8-K: SAIC Q3 FY26: Revenue Dip, Strong Bookings, Raised Guidance

Science Applications International Corporation reported a 6% revenue decrease in Q3 FY26 but achieved strong net bookings and raised its full-year guidance for key metrics.

Summary

• Revenues for the third fiscal quarter ended October 31, 2025, were $1.87 billion, a 6% decrease compared to the prior year, with approximately $16 million attributed to a government shutdown headwind.
• Net bookings for the quarter were $2.2 billion, resulting in a book-to-bill ratio of 1.2, and year-to-date net bookings reached $7.2 billion with a book-to-bill ratio of 1.3.
• Net income for the quarter was $78 million, a 26% decrease from $106 million in the prior year quarter.
• Adjusted EBITDA was $185 million, or 9.9% of revenues, down 6% from $197 million in the prior year.
• Diluted earnings per share (EPS) was $1.69, a 21% decrease, while Adjusted diluted EPS was $2.58, a 1% decrease from $2.61 in the prior year.
• Cash flows provided by operating activities decreased by $14 million to $129 million, primarily due to higher cash outflows from the MARPA Facility usage.
• Free cash flow significantly increased to $135 million from $9 million in the prior year quarter.
• Estimated backlog at quarter-end was approximately $23.8 billion, with $3.8 billion funded.
• SAIC acquired SilverEdge Government Solutions on October 15, 2025, for a preliminary purchase price of $203 million, net of $6 million cash acquired.
• The company increased its fiscal year 2026 guidance for Revenue, Adjusted EBITDA, Adjusted EBITDA Margin %, and Adjusted Diluted EPS.

Sentiment

Score: 7

Explanation: Despite revenue and net income contraction, strong bookings, a robust book-to-bill ratio, and a significant increase in free cash flow are positive. The company's decision to raise full-year guidance for key financial metrics, coupled with substantial new contract awards and a strategic acquisition, indicates management's confidence in future performance and operational improvements. The revenue decline was also noted to be 'slightly ahead of guidance' when accounting for external factors.

Positives

• Strong net bookings of $2.2 billion for the quarter and $7.2 billion year-to-date, indicating future revenue potential.
• Book-to-bill ratio of 1.2 for the quarter and trailing twelve months, and 1.3 year-to-date, demonstrating healthy contract wins.
• Significant increase in Free Cash Flow to $135 million from $9 million in the prior year quarter, reflecting improved cash generation.
• Company increased its fiscal year 2026 guidance for Revenue (to $7.275B $7.325B), Adjusted EBITDA (to approx. $695M), Adjusted EBITDA Margin % (to approx. 9.5%), and Adjusted Diluted EPS (to $9.80 $10.00).
• Awarded several notable contracts, including $1.4 billion from the U.S. Air Force, $413 million from the U.S. Army, $171 million from the U.S. Navy, $242 million from the Naval Undersea Warfare Center, and approximately $515 million from the U.S. Space and Intelligence Community.
• Strategic acquisition of SilverEdge Government Solutions for $203 million, advancing the company's strategy in IP-based solutions.
• Continued capital deployment through $94 million in share repurchases and $17 million in cash dividends.
• Improved profitability in the Civilian segment, with adjusted operating income as a percentage of revenues increasing.

Negatives

• Revenue decreased by 6% to $1.87 billion compared to the prior year, primarily due to contract ramp-downs and completions.
• Net income decreased by 26% to $78 million compared to the prior year quarter.
• Operating income decreased by 20% to $128 million, with operating income as a percentage of revenues declining by 120 basis points to 6.9%.
• Adjusted EBITDA decreased by 6% to $185 million compared to the prior year.
• Diluted earnings per share decreased by 21% to $1.69, and Adjusted diluted earnings per share decreased by 1% to $2.58.
• Cash flows provided by operating activities decreased by $14 million (10%) to $129 million.
• Executive transition costs impacted operating income and adjusted metrics.
• The prior year quarter benefited from a favorable resolution of the Assault Amphibious Vehicle (AAV) contract termination ($14 million), making current year comparisons less favorable.

