Science Applications International Corporation (SAIC) Q4 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A indicate a positive outlook. Despite lower revenues, strong margins and favorable tax rates improved EPS. The company exceeded cash flow guidance, demonstrating strong execution. The SilverEdge acquisition is expected to drive growth, and there are significant share repurchases planned. Guidance for FY '26 and '27 has been raised, reflecting confidence in future performance. The Q&A highlighted strategic focus and flexibility in business development, with management addressing analyst concerns effectively. Overall, these factors suggest a likely positive stock price movement.
Key Financial Performance
Fourth Quarter Revenue $1.75 billion, representing an organic contraction of approximately 6% year-over-year. The decline was primarily due to a $60 million reduction of low-margin revenue from the Cloud One program and a $45 million headwind related to a nonrecurring software license sale in the prior year.
Full Year Revenue $7.26 billion, declined approximately 3% organically year-over-year. The decline was mainly due to the decision to no-bid low-margin Cloud One revenue, which accounted for an approximately $200 million headwind for the year.
Fourth Quarter Adjusted EBITDA $181 million, resulting in a margin of 10.3%. This reflects strong program execution and recently enacted cost efficiency efforts.
Full Year Adjusted EBITDA Margin 9.7%, which is roughly 20 basis points ahead of the guidance provided last quarter. This improvement was due to strong program execution and cost efficiency efforts.
Fourth Quarter Adjusted Diluted Earnings Per Share $2.62, benefited from stronger margins and a favorable tax rate, which offset lower revenues.
Full Year Adjusted Diluted Earnings Per Share $10.75, benefited from stronger margins and a favorable tax rate, which offset lower revenues.
Fourth Quarter Free Cash Flow $336 million, contributing to a full year free cash flow of $577 million. This robust result was due to strong cash conversion and capital deployment efforts.
Full Year Free Cash Flow $577 million, exceeded initial guidance by 10%, demonstrating strong execution and resilience of the business model.
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Operating Highlights
AI-powered agents: Collaborating with clients to pilot and implement AI-powered agents to stabilize and secure critical networks.
GMASS program: Sustains and upgrades radars critical to homeland defense.
DHS work: Delivers integrated hardware and software solutions to help secure the border.
JRE data link router: Provides real-time battle space awareness.
COBRA and TENCAP HOPE awards: Supports multi-domain war fighting by enabling rapid technology insertion, integration, and innovation.
Munitions programs: Enhances combat capability and capacity.
Enterprise IT market: Shrinking from 17% of company revenues in FY '25 to an expected 10% in FY '27. Focus on fixed price or T&M enterprise IT contracts where differentiation is possible.
Defense budget alignment: Strong pipeline and alignment with customer priorities in a $1 trillion-plus defense budget.
Cost reduction targets: Executing against $100 million in cost reduction targets to provide operational and financial flexibility.
Enterprise transformation initiative: Conducting a bottoms-up review of processes and procedures to create a more efficient organization and support innovation, growth, and margins.
Improved margins: Achieved FY '26 margin of 9.7% and guiding to 10% adjusted EBITDA margin for FY '27.
Business development focus: Hired a seasoned Chief Growth Officer to prioritize business development and drive higher win rates for recompetes and new business.
Selective bidding strategy: Aiming for $25 billion to $28 billion of submissions in FY '27, focusing on areas with higher win rates and customer retention.
Innovation and investment: Investing in areas with the highest demand signals and expanding production capacity on key programs.
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Risk or Challenges
Procurement delays and customer disruptions: Fourth quarter revenue was below expectations due to procurement delays and customer disruptions, indicating an uneven operating environment.
Recompete losses in large enterprise IT market: The company expects another year of organic contraction in FY '27, largely due to recent recompete losses in the large enterprise IT market.
Challenges in fixed price outcome-oriented contracting: Some customers continue to use acquisition approaches where differentiation is difficult, impacting the company's ability to deliver innovation and measurable value.
Slow ramp-up of new business wins: Several large wins are ramping at a slower rate than expected, likely due to budget uncertainty and resource-constrained customer procurement functions.
Dependence on shrinking enterprise IT market: The large enterprise IT market, which has weighed on results, is expected to shrink further from 17% of company revenues in FY '25 to 10% in FY '27.
Budget headwinds and customer workforce impacts: FY '26 faced multiple disruptions, including budget headwinds and significant customer workforce impacts, which contributed to top-line pressure.
Potential downside in revenue ramp-up: There is potential downside risk if the ramp-up of large wins does not materialize as expected, despite reasonable assumptions.
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Guidance & Outlook
Revenue Expectations: SAIC expects total revenue in the range of $7 billion to $7.2 billion for FY '27, representing an organic contraction of 2% to 4%. This decline is primarily driven by recompete losses, which are expected to represent a $400 million headwind. However, the company anticipates partially offsetting this with the ramp-up of new business wins from FY '25 and FY '26.
Margin Projections: SAIC is guiding to an adjusted EBITDA margin of 9.9% to 10.1% for FY '27, marking the first time the company is guiding to double-digit margins on a full-year basis. This represents a year-over-year increase of approximately 30 basis points at the midpoint.
Free Cash Flow: The company expects free cash flow of at least $600 million for FY '27, translating to over $14 of free cash flow per share. Even without a $70 million nonrecurring cash tax benefit, SAIC anticipates generating at least $530 million in free cash flow in FY '28.
Market Trends and Business Segment Performance: SAIC is focusing on higher-margin programs and reducing reliance on low-margin enterprise IT work, which is expected to decline from 17% of company revenues in FY '25 to 10% in FY '27. The company is also investing in areas with high demand signals, such as AI-powered agents and critical network stabilization.
