SAIC Q1 Earnings Call: Revenue Miss and Margin Pressures Shape 2025 Outlook

Yahoo

03-06-2025

Government IT services provider Science Applications International Corporation (NASDAQ:SAIC) missed Wall Street's revenue expectations in Q1 CY2025 as sales only rose 1.6% year on year to $1.88 billion. Its non-GAAP EPS of $1.92 per share was 9.3% below analysts' consensus estimates.
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Revenue: $1.88 billion (1.6% year-on-year growth)
Adjusted EPS: $1.92 vs analyst expectations of $2.12 (9.3% miss)
Adjusted Operating Income: $158 million vs analyst estimates of $138.4 million (8.4% margin, 14.2% beat)
Management reiterated its full-year Adjusted EPS guidance of $9.20 at the midpoint
EBITDA guidance for the full year is $725 million at the midpoint, below analyst estimates of $729.2 million
Operating Margin: 6.4%, in line with the same quarter last year
Backlog: $22.34 billion at quarter end
Market Capitalization: $5.45 billion
Science Applications International Corporation's (SAIC) first quarter performance was shaped by persistent procurement delays and customer personnel turnover, which management said contributed to the slower pace of contract awards. CEO Toni Townes-Whitley highlighted that while some areas within the Department of Defense (DoD) received more robust budget requests, significant agency staff changes have affected procurement timelines. The company's decision to move away from lower-margin programs, like CloudOne, also weighed on recent results. Townes-Whitley noted, 'We have been amping up our submissions and being very selective in terms of being on strategy with the bids that we've been making,' indicating a continued focus on higher-value, mission-critical IT and integration work.
Looking forward, SAIC's guidance is anchored on ramping up new business and achieving higher on-contract growth, despite ongoing headwinds in budget negotiations and potential delays in contract awards. CFO Prabu Natarajan explained that full-year margin improvement relies on a transition from development-heavy to sustainment phases in certain fixed price programs, as well as continued discipline in cost management. Management reiterated its commitment to achieving margin targets, with Townes-Whitley stating, 'We remain focused on executing and delivering on our full year margin guidance…our flexible cost structure permits us to calibrate our spend in line with the macro environment.' However, the company acknowledged that achieving booking targets may be impacted if procurement delays persist.
Management attributed the quarter's performance to slower contract awards, portfolio shifts toward higher-value IT work, and cost overruns on select programs. Several civilian agency contracts and a new space integration win provided areas of relative strength.
Procurement delays impact awards: SAIC faced continued delays in federal contract awards due to customer turnover and new agency processes, particularly in acquisition functions. This led to a slower realization of new business, with management emphasizing that award timing rather than program performance drove the softness.
Portfolio shift to mission IT: The company continued its pivot away from lower-margin, legacy programs—such as the CloudOne contract, which SAIC intentionally did not rebid—toward higher-margin mission and enterprise IT. This transition is designed to align with evolving government priorities and to position SAIC for more sustainable, profitable growth.
Fixed price space program overruns: A unique fixed price development program in the space segment incurred higher costs during its technical development phase. Management stated that the transition into the sustainment phase and recent option period extensions should relieve some cost pressures in future quarters.
Civilian business momentum: SAIC's civilian segment showed growth and margin improvement, benefiting from its focus on key agencies like the Department of Homeland Security, State, Transportation, and Treasury, where funding and IT modernization remained supportive.
Bookings and backlog visibility: While net bookings and backlog remained solid, management cautioned that achieving their targeted book-to-bill ratio may be delayed by up to two quarters if procurement headwinds persist. Recent post-quarter wins, including a major State Department extension and Air Force contract, bolstered confidence in near-term visibility.
Management expects future performance to rest on the pace of new business ramp-up, margin recovery in challenged programs, and the company's ability to adjust to shifting federal priorities.
On-contract growth and booking targets: The company is relying on continued growth within existing contracts ('on-contract growth') if new business awards are further delayed. Sustained mid-single-digit on-contract growth is seen as necessary to support its revenue guidance if external headwinds persist.
Margin normalization in key programs: Margin improvement is expected as SAIC transitions fixed price programs in the space segment from development to sustainment phases, and as civilian business margins trend higher. Management pointed to enhanced cost controls and standardized delivery frameworks as tools to mitigate margin risk.
Federal budget and procurement environment: The outlook depends on stable or moderately growing federal budgets, especially for defense and civilian agencies. Management acknowledged that further disruptions in government funding or policy priorities could impact the timing and mix of awarded contracts, introducing risk to the growth trajectory.
In upcoming quarters, the StockStory team will watch (1) whether SAIC can accelerate new business awards and reach its targeted book-to-bill ratio, (2) the pace of margin recovery in fixed price and space programs as they enter sustainment phases, and (3) continued expansion and profitability in the civilian segment, especially as federal funding priorities evolve. Execution on disciplined contract transitions and cost control will also be closely monitored.
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