Science Applications International Corporation (NYSE:SAIC) Q1 2023 Earnings Conference Call June 6, 2022 10:00 AM ET
Company Participants
Joe DeNardi – Vice President, Investor Relations and Strategic Ventures
Nazzic Keene – Chief Executive Officer
Prabu Natarajan – Chief Financial Officer
Conference Call Participants
Sheila Kahyaoglu – Jefferies
Gavin Parsons – Goldman Sachs
Matt Akers – Wells Fargo
Bert Subin – Stifel
Cai von Rumohr – Cowen
Tobey Sommer – Truist Securities
Louie DiPalma – William Blair
Operator
Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the SAIC First Quarter Fiscal Year 2023 Earnings Conference Call. [Operator Instructions]
Joe DeNardi
Good morning and thank you for joining SAIC’s first quarter fiscal year 2023 earnings call. My name is Joe DeNardi, Vice President of Investor Relations and Strategic Ventures. And joining me today to discuss our business and financial results are Nazzic Keene, our Chief Executive Officer and Prabu Natarajan, our Chief Financial Officer.
Today, we will discuss our results for the first quarter of fiscal year 2023 that ended April 29, 2022. Earlier this morning, we issued our earnings release, which can be found at investors.saic.com, where you will also find supplemental financial presentation slides to be utilized in conjunction with today’s call and a copy of management’s prepared remarks. These documents, in addition to our Form 10-Q to be filed later today, should be utilized in evaluating our results and outlook along with information provided on today’s call.
Please note that we may make forward-looking statements on today’s call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call. I refer you to our SEC filings for a discussion of these risks, including the Risk Factors section of our annual report on Form 10-K and quarterly reports on Form 10-Q. In addition, the statements represent our views as of today and subsequent events may cause our views to change. We may elect to update the forward-looking statements at some point in the future, but we specifically disclaim any obligation to do so. In addition, we will discuss non-GAAP financial measures and other metrics, which we believe provide useful information for investors and both our press release and supplemental financial presentation slides include reconciliations to the most comparable GAAP measures.
It is now my pleasure to introduce our CEO, Nazzic Keene.
Nazzic Keene
Thank you, Joe and good morning to everyone joining our call. I am proud of the financial results we delivered in our first quarter, representing our sixth consecutive quarter of positive organic growth, positioning us well to deliver on our full year plan. After my remarks, Prabu will discuss results for the quarter in greater detail and provide our updated outlook.
I would like to spend a moment discussing the results of some recent work we initiated internally to ensure all of our stakeholders, our employees, our customers, our partners and our shareholders better know who SAIC is, why we do what we do and the values that drive us. For over 50 years, SAIC has worked hand-in-hand as a trusted partner of the U.S. government, advancing our country’s most critical no-fail missions. We foster a culture, where inclusion leads to innovation because we know the best outcomes come from diversity of thought across our 26,000 employees. Our legacy and leadership in enterprise IT and systems engineering and integration, coupled with our proven ability to provide solutions with speed to value, are competitive advantages that we leverage to drive profitable growth. The progress we have made on further strengthening our culture and our continued focus on the mission, have directly contributed to the improving financial results we have delivered over the past several quarters.
In the first quarter, we reported revenues of approximately $2 billion, representing total growth of approximately 6% and organic growth of 4%, both of which were ahead of plan. First quarter adjusted EBITDA margin of 8.7% was consistent with our expectation for steady improvement through the year. Our first quarter results, combined with recent business development success, give us greater confidence in our increased revenue guidance. I am pleased with the performance we delivered and believe it speaks to the progress we are making. I continue to see significant opportunity to increase the company’s earnings organically as we further sharpen our strategic focus over the coming years.
I would like to now provide a brief overview of how our business and portfolio strategy is evolving. While we continue to go to market and manage the business around our two customer-facing operating sectors, I want to highlight our key capability offerings that span those sectors, which we define as our growth and technology accelerants, GTA and our Core, as shown on Slides 6 and 7 of our earnings presentation.
