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    SAIC
    Earnings call· Apr 2026(Q1 FY27)

    Science Applications International Corp SAIC

    Jun 1, 2026 Source

    Executive summary

    SAIC Q1 FY27 — Strong Margins and Cash Flow Drive Raised Guidance

    SAIC delivered a strong first quarter, driven by record margins and robust cash flow, leading to an increase in full-year adjusted EPS and EBITDA guidance. The company is navigating recompete headwinds and a dynamic environment by focusing on strategic portfolio realignment, targeted investments in mission-critical areas, and cost efficiency initiatives like Project Orbit, aiming to rebuild sustained organic growth.

    Highlights

    5

    • Organic growth of 0.5% in Q1 FY27, better than expected.

    • Adjusted EBITDA of $222 million, with a record margin, benefiting from a $12 million venture investment gain.

    • Adjusted diluted EPS guidance increased by approximately 4% to a range of $9.90 to $10.10 for the full year.

    • Free cash flow of $118 million in Q1, maintaining peer-best cash conversion.

    • Net bookings of $2.1 billion resulted in a book-to-bill of 1.1x for the quarter.

    Concerns

    4

    • Revenue guidance maintained despite Q1 upside due to recompete headwinds and environmental uncertainties.

    • Ritz recompete expected to be a $200 million headwind in FY27, now rolling off in F3Q instead of F2Q.

    • On-contract growth (OCG) expected to remain at 2% to 3% in FY27, below prior years.

    • Customer disruptions continue to pressure submissions, though improving.

    Guidance & targets

    8
    CategoryTargetConfidence
    Adjusted EPS
    $9.90 to $10.10
    high materiality
    High
    Adjusted EBITDA margin
    10.1% to 10.3%
    high materiality
    High
    Free cash flow
    greater than $600 million
    high materiality
    High
    Free cash flow per share
    at least $14
    medium materiality
    High
    Free cash flow per share
    at least $13
    medium materiality
    High
    Sales
    at or slightly above the midpoint of guidance
    high materiality
    Medium
    Submissions
    $25 billion to $28 billion
    medium materiality
    High
    Net book-to-bill
    comfortably over 1.0x
    medium materiality
    High

    Segment performance

    1
    SegmentRevenueYoYQoQMargin
    Civil
    Operating from a position of strength, delivering leading technology solutions. Majority of T&M and fixed price work, providing more operational levers. Team has done a fabulous job executing and driving margin momentum.
    Prior trough margin: 12%-12.5%Long-term target margin: mid-to-upper 10s bordering 11%
    		———15%

    Operational metrics

    27
    Organic growth
    0.5%better than expected
    Q1 FY27

    Better than expected due to timing of materials and Ritz extension.

    Adjusted EBITDA
    $222 million
    Q1 FY27

    Robust adjusted EBITDA.

    Adjusted EBITDA margin
    Record level
    Q1 FY27

    Driven by strong program execution and a $12 million gain associated with the IPO of a venture investment.

    Adjusted diluted EPS
    $3.23
    Q1 FY27

    Benefiting from better margins and a lower share count, including $0.20 from venture investment gain.

    Net leverage
    3.1xdown this quarter
    Q1 FY27

    Within target range, expected to continue to naturally delever as EBITDA improves.

    Qualified pipeline
    $85 billionsmaller share of enterprise IT compared to last quarter
    Current

    More focused, reflecting selectivity in enterprise IT market.

    Net bookings
    $2.1 billion
    Q1 FY27

    Includes a $200 million recompete win in DHS business.

    Book-to-bill ratio
    1.1x
    Q1 FY27

    Encouraged by momentum, expect to achieve annual targets.

    Book-to-bill ratio
    1.0x
    Trailing 12-month

    Trailing 12-month basis.

    Recompete win rates
    stabilizing
    Current

    Expected to return to the 90% range.

    New business win rates
    above 30%
    Current

    Continued to perform well.

    On-contract growth (OCG)
    5%
    Q1 FY27

    Improved OCG, though some was timing related.

    On-contract growth (OCG)
    2% to 3%in line with FY26, below FY24/FY25 (6-8%)
    FY27

    Expected to remain at this level for the full fiscal year.

    OCG from specific programs
    $400 million
    Q1 FY27 annualized rate

    Roughly half of this year's planned OCG comes from programs won over the last 2 years that ramped slower than expected last year.

    Share repurchases
    $188 million
    Q1 FY27

    Opportunistic buybacks, full-year plan of roughly $400 million unchanged.

    Project Orbit ideas sourced
    Over 3,500
    Current

    Ideas sourced from across the company for enterprise transformation process.

    Pipeline contraction
    25%
    YoY

    Vast majority of contraction in enterprise IT portfolio.

    Civil segment prior margin
    12% to 12.5%
    A couple of years ago

    Trough level for the Civil business.

    Civil segment long-term margin target
    mid-to-upper 10s bordering 11%
    Long-term

    Target for the Civil business over time.

    Vanguard annual sales
    $250 million
    Annual

    Current annual sales for the Vanguard program, which is being recompeted by EVOLVE.

    EVOLVE contract ceiling
    $10 billion
    Over 7 years

    Multi-award contract vehicle for the Department of State.

    EVOLVE implied annual run rate
    Over $1 billion
    Annual

    Implied run rate if funding is fully utilized over 7 years.

    EVOLVE workstreams won
    4 of 5
    Current

    SAIC has won a seat at the table on 4 of the 5 workstreams for the EVOLVE program.

    Ritz recompete headwind
    $200 million
    FY27

    Expected headwind as the contract rolls off.

    Ritz recompete roll-off timing
    F3Qpreviously F2Q
    FY27

    Protest adjudication delayed roll-off from F2Q to F3Q.

