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Science Applications International Corp (SAIC)·Q1 2026 Earnings Summary

Executive Summary

  • SAIC delivered Q1 FY26 revenue of $1.88B (+2% YoY) with adjusted EBITDA margin of 8.4%; revenue was a modest beat vs consensus, but EPS and EBITDA came in below expectations as mix and fixed‑price space program costs weighed on margins . Revenue estimate: $1.867B*, actual: $1.877B; EPS estimate: $2.12*, actual (adjusted): $1.92; EBITDA estimate: $172.2M*, actual: $157.0M. The company reaffirmed FY26 guidance at quarter-end . Values retrieved from S&P Global.
  • Bookings were strong: $2.4B net bookings (book-to-bill 1.3), with total backlog rising to ~$22.3B; Civilian segment grew 8% YoY with margin expansion, offset by Defense & Intelligence margin compression .
  • Free cash flow was $(44)M, impacted by MARPA facility usage and receivables timing; management reiterated FY26 free cash flow guidance of $510–$530M and declared a $0.37 quarterly dividend .
  • Management emphasized procurement delays and mix effects as margin headwinds; execution initiatives and favorable option extensions on a fixed-price space program support margin improvement starting in Q2 .

What Went Well and What Went Wrong

  • What Went Well
    • “Net bookings of $2.4 billion; book-to-bill 1.3” sustained pipeline health, with notable Army S3I ($1.8B) and PBGC ($327M) awards; backlog rose to $22.3B .
    • Civilian revenue +8% YoY (to $444M) with operating margin up to 9.0% and adjusted margin to 11.7%—driven by ramp on existing and new contracts .
    • CEO on strategic alignment: “Rapid evolution of new technologies... and elevated global threat environment create significant opportunities... SAIC is prepared and well aligned... to drive value” .
  • What Went Wrong
    • Adjusted EBITDA margin declined to 8.4% (from 9.0% YoY) and GAAP operating margin to 6.4% (from 7.1%), primarily due to timing and volume mix; diluted EPS fell to $1.42 from $1.48 YoY .
    • Free cash flow of $(44)M driven by MARPA facility usage and receivables timing; CFO flagged seasonality and slower collections on two programs as near-term FCF headwinds .
    • Fixed-price space program cost overrun (SDA) impacted Q1 margins; management expects improvement as the program transitions into sustainment with option extensions .

Financial Results

MetricQ3 FY25Q4 FY25Q1 FY26
Revenue ($USD Billions)$1.976 $1.838 $1.877
Diluted EPS ($)$2.13 $2.00 $1.42
Adjusted Diluted EPS ($)$2.61 $2.57 $1.92
Operating Margin (%)8.1% 7.5% 6.4%
EBITDA Margin (%)10.0% 9.5% 8.3%
Adjusted EBITDA Margin (%)10.0% 9.6% 8.4%

Segment breakdown (YoY comparison):

SegmentQ1 FY25 Revenue ($USD Millions)Q1 FY26 Revenue ($USD Millions)Q1 FY25 Operating Margin (%)Q1 FY26 Operating Margin (%)Q1 FY25 Adjusted Operating Margin (%)Q1 FY26 Adjusted Operating Margin (%)
Defense & Intelligence$1,436 $1,433 7.5% 6.8% 8.6% 8.0%
Civilian$411 $444 8.3% 9.0% 11.2% 11.7%

KPIs and balance sheet/cash:

KPIQ3 FY25Q4 FY25Q1 FY26
Net Bookings ($USD Billions)$1.5 $1.3 $2.4
Book-to-Bill (TTM)0.9 0.9 0.8
Backlog – Total ($USD Billions)$22.387 $21.857 $22.343
Backlog – Funded ($USD Billions)$4.466 $3.444 $3.265
Cash from Operations ($USD Millions)$143 $115 $100
Free Cash Flow ($USD Millions)$9 $236 $(44)
Weighted Avg Diluted Shares (Millions)49.8 49.0 47.8
Share Repurchases ($USD Millions)$115 $130 $125
Dividend ($/share)$0.37 (declared 1/24/25) $0.37 (4/25/25) $0.37 (7/25/25)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance (Q1 FY26)Change
Revenue ($USD Billions)FY26$7.60–$7.75 $7.60–$7.75 Maintained
Adjusted EBITDA ($USD Millions)FY26$715–$735 $715–$735 Maintained
Adjusted EBITDA Margin (%)FY269.4%–9.6% 9.4%–9.6% Maintained
Adjusted Diluted EPS ($)FY26$9.10–$9.30 $9.10–$9.30 Maintained
Free Cash Flow ($USD Millions)FY26$510–$530 $510–$530 Maintained
Effective Tax Rate (%)FY26—~23% Provided
Weighted Avg Shares (Millions)FY26—~47 Provided
Dividend ($/share)Quarterly—$0.37 (declared for 7/25/25) Declared

