Science Applications International Corporation Q3 FY2026 earnings call

• Welcome of SilverEdge acquisition, with expectation of value creation by combining its technology and go-to-market approach with SAIC's breadth.
• Third-quarter results: revenue down 5.6% y/y (adjusting for shutdown, modestly ahead of prior guidance), adjusted EBITDA $185 million (9.9% margin).
• CEO's priorities: sharpen focus on execution, efficiently deploy financial resources, prioritize yield and bid quality in business development.
• Cost efficiencies: over $100 million in annual spend identified to be reinvested in growth and margin improvement, with organizational restructuring to drive efficiencies.
• Business development progress: submit volumes increased from $17B in FY '24 to $28B in FY '25, now focusing on quality and alignment with markets where they have the strongest right to win.

Third-quarter revenue was $1.87 billion, a 5.6% year-over-year decline, with a roughly one-point headwind from the government shutdown. Adjusted EBITDA was $185 million, or a margin of 9.9%. The civil business was roughly flat over the first nine months of the year with improved margins. The 3Q net bookings were $2.2 billion, resulting in a book-to-bill of 1.2x in the quarter and trailing twelve-month basis.

• FY '26 total revenue guidance increased due to SilverEdge acquisition, organic revenue growth guidance reaffirmed despite government shutdown impact. Adjusted EBITDA margin increased by 10 bps. Adjusted diluted EPS increased by $0.04. Free cash flow guidance >$550 million.
• FY '27 revenue guidance increased by ~1%, organic growth 0%-3% (partially offset by recompete headwinds). Adjusted EBITDA margin increased by 20 bps to 9.7%-9.9%. Adjusted EPS increased by $0.50. Free cash flow guidance >$600 million. Plan to repurchase ~$500 million each in FY '26 and FY '27.

• Impact of government shutdown on revenue and collections.
• Civil budget pressure and potential challenges in civilian agency spending.
• Uncertainty around recompete outcomes affecting revenue guidance.

Q: Thoughts on the procurement environment post-shutdown?

A: Saw a slowdown in submit activity and RFP flow due to shutdown, but expect normalization in the fourth quarter with RFP activity on pace.

Q: Residual impact from Doge and pricing pressure?

A: No material change from prior disclosures regarding Doge, and pricing pressure not significant with margins healthy in Q3.

Q: Integration of SilverEdge into the portfolio?

A: Enthusiastic about SilverEdge's ability to accelerate differentiation, expected to be accretive next year, pushing margins up and being EPS accretive.

Q: Civil segment performance?

A: Nine-month view of civil business is roughly flat with improved margins, targeting 14% margins next year with efforts to improve performance.

Q: Department of War reforms and how SAIC can pivot?

A: Ready to help implement changes, supportive of faster procurement processes like OTAs, and willing to assist in achieving speed and efficiency objectives.

Q: Allocation of $100M savings?

A: Substantial portion to be reinvested in account management, business development leadership, and proposal development to drive growth and margin improvement.

Q: Civil spending pressure and its impact?

A: Continued pressure expected, but SAIC is well-positioned in faster current civilian agencies like CBP and FAA with improved margins.

Q: Portfolio shaping?

A: Focused on opportunities unlocked by business refocus, with appetite for targeted portfolio shaping but no immediate dollar figure announced.

Q: Leverage and civil budget growth?

A: Actively manage leverage around 3.0, civil budgets expected to remain pressured, with focus on what can be controlled internally