SAIC Q2 Earnings Beat Estimates, Stock Falls 7% on Revenue Miss

Science Applications International SAIC delivered its second-quarter fiscal 2026 results, wherein the company reported non-GAAP earnings of $3.63 per share, surpassing the Zacks Consensus Estimate of $2.25 by 61.3%. Furthermore, the bottom line increased 77% from the year-ago quarter earnings of $2.05 per share.

The robust growth in earnings was mainly driven by lower taxes and one-time benefits from legal settlements, which more than offset the negative impact of the decline in revenues. Science Applications’ earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed once, with an average surprise of approximately 25%.

Science Applications' fiscal second-quarter revenues declined 3% year over year to $1.77 billion and came lower than the Zacks Consensus Estimate of $1.86 billion. The decrease in the top line was mainly due to delays in new business awards and slower on-contract growth.

SAIC shares lost 6.9% on Thursday after a weaker-than-expected top-line performance in the fiscal second quarter. Year to date, the stock has declined 4.9%, outperforming the Zacks Computers – IT Services industry, which has plunged 15.2%.

SAIC’s Q2 in Detail

Segment-wise, revenues from Defence and Intelligence, which accounted for 77.7% of revenues, amounted to $1.37 billion and decreased 2.9% year over year. Civilian revenues, which constitute 22.2% of revenues, totaled $395 million and declined 2% year over year.

Net bookings were approximately $2.6 billion in the second quarter, which reflected a book-to-bill ratio of 1.5. The company’s trailing 12-month book-to-bill ratio was 1 at the end of the fiscal second quarter. SAIC’s estimated backlog at the end of the quarter was approximately $23.2 billion. Of the total backlog amount, approximately $3.6 billion was funded.

Selling, general and administrative (SG&A) expenses decreased 2.6% to $75 million. SG&A expenses, as a percentage of revenues, remained flat on a year-over-year basis at 4.2%.

Non-GAAP operating income increased year over year to $182 million from the year-ago quarter’s operating income of $169 million. The non-GAAP operating margin expanded 100 basis points (bps) year over year to 10.3%.

Adjusted EBITDA grew 9% to $185 million. Adjusted EBITDA margin for the quarter was 10.5% compared with 9.4% for the prior-year quarter. Margin performance benefited from strong program execution and a favorable legal settlement.

Balance Sheet & Cash Flow Details of SAIC

Science Applications ended the fiscal second quarter with cash and cash equivalents of $48 million, slightly up from the previous quarter’s $47 million.

As of Aug. 1, 2025, Science Applications’ long-term debt (net of the current portion) was $1.84 billion compared with $1.907 billion as of May 2, 2025.

The company generated operating and free cash flows of $122 million and $150 million, respectively, in the fiscal second quarter. In the first half of fiscal 2026, it generated operating and free cash flows of $222 million and $106 million, respectively.

During the fiscal second quarter, Science Applications repurchased shares worth $110 million and paid $17 million in dividends. In the first half of fiscal 2026, it bought back shares worth $252 million and paid $36 million in dividends.

SAIC Lowers Guidance for Fiscal 2026

Following a dismal top-line performance in the second quarter, Science Applications lowered its revenue and adjusted EBITDA guidance for the full fiscal 2026. During the earnings call, CEO Toni Townes-Whitley cited three reasons for the guidance cut: slower conversion of on-contract growth opportunities into revenues, delays in new business awards and an increase in the impact of program disruptions.

Science Applications now expects fiscal 2026 revenues between $7.25 billion and $7.325 billion, down from the previous guidance range of $7.60-$7.75 billion. The Zacks Consensus Estimate for fiscal 2026 revenues is pegged at $7.65 billion.

Guidance for adjusted EBITDA has been lowered to $680-$690 million from $715-$735 million. Adjusted EBITDA margin expectations have been reduced to the range of 9.3-9.5% from 9.4-9.6%.

However, Science Applications raised earnings guidance for fiscal 2026, citing benefits from tax settlement in the second quarter and a lower tax rate assumption for the remainder of the fiscal year. The company now forecasts adjusted EPS in the band of $9.40-$9.60, up from the earlier range of $9.10-$9.30. The Zacks Consensus Estimate for the bottom line is pegged at $9.16 per share, indicating a year-over-year improvement of 0.3%.

Science Applications also raised its free cash flow guidance range. It now estimates free cash flow for the fiscal year 2026 to exceed $550 million compared with the earlier range of $510-$530 million.

SAIC’s Zacks Rank and Stocks to Consider

Currently, Science Applications carries a Zacks Rank #3 (Hold).

F5 FFIV, Qualys QLYS and Arista Networks ANET are some better-ranked stocks that investors can consider in the broader Zacks Computer and Technology sector. While F5 sports a Zacks Rank #1 (Strong Buy) at present, Qualys and Arista Networks each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for F5’s fiscal 2025 earnings has moved upward by 12 cents to $15.38 per share in the past 30 days, indicating 15% year-over-year growth. F5 shares have soared 58% in the trailing 12 months.

The Zacks Consensus Estimate for Qualys’ 2025 earnings has been revised upward by 18 cents to $6.35 per share in the past 30 days, suggesting a year-over-year increase of 3.6%. Qualys shares have gained 9.8% over the past year.

The Zacks Consensus Estimate for Arista Networks’ 2025 earnings has moved northward by 25 cents to $2.81 per share over the past 30 days and implies a year-over-year decrease of 23.8%. Arista Networks shares have jumped 79.6% over the past year.

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This article originally published on Zacks Investment Research (zacks.com).

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