Science Applications International Corporation Q2 2027 Earnings Call Summary

Science Applications International Corporation (SAIC) reported its Q2 2027 earnings, highlighting a robust growth trajectory. The company's organic growth rate of 5% was attributed to a strong backlog conversion into revenue and a more favorable operational environment. SAIC's management team showcased a remarkable win rate of over 90% in recompeting for contracts, which serves as a solid foundation for future growth and mitigates historical revenue challenges.

A significant milestone was the transition of Project Orbit from concept to implementation, aimed at streamlining systems through rigorous procurement, automated onboarding, and Agentic AI tools. The company is adopting a more disciplined bidding approach, focusing on fewer, mission-oriented initiatives in intelligence, space, and national security sectors. An ongoing strategic portfolio review aims to identify the best opportunities for growth and success, with preliminary results expected in December.

Operational efficiency and cost reduction initiatives contributed to double-digit margins and strong free cash flow performance. SAIC raised its guidance for the fiscal year 2027, projecting increased revenue, EBITDA, and EPS. The company anticipates saving approximately $150 million through Project Orbit over a three-year period, with two-thirds of these savings directed towards expanding capacity and improving competitiveness, while the remaining one-third will be utilized for further margin expansion.

Management projects a mid-10% margin profile for next year, with a long-term goal of reaching 11% by fiscal year 2030. This guidance assumes a continuing resolution for the start of the government fiscal year, without significant improvements in the procurement environment. The RITS contract roll-off is expected to create a revenue headwind of around 350 basis points during the second half of the fiscal year.

Second-half margins are projected to decrease to the high-9% range due to targeted investments in strategic areas and capacity building.

Unplanned material purchases accounted for roughly 1% of organic growth this quarter but are not anticipated to recur in future periods. Net leverage has decreased to 3.0x, offering the company flexibility for incremental debt reduction or strategic mergers and acquisitions to reshape its portfolio. SAIC's recent success in securing single-award IDIQ wins has begun converting into revenue through task orders, exceeding traditional backlog levels.

The company attributes its growth to customers' ability to process payments more swiftly, more than doubling the velocity compared to the previous year. During the second half of the fiscal year, the company expects a more conservative 5% on-contract growth rate, although upside potential remains if the current outlay environment persists.

Approximately $22.5 billion in single-award IDIQ wins from past years are now generating revenue through task orders, exceeding traditional backlog figures. Unlike previous cost-cutting measures, Project Orbit represents a structural redesign crowd-sourced from 3,500 employee ideas to address long-standing infrastructure issues.

The $150 million savings target is considered a floor, with internal aspirations for even greater efficiencies. Key focus areas include redesigning procurement processes and leveraging AI to scale mission delivery without proportional headcount increases.