Science Applications International Corporation (NASDAQ:SAIC) Q3 2026 earnings call transcript
Science Applications International Corporation (NASDAQ:SAIC) Q3 2026 Earnings Call Transcript December 4, 2025
Science Applications International Corporation beats earnings expectations. Reported EPS is $2.58, expectations were $2.07.
Operator: Good day, and thank you for standing by. Welcome to the Science Applications International Corporation fiscal year 2026 Q3 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, we will open up for questions. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I would like to hand the call over to your speaker today, Joseph DeNardi, Senior Vice President, Investor Relations and Treasurer. Please go ahead.
Joseph DeNardi: Good morning, and thank you for joining Science Applications International Corporation’s Third Quarter Fiscal Year 2026 Earnings Call. My name is Joseph DeNardi, Senior Vice President of Investor Relations and Treasurer. Joining me today to discuss our business and financial results are Jim Reagan, our interim Chief Executive Officer, and Prabhu Natarajan, our Chief Financial Officer. Today, we will discuss our results for the 2026 fiscal year that ended October 31, 2025. Please note that we may make forward-looking statements on today’s call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call. I refer you to our SEC filings for a discussion of these risks, including the risk factors section of our annual report on Form 10-K and our quarterly reports on Form 10-Q.
We may elect to update the forward-looking statements at some point in the future, but we specifically disclaim any obligation to do so. In addition, we will discuss non-GAAP financial measures and other metrics, which we believe provide useful information for investors, and both our press release and supplemental financial presentation slides include reconciliations to the most comparable GAAP measures. The non-GAAP measures should be considered in addition to and not a substitute for financial measures in accordance with GAAP. It is now my pleasure to introduce our interim CEO, Jim Reagan.
Jim Reagan: Thank you, Joseph. And thank you to everyone for joining our call. Before I begin, I want to take a moment and welcome SilverEdge to Science Applications International Corporation. Having personally spent time with leaders at SilverEdge, I am excited about the value we can create by combining their differentiated technology and commercial go-to-market approach with the breadth of Science Applications International Corporation. Building upon their success at bringing sought-after AI capabilities to life for the intelligence community, I expect strong continued growth as we deploy their incredibly talented people and solutions across the broader Science Applications International Corporation portfolio. This acquisition represents a good example of our ability to invest in differentiated IP capable of solving customer problems.
I will begin with a brief review of our third-quarter results and updated outlook but will leave the more detailed walkthrough to Prabhu. I will then discuss my top priorities as interim CEO and the compelling potential to create value for our shareholders while investing to better serve our customers and create opportunities for our employees. Third-quarter revenue of $1.87 billion declined 5.6% year over year and included a roughly one-point headwind related to the government shutdown. Adjusting for this impact, revenue results were modestly ahead of our prior guidance as we have seen encouraging signs of stability across the market in recent months. Adjusted EBITDA of $185 million or a margin of 9.9% was driven by strong program execution.
As I highlighted in the earnings release and as I will discuss in more detail, I see meaningful opportunities to further improve margins in the coming years while increasing internal investments to drive profitable growth. Adjusted diluted EPS was $2.58 reflecting our strong margin performance and a favorable tax rate in the quarter. Third-quarter free cash flow of $135 million was strong despite being impacted by the government shutdown which resulted in certain collections moving into our fourth fiscal quarter. Overall, the financial results we reported in the quarter were ahead of our prior guidance but I firmly believe that we can deliver stronger revenue performance over the long term. Since being appointed interim CEO by our board on October 23, my top priority has been to drive increased focus across the company and take decisive action that will position Science Applications International Corporation for long-term shareholder value creation.
My prior industry experience and time on the board have allowed me to hit the ground running and I believe the actions we are taking will produce demonstrable results in the coming quarters. Let me provide greater detail and examples around what we are doing and how we are measuring impact. Science Applications International Corporation’s legacy of innovation and commitment to US national security is undeniable and represents an incredibly valuable asset for the company. However, in recent years, we have struggled to convert this into revenue and EBITDA growth in line with the market due primarily to below-average business development and capture performance. The changes we have implemented over the past twenty-four months across business development are steps in the right direction and have contributed to our improved book-to-bill year to date.
We are committed to building on this progress in three ways. First, sharpening our focus on execution to increase reinvestment in the business; second, more efficiently deploying our financial resources to drive growth; and third, prioritizing yield and bid quality across our business development function. We have discussed in the past that Science Applications International Corporation spends several hundred million dollars annually on indirect functions, including shared services, finance, human resources, marketing, communications, and others. We are implementing efficiencies across this category of spending, including our recent organizational restructuring, and will redeploy savings to fuel growth and improve profitability. We have identified over $100 million in annual spend that we are actively working to reinvest into higher ROI areas across our business and increase margins.
This should result in a more efficient Science Applications International Corporation with increased investment directly driving growth and margins approaching 10% in the near term, with additional potential upside in FY ’27 as we drive further efficiency across the business. In addition, I see an opportunity to refocus our attention on nearer-term execution and the aspects of our performance which we control. While there is value in aligning to a long-term corporate strategy, this needs to be balanced with a keen focus on executing to and delivering on our near-term commitments. My impression during my first several weeks as interim CEO is that our leaders want and will embrace this shift in priorities. I am challenging leaders across Science Applications International Corporation to focus on execution, make an impact on the business, and deliver results.
And I am confident in their ability to step up. Lastly, we have shared with you our focus on increasing business development throughput and have shown strong progress against this having increased submit volumes from $17 billion in FY ’24 to $28 billion in FY ’25. While I believe this is an appropriate level for a business our size, we must now focus our shift from targeting throughput to prioritizing quality and alignment with the markets where we have the strongest right to win. This will drive improved decision-making, more efficient resource allocation, and a stronger Science Applications International Corporation in the long run. As I look at some of the larger business development pursuits that have not gone our way in recent years, and the lessons learned, there is substantial value to be created from turning up the focus and attention on the core fundamentals of this business.