Key capabilities within our GTA focus area includes secure cloud, enterprise IT and systems integration and delivery. In fiscal year ‘22, GTA accounted for roughly 27% of our total revenue and a greater share of our operating profit. We believe the investments we have made to develop differentiated market-leading solutions and recent M&A activity positions us well to capture more than our fair share of a growing pipeline. Our leadership within these domains is reflected in recent rankings from Gartner, which placed SAIC’s IT services market share at number one by revenue for the United States government vertical for both infrastructure implementation and managed services and application managed services. We expect to increase our GTA revenue to over 35% of the portfolio within the next 3 years, reflecting strong growth from this area of our business at accretive margins.
Our Core includes engineering services, IT and technical services and logistics and supply chain. Total revenue in fiscal year 2022 across these capabilities represented roughly 73% of SAIC’s revenues. As we transform our portfolio towards a greater share of GTA over the next few years, we intend to grow Core as well. Our strategic focus going forward will remain centered on creating the most rewarding and differentiated experience for our employees, investing in markets with growing demand where SAIC has enduring competitive advantages and allocating capital to drive improving financial returns for our shareholders.
While SAIC’s legacy and technical leadership has been in providing engineering expertise to help solve our customers’ toughest challenges, we see more opportunities going forward to use these skill sets better to capture additional value as a technology integrator. We believe this has the potential to unlock improved opportunities for growth over the long-term. Recent program awards, which give us confidence in this strategy, include a key win in classified space and our expanding role as integrator on the Mark 48 program. These are great examples of evolving a program from principally talent and expertise oriented to delivering a mission-specific solution fueled by our talented teams. We are confident in our strategy execution and in our ability to create long-term value for all SAIC stakeholders.
I will now turn the call over to Prabu for a discussion of our financial results and our outlook.
Prabu Natarajan
Thank you, Nazzic and good morning everyone. I will quickly summarize our first quarter results and then discuss our updated outlook for fiscal year 2023.
We delivered strong performance in the quarter, with revenues ahead of our plan at roughly $2 billion, representing total growth of 6%, of which 4% was organic. Revenue performance in the quarter benefited from solid on-contract growth and the timing of material sales previously planned for later in the year. We delivered an adjusted EBITDA margin of 8.7%, primarily impacted by the timing of indirect expenses and remain on track to meet our full year guidance of 8.9% with good visibility into expected margin improvement through the rest of the year.
We reported adjusted earnings per share of $1.88, which benefited from the more favorable revenue performance in the quarter. I am pleased with our business development results in the quarter with net bookings of $2 billion. Our trailing 12-month book-to-bill is roughly 1.0 and we expect this to improve over the next few quarters based on recent competitive new business wins still in protest, representing over $1 billion in total contract value and squarely aligned with our GTA areas of focus.
We continue to see a growing pipeline as evidenced by a 15% increase in the value of submitted proposals to roughly $24 billion at quarter end. Importantly, the mix within our pipeline continues to change with new business now representing roughly 70% of the value of submitted proposals, both materially higher sequentially and at this time last year. We also see good progress in driving a greater share of our pipeline within markets that align with our longer term growth objectives as represented by a greater share of opportunities within GTA, as Nazzic discussed. This is an enterprise metric and will be a priority for the team.
Based on results for the quarter and our updated outlook for the year, we are increasing our revenue guidance by 1% at the bottom end to a range of $7.43 billion to $7.55 billion. Our guidance continues to assume low single-digit declines in 2Q and 3Q due to certain contract transitions before inflecting to low single-digit growth in 4Q, largely due to the benefit of additional working days. Our focus is driving on-contract growth to profitably grow the company and we are confident in our ability to do so. We are maintaining our full year margin guidance of approximately 8.9% and expect improvement in the second half of the year, led by a more favorable mix and the timing of certain new investments.
We are increasing our EPS guidance by $0.10 to a range of $6.90 to $7.20, which continues to assume an effective tax rate of approximately 24%. Finally, our guidance for fiscal year 2023 free cash flow of $500 million to $530 million is unchanged and I would remind you that it represents an over 10% increase at the midpoint versus fiscal year 2022 and assumes that the Section 174 amortization provision is deferred.