Risks

• Revenue contraction due to ramp-down in volume on existing contracts and contract completions.
• Impact of government shutdowns, which caused an approximate 1% headwind to revenue in the current quarter.
• Executive transition costs impacting operating income and profitability.
• General risks, uncertainties, and assumptions that could cause actual results to differ materially from forward-looking statements, as discussed in the company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Future Outlook

SAIC increased its fiscal year 2026 guidance for several key metrics. Revenue is now projected to be between $7.275 billion and $7.325 billion. Adjusted EBITDA is expected to be approximately $695 million, with an Adjusted EBITDA Margin % of approximately 9.5%. Adjusted Diluted EPS guidance was raised to $9.80 $10.00. The Free Cash Flow guidance remains greater than $550 million.

Management Comments

• "Our third quarter results reflect a 5.6% revenue contraction, slightly ahead of our guidance when adjusting for the approximate 1% headwind from the government shutdown, and strong margins due to continued sound program execution." Jim Reagan, SAIC Interim Chief Executive Officer.
• "My priority as interim CEO is to focus the company for long-term shareholder value creation. We have already begun implementing the initial changes to fuel growth and drive margins higher while maintaining our capital allocation framework centered around our share repurchase program." Jim Reagan, SAIC Interim Chief Executive Officer.

Industry Context

SAIC operates as a premier Fortune 500 technology integrator within the defense, space, civilian, and intelligence markets. The significant contract awards from various U.S. government agencies highlight continued strong demand for advanced IT modernization, mission solutions, digital transformation, and specialized electromagnetic warfare systems. The acquisition of SilverEdge Government Solutions further strengthens SAIC's position in mission-driven technology and IP-based offerings, aligning with broader industry trends towards integrating cutting-edge technology for national security. The noted impact of a government shutdown on revenue underscores the sensitivity of the government contracting sector to federal budget and operational continuity.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results for direct industry comparison.
• SAIC's book-to-bill ratio of 1.2 for the quarter and trailing twelve months, and 1.3 year-to-date, indicates healthy demand and future revenue potential, which is generally considered strong in the government contracting sector.
• The significant increase in free cash flow from $9 million in the prior year quarter to $135 million in the current quarter suggests improved cash management or timing, which is a positive liquidity indicator.

Management Changes

Corporate Governance

Legal Proceedings

• The prior year quarter's operating income was favorably impacted by the resolution of the Assault Amphibious Vehicle ("AAV") contract termination ($14 million), indicating a past legal or contractual dispute resolution.

Stakeholder Impact

• Shareholders: Positive impact from continued quarterly dividends ($0.37 per share declared) and ongoing share repurchase program ($94 million deployed). Increased full-year guidance suggests potential for future value creation.
• Employees: Implied impact from "executive transition costs" related to the departure of the CEO and other executives. The acquisition of SilverEdge may lead to integration efforts affecting employees of both entities.
• Customers (Government Agencies): Continued strong engagement through significant new contract awards (U.S. Air Force, Army, Navy, Space and Intelligence Community) for critical technology integration and services.
• Creditors: Debt, net of current portion, increased from $1,907 million to $2,475 million, indicating increased leverage, potentially for acquisitions or operations.

Next Steps

• Management will discuss operations and financial results in an earnings conference call on December 4, 2025, at 10:00 a.m. Eastern time.
• SAIC intends to continue paying quarterly dividends, with the next one payable on January 28, 2026, to stockholders of record on January 14, 2026.
• Interim CEO Jim Reagan's priority is to implement initial changes to fuel growth and drive margins higher.

Key Dates

Recommendation

While SAIC reported a revenue contraction and lower net income for the quarter, the strong net bookings, robust book-to-bill ratio, and significant increase in free cash flow are positive indicators. The company's decision to raise its full-year guidance for key metrics suggests confidence in future performance and operational improvements. The strategic acquisition of SilverEdge and substantial new contract awards reinforce its market position. However, the revenue decline and executive transition costs warrant a cautious approach. The stock is likely to be stable with potential for long-term growth, but immediate strong upside might be limited given the mixed quarterly results. A "hold" recommendation allows investors to monitor the execution of the new interim CEO's strategy and the realization of the increased guidance.

Keywords

SAIC, Science Applications International Corporation, Q3 2026, earnings, financial results, revenue, net income, EBITDA, EPS, bookings, book-to-bill, backlog, government contracts, defense, space, civilian, intelligence, IT modernization, digital transformation, acquisition, SilverEdge, guidance