    Organic growth headwind from recompetes
    Circa 3%
    Q3 and Q4 FY27

    Expected headwind in each of Q3 and Q4, roughly half of the 6% contraction in the second half of the year.

    Navy business revenue
    Over $1 billion
    Annual

    Business continues to grow nicely for SAIC.

    Deals & partnerships

    2
    Department of StateMulti-award contract vehicle, EVOLVE, recompeting the Vanguard program.$10 billion ceiling7 years

    EVOLVE is bigger and broader than Vanguard, consolidating work beyond current scope. SAIC did not bid on one workstream due to organizational conflict of interest issues. Expected to incrementally derisk over several quarters.

    Undisclosed venture investmentSale of ownership position in an early-stage innovator via IPO.$12 million gain

    SAIC continues a commercial relationship with the company to bring enhanced capability to the government market.

    Risks & headwinds

    5
    Recompete headwinds (Ritz recompete)Rolls off in F3Q FY27 (previously F2Q).

    $200 million headwind in FY27.

    Mitigation: Implied by strategic portfolio review and focus on new business win rates.

    Environmental uncertainties and customer disruptionsRemaining quarters of FY27.

    Still pressure submissions, though improving.

    Mitigation: Measured approach to sales guidance, focus on controlling what can be controlled.

    Election year uncertaintyFY27.

    Not quantified.

    Mitigation: Cautious and prudent approach to guidance.

    Commoditization in certain parts of the enterprise IT marketOngoing.

    Not quantified.

    Mitigation: Portfolio realignment, focusing on differentiators and higher-margin, outcome-based contracts.

    Budget scenariosFY27 and beyond.

    Budget scenarios of $1 trillion, $1.25 trillion, or $1.5 trillion.

    Mitigation: Focus on areas of enduring need and critical infrastructure (e.g., Homeland Security, FAA, Department of Treasury).

    What to watch in Q2 FY27

    5

    Full-year sales guidance revision

    Q2 FY27 earnings call
    CurrentMaintained, but expect to finish at or slightly above midpoint of negative 2% to negative 4%.
    TargetFormal raise to full-year sales guidance.

    Why it matters

    Indicates management's confidence in sustained organic growth recovery and easing headwinds.

    We will revisit our sales guidance on our next call, but we are well positioned to meet our sales commitments.

    Q&A highlights

    5

    Given Q1's positive organic growth on tough comps, why is full-year guidance still negative 2-4%? Is there upside?

    Prabu Natarajan acknowledged the Q1 strength and tough comps, stating the company is being cautious given prior year volatility. He agreed that negative 4% looks like an outlier and expects revenue to be at or slightly above the midpoint of the current guide, with a revisit in Q2.

    “I would not probably quarrel with the math that a minus 2% to minus 4% becomes harder to comprehend given the solid start we had to the year.”

    asked by John Godyn · answered by Prabu Natarajan

    2 min read7 chapters

    Detailed Narrative

    01

    Strategic Portfolio Realignment

    CEO Jim Reagan emphasized a broadened focus on strategy, including a portfolio review to align with budget priorities and insulate against commoditization in enterprise IT. The qualified pipeline now sits at $85 billion, more focused on mission and engineering businesses, with enterprise IT comprising a smaller share. The company plans to share more information on this review during the December earnings call.

    02

    AI and Technology Integration

    SAIC is actively applying AI to modernize legacy code, generate operational tasking orders, enhance human-machine teaming, strengthen data fusion, and harden cyber defenses. The company's strategy focuses on quickly integrating and operationalizing these capabilities in real-world missions, rather than delivering an AI product, leveraging its engineering strength at the intersection of hardware and software.

    03

    Organic Growth Trajectory and Headwinds

    Q1 FY27 saw modest organic growth of 0.5%, which was better than expected due to timing benefits. Despite this, the company maintains a cautious sales guidance for the full year, anticipating recompete headwinds, such as the $200 million Ritz recompete rolling off in F3Q instead of F2Q. On-contract growth (OCG) is expected to remain at 2% to 3% in FY27, with roughly half coming from programs won in the last two years that are now ramping up, currently running at an annualized rate of $400 million.

    04

    Margin Expansion and Cost Efficiency Initiatives

    Q1 EBITDA margin reached a company record, driven by strong program execution and a $12 million gain from a venture investment IPO. The company's enterprise transformation process, Project Orbit, aims to increase agility and create capacity for investments to support future growth and margin expansion. Over 3,500 ideas have been sourced for this initiative, with more details expected in September.

    05

    Capital Allocation and Shareholder Returns

    SAIC executed $188 million in share repurchases during Q1, described as opportunistic given market conditions, with a full-year buyback plan of approximately $400 million. Management is also actively exploring M&A opportunities aligned with strategic goals, focusing on rounding out capabilities and accelerating customer penetration, alongside internal investments in digital infrastructure and AI.

    06

    Civil Segment Performance and Outlook

    The Civil segment demonstrated strong performance, achieving a 15% margin in Q1, up from 12-12.5% a few years prior. This improvement is attributed to strong execution in predominantly fixed-price and T&M contracts. The segment is focused on the EVOLVE contract, a $10 billion ceiling over 7 years, which recompetes the Vanguard program ($250 million annual sales). SAIC has won seats on 4 of 5 EVOLVE workstreams and aims to derisk this over several quarters.

    07

    Budget Environment and Customer Demand

    Appropriations are beginning to flow, particularly in the Navy business and specific areas of the Army, Space, and Intel. The company sees opportunities in radar modernization, munitions, data fusion, and battle space management. While budget scenarios of $1 trillion to $1.5 trillion offer growth potential, management remains cautious due to election-year uncertainties and the need for agencies to spend full-year monies by mid-summer.

    AI-generated summary of the company’s earnings call. Not investment advice.