Science Applications International Q1 Earnings Call Highlights

Key Points

• SAIC beat expectations in Q1 with $1.9 billion in revenue, record margins, $222 million in adjusted EBITDA and $118 million in free cash flow. Management said the quarter showed strong execution, though it still sees the path to sustained organic growth as a multi-quarter effort.
• The company raised full-year EBITDA and EPS guidance while keeping sales guidance unchanged. Adjusted EPS guidance increased to $9.90-$10.10, free cash flow guidance stayed above $600 million, and management said the year is still being shaped by recompete headwinds and an uncertain federal spending backdrop.
• SAIC is shifting its portfolio toward higher-value mission work and being more selective in commoditized enterprise IT. It also reported improving bookings and pipeline activity, with federal appropriations beginning to flow and AI positioned as a tool to enhance mission execution rather than a standalone product.

Science Applications International NASDAQ: SAIC reported a stronger-than-expected start to fiscal 2027, with executives pointing to record margins, steady cash generation and early signs of improvement in federal spending activity while maintaining a cautious stance on the full year.

Chief Executive Officer Jim Reagan said the company’s first-quarter results reflected “operational excellence in action,” citing strong program execution, disciplined cost management and cash flow performance. Reagan, who took the permanent CEO role earlier this year, said SAIC still has work to do to regain investor confidence by showing it can produce sustained organic growth.

“This quarter’s result is a step in the right direction,” Reagan said. “I know this is a multi-quarter journey.”

Revenue Grows Modestly as Margins Reach Record Levels

Chief Financial Officer and EVP of Enterprise Operations Prabu Natarajan said SAIC reported first-quarter revenue of $1.9 billion, representing organic growth of 0.5%. He said the result was better than expected, helped by the timing of materials and an extension of the RITS program.

Adjusted EBITDA was $222 million in the quarter. Natarajan said the margin performance reflected strong program execution, ongoing cost-efficiency efforts and a $12 million gain tied to the IPO of a venture investment. The gain added 60 basis points to adjusted EBITDA margin and about $0.20 to adjusted earnings per share.

Adjusted diluted earnings per share were $3.23, supported by stronger margins and a lower share count. Free cash flow was $118 million, and net leverage declined to 3.1 times, within the company’s target range.

Reagan said the first-quarter margin was a company record, though he cautioned that investments intended to support growth could offset some of the margin strength later in the year.

Guidance Raised for EBITDA and EPS, Sales Outlook Held

SAIC maintained its sales guidance, with management saying it remains early in the year and the company is still accounting for recompete headwinds and an uncertain operating environment. However, Natarajan said the company expects to finish at or slightly above the midpoint of its sales guidance because of the RITS extension.

The company increased its EBITDA guidance to reflect the venture investment gain and other first-quarter performance items. SAIC now expects full-year adjusted EBITDA margin of 10.1% to 10.3%.

Adjusted EPS guidance was raised by about 4% to a range of $9.90 to $10.10, helped in part by an improved tax outlook. Free cash flow guidance remained unchanged at more than $600 million. Natarajan said SAIC continues to expect at least $14 of free cash flow per share this year and at least $13 per share in fiscal 2028 as historical tax assets roll off.

During the question-and-answer session, Citigroup analyst John Godyn asked about the company’s organic growth outlook, noting that the first-quarter result made a full-year decline of 2% to 4% harder to reconcile. Natarajan said SAIC was being cautious after volatility in the prior year, but added that he “would not probably quarrel with the math” that a 4% contraction looks like an outlier at this point.

Portfolio Review Targets Higher-Value Work

Reagan said SAIC has begun a portfolio review as it seeks to shift toward “integrated mission-critical capabilities” that are more aligned with budget priorities and less exposed to commoditization in parts of the federal technology market. The company expects to provide more information on the review during its December earnings call.

SAIC’s qualified pipeline is about $85 billion, which Reagan described as more focused than in the prior quarter. Enterprise IT now represents a smaller portion of the pipeline, reflecting greater selectivity in that market. Reagan said the company is emphasizing mission and engineering businesses, which have grown as a share of the pipeline due to recent wins and ongoing investments.

Reagan said SAIC is evaluating both potential additions and subtractions to the portfolio, including M&A opportunities that could accelerate growth, improve margins or deepen capabilities in higher-value areas. He said the company is less likely to keep investing heavily in more commoditized enterprise IT opportunities, particularly where customer decisions are driven mainly by price.

Natarajan said the company is not abandoning enterprise IT, noting that SAIC’s civilian business performs much of that work under outcome-based contracts that can deliver value for both customers and the company. He said SAIC will be more selective in commoditized areas, especially where contracts are cost-plus and less differentiated.

Bookings, Pipeline and Federal Spending Show Improvement

SAIC reported net bookings of $2.1 billion in the quarter, including a $200 million recompete win in its Department of Homeland Security business. Quarterly book-to-bill was 1.1 times, while trailing 12-month book-to-bill was 1.0 times.

Natarajan said proposal activity has increased since quarter-end, with the company targeting $25 billion to $28 billion in submissions for the year. He said larger award decisions are taking longer as they go through multiple levels of government review, but awards are beginning to move through the system.

Management said appropriations from last year’s legislation are beginning to flow, though unevenly. Natarajan pointed to activity in the Navy business, pockets of the Army, next-generation command and control, loitering munitions, M-SHORAD Increment 4, digital range modernization and radar sustainment programs.

Reagan also highlighted SAIC’s use of artificial intelligence in mission work, including modernizing legacy code, generating operational tasking orders, improving human-machine teaming, strengthening data fusion and hardening cyber defenses. He said the opportunity is less about delivering a standalone AI product and more about integrating and operationalizing AI capabilities in real-world missions.

Civilian Business Leadership Changes as Margins Strengthen

SAIC also announced that Srinivas Attili is leaving the company as part of a leadership change in its civilian business group. Reagan said Natarajan will serve as interim head of the civilian business while SAIC searches for a permanent replacement.

Natarajan said the civilian segment is operating from a position of strength. He highlighted the Vanguard recompete at the Department of State, which generates roughly $250 million in annual sales at above-average margins. The successor program, Evolve, is a multi-award vehicle with a $10 billion ceiling over seven years. SAIC has won positions on four of the five Evolve work streams it pursued.

Asked about civilian margins, Natarajan said the segment has shown broad-based improvement and benefits from a portfolio that is almost entirely fixed-price and time-and-materials work. He cited contracts at the Department of State, DHS, the Department of Commerce, Interior and patents-related work as contributors to EBITDA performance.

Executives also discussed capital allocation after SAIC repurchased $188 million of shares in the quarter. Reagan said the buybacks were “timely and prudent” given market conditions, while Natarajan said the company’s full-year buyback plan remains roughly $400 million and that repurchases remain opportunistic. He added that Project Orbit, SAIC’s enterprise transformation effort, is intended to create additional capacity for internal investment in areas such as digital infrastructure and AI-related capabilities.

About Science Applications International NASDAQ: SAIC

Science Applications International Corp. (SAIC) is a leading provider of technical, engineering, and enterprise IT services to the U.S. government, including the Department of Defense, the intelligence community, and civilian agencies. The company's core offerings encompass systems engineering and integration, mission support, cybersecurity, data analytics, and cloud solutions. SAIC's work spans the full program lifecycle, from research and development to deployment and sustainment, addressing complex defense, space, and national security challenges.

Founded in 1969 by J.

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