Based on expected working capital trends and final payments related to the Halfaker acquisition, which both impacted first quarter results, we expect to generate 40% of our full year free cash flow in the first half of the year and 60% in the second half. Our capital deployment priorities are unchanged and we remain committed to a prudent deleveraging of the balance sheet, with a bias towards deploying excess free cash flow towards our share repurchase program.
At this time, we do not expect to adjust our capital deployment plans as a result of the uncertainty related to Section 174 legislation and plan to repurchase between $200 million to $250 million of shares for the year after having repurchased approximately $100 million fiscal year-to-date. As we noted in our earnings press release, the Board of Directors authorized a new share repurchase program for an incremental 8 million shares, representing approximately 16% of our shares outstanding, which we intend to utilize over the next 3 years, market conditions permitting.
We believe this authorization also reflects our ongoing commitment to effectively allocate capital and the confidence we have in executing our plan to drive sustainable, profitable growth and the energy we are investing to structurally improve our cash conversion. I am proud of the results we delivered in the quarter and believe our strategic focus on investing in GTA, while sustaining our core business strengths, position us well to maintain our forward momentum.
I will now turn the call back over to the operator to begin Q&A.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from the line of Sheila Kahyaoglu from Jefferies. Your line is open.
Sheila Kahyaoglu
Hi, good morning Nazzic, Prabu and Joe. Thank you so much. So when we think about the guidance, it implies organic growth down 1% for the remainder of the year versus 4% organic for Q1. The losses on NASA AEGIS, I think, its 2 points. And then Prabu, I think you cited some working days that are some of the remainder of the slowdown. So can you just talk about, I guess, guidance, what your expectations are for on-contract growth? What the real Core organic business is growing? And then you also mentioned GTA sales Nazzic and your number one position by revenues on infrastructure implementation and managed services. How big is this business and what are contracts that we might be familiar with in these areas?
Nazzic Keene
Great, Sheila. Thanks. Great to hear your voice. Just a couple of comments as we think about the quarter and the guidance and I will let Prabu provide some color, but I want to take the opportunity, first and foremost, to tell you in the team and extend it to our 26,000 employees how proud we are of the performance that we did have in the quarter. As you referenced, on-contract growth was certainly a key component of that and we have tremendous opportunity to continue to drive that throughout the year. The performance in Q1 did allow us to modestly increase the guidance and Prabu will give you some color on that in a couple of key areas. And so we are very, very pleased with how we sit today and how the year is shaping up, giving us greater confidence in our ability to execute the growth over the course of the year. Prabu, do you want to find a little color on the guidance and I will circle back on the GTA then?
Prabu Natarajan
Good morning, Sheila. So, with respect to the quarter itself, good strong revenue performance to start the year, I think I would think about the outperformance in Q1, there is roughly half time and half what I call true performance goodness in the quarter. So, we certainly had good momentum in the quarter delivering better growth than we expected even internally. Second data point, we reflected in the prepared remarks that we expect as a result of the contract transitions to have modest contraction in Q2 and Q3 and then reflecting back to low single-digit growth in Q4 of this year. I would say some of that is going to be different on timing of our new business pursuits.
Obviously, the extra working days in the fourth quarter will certainly help organic revenues in Q4. And the reality is we’ve got about $1 billion of new business wins that are sitting right now in protest that’s not reflected in backlog. To the extent we have good success in keeping those awards and pulling the revenues associated with those earlier in the year, you’ll start to see some modest improvement to the outlook for Q2 and Q3, probably more likely Q3 than Q2. But to me, that’s what I think, fundamentally drives where we end up in terms of the quarterly cadence for revenue itself. So to me, I’d say a good start to the year, 9 months left in the year. And I think I’m really especially pleased with the dedication, the intensity with which we executed in Q1. And hopefully, we have a chance to continue that execution intensity over the remainder of the year.
