Science Applications International Corp. ((SAIC)) has held its Q1 earnings call. Read on for the main highlights of the call.
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The recent earnings call from Science Applications International Corp. (SAIC) painted a picture of both optimism and caution. The company highlighted strong defense spending requests and a promising business development pipeline, yet acknowledged challenges such as procurement delays and margin pressures. This balanced sentiment reflects both the opportunities and hurdles SAIC faces in the current financial landscape.
Solid Defense Spending Request
The administration’s proposal for a 13% increase in defense spending was a significant highlight of the call. This increase includes additional funding beyond the initial request, with a particular emphasis on the Navy, Air Force, and Space Force. This development is expected to bolster SAIC’s opportunities in these sectors.
Strong Business Development
SAIC reported net bookings of $2.4 billion, achieving a book-to-bill ratio of 1.3. This includes notable contracts such as a $55 million role with the Space Development Agency and a two-year extension on the Department of State Vanguard program. These achievements underscore SAIC’s robust business development efforts.
Civilian Budget Support
The call also highlighted over $1 billion in additional budget for the Department of Transportation, along with stable funding for IT operations at the Department of State, tech improvements at the Department of Treasury, and health record modernization at the Department of Veterans Affairs. These allocations are expected to support SAIC’s civilian sector engagements.
Optimistic Pipeline and Backlog
SAIC’s backlog of pending awards stands at approximately $20 billion, supporting the company’s goal of achieving a 1.2 trailing twelve-month book-to-bill ratio in the coming quarters. This optimistic pipeline is a key driver for future growth.
Revenue Growth and Guidance
The company reported revenue of $1.877 billion for the quarter, reflecting a 2% growth. SAIC provided full-year revenue guidance ranging from $7.6 billion to $7.75 billion, representing approximately 2.5% organic growth at the midpoint. This guidance reflects a steady growth trajectory.
Procurement Delays
Higher turnover rates among customers are contributing to procurement delays, impacting award timelines. This challenge is a significant concern for SAIC as it navigates its contract fulfillment processes.
Negative Free Cash Flow
SAIC reported a negative free cash flow of $44 million, attributed to the timing of receivables on two programs, with approximately $70 million shifting out of the first quarter. This cash flow issue is a point of concern for the company’s financial health.
Margin Pressure
The first-quarter adjusted EBITDA margin was 8.4%, affected by higher costs on a fixed-price program in the space business and the timing of investments. This margin pressure is a critical area for SAIC to address moving forward.
Challenges with Army Budget
Potential challenges with the Army’s budget outlook were discussed, although these are balanced by comparable revenue levels across other Department of Defense branches. This balance is crucial for maintaining SAIC’s defense sector stability.
Forward-Looking Guidance
Looking ahead, SAIC projects fiscal year 2026 revenues between $7.6 billion and $7.75 billion, indicating an organic growth rate of approximately 2.5% at the midpoint. Adjusted EBITDA margins are expected to range from 9.4% to 9.6%. The company also reiterated its full-year adjusted diluted earnings per share guidance of $9.10 to $9.30 and a free cash flow projection of $510 million to $530 million. Despite challenges, SAIC remains optimistic about achieving its growth targets, supported by a robust pipeline and strategic focus on mission and enterprise IT solutions.
In conclusion, Science Applications International Corp.’s earnings call highlighted a mix of positive developments and challenges. While strong defense spending requests and a robust business development pipeline offer growth opportunities, procurement delays and margin pressures pose significant hurdles. The company’s forward-looking guidance reflects cautious optimism, with a focus on strategic growth and financial stability.