Science Applications International Corporation (SAIC) | The Buildout — AI Infrastructure
The Verdict
SAIC is a U.S. government services contractor that delivers technical, engineering, and IT solutions primarily to Defense and Intelligence agencies. It is pivoting from low-margin enterprise IT work toward mission-critical areas such as digital engineering, AI-enabled analytics, weapons sustainment, and autonomous systems, where it can differentiate through domain knowledge and technology.
| Market Cap | — |
| Revenue (TTM) | $7.3B |
| Revenue Growth | −2.9% |
| EBITDA Margin (TTM) | 9.9% |
| Net Debt | $2.6B |
| Earnings Beats | 5 of 6 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Adjusted EBITDA margin expanded to a record 10.9% in Q1 FY2027, and full-year guidance was raised to 10.1–10.3%, marking the first double-digit margin year.
- Free cash flow reached $577M in FY2026 and is guided to at least $600M in FY2027, supporting $500M in annual share repurchases.
- Management’s $100M cost-reduction program and enterprise transformation (Project Orbit) are delivering structural margin improvement.
- The deliberate exit from commoditized enterprise IT — from 17% of FY2025 revenue to an expected 10% in FY2027 — is improving contract mix and profitability.
- Recent program wins, including ABMS digital infrastructure and DHS Ports of Entry, are ramping and have a potential run rate exceeding $800M.
What We’re Watching
- The Vanguard/Evolve recompete (~$250M annual revenue) is underway; a partial or full loss would heavily pressure FY2028 growth.
- The RITS contract, delayed by protest, is expected to roll off in Q3 FY2027, creating an additional ~$200M annual revenue headwind.
- New program ramps are behind schedule due to budget uncertainty; reaching the $800M run rate depends on procurement normalization.
- Q1 FY2027 margin included a $12M venture-investment gain and the temporary benefit of the RITS delay; normalized margins may be lower than the 10.9% headline.
The thesis is strengthening. Q1 FY2027 delivered the first positive organic growth, record margins, and raised guidance, confirming the profitability and cash-flow pillars of the turnaround. The revenue story still faces sizable recompete headwinds, but the early signs suggest a growth inflection may be closer than expected. The open question is whether revenue growth can return in FY2028 once the Vanguard and RITS headwinds are fully lapsed.
Earnings Beat
SAIC reported Q1 FY2027 revenue of $1.91 billion, organic growth of 0.5%, its first positive organic growth in several quarters. Gross margin rose to 13.1%, and adjusted EBITDA margin expanded to a company-record 10.9%, driving a 4% raise in full-year EPS guidance.
| Metric | Q1 FY2027 | Q4 FY2026 | Q1 FY2026 | YoY |
|---|---|---|---|---|
| Revenue | $1.9B | $1.8B | $1.9B | +1.5% |
| Gross margin | 13.1% | 12.6% | 9.2% | +390bps |
| EBITDA | $207M | $172M | $156M | +32.7% |
| EPS | $2.61 | $1.87 | $1.42 | +83.7% |
| Book-to-bill (quarterly) | 1.1x | n/a | n/a | — |
| Free cash flow ($M) | 118 | 250 | 92 | +28.3% |
expanding our work with loitering munitions and other autonomous systems by establishing domestic production lines to broaden industrial base capacity.— Jim Reagan, CEO, June 1, 2026
Management tone: CEO Jim Reagan’s tone shifted from a caretaker’s focus on near-term execution to a permanent leader driving a strategic overhaul. He acknowledged past missteps in commoditized IT and emphasized a deliberate 'addition by subtraction' approach, while guiding to record margins and improved cash flow.
Management Guidance
Management raised its margin and EPS guidance for FY2027 while reaffirming revenue of $7.0–$7.2 billion, implying continued organic contraction of 2–4%. The revenue guide bakes in roughly $400 million in known recompete losses, including the RITS roll-off, and assumes ongoing budget uncertainty with limited new-business wins. Adjusted EBITDA margin is now expected to reach 10.1–10.3%, marking the first full year of double-digit margins. The outlook also calls for free cash flow above $600 million and capital expenditures of approximately $35 million, with the flexibility to invest more if munitions demand materializes.
Trajectory
SAIC’s revenue declined throughout FY2026 as large, low-margin enterprise IT contracts rolled off, finishing the year at $7.26 billion, down approximately 3% organically. The top line stabilized in Q1 FY2027 with organic growth of 0.5%, helped by a delayed contract exit. Meanwhile, adjusted EBITDA margins expanded steadily, rising from 8.3% in Q1 FY2026 to a company-record margin in Q1 FY2027, driven by the $100 million cost-reduction program, a richer mix of fixed-price and T&M contracts, and the ongoing Project Orbit transformation.
The Model
The model projects SAIC’s revenue to be $7.15 billion in FY+1 and $7.35 billion in FY+2, with adjusted EBITDA of $722 million (10.1% margin) and $779 million (10.6% margin), respectively. The near-term projection is anchored by the ongoing managed decline of commoditized IT and the ramp of recently won programs. The FY+2 estimate assumes the company laps the recompete headwinds and returns to low-single-digit organic growth, with margins continuing to benefit from the mix shift and cost discipline.
| Metric | FY2026 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $7.3B | $7.2B | $7.3B |
| YoY Growth | — | −1.5% | +2.8% |
| EBITDA | $668M | $722M | $779M |
| EBITDA Margin | 9.2% | 10.1% | 10.6% |
Projections are the median of 5 independent model runs. The model’s revenue sits 1.1% above analyst consensus.
