Science Applications International Corp Q3 FY2025 earnings call

• Operating performance: Third quarter results reflect solid performance with organic revenue growth, adjusted EBITDA, and adjusted diluted earnings per share. Free cash flow was softer due to additional payroll cycle and strong collections in prior quarter. • Enterprise growth strategy: Submitted bids through third quarter totaled $22 billion, expecting over $25 billion for full year, with targets increased for fiscal years '26 and '27 to over $30 billion in submits. Backlog of submitted bids increased to nearly $19 billion. Bookings in the quarter moderated book-to-bill to 0.9 but visibility into reaching 1.2 by first half of fiscal year '26. • Response to incoming administration: Expect renewed emphasis on government efficiency. SAIC is well-positioned with technology differentiation and commercial offerings. Examples of programs like CBC2 and Joint Fires network showcase SAIC's ability to drive transformation through technology.

SAIC reported third quarter organic revenue growth of 4.3%. Adjusted EBITDA was $197 million with a margin of 10%. Adjusted diluted earnings per share were $2.61. Free cash flow was $9 million. Full year revenue growth is expected to be 3%, slightly ahead of prior guidance.

• Revenue: Increased FY2025 revenue to range $7.425 billion to $7.475 billion, organic growth ~3%. FY2026 revenue growth range 2%-4%, expecting slower growth in first half and 5% range by end of year. • Adjusted EBITDA and free cash flow: Reiterating prior guidance. Adjusted diluted earnings per share guidance increased by ~$0.40. • Share repurchase: Expect to repurchase ~$500 million this year, begin executing $1.2 billion authorization in fiscal fourth quarter, target repurchases $350 million-$400 million annually in coming years.

• Potential impact of incoming administration's efficiency push: Could result in lower funding in certain markets. • Recompete challenges: Recompete win rates below target, with lingering effects from losing larger deals. • Protest risks: About $0.5 billion of work won is in protest or reprocurement.

Q: How much impact did the AAV contract resolution have this quarter?

A: Less than 1% to revenue, about $13 million-$14 million.

Q: Where is the recompete win rate and progress?

A: Recompete win rate affected by prior year losses, moving to new centralized business development process with early success in submissions.

Q: Thoughts on shift to fixed price contracts?

A: SAIC has track record of converting cost-plus to fixed price, with examples like GMS and Mark 48, and fixed priced offerings in cost-plus constructs.

Q: Timing risk to book-to-bill target 1.2?

A: Market has direction and tentativeness, but significant backlog and pending awards bode well for hitting target by first half of fiscal year '26.

Q: Status of large recompetes like Evolve and S3I?

A: Evolve continues to move right, S3I expected to close by end of fiscal year or tip into next, with strong program performance.

Q: Margin trajectory for Civil segment?

A: Civil margins expected to trough this year at ~12% and improve going forward with accretive submissions.

Q: Quantifying margin profile of backlog?

A: Hurdle rates and deal selection help see expected revenue and margin improvement, with focus on deal selection and execution discipline.