Strategic Plans: SAIC plans to submit $25 billion to $28 billion in bids for FY '27, focusing on opportunities with higher win rates and customer retention. The company is also undergoing a multiyear enterprise transformation initiative to streamline processes and increase investment capacity for innovation and growth.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the single most significant portfolio pivot required to align the company with the next 10 years of government budget priorities?
A:James Reagan emphasized the need to focus on areas where the company has the right to win and where customer retention is driven by innovation and strong performance. He mentioned deemphasizing commoditized enterprise IT work and leveraging the business model acquired with Silveredge, particularly in AI enablement for classified networks.
Q:What are your thoughts regarding the FY '27 guidance and the $35 million CapEx?
A:James Reagan stated that the CapEx is adequate to meet current demand signals but highlighted the company's flexible business model. They are prepared to increase plant capacity and tooling if customer demand signals for production ramp-up arise. Prabu Natarajan added that investments are being made in various forms, including talent acquisition, business development, and capabilities like Mission Labs and classified networks.
Q:How long does it take to build momentum in the business development process and convert it to revenue?
A:James Reagan explained that converting proposals to revenue can take a long time, but improvements in win rates could be seen within six months. He noted that win rates on new work have been in line with expectations and industry averages, and the company is focusing on opportunities with the greatest potential for differentiation and margin improvement.
Q:What changed in the enterprise IT work strategy, and how does SAIC plan to get on the offensive with its $25 billion pipeline?
A:James Reagan and Prabu Natarajan explained that the company is deemphasizing commoditized enterprise IT work due to difficulty in differentiation and focusing on mission IT and engineering work. They highlighted a shift towards more offensive opportunities in the pipeline, with a focus on takeaway opportunities rather than recompetes.
Q:What are the details of recompetes in fiscal '27 and fiscal '28?
A:Prabu Natarajan mentioned that the largest recompete in fiscal '27 is the Department of State Vanguard program, which has been ongoing for 15 years. The company is competing for four of the five work streams. Most impacts from recompetes are expected in fiscal '28 rather than fiscal '27.
Q:How has the funding environment evolved year-to-date?
A:Prabu Natarajan noted that January outlays were better than the preceding three months, with a lag of about three months between outlays and revenue performance. He expects the second quarter of the fiscal year to provide clearer indications of year-end spending.
Q:What is SAIC's approach to integrating earlier-stage products and its role as a hardware integrator?
A:Prabu Natarajan highlighted SAIC's partnerships with venture companies and its capabilities in hardware and software integration through centers in locations like Huntsville and Charleston. He emphasized the company's mission expertise and its role in integrating new capabilities into the defense ecosystem.
Q:How is SAIC addressing internal processes and employee morale during its evaluation of processes?
A:James Reagan stated that employees are supportive of efforts to streamline processes and remove inefficiencies. He emphasized the importance of making decisions faster and reinvesting cost savings into growth initiatives, such as account management teams and customer engagement.
Q:What are the updates on federal acquisition regulation (FAR) and its impact on SAIC?
A:James Reagan mentioned ongoing procurement reforms aimed at improving speed and throughput in the defense industrial base. He noted that SAIC is adapting its procurement and contracting processes to meet these changes and is actively using its commercial operating segment to bid on new opportunities.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer to the question about the single most significant portfolio pivot required to align the company with government budget priorities. James Reagan stated that it was premature to announce any strategic pivots and provided only general observations about focusing on areas with the right to win and leveraging the Silveredge acquisition.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI agent
BD win
CEO executive
CEO faith
CEO role
CFO role
COBRA TENCAP
Cash flow
Chief Officer
Cloud takeaway
DHS work
Department Vanguard
FY commitment
FY digit
FY loss
FY submission
FY visibility
HOPE award
JRE link
Officer BD
Raviv Vice
Relations statement
SAIC
State
Vanguard program
asset
capability capacity
client
customer priority
enterprise market
goal
measure
network
potential
resource
search
solution
win rate
SAIC Transcript
Science Applications International Corporation (SAIC) Q4 2026 Earnings Call Transcript
Positive3-16
The earnings call summary and Q&A indicate a positive outlook. Despite lower revenues, strong margins and favorable tax rates improved EPS. The company exceeded cash flow guidance, demonstrating strong execution. The SilverEdge acquisition is expected to drive growth, and there are significant share repurchases planned. Guidance for FY '26 and '27 has been raised, reflecting confidence in future performance. The Q&A highlighted strategic focus and flexibility in business development, with management addressing analyst concerns effectively. Overall, these factors suggest a likely positive stock price movement.
Science Applications International Corporation (SAIC) Presents at 47th Annual TD Cowen Aerospace and Defense Conference Transcript
Neutral2-11
Science Applications International Corporation (SAIC) Q3 2026 Earnings Call Transcript
Unknown12-4
The earnings call highlights mixed signals: a decline in revenue and lowered guidance for FY '26, but optimistic EPS and free cash flow guidance. The Q&A reveals concerns about procurement delays and budget pressures, yet also potential growth in defense and strategic areas. The share repurchase plan and SilverEdge integration are positive, but the lack of specific guidance details tempers optimism. Overall, the sentiment balances out to neutral.
Science Applications International Corporation (SAIC) Q2 2026 Earnings Call Transcript
Unknown9-4
The earnings call summary reveals mixed signals: a positive defense spending increase and new contracts, but challenges in on-contract growth and slow new business ramp-up. The Q&A highlighted cautious guidance and temporary disruptions, with management focusing on cost efficiencies. The shareholder return plan is stable, but no new partnerships or strong positive catalysts were mentioned. Therefore, the overall sentiment is neutral, reflecting balanced growth prospects and uncertainties.
SAIC Report
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