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Science Applications International Corp (SAIC)·Q3 2025 Earnings Summary

Executive Summary

  • Revenue grew to $1.98B (+4.3% YoY) with adjusted EBITDA margin expanding to 10.0%; adjusted diluted EPS was $2.61. Management characterized revenue as “better than expected.”
  • Net bookings were $1.5B (book-to-bill 0.7; TTM 0.9), reflecting timing softness, while total backlog remained robust at ~$22.4B.
  • FY25 guidance was raised: revenue to $7.425–$7.475B and adjusted EPS to $8.50–$8.65; adjusted EBITDA margin ~9.3% and FCF $490–$510M maintained.
  • Board authorized a new $1.2B buyback (~20% of market value), with expected repurchases of ~$500M in FY25 and $350–$400M annually thereafter.
  • Management highlighted an acceleration in bid submissions (> $25B planned in FY25) and targeted book-to-bill of 1.2 by 1H FY26, positioning for mid‑single‑digit growth into FY27.

What Went Well and What Went Wrong

What Went Well

  • Revenue and profitability: Revenues rose to $1.976B (+$81M, +4% YoY); adjusted operating margin expanded 50 bps to 9.9% and adjusted EBITDA margin to 10.0%.
  • Strategic progress: Bid submissions increased to >$25B for FY25 vs prior $22B target, with a pipeline aligned to mission IT and enterprise IT growth vectors. “We again delivered better than expected revenue in the quarter with strong profitability.” — CEO Toni Townes‑Whitley.
  • Capital return: New $1.2B repurchase authorization and quarterly dividend of $0.37/share; repurchases expected to be ~$500M in FY25.

What Went Wrong

  • Book-to-bill softness: Quarterly book-to-bill of 0.7 (TTM 0.9) suggests near‑term award timing moderation despite improving submit volumes.
  • Free cash flow dipped: FCF was $9M in Q3 (vs $97M prior-year and $241M in Q2), impacted by MARPA facility usage, payroll timing, and working capital.
  • Civilian margin contraction: Civilian operating margin fell to 8.0% (from 13.0% YoY), with management indicating this year as a trough near ~12% segment margin before expected accretion.

Financial Results

Consolidated Performance (trend view)

MetricQ1 FY2025Q2 FY2025Q3 FY2025
Revenues ($USD Millions)1,847 1,818 1,976
Diluted EPS ($)1.48 1.58 2.13
Adjusted Diluted EPS ($)1.92 2.05 2.61
Operating Margin (%)7.1% 7.4% 8.1%
Adjusted Operating Margin (%)8.6% 9.0% 9.9%
Adjusted EBITDA Margin (%)9.0% 9.4% 10.0%
Net Income ($USD Millions)77 81 106
Cash from Operations ($USD Millions)98 138 143
Free Cash Flow ($USD Millions)13 241 9
Transaction‑Adjusted FCF ($USD Millions)21 241 9

Year‑over‑Year Comparison (Q3 FY2025 vs Q3 FY2024)

MetricQ3 FY2024Q3 FY2025
Revenues ($USD Millions)1,895 1,976
Diluted EPS ($)1.76 2.13
Adjusted Diluted EPS ($)2.27 2.61
Operating Margin (%)7.5% 8.1%
Adjusted EBITDA Margin (%)9.4% 10.0%

Segment Breakdown

Segment MetricQ1 FY2025Q2 FY2025Q3 FY2025
Defense & Intelligence Revenues ($USD Millions)1,436 1,415 1,515
Civilian Revenues ($USD Millions)411 403 461
Defense & Intelligence Operating Margin (%)7.5% 7.6% 8.6%
Civilian Operating Margin (%)8.3% 8.4% 8.0%
Defense & Intelligence Adjusted Operating Margin (%)8.6% 8.8% 9.8%
Civilian Adjusted Operating Margin (%)11.2% 11.4% 10.6%

KPIs

KPIQ1 FY2025Q2 FY2025Q3 FY2025
Net Bookings ($USD Billions)2.6 1.2 1.5
Book-to-Bill (x)1.4 0.6 0.7
TTM Book-to-Bill (x)1.0 1.1 0.9
Total Backlog ($USD Billions)23.564 22.899 22.387
Funded Backlog ($USD Billions)3.468 4.237 4.466

Non‑GAAP Adjustments (Q3 FY2025 EPS)

ItemAmount ($USD Millions)EPS Impact ($)
Amortization of intangible assets29 0.48
Adjusted Diluted EPSNet income + adjustments = $130 $2.61