Nazzic Keene
Thanks, Prabu. And Sheila, let me touch on your couple of questions on GTA. And if I don’t get them right, just reask, but I wanted to give a little bit of color. So on the slide, that’s in the slide deck, you can see where we’ve shaded in blue, kind of a proportion of the revenue that we achieved today in each of those areas, just to give you a sense for which ones are greater, which ones are less. We don’t have specific numbers to report to you on those at this juncture, but that should give you some color as to what areas we have more revenue and what areas we have less. As it relates to a couple of examples, so if you think about the secure cloud environment, Cloud One is a program you’re probably aware of where we support the Air Force, providing a one-stop shop for all the cloud migration activities. So that would be a great example of that area. And then in the systems integration and delivery program, you’re probably familiar with Mark 48 torpedo where we provide the manufacturing assembly, the test and delivery for that torpedo program in support of the Navy. So those are a couple of recent examples that hopefully you’re aware of that give you some color on the type of work and the relationships we have with customers in those areas. Does that help?
Sheila Kahyaoglu
Yes, sure. Thank you so much.
Nazzic Keene
Perfect. Thank you.
Operator
Your next question comes from the line of Gavin Parsons from Goldman Sachs. Your line is open.
Gavin Parsons
Hey, good morning.
Prabu Natarajan
Good morning, Gavin.
Gavin Parsons
Maybe just following up on that question for a moment, Prabu, you mentioned your 50% of the growth in the quarter is kind of Core business performance. And then how repeatable is that through the rest of the year versus the pull forward where it looks like you reiterated the second, third and fourth quarter growth rates. So is there some upside on that front? And is there any change in your assumptions for AEGIS contribution for the year?
Prabu Natarajan
So I’ll take the second part of the question first. No change in our estimate for AEGIS program. That program is behind our points. So I’d say, just headwinds associated with AEGIS for the next, say, 12 months or so. And in terms of kind of what’s implied in the guidance, Gavin, I’ll probably reiterate one of my earlier comments, which is we have some new business out there in protest about $1 billion to $1.1 billion. And to the extent we get turned on those contracts are laying sooner than what’s implied in the modest contraction for Q2 and Q3, we will start to see some revenue pickups from those newer programs. And obviously, one is much bigger than the other. And as a surgical practice, we don’t comment on things that are in protest and we’re just going to wait this out and see where we end up, but there is potential here for some modest improvement over the course of the year.
I will always caution us into thinking about this as a ramp on labor-based programs. So it does take some time to ramp up. There is always some materials earlier in the program. So we will have to get sort of an initial program review done to ensure that we have the amount of materials on the program size appropriately. So there are some puts and takes here over the course of the year that we will discover as we go through the quarters here. But I’d say we’re well positioned and it’s really going to be important to keep those wins that are in protest right now. And hopefully, we have a chance to do a little bit better than what’s implied in the guidance right now.
Gavin Parsons
Great. That’s helpful. And then maybe just asking about the pipeline, one thing that struck me is that the backlog has grown quite a lot and you still have a record pipeline. So can you talk about how much of that is maybe end market growth versus you expanding the addressable market you can pursue versus deciding to pursue more work? And how should we think about kind of the timing of conversion of the pipeline to backlog to revenue as we go forward?
Prabu Natarajan
Yes, I’m glad you asked the question, Gavin. I think for us, Nazzic and I especially, it’s really important to think about the pipeline over a really long period of time. And it has been – this company’s focus for several years now to ensure that we have the right quality in the pipeline; two, that we have enough length in the periods of performance, so we actually have tangible visibility into the growth of the backlog and obviously, the funding levels with the pipeline. So I’d say fundamentally, I would attribute the increase in the size of the pipeline to real goodness from our BD teams, our sector presidents that are driving growth within the business. So that’s what’s driving fundamentally, most of the increase in the pipeline. There is always an element of budget associated with – you’re seeing the end markets broaden out a little bit, but I’d say it’s probably less of a driver at this point. We all see the budget talk out on the hill. We’re not quite seeing the impact of that in the pipeline. I would say at this point, it’s just solid execution, ensuring that we are bidding the right kinds of things and ensuring that we actually have accretive returns from a shareholder perspective and where we deliver value consistently. And I’d say the last thing I put on Facebook, the NASA AEGIS loss was a big part of the portfolio, and we lost 2% of our top line. Nazzic and I are just very proud of how resilient the teams have been to bounce back and grow the pipeline consistently so we can continue to grow the company on a top line basis. So that’s what I alluded.
