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Science Applications International Corp (SAIC)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 FY25 delivered solid top-line and profitability: revenue $1.838B (+6% YoY), adjusted EBITDA $177M (9.6% margin), and adjusted diluted EPS $2.57; all ahead of internal guidance, with free cash flow $236M .
  • Bookings of $1.3B (book-to-bill 0.7) and total backlog $21.9B (funded $3.4B); momentum supported by a subsequent $1.8B SSLE award not included in quarter bookings .
  • FY26 guidance raised at the low end: revenue $7.60–$7.75B (from $7.55–$7.75B), adjusted EBITDA margin 9.4–9.6% (from 9.3–9.5%), adjusted diluted EPS $9.10–$9.30 (from $8.90–$9.10); FCF unchanged at $510–$530M .
  • Street consensus (S&P Global) for Q4 FY25 was unavailable due to data-access limits, but management cited beats vs internal guidance; catalysts include SSLE award, stricter capital allocation, and migration of select contracts to fixed price with margin uplift potential .

What Went Well and What Went Wrong

  • What Went Well

    • Margin execution: adjusted EBITDA margin rose to 9.6% (vs 7.3% prior-year) on improved program profitability and lower incentive/stock comp; adjusted diluted EPS $2.57 vs $1.43 prior-year .
    • Civilian segment strength: Q4 Civilian revenue +24% YoY ($478M vs $385M) with operating margin 13.2% (vs 4.9%), reflecting improved portfolio profitability .
    • Business development momentum: $1.8B SSLE win post-quarter and ~$20B backlog of submitted bids; CEO: “strong finish… momentum we are building” .

  • What Went Wrong

    • Bookings and book-to-bill soft: Q4 net bookings $1.3B and book-to-bill 0.7; trailing 12-month book-to-bill 0.9, below 1.0 target .
    • Defense & Intelligence margin mix: Q4 D&I operating margin 7.1% (down vs 7.4% prior-year) on timing/volume mix; adjusted OI margin 8.3% (vs 8.7%) .
    • Near-term headwinds: FY26 guide includes ~2pt recompete headwind and ~$200M Cloud One compute/storage no-bid; tax rate stepping up to 23% .

Financial Results

Quarterly Trend – Key Metrics

MetricQ2 FY25Q3 FY25Q4 FY25
Revenues ($USD Millions)$1,818 $1,976 $1,838
Operating Income ($USD Millions)$134 $160 $138
Operating Margin %7.4% 8.1% 7.5%
Adjusted EBITDA ($USD Millions)$170 $197 $177
Adjusted EBITDA Margin %9.4% 10.0% 9.6%
Diluted EPS ($USD)$1.58 $2.13 $2.00
Adjusted Diluted EPS ($USD)$2.05 $2.61 $2.57
Net Income ($USD Millions)$81 $106 $98
Cash from Operations ($USD Millions)$138 $143 $115
Free Cash Flow ($USD Millions)$241 $9 $236
Net Bookings ($USD Billions)$1.2 $1.5 $1.3
Book-to-Bill (x)0.6 0.7 0.7

YoY Comparison – Q4 FY24 vs Q4 FY25

MetricQ4 FY24Q4 FY25
Revenues ($USD Millions)$1,737 $1,838
Operating Income ($USD Millions)$79 $138
Operating Margin %4.5% 7.5%
Adjusted EBITDA ($USD Millions)$127 $177
Adjusted EBITDA Margin %7.3% 9.6%
Diluted EPS ($USD)$0.74 $2.00
Adjusted Diluted EPS ($USD)$1.43 $2.57
Net Income ($USD Millions)$39 $98
Cash from Operations ($USD Millions)$63 $115
Free Cash Flow ($USD Millions)$97 $236

