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01/09 22:53
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed picture: positive elements include a strong backlog, strategic contract wins, and share repurchase plans. However, challenges such as procurement delays, negative free cash flow, and cost overruns in the space business create uncertainty. The Q&A highlights management's confidence but also reveals some evasiveness on potential risks. The financial guidance suggests modest growth, but headwinds like competitive pressures and budget constraints temper optimism. Overall, the balance of positive and negative factors suggests a neutral stock price movement in the short term.
Revenue $1.877 billion, representing growth of approximately 2% year-over-year due to the continued ramp on new and existing programs including T-Cloud, IMDC2, and GMASS which offset lower revenue from contract completions and transitions.
Adjusted EBITDA $157 million, resulting in an adjusted EBITDA margin of 8.4%. Margin performance was impacted by the typical seasonality of investments including healthy submit volumes and higher costs on a fixed price program in the space business.
Adjusted diluted earnings per share $1.92, flat year-over-year as a lower share count offset a higher tax rate and lower adjusted EBITDA in the quarter.
Free cash flow Negative $44 million, impacted by the timing of receivables on two programs which resulted in approximately $75 million shifting out of the first quarter.
Net bookings $2.4 billion for a book-to-bill of 1.3, which included securing a key recompete and an eight-year IT services program for the Pension Benefit Guaranty Corporation.
Capital deployment Repurchased approximately $125 million of shares in the first quarter, targeting annual repurchases in a range of $350 million to $400 million.
Backlog of pending awards Approximately $20 billion, providing good line of sight into continued improvement in bookings.
New Contract Award: SAIC was awarded a new cost-plus program role in Q1 as part of a $55 million contract for the Space Development Agency, focusing on mission integration and digital engineering.
Defense Spending Increase: The President's Government Fiscal Year '26 budget request includes a proposed 13% increase in defense spending, which is expected to benefit certain branches of the DoD, particularly the Navy, Air Force, and Space Force.
Civilian Agency Budgets: SAIC's focus on civilian agencies includes over $1 billion for the Department of Transportation, over $40 billion for the Department of Homeland Security, and over $1 billion for the Department of Veterans Affairs.
Revenue Growth: SAIC reported revenue of $1.877 billion for Q1, representing a growth of approximately 2%.
Net Bookings: Net bookings for Q1 were $2.4 billion, with a book-to-bill ratio of 1.3.
Free Cash Flow: Free cash flow was negative $44 million due to timing of receivables, but improvements are expected in Q2.
Portfolio Strategy: SAIC is pivoting its portfolio towards mission and enterprise IT, aligning with the new administration's priorities and technology adoption.
Capital Deployment: SAIC repurchased approximately $125 million of shares in Q1 and targets annual repurchases of $350 million to $400 million.
Customer Turnover: Higher rates of turnover among customers are contributing to procurement delays and award timelines being pushed back.
Government Efficiency Initiatives: The government's efficiency initiatives have a nominal impact on financial results, with an estimated annualized revenue impact of less than 1%.
Budget Negotiations: The operating environment remains fluid as budget negotiations continue, which could affect future spending.
Defense Spending: While there is a proposed increase in defense spending, certain branches of the DoD may face a more challenging budget outlook, particularly the Army.
Procurement Delays: Procurement delays could lead to a shift in award timelines by one to two quarters, potentially impacting revenue performance.
Free Cash Flow: Negative free cash flow of $44 million in Q1 due to timing of receivables, with expectations for improvement in Q2.
Contract Transitions: Lower revenue from contract completions and transitions may impact growth, particularly in the fourth quarter.
Profit Adjustments: Unfavorable profit adjustments on fixed-price programs in the space business have impacted margins.
Defense Spending: The President's Government Fiscal Year '26 budget request includes a proposed increase of 13% in defense spending, which is expected to support SAIC's growth strategy.
Mission Integration Role: SAIC was awarded a new cost-plus program role in Q1 as part of a $55 million contract to leverage expertise in mission integration and digital engineering.
Business Development: SAIC delivered net bookings of $2.4 billion for a book-to-bill of 1.3, with a strong pipeline and backlog supporting future growth.
Civilian Agency Focus: SAIC's focus on five largest civilian agency customers is well supported, with significant budget allocations for improvements and technology.
Revenue Guidance: SAIC expects revenue in the range of $7.6 billion to $7.75 billion, representing organic growth of approximately 2.5% at the midpoint.
Adjusted EBITDA Margin Guidance: SAIC is targeting an adjusted EBITDA margin of 9.4% to 9.6% for the full year.
Earnings Per Share Guidance: The company reiterates adjusted diluted earnings per share guidance of $9.10 to $9.30.
Free Cash Flow Guidance: SAIC expects free cash flow in the range of $510 million to $530 million, equating to approximately $11 per share.
Capital Deployment: SAIC plans to repurchase approximately $350 million to $400 million in shares annually, with additional capacity for M&A or incremental share repurchase.
Share Repurchase: We repurchased approximately $125 million of shares in the first quarter. We continue to target annual repurchases in a range of $350 million to $400 million with additional capacity of $150 million to $200 million for either capability-focused, tuck-in M&A or incremental share repurchase.
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.
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.
The earnings call presents a mixed picture: positive elements include a strong backlog, strategic contract wins, and share repurchase plans. However, challenges such as procurement delays, negative free cash flow, and cost overruns in the space business create uncertainty. The Q&A highlights management's confidence but also reveals some evasiveness on potential risks. The financial guidance suggests modest growth, but headwinds like competitive pressures and budget constraints temper optimism. Overall, the balance of positive and negative factors suggests a neutral stock price movement in the short term.
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