Gavin Parsons
Thank you.
Operator
Your next question comes from the line of Matt Akers from Wells Fargo. Your line is open.
Matt Akers
Hi, good morning, guys. Thanks for the question. I wanted to follow-up on the GTA kind of mix shift. And I guess how much of that do you think is organic versus maybe in the inorganic pieces that you may need to add? And then also, is there any way to think of kind of how different the margins are between those two parts of the business and also sort of how capital intense those two pieces could be?
Nazzic Keene
Yes. Let me tackle some of that and then have Prabu provide some color as well. So as we talk about the GTA, a couple of things just to highlight. Although we’re referring to it for the first time in the acronym on this call, this has been part of the strategy that we’ve been in development of over the last couple of years. And so we continue to refine the way we talk about it. We want to be more – certainly be transparent with you all, let you all know what we’re focused on and how we see that maturing over the course of the next couple of years. So – but it has been the journey that we’ve been on. If you think back to the last couple of acquisitions, you referenced organic and I’m going to circle back. It was to complement that part of the strategy. The numbers that we’re sharing with you, the aspirations, the goal is to get to a greater percentage of our portfolio in the GTA is predominantly organic. As Prabu provided a little bit of commentary on the pipeline, as we look at our pipeline, as we pursue and put our investment dollars to capturing new business, we want to make sure that we are focused in those key areas, not at the expensive core, but to disproportionately grow that part of the portfolio greater than the core part of the portfolio so that we can, in fact, differentiate ourselves in the market, be more competitive in areas we have solutions, we have capabilities. And to your last question, also looks for the opportunity to drive more accretive margins in the portfolio. So I wanted to provide that little bit of color, and then let Prabu speak specifically about some of the details around that.
Prabu Natarajan
Thank you, Nazzic. Matt, thank you for the question. As Nazzic said, this is our view of the organic expansion capability of business. And in terms of the margin rates, we tend to think about this business as being roughly 200 to 300 basis points higher margin than the Core part of the business. So you can do the math and effectively get to low double-digit EBITDA margins was this kind of work. Recognizing if we have greater success than what’s implied in the PowerPoint chart, we end up driving margins a little bit higher. But this becomes a source of margin expansion for the company, although it is not the only source for margin expansion. And then I think you actually touched on something just as important. We don’t view the increase of GTA as a share of the pipeline and the revenue as requiring a change in the capital-light business model. We tend to see this as predominantly still a very capital-light business. We are watching our capital investment in the business to ensure that we remain a good value proposition for our shareholders. So I would say that we are not seeing a fundamental change in the capital deployment strategy as it relates to investments ahead of some of these production programs. So I’d say fundamentally, no significant change there is how we’re impressed.
Matt Akers
Okay. Great. That’s helpful. Thank you. And then I guess I may have missed this, but can you quantify how big the cash payment for Halfaker was that impact cash in the quarter?
Prabu Natarajan
Yes. So there were two predominantly change of control-related payments. One was half acre, and there was actually a modest payment on the from earlier last year. Together, I would call it about $25 million to $30 million. And if you then do the math to bridge to last year’s free cash flow, the remainder was primarily working capital change, including higher bonus payments in Q1 of this year compared to Q1 of last year. I always tend to think of those as good things for our employees. So as I sort of normalize for those two things, we end up with free cash flow in that circa $160 million to $170 million on a normalized basis with my year on normalized, but that’s how we think about it.
Matt Akers
Great. That’s helpful. Thank you.
Operator
Your next question comes from the line of Bert Subin from Stifel. Your line is open.
Bert Subin
Hey, good morning.
Prabu Natarajan
Good morning.
Bert Subin
Prabu, SAIC’s leverage is towards the higher end of the industry. Can you just walk us through how you think about your leverage in relation to how aggressive you can be on the buyback program?
