SAIC(SAIC) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported second quarter organic revenue growth of 2% year-over-year, with adjusted EBITDA of $170 million and a margin of 9.4% [7][8] - Adjusted diluted earnings per share increased to$ 2.05, benefiting from a lower effective tax rate of approximately 19.5% and a 5% year-over-year reduction in the weighted average share count [7][8] - Free cash flow for the second quarter was $241 million, contributing to a total of$ 262 million for the first half, representing over 50% of the full year guidance [8][16] Business Line Data and Key Metrics Changes - The company is focusing on increasing submissions in the Civilian market and within Enterprise and Mission IT, which are expected to drive outsized growth [10][11] - Net bookings for the quarter were $1.2 billion, resulting in a book-to-bill ratio of 0.6x for the quarter and 1.1x on a trailing 12-month basis [13] Market Data and Key Metrics Changes - The company is experiencing a headwind of approximately 5% from recompete pressures, which is expected to ease going into fiscal year 2026 [15][39] - The company anticipates that the political environment will not significantly impact its Civilian and Defense portfolios due to bipartisan support for key agencies [20][21] Company Strategy and Development Direction - The company has implemented an enterprise operating model designed to optimize investment planning and align its pipeline with growth vectors, focusing on four pivots: portfolio, go-to-market, culture, and brand [9] - The strategy aims to increase the total value of submissions, improve the quality of bids, and drive bookings and backlog growth, with expectations for a book-to-bill ratio of 1.2x by the first half of fiscal year 2026 [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the guidance for fiscal year 2025 and sustaining momentum into fiscal year 2026, despite some revenue challenges in the second half of the year [8][15] - The company is optimistic about its ability to gain market share in the Civilian space, as it is currently underrepresented [21] Other Important Information - The company returned approximately$ 220 million to shareholders in the quarter, including $201 million in share repurchases, and is on track to exceed its repurchase target for the year [14][16] - The company is maintaining a high threshold for M&A while focusing on its share repurchase program [16] Q&A Session Summary Question: What gives confidence to reach a book-to-bill of 1.2? - Management indicated that the submission rate and a larger qualification pipeline, with about$ 10 billion of submitted bids pending award, support this confidence [18][19] Question: How does the company view the Civilian versus Defense budget shifts? - Management believes the Civilian portfolio is insulated from major swings due to bipartisan support, while defense spending is expected to remain stable [20][21] Question: What is the risk around execution for the bids being chased? - The company is focusing on bidding more strategically and margin-accretively, with an emphasis on fixed-price contracts and tightening execution expectations [24][25] Question: What is the status of the recompete for the largest contract? - Management expects no award activity until the next fiscal year, with potential revenue impact in fiscal year 2026 or early fiscal year 2027 [51][53]