8-K: SAIC Reports Q2 FY26 Results, Lowers Revenue Guidance

Science Applications International Corporation announced second fiscal quarter 2026 results, reporting $1.77 billion in revenue and a 1.5 book-to-bill ratio, while lowering full-year revenue and adjusted EBITDA guidance.

Summary

• Second fiscal quarter 2026 revenues were $1.77 billion, representing a 3% contraction compared to the prior year.
• Net bookings for the quarter were $2.6 billion, resulting in a book-to-bill ratio of 1.5; the trailing twelve months book-to-bill ratio was 1.0.
• Net income for the quarter was $127 million, with diluted earnings per share (EPS) of $2.71.
• Adjusted EBITDA was $185 million, or 10.5% of revenues, and Adjusted diluted EPS was $3.63.
• Cash flows provided by operating activities were $122 million, and Free cash flow was $150 million.
• Management lowered fiscal year 2026 revenue guidance to a range of $7.250 billion to $7.325 billion (previously $7.60 billion to $7.75 billion).
• Adjusted EBITDA guidance for fiscal year 2026 was lowered to a range of $680 million to $690 million (previously $715 million to $735 million).
• Adjusted diluted EPS guidance for fiscal year 2026 was increased to a range of $9.40 to $9.60 (previously $9.10 to $9.30).
• Free cash flow guidance for fiscal year 2026 was increased to greater than $550 million (previously $510 million to $530 million).
• Estimated backlog at the end of the quarter was approximately $23.2 billion, with $3.6 billion funded.

Sentiment

Score: 5

Explanation: Mixed results with strong bookings and improved profitability metrics, but significant revenue contraction and lowered full-year revenue and EBITDA guidance indicate underlying challenges in the operating environment. The increase in EPS and FCF guidance is positive but doesn't fully offset the revenue concerns.

Positives

• Strong net bookings for the quarter at $2.6 billion, yielding a book-to-bill ratio of 1.5, indicating robust new business capture.
• Adjusted EBITDA as a percentage of revenues increased to 10.5% from 9.4% in the prior year, primarily due to improved contract profitability and a recovery of costs from a patent infringement settlement.
• Diluted earnings per share increased significantly by 72% to $2.71 from $1.58 in the prior year quarter.
• Adjusted diluted earnings per share increased by 77% to $3.63 from $2.05 in the prior year quarter.
• Management increased full-year guidance for Adjusted Diluted EPS and Free Cash Flow, reflecting strong program performance and cost alignment.
• Secured significant contract awards, including a $928 million U.S. Air Force HOPE 2.0 contract, a $728 million Department of Treasury cloud services task order, and a $547 million U.S. Department of State Vanguard program extension.
• Weighted-average diluted shares outstanding decreased to 46.8 million from 51.2 million, indicating effective share repurchase programs.
• Operating income as a percentage of revenues increased to 7.9% from 7.4% year-over-year.

Negatives

• Revenues decreased by $49 million, or 3%, compared to the same period in the prior year, primarily due to contract completions and ramp-down in volume on existing contracts.
• Management lowered fiscal year 2026 revenue guidance by approximately $350 million to $425 million.
• Management lowered fiscal year 2026 Adjusted EBITDA guidance by approximately $35 million to $45 million.
• Slower on-contract growth and continued delays in new business awards and new program ramps are contributing to a more challenging revenue environment than previously forecasted.
• Cash flows provided by operating activities decreased by $16 million (12%) compared to the prior year quarter, mainly due to timing of customer collections and vendor payments.
• Free cash flow decreased by $91 million (38%) compared to the prior year quarter.
• Operating income was partially offset by costs related to the settlement of federal tax audits and the indirect rates impact of state taxes related to the One Big Beautiful Bill Act.

Risks

• Slower on-contract growth impacting revenue generation.
• Continued delays in new business awards affecting future revenue streams.
• Delays in new program ramps hindering operational expansion and revenue growth.
• The operating environment remaining stable but not improving throughout the fiscal year, as assumed in the revised guidance.
• General risks, uncertainties, and assumptions discussed in the Risk Factors, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Legal Proceedings sections of the Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q.

Future Outlook

Management lowered fiscal year 2026 revenue and adjusted EBITDA guidance, citing slower on-contract growth and continued delays in new business awards and program ramps. The revised guidance assumes the operating environment remains stable but does not improve this year. Conversely, adjusted diluted earnings per share and free cash flow guidance were increased, reflecting strong program performance and cost alignment efforts. The company intends to continue paying quarterly dividends, subject to Board determination based on earnings, financial condition, and capital requirements.

