Science Applications International Corporation (SAIC) | The Buildout — AI Infrastructure
The Verdict
SAIC is a government services company that does engineering, systems integration and IT work for U.S. defense, intelligence and federal civilian agencies. It does not build data centers, sell compute or license AI software. Its AI work sits inside larger mission contracts — modernizing legacy code, fusing data, hardening cyber defenses, and adding software content to systems such as loitering munitions and radar. Management rejects the idea of an "AI product" and describes SAIC as a "mission integrator." Its real link to the buildout is indirect: federal demand for AI-enabled mission systems, funded from defense and intelligence budgets rather than from hyperscaler capital spending.
| Market Cap | — |
| Revenue (TTM) | $7.4B |
| Revenue Growth | −0.8% |
| EBITDA Margin (TTM) | 9.9% |
| Net Debt | $2.6B |
| Earnings Beats | 5 of 6 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Margins and the guide: adjusted EBITDA margin guidance was raised 20 basis points to 10.3%-10.5%, and the first half ran at about 11.0%.
- Project Orbit, a three-year program, targets about $150M in annual run-rate savings, with roughly $100M reinvested in the business and the rest supporting margin.
- Win rates are back at management's stated standards: recompete above 90% in the quarter and new business at or above 30%.
- About $22.5B of single-award IDIQ wins sit largely outside backlog — only 20%-25% is reflected there — and task orders usually convert to revenue within about 12 months.
- Cash generation: Q2 FY2027 free cash flow was $131M, and trailing-12-month free cash flow equaled 163% of net income.
What We’re Watching
- Book-to-bill printed 0.6x in Q2 FY2027 after 1.1x in Q1, and the full-year outlook moved from "comfortably over 1.0x" to "closer to 1.0x."
- The RITS contract roll-off creates an approximately 350-basis-point revenue headwind in the second half, with the roll-off landing in Q3.
- Second-half margin steps down to the high-9% range on targeted investments, and the FY2028 target is only mid-10s.
- The December earnings call, where the strategy and portfolio review — including M&A — has been deferred twice.
The self-help half of the thesis is strengthening: margin, cash and win rates are above where they started the year, and Orbit gives the cost story a three-year clock. The growth half is weakening: bookings fell to 0.6x, submit volume is running below plan, and FY2027 revenue is still guided to organic contraction of 2% to flat even after the raise. The open question is whether that weak book-to-bill is award timing, as management frames it, or evidence of lost share. The source material flags that tension explicitly: the defense-technology names cited in the same demand theme — MRCY at 1.48x, TDY at 1.16x and VSH Americas at 1.4x — showed book-to-bill above 1.0x while SAIC's own came in at 0.6x.
Earnings Beat
SAIC reported FY2027 second-quarter revenue of $1.88B, about 5.3% organic growth and 6.3% total growth, with gross margin of 12.7%. The standout metric was bookings: net bookings of $1.2B left quarterly book-to-bill at 0.6x and trailing-12-month book-to-bill at 0.8x, which management attributed to a large recompete award that landed two days after the quarter closed. Offsetting that, on-contract growth was 9%, which management described as well ahead of plan.
| Metric | Q2 FY2027 | Q1 FY2027 | Q2 FY2026 | YoY |
|---|---|---|---|---|
| Revenue | $1.9B | $1.9B | $1.8B | +6.3% |
| Gross margin | 12.7% | 13.1% | 12.2% | +50bps |
| EBITDA | $191M | $207M | $175M | +9.1% |
| EPS | $2.38 | $2.61 | $2.71 | −12.2% |
| Book-to-bill (quarterly) | 0.6x | 1.1x | n/a | — |
| On-contract growth | 9% | n/a | 3% | +200.0% |
Would have been closer to 1.0x if not for a delay in a large recompete award we booked 2 days after the quarter closed.— SAIC management, 2026-08-31
Management tone: Management's tone split in two directions between the quarters. On the external award environment it became more measured: Q1 described submits and awards recovering with book-to-bill of 1.1x, while Q2 acknowledged large opportunities slipping to the right and a 0.6x quarterly print. On execution it hardened, with a guide raise on revenue, EBITDA and EPS and a first quantified Orbit plan. The net read is constructive on self-help and candid-to-cautious on the external award environment.
