SAIC(US:SAIC)2025-09-04 15:02Financial Data and Key Metrics Changes - Revenue for Q2 2026 declined by 2.7% year over year, primarily due to a 3% headwind from Cloud WAN compute and store revenue, not fully offset by new business volume [16][18] - 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 [17] - Free cash flow improved to $150 million in Q2, despite challenges related to the timing of invoice payments [17][20] Business Line Data and Key Metrics Changes - On contract revenue growth slowed to 3% in Q2 from 8% in Q1, impacting overall revenue performance [16][18] - The company experienced program disruptions that contributed to the revenue decline, particularly in areas with significant government transformation initiatives [8][16] Market Data and Key Metrics Changes - The company anticipates organic revenue to decline by approximately 5.54% in Q3 and Q4 of FY 2026, with revised revenue guidance for FY 2026 set between $7.25 billion and $7.325 billion [18][19] - The outlook for FY 2027 assumes a more subdued contribution from on contract growth of 2% to 3% and a modest benefit from new business [18] Company Strategy and Development Direction - The company is focusing on cost efficiency initiatives to align its cost structure with the challenging revenue environment, aiming to mitigate the impact on EBITDA and free cash flow [10][19] - There is a strong emphasis on leveraging artificial intelligence to drive efficiency across core operations, which is expected to provide incremental benefits in the coming years [13][46] Management's Comments on Operating Environment and Future Outlook - Management noted a more challenging environment than previously forecasted, citing slower conversion of on contract growth opportunities, increased program disruptions, and delays in new business awards [6][9] - Despite current market volatility, management remains optimistic about the execution of their strategy and the potential for normalization in revenue growth over time [11][12] 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 [19][20] - The capital deployment plans remain focused on driving long-term value for shareholders, with a commitment to share repurchases and capability-focused M&A [20] Q&A Session Summary Question: Can you comment on the impacts on on contract growth? - Management indicated that delays in government transformation initiatives, particularly in the Army and civilian sectors, have hindered on contract growth, attributing it to efficiency efforts by the government rather than a shift in market share [22][25] Question: How do you see the structure of the industry changing? - Management acknowledged the volatility in the market and the impact of reduced government personnel, suggesting that while it is too soon to determine structural changes, they expect normalization in FY 2027 [30][33] Question: What are your expectations for the government fiscal year end flush? - Management noted that the flush environment has been irregular and does not expect significant opportunities from it, while a continuing CR is anticipated [80][82] Question: How would a government shutdown impact the P&L? - Management indicated that a traditional shutdown would likely have a marginal impact on revenues but little to no impact on cash flow [82][83] Question: Has there been a change in customer attitudes towards procurement? - Management stated that while there hasn't been an incremental change in the last ninety days, delays in customer interactions and new business ramp-ups have been significant indicators for adjusting revenue guidance [88][92]