Executive Summary
SAIC delivered a mixed Q2 FY2026, with revenue of $1.769 billion, down 2.7% year over year but with margin improvement and a healthy backlog supporting longer-term visibility. Management attributed the revenue shortfall to three drivers: slower on-contract growth conversion, program disruptions, and delays in new business awards. Despite the revenue headwinds, adjusted EBITDA reached $185 million (margin 10.5%), and the underlying EBITDA margin rose 80 basis points year over year to approximately 10.2%, aided by strong program execution and a favorable tax settlement. Free cash flow was robust at $150 million for the quarter. The company reaffirmed and refined its long-run plan, revising FY2026 revenue guidance to $7.25–$7.325 billion (organic decline of 2% to 3%) and guiding FY2027 revenue growth of 0–3% with 2–3% on-contract growth and a modest benefit from new business. FY2026 adjusted EPS was raised to $9.40–$9.60, while FY2027 EPS is guided at $9.00–$9.20. Free cash flow guidance improved to >$550 million in FY2026 and $600 million in FY2027, with a projection of nearly $12 per share in FCF for FY2026 and $13–$14 for FY2027. Management emphasized strategic acceleration toward mission integration and AI-enabled efficiency, positioning SAIC to benefit from a more fixed-price, outcome-oriented contracting environment and a favorable long-term demand outlook despite near-term volatility.
Key Performance Indicators
Key Insights
Revenue: $1.769B, YoY -2.7%, QoQ -5.75% (per company metrics) | Gross Profit: $215M, Gross Margin 12.15%, YoY Gross Margin change +2.38%, QoQ +2.87% | Operating Income: $139M, Margin 7.86%, YoY +3.73%, QoQ +14.88% | Net Income: $127M, Net Margin 7.18%, YoY +56.79%, QoQ +86.76% | EPS: $2.72, Diluted $2.71, YoY +71.07%, QoQ +90.21% | Adjusted EBITDA: $185M, Adj EBITDA Margin 10.5% (underlying 10.2% after adjusting for a favorable tax settlement and a state tax item) | Free Cash Flow: $150M in the ...
Financial Highlights
Revenue: $1.769B, YoY -2.7%, QoQ -5.75% (per company metrics) | Gross Profit: $215M, Gross Margin 12.15%, YoY Gross Margin change +2.38%, QoQ +2.87% | Operating Income: $139M, Margin 7.86%, YoY +3.73%, QoQ +14.88% | Net Income: $127M, Net Margin 7.18%, YoY +56.79%, QoQ +86.76% | EPS: $2.72, Diluted $2.71, YoY +71.07%, QoQ +90.21% | Adjusted EBITDA: $185M, Adj EBITDA Margin 10.5% (underlying 10.2% after adjusting for a favorable tax settlement and a state tax item) | Free Cash Flow: $150M in the quarter, Operating Cash Flow $122M; Cash at end of period $56M; NetDebt ~$553M, TotalDebt $601M | Balance sheet highlights: Cash & equivalents ~ $48M; Total assets $5.201B; Total liabilities $3.684B; Stockholders’ equity $1.517B | Backlog and pipeline: Pending awards backlog remained solid with ~ $20B in backlog and a robust qualified pipeline; Book-to-bill > 1.0 for the quarter and year-to-date at 1.4
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
1.77B |
-2.70% |
-5.75% |
| Gross Profit |
215.00M |
2.38% |
2.87% |
| Operating Income |
139.00M |
3.73% |
14.88% |
| Net Income |
127.00M |
56.79% |
86.76% |
| EPS |
2.72 |
71.07% |
90.21% |
Management Commentary
- Strategy and market backdrop: Management reiterates a multidimensional strategy centered on mission integration, enterprise IT, and AI-enabled efficiency to offset near-term revenue headwinds. They expect normalization of demand signals by FY2027 and emphasize that the strategy is being accelerated in the current environment.
- On-contract growth and new business: Toni Townes-Whitley highlighted three drivers behind revenue headwinds: slower conversion of on-contract growth opportunities, program disruptions, and delays in new business awards. Prabu Natarajan stressed a conservative outlook with 2–3% on-contract growth and modest benefits from new business in FY2027, with a backlog projected to convert into revenue next year (roughly 70–90%).
- Margin discipline and cost actions: CFO Prabu Natarajan noted that adjusted EBITDA margin improved 180 bps quarter-to-quarter (to 10.2% underlying) and that cost efficiency initiatives will be used to offset lower revenue, with an emphasis on accelerating an enterprise operating model and AI adoption across core functions. Toni added that fixed-price, outcome-based work, and AI-enabled efficiencies should provide margin upside over time, even as topline remains under pressure.
- Guidance and outlook: Management updated FY2026 revenue guidance to a range of $7.25–$7.325B (organic contraction of 2%–3%) and FY2027 revenue growth of 0%–3% with 2%–3% on-contract growth. They reaffirmed 9.5%–9.7% FY2027 adjusted EBITDA margin and guided FY2026 adjusted EPS of $9.40–$9.60 and FY2027 EPS of $9.00–$9.20. FCF guidance is raised to >$550M for FY2026 and ~$600M for FY2027, with expected FCF per share of about $12 in FY2026 and $13–$14 in FY2027.
- Industry dynamics and competitive positioning: The executives described a improving yet dynamic environment with new entrants and increased emphasis on mission integration. They cited opportunities in border security, FAA modernization, and homeland missile defense, while noting that government efficiency drives will shape procurement cycles. They also discussed the Huntsville ecosystem and Space Force opportunities as potential tailwinds over time.
There are three drivers behind this: First, slower conversion of on-contract growth opportunities into revenue; second, an increase in the impact from program disruptions; and third, delays on our new business awards.
— Toni Townes-Whitley
We are almost welcoming the change to more fixed-price orientation, more outcome-based orientation to our programs. And as far as the structural change with new entrants, we welcome the competition in the industrial base.
— Prabu Natarajan
Forward Guidance
- Revenue trajectory: Management projects FY2026 revenue of $7.25–$7.325B (‑2% to ‑3% organic). For FY2027, they anticipate 0%–3% growth, with on-contract growth of 2%–3% and modest incremental benefit from new awards, assuming continued delays in large awards abate gradually.
- Margin and cost management: Adheres to a long-term margin aspiration with FY2027 adjusted EBITDA margin of 9.5%–9.7%. They expect cost efficiency initiatives to offset top-line pressure and fund growth investments, including AI-driven productivity gains.
- Cash flow and capital allocation: Free cash flow guidance is reinforced at >$550M for FY2026 and ~$600M for FY2027, implying stronger cash generation even as EBITDA is pressured. They expect to deliver roughly $12 per share of FCF in FY2026 and $13–$14 in FY2027. Cash taxes are expected to recover gradually as Section 174 effects unwind, with an assumed long-term tax rate around 23% in 2027. Investors should monitor: (i) actual on-contract revenue realization vs expectations, (ii) ramp timing of new business awards, (iii) the pace and success of cost efficiency programs and AI-driven productivity, (iv) government funding trajectories and any CR or shutdown risks, and (v) the evolution of recompete win rates and protest windows.