Segment Breakdown – Q4

MetricQ4 FY24Q4 FY25
Defense & Intelligence Revenues ($USD Millions)$1,352 $1,360
Civilian Revenues ($USD Millions)$385 $478
D&I Operating Income ($USD Millions)$100 $96
Civilian Operating Income ($USD Millions)$19 $63
Corporate Operating Income ($USD Millions)$(40) $(21)
D&I Operating Margin %7.4% 7.1%
Civilian Operating Margin %4.9% 13.2%
Total Operating Margin %4.5% 7.5%
D&I Adjusted Operating Income ($USD Millions)$117 $113
Civilian Adjusted Operating Income ($USD Millions)$31 $75
Corporate Adjusted Operating Income ($USD Millions)$(24) $(12)
Total Adjusted Operating Income ($USD Millions)$124 $176
D&I Adjusted Operating Margin %8.7% 8.3%
Civilian Adjusted Operating Margin %8.1% 15.7%
Total Adjusted Operating Margin %7.1% 9.6%

KPIs and Backlog

KPIFY2024 End (Feb 2, 2024)FY2025 End (Jan 31, 2025)
Funded Backlog ($USD Millions)$3,539 $3,444
Negotiated Unfunded Backlog ($USD Millions)$19,224 $18,413
Total Backlog ($USD Millions)$22,763 $21,857
Q4 Net Bookings ($USD Billions)N/A$1.3
TTM Book-to-Bill (x)N/A0.9
Weighted Diluted Shares (Millions, Q4)52.7 49.0

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Billions)FY26$7.55–$7.75B $7.60–$7.75B Raised low end
Adjusted EBITDA ($USD Millions)FY26~$720M $715–$735M Range introduced around prior midpoint
Adjusted EBITDA Margin %FY269.3%–9.5% 9.4%–9.6% Raised 10bps
Adjusted Diluted EPS ($USD)FY26$8.90–$9.10 $9.10–$9.30 Raised $0.20
Free Cash Flow ($USD Millions)FY26$510–$530M $510–$530M Maintained
Effective Tax Rate (%)FY26N/A~23% (company remarks) New disclosure
Dividend ($/share)Next paymentN/A$0.37 payable Apr 25, 2025 Ongoing quarterly dividend

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 FY25, Q3 FY25)Current Period (Q4 FY25)Trend
Business development pipeline/submissionsExpanding pipeline converting to higher-quality submissions; guide raised for FY25 EPS; backlog $22.9B ~$28B submits in FY25, ~$20B backlog of submitted bids, >50% expected to award in 2–3 quarters; aiming for 1.2x book-to-bill in H1 FY26 Accelerating submissions; visibility improving
Contracting model mix (fixed-price vs cost-plus)Asset-light focus; margin discipline Assessing migration of parts of cost-plus portfolio to fixed price; expect margin uplift with clear SLAs; gradual transition Margin-accretive mix shift
Recompete headwinds and program exitsHeadwinds noted; guidance balanced ~2pt FY26 revenue headwind; NASA exit in Oct; C4 ES lap by end of Q1; Cloud One no-bid ~$200M Manageable and easing through year
Government funding environment/CRN/A in Q2; Q3 commentary on BD velocity CR cited as more flexible than past; delays exist but impacts nominal; focus on mission-critical programs Stability improving; vigilant posture
Civilian vs Defense growthCivilian growth in Q3; D&I margin improved Civilian segment strong; no strategic shift away from Civil; expect both segments to grow, D&I with known headwinds Civilian resilience; balanced portfolio
AI/digital engineering and commercial offeringsPartnerships and modernization awards (Wind River, DOT, DoD) Digital engineering, DevSecOps sprints growing; commercial operating sector revenue ~$45M FY25, goal ~$100M by FY28 Building “gritty tech” differentiators