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY25$7.35B – $7.50B $7.425B – $7.475B Raised
Adjusted EBITDAFY25$680M – $700M $685M – $695M Narrowed
Adjusted EBITDA MarginFY259.2% – 9.4% ~9.3% Narrowed
Adjusted Diluted EPSFY25$8.10 – $8.30 $8.50 – $8.65 Raised
Free Cash FlowFY25$490M – $510M $490M – $510M Maintained
Share RepurchasesFY25N/ANew $1.2B authorization; ~$500M expected repurchases in FY25 Introduced/Accelerated
DividendQ4 FY25$0.37/share declared (Jan 24, 2025 pay date) $0.37/share Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1, Q2)Current Period (Q3)Trend
Bid submissions and pipelineReaffirmed FY25 guidance; early returns expected to accelerate FY26–FY27; building growth strategy. Submissions increased to >$25B in FY25; backlog of submitted bids ~$19B TTM; target book‑to‑bill 1.2 by 1H FY26. Improving velocity and alignment to mission/enterprise IT
Government efficiency focusN/APreparing for incoming administration’s efficiency push; emphasis on fixed/incentive contracts and tech‑enabled “do more with less.” Proactive positioning, scenario planning
Contract mix (fixed price vs cost plus)N/ATrack record converting to fixed price; 2/3 of $25–$30B planned submits next year are mission/enterprise IT with higher margins. Mix shift toward higher‑margin work
Civilian segment marginsQ1–Q2: Civilian margins down YoY; expected trough in FY25. Civilian operating margin 8.0%; management expects ~12% segment margin trough this year then expansion 100–150 bps over next few years. Near‑term trough, medium‑term accretion
Recompetes and headwindsQ2: Increased EPS guidance; noted recompete pressure. Recompete headwinds just over 2% in FY26; Cloud One compute/store transition could be incremental 2–3%. Lower than FY25 but still a headwind
Award timing/protestsQ1–Q2: Robust backlog, improving book‑to‑bill. ~$0.5B awards in protest; expect adjudication and ~1% run‑rate revenue lift from two programs over next couple of quarters. Transient timing friction; visibility improving
Program resolution impactN/AAAV termination resolution benefited margins; ~$13–$14M revenue contribution (<1%). One‑time tailwind in Q3

Management Commentary

  • “We again delivered better than expected revenue in the quarter with strong profitability… we now expect to exceed $25B in submissions this year compared to our prior target of $22B… translating into an improving book‑to‑bill and accelerating growth in Fiscal Year 2026.” — CEO Toni Townes‑Whitley.
  • “We are increasing revenue to a range of $7.425B to $7.475B… increasing our adjusted diluted EPS guidance by approximately $0.40, largely due to a lower effective tax rate and modestly lower share count.” — CFO Prabu Natarajan.
  • “We expect a renewed emphasis on increasing government efficiency… emphasizing fixed and incentive‑based contracts… We believe we’re well positioned… because we have invested in technology differentiation and commercial offerings.” — CEO Toni Townes‑Whitley.
  • “More than 2/3 of the $25B to $30B we plan to submit next year is in enterprise and mission IT work, which produces higher margins.” — CFO Prabu Natarajan.
  • “Delivering on our free cash flow per share commitment is a top priority… $11 and $12 in FY ’26 and ’27 respectively… focusing our capital deployment on share repurchases.” — CFO Prabu Natarajan.

Q&A Highlights

  • AAV impact: Resolution contributed ~$13–$14M revenue (<1%), supporting margin expansion.
  • FY26 trajectory: Recompete headwinds “a little over 2%”; Cloud One compute/store transition could be incremental 2–3%; targeting book‑to‑bill ≥1.0 by 1H FY26 and ~5% growth by FY27.
  • Fixed‑price capability: Demonstrated conversion from cost‑plus (e.g., Navy Mark 48), deploying fixed‑price “as‑a‑service” offerings; mix shift is core to strategy, independent of administration changes.
  • Protests: ~$0.5B of won work in protest; expect adjudication and ~1% incremental run‑rate revenue from two programs.
  • Civilian margin outlook: Management expects Civil segment margin to trough near ~12% this year, then expand 100–150 bps over coming years; Q3 convergence reflected Defense benefit from AAV settlement.

Estimates Context

  • We attempted to retrieve Wall Street consensus (S&P Global Capital IQ) for Q3 FY2025 EPS and revenue but were unable to access due to API daily request limits. As a result, explicit comparisons to consensus estimates are unavailable for this report. [SPGI data unavailable via GetEstimates]
  • Management indicated revenue was “better than expected,” but without consensus values we cannot quantify the beat/miss versus Street.

Key Takeaways for Investors

  • Quality of earnings improved: Adjusted EBITDA margin expanded to 10.0% and adjusted EPS rose to $2.61; the AAV resolution provided a discrete benefit but underlying program performance also strengthened.
  • Guidance credibility increased: FY25 revenue and adjusted EPS ranges were raised; margin and FCF targets were reaffirmed, signaling confidence in execution amid award timing friction.
  • Capital allocation is a near‑term catalyst: New $1.2B buyback and ~$500M expected FY25 repurchases could drive per‑share accretion and support valuation; dividend maintained.
  • Pipeline velocity supports FY26–FY27 growth: Submissions now >$25B with a mix shift toward higher‑margin mission/enterprise IT; management targeting book‑to‑bill of 1.2 by 1H FY26.
  • Watch near‑term headwinds: Low quarterly book‑to‑bill (0.7), protests, and Cloud One transition (2–3% headwind) may weigh on revenue optics before new awards convert.
  • Civilian margin trough likely passed in FY25: Expect expansion from ~12% segment margin baseline over the next few years, aided by accretive, fixed‑price submissions.
  • Operational resilience: Variable cost structure, low capital intensity, and MARPA flexibility underpin earnings/FCF durability even in a softer revenue environment—supportive of continued buybacks.

References: Q3 FY2025 press release and schedules ; 8‑K Item 2.02 with Exhibit 99.1 ; Q3 FY2025 call transcript ; Prior quarter releases Q2 FY2025 and Q1 FY2025 .