Prabu Natarajan
Yes. So our leverage is sitting somewhere around 3.25% right now. Our expectation, which we communicated fairly consistently now, is that we would want to be in that circa 3.0%. And we’ve even said at points in time, we may be a little bit lower and at points in time, we may be a little bit higher. As it relates to the capital deployment and buyback question sort of how we think about it, we are deploying free cash flow in ways that maximize shareholder value. And we’ve mentioned fairly consistently now that our bias is towards our share repurchase program. That’s not based on blind phase of the stock received. That’s really based on our view that the valuation in general underline tends to reflect skepticism on our ability to grow the business consistently. And as Nazzic and I have pointed out, we have confidence we can consistently grow this business. So we view the returns on our repurchase program as offering an attractive return on capital. So as I think about it, we also think about the capital deployment in the context of the excess cash we generate on an annual basis. And therefore, as we think about roughly 8 million shares of incremental authorization and what’s implied in terms of the share count out there, at roughly 8 million shares or so. That’s about 3 years out of the chart in the supplemental data that showed the history of repurchases at SAIC. And I’d say this one is a little bit larger than the prior ones, but not out of tune with where we’ve been historically on capital deployment. So we think there is capacity here in the organic cash generation of the business for us to be able to fund the repurchases out of excess capital, and we can, we believe, do this in a leverage-neutral way.
Bert Subin
That’s very helpful, Prabu. Thank you. Just a follow-up to some of your comments earlier on thinking about the puts and takes of the business, I mean one of the larger would seem outstanding items is just the Vanguard contract, which I believe is one of your largest contracts, and it’s supposed to be recompeted into a multi-award contract that’s going to be called Evolv. Is that still the case? And is that going to have any impact on FY ‘23 organic growth or is that something that’s further down the road?
Prabu Natarajan
Sure. On Evolv, it’s – so we are watching. It is a recompete that we are in the middle of. We tend not to comment a great deal on those recompetes. I think we have seen some programs in slide to the right. We are watching the space here just like everybody else and watching time line here. It could have an impact on revenues in FY ‘23 to the extent that the procurement process remains on track. But again, I think it’s anybody’s guess as to whether that happens or not this year. And candidly, if it pushes out of FY ‘23, it becomes a consideration for FY ‘24 revenue. So we’re just watching it just like everybody else. It is a complex procurement and we are there executing the mission and the team is doing a fantastic job right now.
Bert Subin
Just a quick clarification question on an earlier answer, you said GTA is 200 to 300 bps above. Is that above your average margins for the 8.9%ish or is that above the core segment? Thank you for the color.
Prabu Natarajan
It is above – it is above the core and think of the core as low to mid-8%. So, it’s about 200 bps to 300 bps higher than that.
Bert Subin
Thanks.
Operator
Your next question comes from the line of Cai von Rumohr from Cowen. Your line is open.
Cai von Rumohr
Yes. Thank you very much. So, the December quarter was basically very weak for the entire sector. And the budget got past middle of March. And with COVID lifting, I think there was a thought that bookings momentum would pick up. Could you give us some color on kind of the momentum you saw throughout the quarter? And as you are going into this quarter, are we seeing a pickup in terms of your booking momentum?
Nazzic Keene
Hi Cai, it’s Nazzic. Let me touch on a little bit of that then Prabu can provide some color as well. I think we saw Q1 is fairly normative. We didn’t see anything that was significantly out of the ordinary. Certainly, the budget process has helped, I think with some certainty, but outlays have been slower, and I think you probably heard that throughout the industry. So – but we do see a positive environment, and we continue to operate in that environment. I would characterize Q1 as fairly normative. As Prabu mentioned, we do have over $1 billion of new business in protest. And so if you kind of partnered that with the rest of Q1, I would say it was a relatively strong quarter as it relates to bookings. And obviously, those will clear through the process of the next quarter or so. But I would just characterize it as fairly normative and we don’t see anything swinging one way or the other going forward. Obviously, as the government continues to execute on their budget, as we get towards year-end, we keep a close eye on some things that certainly could bubble up, but I would just characterize things as really normal for us.
