SAIC(SAIC) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported fourth-quarter revenue of $1.84 billion, an increase of 6$7.48 billion, representing 3.1% organic growth, which is at the high end of the guidance provided at the start of the year [19] - Fourth-quarter adjusted EBITDA was $177 million, resulting in a margin of 9.6$710 million with a margin of 9.5% [19][20] - Adjusted diluted earnings per share for the fourth quarter was $2.57 and$9.13 for the full year, benefiting from strong operating performance and a lower effective tax rate [19] Business Line Data and Key Metrics Changes - Revenue from the commercial operating sector increased from less than $1 million in fiscal year 2022 to approximately$45 million in fiscal year 2025, with a goal of reaching approximately $100 million by fiscal year 2028 [12] - The company delivered net bookings of$1.3 billion in the fourth quarter and $6.6 billion for fiscal year 2025, resulting in a book-to-bill ratio of 0.9$28 billion in fiscal year 2025, exceeding the initial plan of $22 billion, with a backlog of submitted bids increasing to just over$20 billion at year-end [16] - The company expects to drive its book-to-bill ratio to the target of 1.2% by the first half of FY 2026, contingent on ongoing uncertainties facing customers [17] Company Strategy and Development Direction - The company is focusing on transitioning from cost-plus contracts to fixed-price contracts, which is expected to improve margins while maintaining revenue levels [46][50] - The strategy emphasizes mission-critical programs and the infusion of cutting-edge technology, aligning with government efficiency initiatives [9][56] - The company is assessing its cost-plus portfolio to determine how much work could transition to fixed-type contracting over time [14] Management's Comments on Operating Environment and Future Outlook - Management noted that the financial impact from recent executive orders and program cancellations has been nominal, but they remain prepared for potential changes in the operating environment [8] - The company anticipates a headwind of approximately $200 million related to low-margin Air Force CloudOne compute and store revenue, which they chose to no-bid [24] - Management expressed confidence in achieving free cash flow targets of$11 per share in fiscal year 2026 and $12 in fiscal year 2027 [20][26] Other Important Information - The company plans to repurchase between$350 million to 400 million in FY 2026 and 2027 while maintaining capacity for capability-focused M&A or additional share repurchases [26] - Several members of the executive leadership team have indicated an intent to make discretionary purchases of company shares to align interests with shareholders [28] Q&A Session Summary Question: Impact of the 1.8 billion recompete on future book-to-bill - Management indicated that the win would bring them close to a trailing twelve-month book-to-bill ratio of 1.0% [32] Question: Details on the incremental $6 billion in submitted bids - The increase is attributed to a combination of standardized business development functions and a balanced pipeline of new business and recompete opportunities [35] Question: Nature of budget dollars in the bid pipeline - Management believes the current pipeline is competitive and can be funded, with a focus on mission-critical areas [41] Question: Transition from cost-plus to firm fixed price contracts - Management sees potential for higher margins with fixed-price contracts but does not expect a significant revenue decline [48] Question: Risks and opportunities related to DOD budget cuts - Management emphasized the importance of focusing on mission-critical programs to mitigate risks associated with budget reallocations [56] Question: Impact of federal workforce layoffs on business - Management has not seen significant impacts but is prepared to support customers as personnel changes occur [66] Question: Backlog and organic growth expectations - A high percentage of the expected organic growth is already in backlog, with a focus on contract growth rather than relying heavily on new business [75] Question: Confidence in guidance despite uncertainty - Management expressed confidence based on past performance and ongoing efforts to drive organic growth [90] Question: Strategy regarding civil versus defense work - The company has not shifted its strategy and continues to focus on mission-critical areas in both civil and defense sectors [104]