Core Insights - Science Applications International (SAIC) reported non-GAAP earnings of $2.58 per share for Q3 fiscal 2026, exceeding the Zacks Consensus Estimate of $2.07 by 24.6%, although this represents a 1.1% decline from $2.61 per share in the same quarter last year [1][10] - The company’s revenues for the third quarter decreased by 5.6% year over year to $1.87 billion, slightly above the Zacks Consensus Estimate of $1.86 billion [2][10] - SAIC's shares rose by 16.3% following the earnings report, despite a year-to-date decline of 8.1%, which is better than the Zacks Computers – IT Services industry's decline of 14.4% [3] Financial Performance - Defence and Intelligence segment revenues, which made up 77.1% of total revenues, were $1.44 billion, down 5% year over year; Civilian revenues, accounting for 22.9%, totaled $427 million, down 7.4% year over year [4] - Net bookings for the quarter were approximately $2.2 billion, resulting in a book-to-bill ratio of 1.2, with an estimated backlog of $23.8 billion, of which $3.8 billion was funded [5][10] - Selling, general and administrative (SG&A) expenses increased by 21.7% to $101 million, with SG&A as a percentage of revenues rising to 5.4% from 4.2% in the previous year [6] - Non-GAAP operating income decreased to $183 million from $195 million year over year, with a non-GAAP operating margin of 9.8%, down 10 basis points [6][7] Cash Flow and Balance Sheet - The company ended the quarter with cash and cash equivalents of $45 million, down from $48 million in the previous quarter; long-term debt increased to $2.48 billion from $1.84 billion [8] - Operating cash flow for the quarter was $129 million, while free cash flow was $135 million; for the first three quarters of fiscal 2026, operating cash flow was $351 million and free cash flow was $241 million [9] Guidance and Future Outlook - SAIC raised its fiscal 2026 revenue guidance to between $7.275 billion and $7.325 billion, up from the previous range of $7.25 billion to $7.325 billion; the Zacks Consensus Estimate for fiscal 2026 revenues is $7.27 billion, indicating a year-over-year decline of 2.7% [11] - Adjusted EBITDA guidance was raised to approximately $695 million, with an expected adjusted EBITDA margin of 9.5%; adjusted EPS guidance was increased to a range of $9.80 to $10.00, up from $9.40 to $9.60 [12] - The company estimates free cash flow for fiscal 2026 to exceed $550 million [13]

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]

Financial Data and Key Metrics Changes - Revenue for Q2 2026 declined by 2.7% year over year, primarily due to slower conversion of on-contract growth opportunities into revenue and program disruptions [5][14][17] - Adjusted EBITDA for Q2 was $185 million, resulting in an adjusted EBITDA margin of 10.5%, reflecting an increase of 180 basis points quarter over quarter and 80 basis points year over year [15][18] - Free cash flow improved to $150 million in Q2, although challenges related to invoice payment timing were noted [16][19] Business Line Data and Key Metrics Changes - On-contract revenue growth slowed to 3% in Q2 from 8% in Q1, with a significant headwind from Cloud WAN compute and store revenue [14][17] - The company expects organic revenue to decline by approximately 5.54% in Q3 and Q4 of FY 2026 [17] Market Data and Key Metrics Changes - The company is experiencing a more challenging environment than previously forecasted, with delays in new business awards and increased scrutiny on government spending impacting revenue [6][7][12] - The pipeline of expected awards remains solid, with a year-to-date book-to-bill ratio of 1.4 [5][11] Company Strategy and Development Direction - The company is focusing on aligning its cost structure with the expected revenue environment, implementing cost efficiency initiatives to mitigate the impact on EBITDA and free cash flow [8][9] - There is an emphasis on leveraging artificial intelligence to drive efficiency and improve margins in the coming years [12][45] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the current market volatility and its impact on near-term revenue but remains optimistic about long-term growth opportunities [10][12] - The company has revised its revenue guidance for FY 2026 to a range of $7.25 billion to $7.325 billion, reflecting a more subdued outlook [17][18] Other Important Information - The company is increasing its FY 2026 adjusted EPS guidance to a range of $9.4 to $9.6, benefiting from a favorable tax settlement [18][19] - The capital deployment plans remain focused on driving long-term value for shareholders, with a commitment to share repurchases and capability-focused M&A [19] Q&A Session Summary Question: Can you comment on the impacts on on-contract growth? - Management noted challenges in converting on-contract growth to revenue, particularly in areas undergoing significant transformation, such as the Army and the Department of Treasury [21][22][24] Question: How do you see the structure of the industry changing? - Management indicated that while there are new entrants in the market, the focus remains on mission integration, which is essential for operating within the government environment [28][32][54] Question: What are the expectations for government fiscal year-end flush? - Management expressed that the flush environment has been irregular and does not expect significant opportunities from it [80][81] Question: How would a government shutdown impact the P&L? - A traditional shutdown is expected to have a marginal impact on revenues, with little to no impact on cash flow [82][83] Question: What would it take to become more constructive on the outlook? - Key indicators include improvements in on-contract growth, timely adjudication of new business awards, and increased ramp-up velocity on existing programs [96][97]