Management Comments

• "Our second quarter results reflect strong program performance, and our bookings reflect further momentum in our business development efforts; however, slower on-contract growth and continued delays in new business awards and new program ramps are contributing to a more challenging revenue environment than previously forecasted." Toni Townes-Whitley, SAIC Chief Executive Officer.
• "We are responding purposefully by aligning our cost structure while sustaining key investments to drive long-term value creation." Toni Townes-Whitley, SAIC Chief Executive Officer.
• "Our revised guidance assumes that the operating environment remains stable but does not improve this year. We believe that this more cautious outlook is prudent, and we are confident in our ability to execute against it." Toni Townes-Whitley, SAIC Chief Executive Officer.

Industry Context

SAIC operates in the highly competitive U.S. government contracting sector, providing technology integration and IT services to defense, space, civilian, and intelligence markets. The reported challenges of "slower on-contract growth" and "delays in new business awards and new program ramps" are common themes across the government services industry, often influenced by federal budget cycles, procurement delays, and evolving geopolitical priorities. SAIC's strategy of aligning cost structure while sustaining key investments is a typical response to such an environment, aiming to maintain competitiveness and long-term value creation amidst market headwinds. The significant contract wins, particularly in defense and intelligence, demonstrate continued demand for advanced technology solutions in these critical sectors, despite broader revenue pressures.

Comparison to Industry Standards

• SAIC's Q2 FY26 revenue contraction of 3% contrasts with some peers in the government services sector that may be experiencing flat to low single-digit growth, indicating a more challenging revenue environment for SAIC specifically.
• The book-to-bill ratio of 1.5 for the quarter is strong, suggesting robust new business capture, which is generally considered healthy for government contractors as it replenishes backlog. A trailing twelve months book-to-bill of 1.0 indicates that, over a longer period, the company is replacing the revenue it recognizes.
• The increase in Adjusted EBITDA margin to 10.5% from 9.4% year-over-year, driven by improved profitability and a patent settlement, suggests effective cost management and operational efficiency, potentially outperforming some peers struggling with margin compression.
• The increase in Adjusted Diluted EPS guidance, despite lower revenue guidance, points to strong bottom-line management, possibly through share repurchases and cost controls, which can be a differentiator in a tight market.

Legal Proceedings

• Recovery of costs from the settlement of a patent infringement matter.
• Costs related to the settlement of federal tax audits for fiscal years 2016 through 2019.

Stakeholder Impact

• Shareholders: Impacted by decreased revenue guidance, but potentially positive impact from increased EPS and free cash flow guidance, continued quarterly dividends, and share repurchases.
• Employees: Potential impact from cost structure alignment, though specific details are not provided.
• Customers (Government Agencies): Continued delivery of essential services and solutions through new and extended contracts (e.g., U.S. Air Force, Department of Treasury, U.S. Navy, Department of State, Orange County, CA).
• Suppliers/Partners: SAIC will be partnering with more than a dozen traditional and non-traditional defense companies for the HOPE 2.0 contract.

Next Steps

• Management will discuss operations and financial results in an earnings conference call on September 4, 2025, at 10:00 a.m. Eastern time.
• The Board of Directors will determine future quarterly dividends based on earnings, financial condition, capital requirements, and other factors.
• Continue aligning cost structure while sustaining key investments to drive long-term value creation.
• Execute against the revised, more cautious outlook for the operating environment.

Key Dates

Recommendation

While SAIC demonstrated strong program performance, robust bookings, and improved profitability margins in Q2 FY26, the significant downward revision of full-year revenue and Adjusted EBITDA guidance signals material headwinds in the operating environment, specifically slower on-contract growth and delays in new awards. The increase in Adjusted EPS and Free Cash Flow guidance, partly driven by share repurchases and cost alignment, provides some offset but does not negate the top-line challenges. Given the mixed signals and the cautious outlook from management, a 'hold' recommendation is prudent. Investors should monitor the company's ability to execute its cost alignment strategy and the resolution of delays in new business awards to assess future growth prospects.

Keywords

SAIC, Government Contractor, Defense, Space, Civilian, Intelligence, IT Services, Digital Transformation, Earnings, Q2 2026, Revenue Guidance, Book-to-Bill, Adjusted EBITDA, Free Cash Flow, Share Repurchase, Contract Awards