SAIC Q2 Earnings Beat Estimates, Stock Falls 7% on Revenue Miss

Core Insights - Science Applications International Corporation (SAIC) reported strong non-GAAP earnings of $3.63 per share for Q2 fiscal 2026, exceeding the Zacks Consensus Estimate of $2.25 by 61.3% and marking a 77% increase from the previous year's earnings of $2.05 per share [1][10] Financial Performance - The company's revenues for Q2 fiscal 2026 declined by 3% year over year to $1.77 billion, falling short of the Zacks Consensus Estimate of $1.86 billion due to delays in new business awards and slower on-contract growth [3][10] - Earnings growth was primarily driven by lower taxes and one-time benefits from legal settlements, which offset the revenue decline [2] - Net bookings for the quarter were approximately $2.6 billion, resulting in a book-to-bill ratio of 1.5, with a trailing 12-month book-to-bill ratio of 1 [5] Segment Performance - Defence and Intelligence revenues, which accounted for 77.7% of total revenues, amounted to $1.37 billion, a decrease of 2.9% year over year [4] - Civilian revenues, making up 22.2% of total revenues, totaled $395 million, down 2% year over year [4] Cost Management - Selling, general and administrative (SG&A) expenses decreased by 2.6% to $75 million, remaining flat as a percentage of revenues at 4.2% [6] - Non-GAAP operating income increased to $182 million from $169 million year over year, with a non-GAAP operating margin expansion of 100 basis points to 10.3% [6] Cash Flow and Balance Sheet - The company generated operating cash flow of $122 million and free cash flow of $150 million in Q2 [9] - As of the end of Q2, SAIC had cash and cash equivalents of $48 million and long-term debt of $1.84 billion [8] Guidance Adjustments - Following the weaker-than-expected revenue performance, SAIC lowered its fiscal 2026 revenue guidance to a range of $7.25 billion to $7.325 billion, down from $7.60 billion to $7.75 billion [12][13] - Adjusted EBITDA guidance was also reduced to $680 million to $690 million from $715 million to $735 million [13] - Conversely, the company raised its adjusted EPS guidance to a range of $9.40 to $9.60, up from $9.10 to $9.30, and increased free cash flow guidance to exceed $550 million [14][15] Shareholder Returns - In Q2, SAIC repurchased shares worth $110 million and paid $17 million in dividends, with total share repurchases in the first half of fiscal 2026 amounting to $252 million [11]