Management Commentary

  • CEO Toni Townes-Whitley: “I am proud of the results we delivered in the quarter with revenue, adjusted EBITDA, adjusted earnings per share, and free cash flow ahead of guidance… we received a $1.8 billion award… the System Software Lifecycle Engineering program… momentum we are building inside the company.” .
  • CEO on differentiation: “Gritty Tech… role as a mission integrator… DevSecOps sprints… effectively sprints as a service… uniquely positioned to deliver this value” .
  • CFO Prabu Natarajan on FY26: “Revenues $7.6–$7.75B… EBITDA margin 9.4%–9.6%… adjusted EPS $9.10–$9.30… Free cash flow $510–$530M… repurchase $350–$400M in FY26/27” .
  • CEO/CFO on contracting: opportunity to shift selected cost-plus to fixed price with margin improvement, gradual transition tied to renewals and customer vehicles .

Q&A Highlights

  • Contracting mix shift: Management expects a gradual migration of portions of cost-plus work to fixed price, targeting clearer SLAs and margin uplift without sacrificing revenue .
  • Funding environment and CR: Team sees nominal impact to date; more flexible CR; delays exist but not broad-based; staying focused on mission-critical programs .
  • Recompete trajectory: Aim to restore recompete win rates to 80–90% over time; new business win rates remain solid, supporting bookings outlook .
  • Segment outlook: No shift away from Civil; both segments expected to grow, with D&I absorbing known headwinds (NASA exit, Cloud One no-bid) .
  • NASA exposure: No unique volatility signals; positioned with enterprise IT support and partnerships .

Estimates Context

  • S&P Global consensus estimates for Q4 FY25 were unavailable due to data-access limits, so we cannot provide vs-consensus comparisons at this time.
  • Management indicated Q4 revenue, adjusted EBITDA, adjusted EPS, and free cash flow were ahead of internal guidance, and raised FY26 guidance (low end), suggesting potential upward estimate revisions for EPS and margins despite known revenue headwinds .

Key Takeaways for Investors

  • Execution quality: Broad-based margin improvement and YoY EPS growth, with Civilian outperformance and disciplined cost/incentive management, supports higher FY26 margin guide; watch for sustained adjusted EBITDA margin ≥9.5% .
  • Bookings inflection ahead: Despite Q4 0.7x book-to-bill, ~$20B submitted-bid backlog and $1.8B SSLE award point to improving bookings cadence into H1 FY26; near-term trading could react positively to large award conversions .
  • Mix shift upside: Gradual migration to fixed-price contracts can be margin accretive; monitor recompete outcomes and fee discussions for incremental 10–20bps margin tailwinds over FY26–27 .
  • Manageable headwinds: Model ~2pt FY26 revenue headwind and ~$200M Cloud One no-bid; offset by on-contract growth and ramp from wins (T-Cloud, CBC2), implying steady organic growth trajectory .
  • Capital returns and FCF: FY26 FCF guide $510–$530M and repurchases of $350–$400M over FY26–27 underpin per-share value creation; quarterly dividend maintained at $0.37 .
  • Risk monitor: Procurement delays and potential policy shifts could affect timing; company’s mission-critical focus and asset-light strategy reduce exposure to “consulting/reseller” scrutiny .
  • Medium-term thesis: Asset-light integrator leveraging digital engineering and AI-driven solutions; path to $11–$12 FCF/share in FY26–27, with improving margins and a balanced Defense/Civil portfolio .

Additional Notes and Cross-References

  • Non-GAAP adjustments materially affect comparability: FY24 benefited from gains on divestitures; Q4 FY25 adjusted results exclude restructuring and amortization; refer to reconciliations (Schedules 6) .
  • Cash flow dynamics include MARPA Facility flows; Q4 FY25 free cash flow includes $136M cash used/provided by MARPA .
  • Dividend declared: $0.37 per share payable Apr 25, 2025; ongoing quarterly policy subject to board determination .
  • Prior quarters for trend: Q2 FY25 revenue $1.818B, adj EPS $2.05; Q3 FY25 revenue $1.976B, adj EPS $2.61; FY25 revenue $7.479B; adj EPS $9.13 .