Exchange: NASDAQ | Sector: Technology | Industry: Information Technology Services
Q3 2025
Published: Dec 5, 2024
Earnings Highlights
Revenue of $1.98B up 4.3% year-over-year
EPS of $2.13 increased by 22.2% from previous year
Gross margin of 12.0%
Net income of 106.00M
"With $22 billion in submitted bids through the third quarter, we now expect to submit more than $25 billion for the full year… We now see a pipeline to over $30 billion of submits in fiscal year '27." - Toni Townes-Whitley
SAIC QQ3 2025 Earnings Analysis: Organic Growth Beats Headlines, Backlog Expands, and Guidance Signals Durable Margin and Cash Flow Amid Government IT Modernization
Executive Summary
SAIC reported a solid Q3 FY2025 with organic revenue growth of 4.3% driven by new business and on-contract expansion, offset by a roughly 5-point headwind from contract transitions. Adjusted EBITDA of $197 million yielded a 10% margin, while net income reached $106 million and diluted EPS was $2.13-$2.61 depending on GAAP vs. non-GAAP framing. Free cash flow came in at $134 million for the quarter, reflecting timing dynamics such as an extra payroll cycle and robust collections in Q2. Management signaled a pragmatic, multi-year plan to grow organic revenue around 3% for FY2025 and to accelerate on-contract and new-business wins into FY2026–FY2027, supported by a strengthened enterprise growth model focused on mission IT and enterprise IT. A key through-line is the company’s readiness to navigate an anticipated push for government efficiency, with an emphasis on fixed-price and as-a-service solutions, underpinned by a large, high-quality pipeline and a more agile cost structure.
Looking ahead, SAIC raised FY2025 revenue guidance to $7.425–$7.475 billion (roughly 3% organic growth) and outlined a path to 2–4% revenue growth in FY2026, with an accelerating trajectory into FY2027 as new-business pursuits convert to revenue. The company increased its share-repurchase authorization to $1.2 billion and reiterated a free cash flow per share target of $11–$12 for FY2026–FY2027, signaling a focus on capital allocation and shareholder value. However, near-term risks include recompete headwinds (~2% next year), potential transitions within Cloud One compute/storage, and political/administrative shifts that could affect government funding. Overall, SAIC remains well-positioned to capitalize on ongoing federal IT modernization, particularly in mission IT and enterprise IT, while maintaining margin discipline and robust cash flow generation.
Cash flow and balance sheet:
- Net cash provided by operating activities: $143 million; free cash flow: $134 million; cash end of period: $54 million; cash beginning of period: $56 million; operating cash flow: $143 million.
- Total assets: $5.275 billion; total liabilities: $3.663 billion; total stockholders’ equity: $1.612 billion.
- Total debt: $2.349 billion; net debt: $2.303 billion; long-term debt: $2.129 billion; short-term debt: $0.22 billion.
- Current ratio: 0.87; gross margin: ~12.0%; operating margin: ~8.1%; net margin: ~5.4%.
Backlog and guidance:
- Trailing 12-month backlog of submitted bids was nearly $19 billion; bookings in the quarter: $1.5 billion; book-to-bill: 0.9x; target book-to-bill of 1.2x by 1H FY2026.
- Backlog/submitted bids quality improving and aligned with growth vectors (notably mission IT and enterprise IT).
- FY2025 guidance raised to $7.425–$7.475 billion; organic growth ~3% for the year.
- FY2026 guidance: 2–4% revenue growth; H1 softer, improving to ~5% by year-end as new business converts.
- Capital deployment: new $1.2B share-repurchase authorization; expected to repurchase ~$500M this year; leverage target around 3.0x; free cash flow per share target of $11–$12 in FY26–FY27.
Management commentary highlights:
- Focus on fixed-price and as-a-service solutions; two-thirds of the $25–$30B planned next-year bid submissions are enterprise/mission IT, which carry higher margins.
- Recompete headwinds ~2% next year; potential additional transition headwinds if Cloud One compute/storage is walked away (~2–3%).