Management raised its margin and EPS guidance for FY2027 while reaffirming revenue of $7.0–$7.2 billion, implying continued organic contraction of 2–4%. The revenue guide bakes in roughly $400 million in known recompete losses, including the RITS roll-off, and assumes ongoing budget uncertainty with limited new-business wins. Adjusted EBITDA margin is now expected to reach 10.1–10.3%, marking the first full year of double-digit margins. The outlook also calls for free cash flow above $600 million and capital expenditures of approximately $35 million, with the flexibility to invest more if munitions demand materializes.
What Could Go Right — and Wrong
- Revenue growth returns earlier than guided as new program ramps accelerate, pushing FY2027 revenue near the high end of the $7.2 billion range.
- Vanguard recompete is fully retained, preserving $250 million in annual revenue and validating the mission-IT strategy.
- Portfolio review leads to a value‑accretive acquisition or divestiture that sharpens the business and unlocks faster growth.
- Loitering munitions production lines secure a material multi‑year contract, adding a new product‑based revenue stream.
- SilverEdge AI capabilities become a material win‑rate differentiator, helping SAIC capture larger contracts in intelligence and defense.
- Vanguard is partially or fully lost, removing up to $250 million of annual revenue and significantly delaying the growth inflection.
- The ramp of new wins stalls as procurement dysfunction persists, keeping revenue well below the $7.2 billion guide and extending the contraction into FY2028.
- Margin expansion proves temporary; the RITS roll‑off and fading cost‑reduction benefits cause margins to retreat below 9%, undermining cash flow.
- The portfolio review results in a disruptive asset sale or strategic U‑turn that confuses customers and investors.
- Budget sequestration or a government shutdown hits SAIC disproportionately, compressing revenue and margins across its concentrated federal base.
Looking Ahead
Over the next twelve months, SAIC’s strategic direction will take center stage with the portfolio review conclusions in December 2026. The company also faces the critical Vanguard recompete on its largest contract, while the delayed RITS headwind will finally hit in Q3. On the growth side, the ramp of recently won programs and the ABMS digital infrastructure contract will test whether the emerging base can offset the shrinking legacy portfolio, with margins supported by ongoing transformation.
- Q2 FY2027 call (est. Sept 2027)Project Orbit transformation update — Quantified savings, reinvestment plans, and margin impact.
- December 2026 call (FY2027 Q3)Portfolio review conclusions — Potential asset sales, acquisitions, or capital allocation changes.
- Throughout FY2027Vanguard/Evolve task-order awards — Sustainment or growth of ~$250M annual revenue stream.
- Throughout FY2027Ramp of recently won programs — Reaching $500M in FY2027, on path to >$800M run rate.
- Q3 FY2027RITS contract roll-off — Final ~$200M annual revenue headwind materializes, clearing the deck for FY2028.
- FY2027 full yearDouble-digit EBITDA margin — First full year at ≥10% margin confirmed.
Financials
Annual Summary
| Metric | FY2026 | TTM |
|---|---|---|
| Revenue | $7.3B | $7.3B |
| Gross Margin | 11.5% | 12.5% |
| EBITDA | $668M | $1.4B |
| EBITDA Margin | 9.2% | 9.9% |
| Net Income | $358M | $405M |
| Free Cash Flow | $577M | $1.1B |
| Net Cash | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)12.5%
- EBITDA Margin (TTM)9.9%
- Net Margin (TTM)5.6%
- ROIC11.2%
- FCF Conversion83.9%
- SBC / Revenue0.9%
The Company
SAIC provides technical, engineering, and enterprise IT solutions almost entirely to the U.S. government, with about 52% of revenue from the Department of Defense and 46% from intelligence and other federal agencies. The company focuses on higher-end, differentiated work — digital engineering, AI-enabled analytics, mission systems support, and weapons sustainment — serving agencies that require deep domain expertise and security clearances.
SAIC operates through two segments: Defense & Intelligence and Civilian. Its principal sites include Reston, Chantilly, Arlington, Huntsville, El Segundo, Bedford, and Charleston. The company is primarily a services integrator, but it also runs hardware‑software integration centers and has recently moved into domestic loitering munitions production, adding a manufacturing dimension.
Business Segments
Competitive Landscape
SAIC competes with large defense primes and specialized federal IT integrators on both commoditized enterprise IT and higher-end mission work. The company acknowledges it has lost ground in cost-plus enterprise IT recompetes, where differentiation is difficult, but it aims to defend and grow in mission-critical areas where its domain expertise and security clearances provide a stronger moat.
- Parsons (PSN)Growing revenue and expanding margins in federal solutions with recompete risk under 3% — highlighting SAIC’s relative vulnerability in enterprise IT. Also investing in munitions and intel, areas SAIC is pivoting into.
- AECOM (ACM)DoD pipeline jumped 50%; won ~$1B in AI-enabled contracts with gain-sharing, showing AI can be a deal‑decisive differentiator — a positive read‑across but also a warning of fast-moving competition.
- ICF International (ICFI)Reports federal procurement pickup; 80% of federal work is fixed-price/outcome-based, validating SAIC’s shift toward similar contract structures.
- Lockheed MartinNamed in regulatory filings as a competitor; not discussed in recent calls.
Supply Chain
SAIC sits between commercial technology vendors and U.S. government agencies, operating as a prime contractor that integrates software, hardware, and services for mission‑critical programs. No critical sole‑source supplier relationships are disclosed.