Core Viewpoint - Science Applications International Corp. (SAIC) is set to release its third quarter fiscal year 2026 results on December 4, 2025, with a conference call scheduled for 10:00 a.m. Eastern time to discuss operational and financial results [1][2]. Company Overview - SAIC is a Fortune 500 mission integrator focused on technology and innovation across defense, space, civilian, and intelligence markets, offering secure high-end solutions in mission IT, enterprise IT, engineering services, and professional services [3]. - The company employs approximately 24,000 people and has annual revenues of around $7.5 billion, headquartered in Reston, Virginia [4].

Core Insights - ePlus has shown a solid historical growth rate of 7.3% compounded annually over the last five years, but recent performance indicates a slowdown with flat revenue over the past two years [1][2] - The company reported $2.26 billion in revenue over the past 12 months, positioning it as a mid-sized player in the business services sector, which may limit its competitive advantages compared to larger firms [2] - ePlus has transitioned from a financing company to a full-service technology provider, offering IT solutions, professional services, and financing options [3] Financial Performance - In fiscal 2026, ePlus experienced a strong start with net sales growing 23.4% and diluted EPS increasing nearly 63%, marking a significant milestone with quarterly gross billings exceeding $1 billion for the first time [4] - For Q3 CY2025, ePlus's revenue increased by 18.2% year-on-year to $608.8 million, surpassing Wall Street's expectations by 17.5% [5][6] - The company’s operating margin averaged 7.5% over the last five years, which is considered weak for the business services sector, and it decreased by 1.1 percentage points during this period [9][10] Earnings Analysis - ePlus's EPS grew at a compounded annual growth rate of 10.3% over the last five years, indicating improved profitability on a per-share basis [12] - The company has engaged in stock buybacks, reducing its share count by 1.4%, which has contributed to the increase in EPS, suggesting that the growth in EPS is partly due to financial engineering rather than operational efficiency [13] - In Q3, ePlus reported adjusted EPS of $1.53, up from $1.36 in the same quarter last year, exceeding analysts' estimates [15][17] Market Outlook - Analysts project a revenue decline of 6.2% over the next 12 months, indicating potential demand challenges for ePlus's products and services [6] - Despite a strong quarterly performance, the long-term business quality and valuation will be critical in determining if ePlus is a good investment [18]

Financial Data and Key Metrics Changes - Revenue for Q2 2025 reached a record high of $151.6 million, representing an increase of approximately 11.3% year-over-year and a sequential growth of 2.8% [5] - Non-GAAP net income attributable to shareholders increased by 8.7% to $12.7 million, or $0.26 per fully diluted share, compared to $11.7 million, or $0.24 per fully diluted share in the same period last year [13] - Non-GAAP gross margin for Q2 2025 was 28.7%, down from 29.4% in Q2 2024, but improved sequentially from 28.5% [11] Business Line Data and Key Metrics Changes - Revenue from Israeli operations totaled $68.7 million, an increase of 18.8% compared to $57.8 million in the same period last year, accounting for 47% of overall quarterly revenue [10] - North American operations saw revenue increase by approximately 6.5% year-over-year, reaching $62.2 million [10] Market Data and Key Metrics Changes - In the U.S., revenue growth was approximately 9% year-over-year, driven by agreements executed in late 2024 and early 2025 [6] - The company is witnessing signs of improvement in the U.S. market, reinforcing positive momentum for continued growth [6] Company Strategy and Development Direction - The company is focused on leveraging its AI low code, no code cloud-based platform to meet the accelerating demand for automation and innovative software solutions [7] - A memorandum of understanding has been signed to negotiate a merger with Matrix, which is expected to create a more diversified and resilient global IT service provider [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to drive continued growth through sales of their product suite and high-value services, with a strong pipeline supporting sustained growth [16] - The company revised its full-year 2025 revenue guidance to a range of $600 million to $610 million, reflecting an anticipated annual growth rate of approximately 8.6% to 10.4% [17] Other Important Information - Cash flow from operating activities for the first half of 2025 was $21.2 million, down from $41.4 million in the same period of 2024, primarily due to increased investment in working capital [15] - The company declared a semiannual cash dividend of $0.296 per share, totaling approximately $14.5 million, reflecting about 75% of distributable profit for 2025 [14] Q&A Session Summary Question: Can you give us any color on customer behavior in the U.S.? - Management noted increased demand from major clients and signs of recovery in IT spending, contrasting with the previous year [20] Question: Can you talk about some of the drivers that are impacting margins? - Management indicated that margins were impacted by the timing of software license renewals and the revenue mix, with a significant increase in revenues from professional services [21][22] Question: How would you describe the progress of customers transitioning to cloud solutions? - Management observed more adoption of cloud solutions, with new customers jumping directly into the cloud and legacy customers starting to adopt cloud offerings [24] Question: Can you comment on the pipeline and types of deals being seen? - Management highlighted that cloud and AI projects are significant drivers, with hundreds of projects underway and a higher conversion rate than the industry standard [28]