- Protests on ~ $0.5B of work could contribute another ~1% run-rate revenue if adjudicated favorably.
- CBC2 and Joint Fires network cited as exemplars of a broader modernization and integration strategy with enduring demand.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.98B
4.27%
8.69%
Gross Profit
237.00M
3.49%
12.86%
Operating Income
160.00M
11.89%
19.40%
Net Income
106.00M
13.98%
30.86%
EPS
2.15
22.16%
35.22%
Key Financial Ratios
currentRatio
0.87
grossProfitMargin
12%
operatingProfitMargin
8.1%
netProfitMargin
5.36%
returnOnAssets
2.01%
returnOnEquity
6.58%
debtEquityRatio
0.25
operatingCashFlowPerShare
$2.89
freeCashFlowPerShare
$3.14
dividendPayoutRatio
17%
priceToBookRatio
4.43
priceEarningsRatio
16.86
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Themes from management commentary and Q&A:
- Strategy and growth momentum: Toni Townes-Whitley emphasized progress on the enterprise growth strategy (bid more, bid better, win more) with backlogs and submitted bids trending higher: “With $22 billion in submitted bids through the third quarter, we now expect to submit more than $25 billion for the full year… pipeline to over $30 billion of submits in fiscal year ’27.”
- Government-technology differentiation: Toni highlighted the government efficiency narrative and the potential shift toward fixed-price and as-a-service solutions as a strategic tailwind, noting CBC2 and Joint Fires as hallmark programs that illustrate SAIC’s value proposition.
- Recompetes and margin discipline: Prabu and Toni discussed recompete headwinds (~2% next year) and the importance of bid thresholds and hurdle rates, with a focus on converting to higher-margin enterprise/mission IT work; the team aims to move the blended margin higher while balancing investments.
- Protests and risk management: Prabu noted protests on roughly $0.5B of work, with an expectation for adjudication in coming quarters and a potential incremental ~1% run-rate revenue impact if resolved favorably.
- Cash flow and capital allocation: Prabu highlighted a durable cash flow profile and a plan to deploy capital via share repurchases, including a $1.2B authorization; Toni reiterated the focus on value creation for shareholders through disciplined cost management and market-responsive investments.
With $22 billion in submitted bids through the third quarter, we now expect to submit more than $25 billion for the full year… We now see a pipeline to over $30 billion of submits in fiscal year '27.
— Toni Townes-Whitley
Two-thirds of the $25 billion to $30 billion we plan to submit next year is in enterprise and mission IT work, which produces higher margins than our engineering and professional service portfolios.
— Prabu Natarajan
Forward Guidance
Management guidance and outlook:
- FY2025 revenue guidance raised to $7.425–$7.475 billion, representing about 3% organic growth. This reflects improved on-contract revenue trends and a commitment to delivering on guidance.
- For FY2026, SAIC expects revenue growth in the 2%–4% range, with slower growth in H1 and acceleration to the ~5% range by year-end as new business pursued this year converts to revenue next year; on-contract growth remains a core driver.
- Adjusted EBITDA and free cash flow guidance were reaffirmed, with an eye toward stronger cash conversion and leverage management.
- Diluted EPS uplift of approximately $0.40 in FY2025 guidance context, driven by lower effective tax rate and a modestly lower share count.
- Capital allocation: SAIC now targets roughly $500 million of share repurchases in the current year and will execute against a $1.2 billion authorization in Q4; long-term plan to repurchase $350–$400 million annually with capacity for capability-focused M&A while keeping debt around 3.0x.
