SAIC Q2 Deep Dive: Revenue Headwinds Prompt Cost Controls, Margin Focus

Government IT services provider Science Applications International Corporation (NASDAQ:SAIC) fell short of the market’s revenue expectations in Q2 CY2025, with sales falling 2.7% year on year to $1.77 billion. The company’s full-year revenue guidance of $7.29 billion at the midpoint came in 4.7% below analysts’ estimates. Its non-GAAP profit of $3.63 per share was 62.3% above analysts’ consensus estimates.

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StockStory’s Take

Science Applications International Corporation’s second quarter showed a mixed picture, as revenue fell short of Wall Street’s expectations and the market reacted negatively. CEO Toni Townes-Whitley attributed weaker sales to slower on-contract growth, program disruptions, and delays in new business awards. Management described the environment as more challenging than anticipated, emphasizing that funding uncertainty and increased scrutiny on government spending weighed on near-term growth. Townes-Whitley acknowledged, “Our revenue performance in the quarter and our updated outlook reflect a more challenging environment than we had previously forecasted.”

Looking ahead, management’s revised guidance reflects ongoing caution, with expectations for continued revenue softness and a focus on cost efficiency. Townes-Whitley stressed purposeful action to align costs with the new environment, highlighting ongoing initiatives to boost margins through operational improvements and adoption of artificial intelligence across core functions. While leadership sees many revenue headwinds as temporary, Natarajan, the CFO, noted, “We are updating our guidance to reflect a more challenging revenue environment, and we will look to mitigate the impact of lower revenue with cost efficiency initiatives.”

Key Insights from Management’s Remarks

Management attributed second quarter performance to delayed contract conversions and a more cautious government spending environment, while margins benefited from improved execution and cost actions.

• On-contract growth slowdown: Delays in converting existing government contracts into revenue were cited as a primary reason for the revenue decline, especially in segments facing budget uncertainty or major transformation.
• Program disruptions and award delays: Townes-Whitley highlighted increased program disruptions and slower adjudication of new business awards, which further limited short-term revenue opportunities despite a healthy pipeline.
• Margin resilience from cost actions: Adjusted EBITDA margin benefited from ongoing cost controls, operational improvements, and a favorable legal settlement, offsetting some of the revenue pressure.
• Civil business margin strength: The civil segment, which operates largely on fixed-price contracts, demonstrated robust profitability, with margins up nearly 100 basis points year over year according to Natarajan.
• AI-driven efficiency initiatives: Management emphasized accelerating the use of artificial intelligence and automation in both customer-facing and internal operations, aiming to drive further margin improvement and position the company for future growth.

Drivers of Future Performance

Management expects cost control and AI adoption to help offset persistent revenue headwinds from delayed government spending and contract conversion.

• Government funding volatility: Townes-Whitley and Natarajan both stressed that ongoing delays and scrutiny in federal spending are likely to continue through the next several quarters, reducing visibility into near-term growth and requiring conservative planning for both new and existing contracts.
• Cost efficiency and margin focus: Leadership is prioritizing cost efficiency measures, particularly through operational streamlining and broader adoption of artificial intelligence, to protect margins even as revenue growth remains subdued.
• Shift toward differentiated, outcome-based offerings: Management is accelerating the company’s transition toward higher-value, mission-critical work and integration of commercial technology, which they believe will provide long-term resilience as government customers increasingly demand integrated solutions rather than labor-based services.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) the pace at which delayed contract awards are adjudicated and begin ramping, (2) the effectiveness of cost efficiency and AI adoption initiatives in sustaining or improving margins, and (3) stabilization in government funding cycles that could signal a return to more predictable growth. Progress in transitioning to integrated, value-added offerings will also be a key marker of execution.

SAIC currently trades at $106, down from $113.91 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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