Prabu Natarajan
Thank you, Nazzic. And Cai, thanks for the question. I would say broadly supported by the environment, as Nazzic said, we are not seeing that translate necessarily into higher outlays on a month-to-month basis. In fact, looking at the data for the last six months of the government fiscal year, I cannot think of a year where the outlay pace has been slower in the last 20 years, candidly, except maybe 2003. So, the data implies the slowness in the outlay, recognizing we have got a few months left here in the year, and we are likely to see some pressure build up in the system for higher outlays, but we are just going to have to sit back and watch it. But as of at least April, we have not quite seen it in the data, but I think that’s exactly right. It’s been a fairly typical kind of normative quarter. And we do take a fair amount of time looking at what’s in the pipeline and not just the key win [ph], but also the key goal and likely pressure on timing. And I think one of the reasons we are remaining a little bit cautious about the revenue guide for the year is that we are continuing to see some slowness in the way that the awards are getting – coming out of the system. And therefore, we are just mindful of that and converting that backlog into revenue, it seems a little bit harder in a tough labor market. So, I think…
Nazzic Keene
Yes, Cai, I also want to touch on something that I think we touched on it earlier reinforce. In addition to what I would consider normal bookings that happened over the course of business, we are very focused on driving on-contract growth. And as you have seen with our numbers, and we have reported, we have tremendous ceiling in which to execute. And so in addition to what I will call the normal blocking and tackling of winning new business, booking new business, clearing protest periods, our team is doing an exceptionally good job and executing on contract growth, retiring some of the ceilings, and we are really seeing some of that in our revenue performance.
Cai von Rumohr
Very helpful. Thank you. And I have one follow-on on Vanguard. You mentioned that it’s complex. I know that there are various pieces, but it’s also an expanded re-compete. So, could you give us some color like best case if you win, it’s bigger? And what are the pieces that we should be watching for? I mean I assume they are not all equal size, but one of the ones that are – the bigger ones? And roughly, when would you expect decisions on them?
Nazzic Keene
Cai, I am going to try to answer that as best I can, but I am fairly certain you are not going to love my answer, I can’t give you a lot of color. It is a very active open procurement. We are very fortunate to be one of the incumbents as they do reposition this portfolio. You are right. The absolute value of all the solicitations that will come out is greater in nature. Some of them uncertain will be small business set aside. Some of them will be work streams that aren’t in our kind of our long-term strategy and some are absolutely those that we believe we have a very strong position, permission to win, and we will absolutely win our fair share. But with all that being said, I really can’t quantify it for you. They are still in the process of putting together their solicitation strategy. So, there is a lot of unknown. So, at this juncture, I really can’t give you an answer. I can tell you that we will pursue aggressively those parts of the business where we believe we can differentiate where we can win and we can deliver excellence to our customers. But there probably are going to be some pockets that aren’t part of our strategy or may just even be set aside for a small business portfolio. So, that’s the best I can tell you at this point.
Cai von Rumohr
Thank you very much.
Operator
Your next question comes from the line of Tobey Sommer from Truist Securities. Your line is open.
Nazzic Keene
Hi Tobey.
Tobey Sommer
Hi. Good morning. I would like to get your thoughts and update on the workforce turnover rate. Any new initiatives, how those rates are trending year-over-year sequentially, however you want to frame it? And then does those PTA [Technical Difficulty] new aspect and filter your hiring rate described that would be good?
Nazzic Keene
Tobey, I lost the last sentence of your question, if you could just – something about PTA.
Tobey Sommer
Sure. And if you could describe the implications of you are sort of hiring and target employees?
