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Science Applications International Corp (SAIC)·Q2 2026 Earnings Summary

Executive Summary

  • Q2 FY26 delivered mixed results: revenue of $1.77B fell 3% YoY and came in below consensus, but adjusted EPS of $3.63 materially beat Street expectations and margins improved on strong program execution and legal settlement benefits . Versus consensus, revenue was $1.77B vs $1.86B*, and adjusted EPS was $3.63 vs $2.24* (bold beat) .
  • Guidance reset: management lowered FY26 revenue to $7.25–$7.325B and adjusted EBITDA to $680–$690M, while raising adjusted EPS to $9.40–$9.60 and FCF to >$550M (derisked outlook given delays in awards and on‑contract growth) .
  • Bookings and backlog remain a key positive: net bookings $2.6B (book‑to‑bill 1.5), TTM book‑to‑bill 1.0, backlog ~$23.2B, funded $3.6B .
  • Stock reaction catalysts: a significant EPS beat and margin expansion vs a revenue miss and lower topline/EBITDA guidance; upcoming Q3 detail on cost efficiency initiatives and the Section 174 cash tax benefits bolster FCF and could support buybacks, while the derisked revenue guide tempers near‑term growth expectations .

What Went Well and What Went Wrong

What Went Well

  • Margin expansion and EPS beat: adjusted EBITDA margin rose to 10.5% (from 9.4% YoY) and adjusted EPS of $3.63 rose 77% YoY; CFO cited underlying margin of ~10.2% excluding legal settlement and state tax impacts . “Our revised guidance assumes that the operating environment remains stable but does not improve this year…we are confident in our ability to execute against it.” — CEO Toni Townes‑Whitley .
  • Civilian segment outperformance: Civilian adjusted operating margin reached 13.7%, up from 11.4% YoY; adjusted operating income increased to $54M (+17% YoY) on improved profitability .
  • Strong bookings/backlog and notable awards: net bookings $2.6B and backlog ~$23.2B; notable awards include HOPE 2.0 ($928M) for USAF TENCAP and $728M Treasury cloud task order, supporting future ramps .

What Went Wrong

  • Revenue contraction and miss: revenue decreased 3% YoY to $1.769B on contract completions and slower ramps; fell below Street consensus of ~$1.863B* .
  • Topline and EBITDA guidance cut: FY26 revenue guide lowered by ~4% vs prior ($7.60–$7.75B to $7.25–$7.325B) and adjusted EBITDA reduced to $680–$690M, reflecting delays in awards and on‑contract growth conversion .
  • Free cash flow declined YoY in the quarter: FCF was $150M vs $241M YoY, impacted by MARPA Facility dynamics and working capital timing; cash from operations fell to $122M from $138M YoY .

Financial Results

Multi-period performance

MetricQ2 FY25 (Aug 2, 2024)Q1 FY26 (May 2, 2025)Q2 FY26 (Aug 1, 2025)
Revenue ($USD Billions)$1.818 $1.877 $1.769
GAAP Diluted EPS ($)$1.58 $1.42 $2.71
Adjusted Diluted EPS ($)$2.05 $1.92 $3.63
Operating Margin (%)7.4% 6.4% 7.9%
Adjusted Operating Margin (%)9.3% 8.4% 10.3%
EBITDA ($USD Millions)$169 $156 $177
Adjusted EBITDA ($USD Millions)$170 $157 $185
Adjusted EBITDA Margin (%)9.4% 8.4% 10.5%
Net Income ($USD Millions)$81 $68 $127
Cash from Operations ($USD Millions)$138 $100 $122
Free Cash Flow ($USD Millions)$241 $(44) $150

Q2 FY26 Actual vs Consensus

MetricConsensus (Q2 FY26)Actual (Q2 FY26)Surprise
Revenue ($USD Billions)$1.863*$1.769 Miss: $(0.094)B
Adjusted Diluted EPS ($)$2.24*$3.63 Beat: $1.39

Values with asterisk were retrieved from S&P Global consensus.

Segment breakdown (Q2 FY26 vs Q2 FY25)

SegmentRevenue Q2 FY25 ($MM)Revenue Q2 FY26 ($MM)YoY %Adjusted Op Inc Q2 FY25 ($MM)Adjusted Op Inc Q2 FY26 ($MM)Adjusted Margin Q2 FY25 (%)Adjusted Margin Q2 FY26 (%)
Defense & Intelligence$1,415 $1,374 (3)% $124 $124 8.8% 9.0%
Civilian$403 $395 (2)% $46 $54 11.4% 13.7%
Total$1,818 $1,769 (3)% $169 $182 9.3% 10.3%

KPIs and Contracting

KPIQ2 FY26Q2 FY25
Net bookings ($USD Billions)$2.6 N/A
Book-to-bill (quarter)1.5 N/A
TTM book-to-bill1.0 N/A
Backlog ($USD Billions)$23.172 Total; $3.594 Funded $21.857 Total; $3.444 Funded
Share repurchases ($USD Millions)$106 $201
Quarterly dividend per share ($)$0.37 (declared for Oct 24, 2025) $0.37 (Q1 FY26 declared for Jul 25, 2025)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY26$7.60B–$7.75B $7.250B–$7.325B Lowered
Adjusted EBITDAFY26$715M–$735M $680M–$690M Lowered
Adjusted EBITDA Margin %FY269.4%–9.6% 9.3%–9.5% Lowered (10bps midpoint)
Adjusted Diluted EPSFY26$9.10–$9.30 $9.40–$9.60 Raised
Free Cash FlowFY26$510M–$530M >$550M Raised
Cash from OperationsFY26$545M–$565M >$585M Raised
CapexFY26~$35M ~$35M Maintained
Effective Tax RateFY26Not specified~14% (revised assumption) Lowered
DividendFY26$0.37/qtr (declared) $0.37/qtr (declared) Maintained policy