Management Guidance
Management raised FY2027 revenue guidance by 2% to a $7.25B midpoint, reflecting organic contraction of 2% to flat, and raised adjusted EBITDA margin guidance to 10.3%-10.5%, 20 basis points above prior guidance. Adjusted EPS was raised, but the updated range was not restated on the call. The stated assumptions include second-half on-contract growth of about 5%, a second-half margin step-down to the high-9% range on targeted investments, and a continuing resolution to start the next government fiscal year.
Trajectory
The shape of the numbers is a company improving its margin faster than its top line. Reported revenue has been roughly flat — $1,906M in Q1 FY2027 and $1,880M in Q2 — and trailing-12-month revenue growth is slightly negative. Underneath, organic growth moved from about 0.5% in Q1 to about 5.3% in Q2, and on-contract growth reached 9%. Gross margin ran at 13.1% and then 12.7%, against 9.2% and 12.2% in the year-ago quarters, and EBITDA margin has expanded on cost efficiency, a flat $564M labor base and lower other operating expenses. The full year still guides to organic contraction of 2% to flat because the RITS contract rolls off in the second half.
The Model
The model projects FY+1 revenue of $7,280M and EBITDA of $757M, a 10.4% margin, and FY+2 revenue of $7,520M and EBITDA of $790M, a 10.51% margin. The near term is anchored by the current fiscal year's guided revenue midpoint of $7.25B and a second-half margin step-down to the high-9% range, with Project Orbit savings beginning to land. FY+2 assumes modest revenue growth and the first rungs of the multi-year margin ladder toward about 11% by FY2030.
| Metric | FY2026 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $7.3B | $7.3B | $7.5B |
| YoY Growth | — | +0.2% | +3.3% |
| EBITDA | $668M | $757M | $790M |
| EBITDA Margin | 9.2% | 10.4% | 10.5% |
Projections are the median of 5 independent model runs. The model’s revenue sits 3.4% above analyst consensus.
Management raised FY2027 revenue guidance by 2% to a $7.25B midpoint, reflecting organic contraction of 2% to flat, and raised adjusted EBITDA margin guidance to 10.3%-10.5%, 20 basis points above prior guidance. Adjusted EPS was raised, but the updated range was not restated on the call. The stated assumptions include second-half on-contract growth of about 5%, a second-half margin step-down to the high-9% range on targeted investments, and a continuing resolution to start the next government fiscal year.
What Could Go Right — and Wrong
- Book-to-bill recovering above 1.0x on a trailing basis if large recompete awards get back on schedule.
- On-contract growth holding above the 5% second-half assumption — management has said that would create upside pressure on the revenue guide.
- Project Orbit savings exceeding the published ~$150M target; management says its internal aspirations are higher.
- The fixed-price pipeline, about one-third of submissions versus 15%-18% of current sales, converting into awards and lifting margin.
- The December strategy and portfolio review putting capital behind the mission and engineering work management says is taking pipeline share.
- Book-to-bill staying below 0.9x for another two quarters, which would point to share loss rather than award timing.
- Second-half on-contract growth falling short of the 5% assumption, removing the offset to the RITS roll-off.
- Second-half margin landing below the high-9% guide, implying larger investments or business-group margins nearer 10% than the mid-10s.
- AI automation compressing billable revenue faster than new work is won — a trade-off management has acknowledged but not quantified.
- Federal award timing and a continuing resolution holding back outlays beyond the assumed base case.
Looking Ahead
Over the next 12 months the story turns on three things: whether large recompete awards get back on schedule and lift book-to-bill back above 1.0x, whether on-contract growth holds near the 5% second-half assumption, and whether the December strategy and portfolio review puts capital behind the mission and engineering work management says is gaining pipeline share. The margin ladder gives the period its shape — mid-10s targeted for FY2028, then 20 to 30 basis points in FY2029 and about 11% in FY2030. Several items raised earlier went unmentioned in Q2, including the Vanguard/Evolve transition and the FY2028 free cash flow per share pledge.
