intro. I think you've got the really exciting things to talk about what we're doing. But from the company's perspective, space is the largest or one of the largest market segments that we support at SAIC. It's key to our business, and it's an exciting place for us right now. We've done a lot of wonderful things over the years. And as we look about -- looked at what was going on in the market several years ago, we started looking at how do we take the great talent we have within SAIC, the experience we have, that David will go into in more detail, across multiple submarkets, multiple technologies, multiple missions, right? How do we combine all that together and look at what's going on in the industry and start doing some more things to help advance the needs of our customers, right? And so we've been really on that journey. David came onboard. We're excited to have him come to SAIC and bring his leadership talent and his market experience to help chart that course and deliver some successes, which he has already. So David, why don't you talk a little bit more about how do we look at the space market? How are you and your team servicing today and planning for the future?

Absolutely. So as Michael mentioned, so national space and security is roughly $2.5 billion to $2.7 billion. The space business is about half that, and it's evenly divided between kind of 3 market areas. We have our intelligence, our community. So I think a lot of the work we do with some of our intel customers that focus on space. We have a defense piece. Think Space Force, some of our space RCO customers, some of those areas. And then think our civil market, which is traditionally been NASA, NOAA, and we've also got some commercial efforts that fall into that area as well. When you think about the future of where the customer is going and how we're aligned to go make that happen, I think you got to think about -- you can't think about SAIC from a space perspective without first recognizing the fact that we're a combination of all the traditional work that was done through SAIC and also the acquisition of Scitor and Engility. So when you bring the power of those companies together, we've built a pretty strong system engineering capability inside of the business and system integration capability, which is really -- which really drives a lot of the work that we do today inside of those 3 major areas. Now as we transition from doing more, what I call, labor-based system integration into more system-level system integration and solutioning, I think that's going to take us into areas that allow us to use new muscles. When you think about things like how do we go integrate space systems as well as ground systems to achieve new constellations out there, I think that's going to be key. When you think about low earth orbit and all the opportunity that exists inside of all 3 of these customers, there's a need for a pure system integrator to really help integrate the capabilities that they're trying to do moving forward. The space right now, the space, space right now is very fragmented if you think about it. You have your traditionals up top. When you think about your low earth orbit competitors or low earth orbit missions, there's a smattering of people who build things, payloads, buses. There's also a large contingent of folks who build ground stations, whether they be virtual ground stations or whether they be hard core ground stations that go in different sites. And so you have this competitive landscape that's so big now. Customers now have choice. And so when you have an area where customers have choice, you've got to understand not only do I pick the right vendor or a provider of that piece of hardware or capability. How do I go integrate that into an architecture? And that's the opportunity space that it presents itself to us. Traditionally, we've done that on the customer side. We've helped them develop the architecture, and they've kind of then let contracts to satellite providers and ground station providers. Now with this advent of LEO and at the pace at which customers have to go move, they're looking for more of an integrator because things and systems are moving so much faster than they have been in the past. And so we're positioning ourselves, and we won a huge classified contract about 1.5 years ago and then got an additional -- a large additional piece to that as well, engineering change proposal to add a ground station component. And for one of the first times in SAIC's history, we're actually building, and we're actually bringing together space segment and ground segment to deliver a constellation, right? So it's something that really helps us move in the right direction. As we think about where our growth is going to come from, it's taking the skill sets that we've garnered with those acquisitions through the work that we've done. And we've kind of focused on 3 areas. How do we go play more of an integration role in things that fly in space, right? So we may not build it, but there's going to be a need to integrate the payloads, build the architecture. If those satellites have to talk to other satellites, how do you go reconcile the architecture with legacy assets, right? We have experience that allows us to go do that. And we're a very attractive partner for smaller firms that are trying to move into that space, right, especially as you think about low earth orbit. Then we think about kind of the ground and C2 space. We've talked a lot about the value of C2 and it's normally happened on the ground. You're starting to see more C2 happen in space, and so we're looking at how we come and integrate in that area as well that our core customer has gone -- traditionally buys satellites and buys ground station separate. And so I think the integration becomes harder now that you're asking those satellites to do different things. And so now it brings a sense of the customer needing more of a pure systems integrator to help bring all that together. The last piece that we talked about earlier is what's the aftermarket. So when you think about in-service orbiting, in-service manufacturing and sustainment with respect to debris and how do you go deorbit, how do you go maintain assets in space, I think that's going to be key for us moving forward as you manage the debris problem. And so as we think about the 3 prongs of the future of where we're going in addition to kind of sustaining and growing the base work that we have today, being able to play that system engineering and integration role across all of those facets, present an enormous amount of opportunity. And as more and more new companies come to play in the game, we present a really good option to really drive that system integration because we're not really building. We're not a competitor to a lot of those companies. And we're oftentimes focused on how do we solve customers' problems, leveraging the assets that are available. There may be one company today and another company tomorrow, so we're really kind of unbiased in terms of how do we deliver capability. Does that make sense?