Before turning the call over to Prabhu, I want to take a moment to thank Toni Townes-Whitley, David Ray, Josh Jackson, and Lauren Knausenberger for their contributions and service to Science Applications International Corporation. The recent changes we made were necessary to position the company for longer-term success but required difficult decisions impacting some very high-quality individuals. I also want to acknowledge the tremendous honor it is to lead Science Applications International Corporation, a company with a deep legacy of supporting our country. I look forward to serving in this interim capacity, working with the leadership team to implement the priorities I just outlined, and assisting the board in its search for a permanent CEO.
We have begun that process, which is being led by a search committee comprised of board members working in conjunction with a leading external search firm. Our ideal candidate will be someone who shares this company’s commitment to serving our nation and our customers and has a proven track record of operating excellence and value creation. I can speak for our board in saying that we see significant opportunity to drive value for our shareholders, greater opportunities for our employees, and improved outcomes for our customers, our nation, and its allies. With that, I will now turn the call over to Prabhu.
Prabhu Natarajan: Thank you, Jim, and good morning to those joining our call. I will discuss our business development results in the quarter followed by a review of our updated outlook, including some additional detail regarding the margin improvement efforts that Jim discussed. As you can see on slide four, we delivered 3Q net bookings of $2.2 billion resulting in a book-to-bill in the quarter and on a trailing twelve-month basis of 1.2x. Our 3Q awards included a five-year recompete with the Air Force, with a total contract value of $1.4 billion. And on the new business side, a five-year $413 million contract with the US Army for its open-source intelligence enterprise or OSINT program. In the third quarter, we submitted proposals with a total contract value of approximately $3 billion, bringing our year-to-date submissions to approximately $21 billion.
While the government shutdown has slowed our pace of proposal submissions, we expect this to normalize in the near term and continue to target submitting bids totaling over $30 billion in FY ’27. The incremental investments we expect to fund out of our cost efficiency efforts will go towards strengthening our solutions and overall bid quality. I will now turn to our updated outlook for FY ’26 and FY ’27. We are increasing our FY ’26 total revenue guidance to reflect the acquisition of SilverEdge and reaffirming our organic revenue growth guidance despite the roughly one-point impact to 3Q revenues from the government shutdown. Our guidance continues to assume a roughly four-point contraction in organic revenue growth in the fourth quarter. We are increasing our guidance for FY ’26 adjusted EBITDA margin by 10 basis points due primarily to our strong program performance year to date.
We are increasing our FY ’26 adjusted diluted earnings per share guidance by $0.04 largely due to the increased earnings and a lower tax rate as we now assume a roughly 10% effective tax rate for the year. We are maintaining our FY ’26 free cash flow guidance of greater than $550 million. For FY ’27, we are increasing our revenue guidance by approximately one point to include the acquisition of SilverEdge and are reaffirming our organic revenue growth guidance of 0% to 3%. This outlook reflects an assumed contribution from recent new business wins, including TenCap Hope and OSINT. Partially offset by known recompete headwinds of approximately 1% to 2%. As we have discussed, we are in the recompete phase for one of our largest programs, which represents just over 3% of annual revenue, with an expected award in the next few months.
A favorable outcome on this would position us well in the 0% to 3% range, while a loss would likely make the lower end of the range more likely based on what we know today. We are increasing FY ’27 margin guidance by 20 basis points at the midpoint to a range of 9.7% to 9.9%. The key drivers behind this are the acquisition of SilverEdge, which adds roughly 10 basis points, and the initial 10 basis points impact from cost actions taken to date. Our bias for adjusted EBITDA margins in FY ’27 and beyond remains to the upside as we see meaningful opportunities to drive efficiency and improve performance which are not reflected in our updated guidance. As we return to revenue growth in the coming quarters, we anticipate that the efficiency efforts being implemented now will strengthen our ability to increase EBITDA faster than revenue.
We are increasing our FY ’27 adjusted EPS guidance by $0.50 reflecting the addition of SilverEdge, increased operating margins, and a lower share count. We are maintaining our guidance for FY ’27 free cash flow of greater than $600 million or approximately $13.5 per share. As a reminder, FY ’26 and FY ’27 free cash flow benefits from changes related to section 174 under the One Big Beautiful Bill Act, which results in minimal cash taxes this year and next. Given our strong free cash flow, clear visibility into margin improvement, and a return to revenue growth, we see returning cash to shareholders via our repurchase program as a compelling investment. And now expect to repurchase approximately $500 million in each of FY ’26 and FY ’27. This $1 billion of total share repurchases represents approximately 25% of our market value.
As Jim indicated, we see opportunities to create significant value for shareholders and are acting decisively to execute on our plans. While we appreciate the market’s awareness with some of the uncertainty facing our end market, our FY ’26 revenue performance, and our leadership transition, we have conviction in our ability to further improve execution, deliver sustained profitable growth, and create long-term shareholder value. Realizing the potential of Science Applications International Corporation requires focus, and a commitment to delivering on what we say. I am confident that we can accomplish this and demonstrate clear progress against this in the coming quarters. I will now turn the call over for Q&A.
To continue reading the Q&A session, please click here.
- 6 Makanan yang Bisa Menyebabkan Ketombe - December 16, 2025
- Why your microwave might be ruining your food, according to science - December 16, 2025
- Rachmatul Karimah Berbagi Ilmu Melalui Buku - December 16, 2025
Leave a Reply