Financial Data and Key Metrics Changes - The company reported revenue of $1,877 million for Q1 FY 2026, representing growth of approximately 2% year-over-year due to the ramp-up of new and existing programs [11] - Adjusted EBITDA for the quarter was $157 million, resulting in an adjusted EBITDA margin of 8.4% [11] - Adjusted diluted earnings per share were flat year-over-year at $1.92, impacted by a higher tax rate and lower adjusted EBITDA [12] - Free cash flow was negative $44 million, affected by the timing of receivables on two programs [12] Business Line Data and Key Metrics Changes - The company secured net bookings of $2,400 million for a book-to-bill ratio of 1.3, including key recompete contracts [10] - The backlog of pending awards remained steady at approximately $20,000 million, providing visibility into future bookings [10] - The company expects to achieve a trailing twelve-month book-to-bill ratio of 1.2 in the coming quarters [11] Market Data and Key Metrics Changes - The Department of Defense (DoD) is expected to see stronger budget support, particularly for the Navy, Air Force, and Space Force, while the Army may face challenges [6][7] - The company noted over $1 billion in additional budget for the Department of Transportation and over $40 billion for the Department of Homeland Security [9] Company Strategy and Development Direction - The company is pivoting its portfolio towards mission and enterprise IT, aligning with the new administration's strategic priorities [8] - The strategy includes leveraging proven expertise in mission integration and digital engineering to drive program success [8] - The company aims for sustained profitable growth and is focused on executing its strategy in the coming quarters [13] Management's Comments on Operating Environment and Future Outlook - The operating environment has stabilized, but there are still procurement delays and higher turnover rates among customers [5] - The company is cautiously optimistic about future growth, expecting to achieve revenue guidance of $7.6 billion to $7.75 billion for FY 2026 [15] - Management highlighted the importance of adapting to the evolving budget environment and maintaining a focus on contract growth [55][56] Other Important Information - The company repurchased approximately $125 million of shares in Q1 and targets annual repurchases of $350 million to $400 million [17][18] - The company is not seeing significant risks from recent DoD communications regarding contracting practices [75] Q&A Session Summary Question: Update on operating environment and budget priorities - Management noted that the operating environment has stabilized, with significant turnover in acquisition personnel affecting procurement processes [22] Question: Competitiveness in procurement environment - Management acknowledged increased competitiveness but expressed confidence in their submission pipeline and win rates [25][26] Question: Known headwinds from recompetes - The only significant known recompete headwind is the NASA program loss, which will conclude in Q3 [30][32] Question: Nature of cost overruns in space program - Management explained that cost overruns were due to challenges in the tech development phase, but they expect to recover as the program transitions to the sustainment phase [34][35] Question: Overview of end markets and opportunities - Management provided insights into the civilian and defense sectors, highlighting growth opportunities in various agencies and programs [44][46] Question: Impact of continuing resolutions on awards - Management indicated that while there are some delays, the solicitation of proposals remains robust, and they are optimistic about future awards [53][54] Question: Margin trajectory and expectations - Management expects civil margins to improve and defense margins to remain stable, with a focus on executing at higher bid thresholds [86]

Core Insights - SAIC delivered better-than-expected earnings, alleviating concerns about potential pullbacks due to government efficiency initiatives, resulting in a 13% increase in share price [1] Financial Performance - SAIC reported earnings of $2.57 per share for the fiscal fourth quarter ending January 31, with revenue of $1.83 billion, surpassing Wall Street's consensus estimates of $2.09 per share and $1.81 billion in revenue [2] - Revenue increased by 6% year-over-year, while net income surged by 151%, driven by a 250-basis point improvement in operating margin [3] - The company raised its fiscal year guidance by $0.20 per share, projecting earnings between $9.10 and $9.30 per share [3] Business Developments - Post-quarter, SAIC secured a $1.8 billion award, with CEO Toni Townes-Whitley highlighting a backlog of submitted bids valued at approximately $20 billion, indicating positive momentum [4] - Management reported only "nominal" program cancellations from the newly formed Department of Government Efficiency (DOGE), which has been a source of investor concern [4] Market Sentiment - Despite a strong quarter, there are concerns regarding SAIC's new awards and funded orders relative to sales, attributed to customer uncertainty [5] - The company demonstrated resilience in the current operating environment, suggesting it may be a viable option for long-term investors willing to navigate potential uncertainties [5]