It does. Yes, that's perfect. And I probably answer my own question here pretty quickly, but I'm guessing that the areas of investment that you're making into R&D, and it sounds like you've acquired some of the capabilities here, are along those 3 growth areas that you talked about a fair bit.

Yes. Absolutely. And so one thing I do want to add, and Michael has talked about this, he's pulled several grids on the software. There's a lot of acquisitions that the company has done. You think about Koverse, is a great example where the company has done -- did that acquisition. And we've been able to go leverage that. When you think about multilevel security, you think about a lot of challenges that come with being able to execute JADC2, is going to be key. So as we think about how do we build our capability inside of the company, we've got an eye towards software and AI because we think those are going to be the glue that allow for JADC2 to happen. The last thing I'll say is the way Michael's organized, I have a peer that runs the Air Force business. And I think the first part of integration that happens in JADC2 is going to be between space and air. And so my ability to sit next door to my peer, so we can whiteboard how we're going to go help Space Force and the Air Force really build on ABMS or JADC2 is going to be absolutely key. And so Michael's organization is naturally set up to really drive that collaboration, which helps us accelerate our efforts around investment as well as customer engagement.

Perfect. Perfect. Michael, I'll put you on the spot for the last 3 seconds that we've got here just to see if you have any kind of closing remarks that you might want to make. I certainly want to thank everybody involved here at SAIC and Joe for helping to pull all of this together, Michael and David, for your participation. This is -- this call series is about investor education to make sure that people understand the space ecosystem. Each company, I suspect that we speak with, will have -- will be in a different pocket of it over time. So it's really good to understand how a company like SAIC is approaching space, is driving revenue and shareholder value by addressing this market. It's great to see that some of these acquisitions that you've made over time are helping to support this growing area of defense spending. So stay tuned and listeners on the call to future iterations of this call, but I do want to leave Michael with the last word. And again, thank you again.

Well, thank you, Jason. I guess for the last word, I'd share something that we talk about in our earnings calls every quarter. We talk about our strategy to move into systems integration and delivery is the term. You just heard David talk about what's going on in the space market, is one area that we're focused on systems integration and delivery. People who build satellites love their satellite, right? But imagine you're an operator on the ground flying a lot of different satellites, and someone comes to you and says, "Now here's a great new satellite." And you're going to say, "Well, it doesn't operate like any of my other ones. I'm going to have to train new people, going to have a new gear man, new software on the ground," right? And so where SAIC is focused on systems integration and delivery is focusing on that integration work. And it's about achieving the outcome that we want and recognizing that it doesn't operate on its own. It has to interconnect, right, at multiple levels. It has to interconnect across a constellation, across the ground, across operators to put around the world to be very successful. And that's where SAIC is focused in our systems integration and delivery focus. So I guess I'd summarize that, Jason.

Okay. That's wonderful. Again, thanks for all that have dialed in. Those of you that watch the replay and got to this part of the call, I congratulate you for sticking with it and thank everybody involved here. Operator, with that, I think you can end our session.