- Q3 FY2027Q3 results — Tests on-contract growth vs the ~5% H2 assumption and the high-9% margin guide.
- DecemberStrategy and portfolio review — Portfolio and M&A direction; deferred twice by management.
- Next several quartersEvolve task-order ramp — Seats on 4 of 5 work streams on a $10B, 7-year ceiling vehicle.
- FY2028Margin target mid-10s — First rung of the ladder; then 20-30bps in FY2029 and ~11% in FY2030.
- FY2029Margin +20-30bps — 20 to 30 basis points of further margin expansion.
- FY2030Margin target ~11% — Targeted margin level at the end of the multi-year ladder.
Financials
Annual Summary
| Metric | FY2025 | FY2026 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $7.5B | $7.3B | $7.4B | -2.9% |
| Gross Margin | 11.2% | 11.5% | 12.7% | +40bps |
| EBITDA | $697M | $668M | $735M | -4.2% |
| EBITDA Margin | 9.3% | 9.2% | 9.9% | 12bps |
| Net Income | $362M | $358M | $380M | -1.1% |
| Free Cash Flow | $458M | $577M | $619M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)12.7%
- EBITDA Margin (TTM)9.9%
- Net Margin (TTM)5.1%
- ROIC11.4%
- FCF Conversion84.2%
- SBC / Revenue0.9%
The Company
SAIC is a U.S. government services contractor. Its 10-K describes it as "a leading provider of technical, engineering and mission and enterprise information technology services primarily to the U.S. government." It reports two segments: Defense and Intelligence, serving the Department of War and the U.S. intelligence community, and Civilian, serving federal, state and local customers on citizen well-being, border security and protecting lives. Product lines include IT modernization, digital engineering, artificial intelligence, mission systems support, training and simulation, and ground vehicles support. None of it is AI infrastructure: there is no GPU, compute, data center, model-training or AI-software-licensing exposure anywhere in the material.
SAIC runs an asset-light, labor- and engineering-based model. The AI exposure scan references about 23,000 employees; capital spending was approximately $25M in the first half of FY2027, and the 10-K discloses no square footage, plant capex or data center assets. Headquarters is in Reston, Virginia, with principal locations in Chantilly and Arlington, Virginia; Huntsville, Alabama; El Segundo, California; Bedford, Indiana; and Charleston, South Carolina. Crane, Indiana supports Mark 48 torpedo production work and Charleston supports loitering munitions work. Revenue is almost entirely federal: about 52% from the Department of War and 46% from intelligence and other federal government agencies across fiscal 2024 through 2026.
Business Segments
Competitive Landscape
SAIC competes in a fragmented government services market. Its 10-K lists three groups: engineering and technical services divisions of large defense primes such as General Dynamics, Lockheed Martin, Northrop Grumman and RTX; contractors focused on U.S. government technical and IT services, including Booz Allen Hamilton, CACI, Leidos, ManTech, Peraton, Serco and Parsons; and diversified commercial providers that also serve government IT, including Accenture, AECOM, Amentum, Deloitte and IBM. Management frames the company as a "mission integrator" and points to deep domain expertise and operating in the data layer as differentiators. The material contains no sole-source position.
- LeidosNamed in the 10-K list of U.S. government IT and technical services competitors; not otherwise discussed.
- Booz Allen HamiltonNamed in the 10-K list of U.S. government IT and technical services competitors; not otherwise discussed.
- CACI InternationalNamed in the 10-K list of U.S. government IT and technical services competitors; not otherwise discussed.
- General DynamicsNamed as a defense prime whose engineering and technical services division competes with SAIC; not otherwise discussed.
- ParsonsNamed in the 10-K competitor list; Parsons' own filings list SAIC among its Federal Solutions peers.
Supply Chain
SAIC sits on the services side of the chain: it buys commercial software and cloud capacity and sells engineering and integration work to federal agencies. No neighbor transcript in the scan mentions SAIC by name, so its supplier and partner edges carry lower provenance.
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