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY25 and Q1 FY26)Current Period (Q2 FY26)Trend
AI/automation in operationsStrategy to integrate commercial tech and mission IT; improving margins; focus on differentiated offerings Accelerating AI adoption across core functions to drive margin improvement; enterprise operating model rollout Positive margin tailwind; execution accelerating
On‑contract growth conversionQ1 growth benefited from ramps; book‑to‑bill 1.3; backlog $22.3B Slower conversion of on‑contract growth (3% in Q2 vs 8% in Q1); program disruptions cited Near‑term headwind
New business awards and rampsStrong pipeline and awards (e.g., CCDC AvMC, PBGC) Delays in adjudication and slower ramps (e.g., TENCAP HOPE 2.0, Navy program); pending awards ~$1B post‑quarter Timing delays; future support
Budget/efficiency and CR riskPrior caution on dynamic budgets Customers driving efficiency; expected CR and potential shutdown would be marginal revenue impact, limited cash impact Stable but cautious
Segment mix and marginsCivilian margins improving; D&I steady Civilian adjusted margin up to 13.7%; D&I at 9.0% Margin expansion continues in Civilian
Tax/Section 174 impactsNot a major factor previouslyLower state/local tax impact ~10bps headwind to FY26 adj EBITDA margin; cash tax benefits ~$60M in FY26, ~$110M in FY27 EPS/FCF tailwind

Management Commentary

  • CEO: “Slower on‑contract growth and continued delays in new business awards and new program ramps are contributing to a more challenging revenue environment… We are responding purposefully by aligning our cost structure… Our revised guidance assumes that the operating environment remains stable but does not improve this year.”
  • CFO: “Adjusted EBITDA was $185M… underlying margin adjusting for [legal settlement and state tax] of 10.2%… We are increasing our FY26 adjusted EPS to $9.4–$9.6 and FCF to >$550M, aided by Section 174 cash tax dynamics.”
  • CEO on strategy: “We are accelerating mission integration and commercial tech adoption… awards like HOPE 2.0 and Navy programs support long‑term positioning.”

Q&A Highlights

  • On‑contract growth and customer dynamics: Impacts concentrated where transformation and budget uncertainty are highest (e.g., Army transformation, Treasury tCloud), attributed more to government efficiency efforts than share shifts .
  • Structural vs temporary: Management views current revenue headwinds as temporal (next 2–4 quarters), while accelerating strategy toward mission integrator and differentiated tech offerings; assumes flat to low single‑digit budget growth longer term .
  • Cost efficiency initiatives: Enterprise operating model and AI across core functions to drive margins; preserving bid submissions while extracting efficiencies elsewhere; more detail to follow on Q3 call .
  • FY27 bridge: Baseline assumes 0–3% revenue growth from backlog conversion, 1–3% on‑contract growth and modest new business; ~$1B of wins pending protest windows; EPS guided to $9.0–$9.2 on a normalized ~23% tax rate .
  • CR/shutdown exposure: Historically marginal revenue impact for a ~30‑day shutdown; limited cash effects with recovery over billing cycles .

Estimates Context

  • Q2 FY26 results vs consensus: Revenue $1.77B vs $1.86B* (miss), adjusted EPS $3.63 vs $2.24* (beat). Adjusted EBITDA margin 10.5% supported the EPS upside despite topline pressure . Values retrieved from S&P Global.
  • Implications: Street EPS likely to revise upward near term on tax/FCF dynamics and margin execution; revenue estimates may trend lower on derisked FY26 guide and program ramp timing .

Key Takeaways for Investors

  • EPS/margin execution offsets revenue softness; focus on underlying margin (10.2% ex items) and Civilian segment strength (13.7% adjusted margin) supports quality of earnings .
  • Guidance reset derisks FY26; watch Q3 for specifics on cost initiatives and evidence of improvement in on‑contract growth conversion and award adjudications .
  • Bookings/backlog momentum and marquee awards underpin medium‑term pipeline despite near‑term delays; monitor HOPE 2.0 and Navy program ramps into FY27 .
  • Section 174 cash tax mechanics are a material FCF tailwind; FY26 FCF >$550M and FY27 ~$600M expected despite lower EBITDA, supporting continued repurchases .
  • Trading setup: near‑term choppiness on topline/guidance cut vs strong EPS/FCF beat; catalysts include Q3 initiative details, contract award clears, and signs of normalization in customer processes .
  • Medium‑term thesis: transition toward mission integration and commercial/AI solutions should improve stickiness and margins; Civilian mix and fixed‑price/outcome‑based contracts are constructive .
  • Risk watch: prolonged CR/shutdown, award protests, and program disruptions could extend revenue softness; NASA East and Cloud One headwinds annualize in H2 FY26 as flagged by CFO .

Values with asterisk were retrieved from S&P Global.