Nazzic Keene
Okay. So, as it relates to the labor market, certainly, the labor market is tight. There is no question. And certainly, if we compare our turnover rates to the height of COVID, we are seeing increased turnover as well. As I think just about everybody in our industry and all technology industry. So, with that being said, we have been – remain very successful in our ability to hire great talent into the company. And we have done some things. And I think there is a slide in the deck as we think about the value that we – the value creation for our employees, we are very focused on ensuring that we have put together a competitive benefits package. We are reinforcing the flexible work model that became one of the positives that came out of the COVID situation for our employee base and our customers are doing the same. So, we continue to make sure that we are messaging to our employees, and we are investing in creating an environment in a workplace where employees choose to stay at SAIC every day. And that is certainly part of our strategy. Our people strategy is absolutely an underpinning of our corporate strategy. So, I would just say that we are seeing chat over greater than we would like, but consistent with industry. And our ability to hire, I think is absolutely outstanding. So, I don’t – it’s something we pay attention to, but it’s not something that I think causes undue risk to the organization, probably actually the opposite. As it relates to the type of people that we look for as we focus on GTA. In some cases, it’s very similar skill sets. The way in which we deliver the work can be slightly different. The mechanisms, the contract mechanism, delivering solutions, sometimes over just labor services can be slightly different. But in many cases, the type of people, the engineers, the software engineers, the cloud engineers are oftentimes the same people. And so we have got some internal training that we are doing to make sure our workforce is ready as we expand as part of our portfolio. And then we also look to hire individuals as well that help complement that. So, I don’t view it as a radical shift in the type of people, the type of labor and it will just continue to build on the great workforce that we have today.
Tobey Sommer
Thank you. And just another question on the workforce, do you have any sense for whether we are still in like the most competitive environment with the biggest wage pressure in labor mobility, or are there any signs that you would observe, let’s say, where we have crested and were either sort of stable sequentially or maybe even seeing some of those pressures received?
Nazzic Keene
I will give you an opinion. As I talk to colleagues in the industry, and even in other technology industries, I think there is a common view that we may have already crested that we are seeing some of the less acute labor challenges across all the United States and technology. Certainly, you are hearing some of the major commercial technology players, message that they are doing less hiring. And I think that, that could be good for companies like us that need to do some hiring. So, I think it’s too early to tell. We watch this every month. We watch the statistics. But I think just based on some conversations, one could have an opinion that maybe we have seen the crest and it’s getting better. But again, that’s not his opinion. We don’t have the data at this juncture to support that.
Tobey Sommer
Thank you very much.
Nazzic Keene
Thank you.
Operator
Your next question comes from the line of Louie DiPalma from William Blair. Your line is open.
Louie DiPalma
Nazzic, Prabu and Joe, good morning.
Nazzic Keene
Good morning.
Louie DiPalma
Nazzic, when SAIC acquired Engility, one of the key drivers was to increase your exposure to the Space Force and the National Reconnaissance Organization. It seems that the elevated geopolitical conflicts have resulted in a sharp increase in demand for geospatial/earth observation services, and you are a key provider of those services. So, I was wondering, is space one of your focus areas for the GTA category that you outlined, because it seems very strategic for you in a growing area? Thanks.
Nazzic Keene
Yes, Louie, great observation. I will – the simple answer is absolutely yes. So, space is a critical part of our strategy, our growth strategies. And I think one of the reasons that’s not called out in its own box is it spans many of these. So, the work that we do in Secure Cloud or an enterprise IT or systems integration also support many, many space missions. And so I would say, absolutely, we have seen good growth in our space portfolio. We see continued opportunity in our space portfolio, really spanning all of those areas of the growth sellers.
Louie DiPalma
Thanks and that’s helpful. And one for Prabu, if you achieve the 65-35 split for GTA versus Core in your fiscal 2025 as you have targeted, what is the implication on your current 8.9% margin?
Prabu Natarajan
The short version of that would be tens of basis points of improvement to our margin rate. So, think of that as comfortably over 9%. And of course, our aspirations are always higher than what’s on a PowerPoint chart. So, hopefully, we have a chance to do a little bit better on that. But I would say tens of percent of improvement in margin rate. And again, as we flagged, it’s one of many avenues left for us to improve margin across the company, and this happens to be a really attractive one to grow the company and improve margins at the same time.
Louie DiPalma
Awesome. That’s it for me. Thanks.
Operator
And there are no further questions at this time. I turn the call back over to Joe DeNardi for some final closing remarks.
Joe DeNardi
Great. Thank you, Rob and thank you to everyone for joining us today. We look forward to speaking with you next quarter.
Operator
This concludes today’s conference call. Thank you for your participation. You may now disconnect.
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