Note: Q2 FY26 later revised FY26 guidance to revenue $7.25–$7.325B, adjusted EBITDA $680–$690M, adjusted EPS $9.40–$9.60, FCF >$550M, margin 9.3%–9.5% . This was subsequent to Q1.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY25 and Q4 FY25)Current Period (Q1 FY26)Trend
AI/technology initiatives; commercial modelsDevSecOps sprints and commercial offerings scaling; goal ~$100M by FY28; asset-light mission integration focus Continued emphasis on enterprise IT, digital engineering; SDA Tranche 3 mission integrator role awarded ($55M) Improving execution; expanding commercial-like delivery
Procurement environment; CR and delaysCR flexibility; focus on on‑contract growth; robust submits; mixed signals but nominal financial impact to date Delays and personnel turnover at agencies slowing on‑contract growth and award timing; competitive but “best value” procurement remains More cautious; delays impacting revenue conversion
Outcome-based/fixed‑price contractingStrategy to migrate selected cost‑plus to fixed‑price where scope defined; margin accretive over time Fixed‑price space program created Q1 margin headwind; option extensions and sustainment phase expected to normalize Transitional headwind turning to tailwind
Segment mix & marginsCivilian strength with margin improvements; D&I mixed Civilian +8% YoY with margin expansion; D&I flat revenue, margin compression Civilian improving; D&I pressured
Bookings/book‑to‑billTargeting TTM 1.2 by H1 FY26; strong submit backlog (~$20B) In‑quarter B2B 1.3; TTM 0.8; Q2 expected ~1.5 and YTD 1.4, but conversion remains delayed Healthy awards; conversion lag

Management Commentary

  • CEO: “Our performance in the first quarter reflects the steady progress we are making against our enterprise growth strategy… an elevated global threat environment create significant opportunities for SAIC” .
  • CEO on macro/customer dynamics: “Operating environment has stabilized… higher rates of turnover among our customers… procurement delays… budget request supportive of our growth strategy” .
  • CFO: FY26 guide assumes H1 growth 1–3% and H2 2–4%; focused on delivering 9.4%–9.6% adjusted EBITDA margin and $11/share FCF, repurchasing $350–$400M annually .

Q&A Highlights

  • Procurement competitiveness and award timing: Management noted delays, “best value” remains procurement focus, not LPTA; new awards subsequent to quarter close exceeded $2B, though protests may delay bookings .
  • Fixed‑price space program: ~$3–$5M margin impact in Q1; transitioning into sustainment with option extensions; EAC captures remaining risk and margin expected to improve from Q2 .
  • Recompete headwinds: NASA losses lap out by end of Q3; Cloud One no‑bid headwind stabilizes through FY; Vanguard extended; overall recompete win rates targeted in high 80s–90% .
  • On‑contract growth cadence: Q1 FCF negative due to receivables timing; management expects improvement, emphasizes on‑contract growth as near-term lever .
  • Civilian margin trajectory: Civilian margins expanding (up ~30–40 bps YoY in Q1), expected to continue; D&I margins to grind higher via bid discipline and execution .

Estimates Context

MetricConsensus (Q1 FY26)Actual (Q1 FY26)Delta
Revenue ($USD)$1,866,550,300*$1,877,000,000 +$10.45M (Beat)
Primary EPS ($)$2.1163*$1.92 −$0.20 (Miss)
EBITDA ($USD)$172,172,560*$157,000,000 −$15.17M (Miss)

Values retrieved from S&P Global.
Implication: Modest revenue beat but EPS/EBITDA miss reflect margin pressure from timing/mix and fixed‑price program costs; estimate revisions likely to modestly trim near-term margin assumptions while maintaining bookings/backlog strength .

Key Takeaways for Investors

  • Q1 was operationally solid on bookings and Civilian growth; margin pressure and FCF timing drove misses despite a revenue beat—watch for Q2 margin normalization as the fixed‑price space program moves to sustainment .
  • Guidance was reaffirmed at Q1, underpinned by robust backlog and pipeline; subsequent Q2 revision lowered revenue/EBITDA but raised EPS/FCF on tax and cost actions—model sensitivity to award timing remains elevated .
  • Segment divergence continues: Civilian is the growth/margin bright spot; D&I margins compressed—bid discipline and execution expected to grind margins higher over time .
  • Capital returns remain supportive: $125M repurchases in Q1 and $0.37 dividend; FY26 buybacks targeted at $350–$400M—providing downside cushion amid revenue volatility .
  • Bookings strength (1.3x B2B) and expanding award wins (Army S3I, Treasury cloud, SDA) bolster medium‑term growth visibility; conversion delays are the gating factor for near-term top line .
  • Risk monitor: Procurement/personnel turnover and CR dynamics can push ramps to the right; management’s cost efficiency and AI-enabled operating model aim to protect margins and cash if revenue compresses .
  • Tactical positioning: Near-term, focus on margin recovery and cash flow trajectory; medium-term, thesis centers on asset-light mission integration, enterprise IT, and outcome-based contracts supporting margin accretion and sustainable growth .