- Key factors investors should monitor: (1) the trajectory of recompete wins and actual awarded contracts, (2) conversion of the bid pipeline into revenue and margin, (3) potential shifts to fixed-price contracting and its impact on organic growth and cash flow, (4) government budget pressures and any adverse impact from administration efficiency initiatives, and (5) protest adjudications affecting run-rate revenue.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
SAIC Focus
11.99%
8.10%
6.58%
16.86%
LDOS
18.20%
12.30%
7.89%
14.70%
CACI
9.06%
9.06%
3.02%
18.27%
PSN
19.90%
6.35%
3.11%
38.29%
ASGN
29.10%
7.65%
2.68%
21.84%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
SAIC’s QQ3 2025 results underscore a disciplined path toward sustainable revenue growth, margin improvement, and durable cash flow in a government IT environment that is undergoing modernization and potential efficiency-driven shifts. The company’s emphasis on mission IT and enterprise IT aligns with anticipated federal priorities and the higher-margin mix suggested by the pipeline. The 1.2x book-to-bill target for H1 FY2026 and a mid-single-digit revenue growth trajectory into FY26–FY27 imply that the company can convert a larger portion of its bid activity into revenue with improved profitability. However, the stock carries execution risk tied to recompetes, protest adjudications, and the broader political economy of federal spending. Relative to peers, SAIC exhibits solid cash-flow generation and a strong program portfolio, but faces higher leverage and liquidity constraints than some peers, which could temper multiple expansion. Investors should monitor bid conversion rates, protest outcomes, and changes in government contracting preferences (fixed-price vs. cost-plus) as key catalysts or headwinds to the mid-cycle growth trajectory.
Key Investment Factors
Growth Potential
SAIC is positioned to benefit from sustained demand for federal IT modernization, particularly in mission IT and enterprise IT. The company’s pipeline centers on high-margin, fixed-price opportunities, and more than two-thirds of the planned $25–$30B submits for FY2025–FY2026 are in enterprise and mission IT, which should support margin expansion and revenue durability as new programs convert. Backlog of submitted bids remains robust (~$19B trailing 12 months) with a path to a 1.2x book-to-bill by H1 FY2026, implying a constructive trajectory for revenue growth into 2026 and 2027.
Profitability Risk
Key risks include government funding volatility and potential budgetary pressures from an administration focusing on efficiency, recompete headwinds (~2% in the near term), and transition-related headwinds (e.g., Cloud One compute/storage changes). Protests on ~$0.5B of awarded work could temporarily suppress revenue if adjudicated unfavorably. Customer concentration within five federal civilian agencies may amplify sensitivity to policy shifts and procurement cycles. Elevated goodwill/intangible asset bases and a relatively tight liquidity position (current ratio ~0.87) could constrain flexible responses under stress scenarios.
Financial Position
SAIC maintains a durable cash-flow profile with positive operating cash flow ($143M) and free cash flow ($134M) in Q3 FY2025, supporting a large share-repurchase program (authorization of $1.2B). However, the balance sheet shows substantial leverage (total debt $2.349B; net debt $2.303B) and a low current ratio (0.87), indicating liquidity and refinancing considerations in a volatile funding environment. The company targets leverage around 3.0x and expects FCF per share of $11–$12 in FY26–FY27, which supports a disciplined but opportunistic capital allocation approach.
SWOT Analysis
Strengths
Leading provider of federal IT services with deep strengths in mission IT and enterprise IT
Proven track record delivering high-impact programs (e.g., CBC2 for the Air Force, Joint Fires network)
Strong pipeline and improving quality of bids; backlog submissions driving future revenue
Flexible cost structure and low capital intensity enabling earnings and cash-flow durability
Active share repurchase program signaling management confidence in shareholder value creation
Weaknesses
Margin trough in Civil Civil (near-term) and exposure to government budget volatility
Significant goodwill and intangible assets; sizable leverage and relatively tight liquidity
High dependence on federal government budgets with potential for timing and policy risk
Book-to-bill below 1.0 in the latest quarter despite a robust bid pipeline
Opportunities
Expansion of fixed-price contracts and as-a-service delivery models
Growth in cloud-based modernizations and data-centric capabilities (CBC2, Joint Fires, JFN integration)
Continued demand for defense and civilian modernization through enterprise IT and mission IT
Protests adjudication potentially adding 1% run-rate revenue if favorable
Threats
Administrative shifts and budget reprioritizations that could affect funding for certain programs
Recompete win-rate volatility and competition for large opportunities
Regulatory and policy uncertainty impacting procurement speeds and contracting structures