Science Applications International (NASDAQ:SAIC) reported fourth-quarter fiscal 2026 results that matched its Feb. 11 update, while management emphasized a more selective business development approach, continued cost reductions, and an enterprise transformation initiative aimed at improving speed and execution.
Leadership transition and strategic focus
Chief Executive Officer Jim Reagan, who became interim CEO in October, said the board selected him as permanent CEO following a search process that prioritized continuity and industry knowledge. Reagan described fiscal 2027 as “a year of commitment,” centered on aligning and focusing the portfolio, improving internal processes, and serving customers’ missions amid what he characterized as an uneven operating environment.
Quarter and full-year results: revenue pressure, margin and cash strength
Chief Financial Officer Prabu Natarajan said fourth-quarter revenue was $1.75 billion, an organic decline of about 6%. He attributed the contraction primarily to two factors: a $60 million year-over-year reduction tied to low-margin Cloud One work the company chose not to bid, and a $45 million headwind from a non-recurring software license sale in the prior-year quarter.
For the full year, revenue was $7.26 billion, down about 3% organically, driven mainly by the decision to no-bid low-margin Cloud One revenue, which Natarajan said was an approximately $200 million headwind for fiscal 2026.
Despite the revenue decline, Natarajan reported adjusted EBITDA of $181 million for the quarter, implying a 10.3% margin, citing strong program execution and cost efficiency actions. Full-year adjusted EBITDA margin was 9.7%, which he said was roughly 20 basis points ahead of the guidance SAIC provided the prior quarter. Adjusted diluted EPS was $2.62 in the quarter and $10.75 for the year, which management said benefited from stronger margins and a favorable tax rate that offset lower revenue.
Free cash flow was $336 million in the quarter and $577 million for the year. Reagan said that although revenue finished about 5% below the company’s initial guidance from last year, free cash flow exceeded guidance by about 10%, which he said reflected execution and the resilience of SAIC’s model.
Fiscal 2027 outlook: contraction expected, double-digit margin guided
Natarajan reaffirmed SAIC’s fiscal 2027 guidance first provided on Feb. 11. The company expects revenue of $7.0 billion to $7.2 billion, representing an organic contraction of 2% to 4%. He said the decline is driven mainly by previously discussed recompete losses, which are expected to create an approximately $400 million headwind in fiscal 2027, partially offset by ramp-up of wins from fiscal 2025 and fiscal 2026.
Adjusted EBITDA is guided to $705 million to $715 million, implying margin of 9.9% to 10.1%—a roughly 30-basis-point increase at the midpoint. Reagan noted this marks the first time SAIC has guided to a double-digit adjusted EBITDA margin on a full-year basis.
Adjusted diluted EPS guidance is $9.50 to $9.70, with Natarajan saying the lower top line is offset by a reduced share count. Free cash flow is guided to at least $600 million, which management said equates to “over $14” of free cash flow per share. Natarajan added that fiscal 2027 free cash flow includes about $70 million in non-recurring cash tax benefits tied to recent legislation; excluding that benefit, he said the company expects fiscal 2028 free cash flow of at least $530 million, or about $13 per share.
Portfolio shifts: de-emphasizing commoditized enterprise IT
Management repeatedly pointed to large enterprise IT as a source of recent pressure and future contraction. Reagan said SAIC expects another year of organic contraction in fiscal 2027 largely due to recent recompete losses in the large enterprise IT market. He said some customers continue to use acquisition approaches that make it “hard to differentiate,” and SAIC is focusing on opportunities with clearer outcomes where the company can demonstrate measurable value.
Natarajan described a “common thread” across several difficult recompetes as predominantly cost-plus work where “it is very hard to differentiate.” He cited examples including NASA AEGIS, parts of Cloud One, USCENTCOM, and Army RIS. He also said SAIC’s decision to no-bid roughly $200 million of Cloud One “compute and store” contributed to the company’s fiscal 2026 revenue contraction.
Reagan said the large enterprise IT market is becoming a smaller portion of SAIC’s revenue, declining from 17% of company revenue in fiscal 2025 to an expected 10% in fiscal 2027. He said the remaining portfolio includes the T-Cloud Takeaway contract, with four years of performance remaining, and the State Department’s Vanguard program, which he said is performing well.
Business development, recompetes, and operational initiatives
In Q&A, Reagan said improved proposal quality and discipline could influence win rates within about six months, though he noted government sales cycles can be long. Natarajan said SAIC’s win rates outside commoditized enterprise IT compare favorably, citing recompete win rates in the 85% to 90% range for non-commoditized enterprise IT and noting new-business win rates on mission and engineering work have approached 50% or more at points in recent years.
On major recompetes, Natarajan identified the State Department’s Vanguard as SAIC’s largest fiscal 2027 recompete. He said SAIC is qualified and down-selected to bid four of five work streams, choosing not to bid one stream to avoid organizational conflicts of interest affecting the others. He said any revenue impacts from Vanguard would be more likely in fiscal 2028 than fiscal 2027.
Management also discussed operational initiatives designed to improve efficiency and investment capacity:
- $100 million in cost reduction targets, which Reagan and Natarajan said should provide flexibility for investment and margin improvement.
- A multi-year enterprise transformation effort that Reagan said is the first bottoms-up process review since the company’s 2013 split; Natarajan said the company will update progress on the second-quarter call.
- Investment priorities beyond capital expenditures, including talent, business development capabilities, and technology initiatives such as Mission Labs, a Mission Data Platform, and classified network capabilities.
On capital spending, Reagan said the company’s current fiscal 2027 CapEx plan is adequate for known demand signals, but SAIC is prepared to flex and invest more in production capacity, space, and tooling if customers request increased throughput. Natarajan added that cost reductions can also free capacity for investments that may not appear in CapEx.
Finally, management addressed procurement dynamics and reform. Reagan said he sees “tremendous urgency” around procurement reform, including potential updates to the Federal Acquisition Regulation, but expects implementation to be uneven given the need to retrain the acquisition workforce. He said customers may rely on OTAs and commercial contracting mechanisms to move faster, and SAIC has made internal changes to be ready for increased speed. Natarajan said SAIC is working with venture companies through a venture program and leveraging integration centers to bring capabilities to customers.
About Science Applications International (NASDAQ:SAIC)
Science Applications International Corp. (SAIC) is a leading provider of technical, engineering, and enterprise IT services to the U.S. government, including the Department of Defense, the intelligence community, and civilian agencies. The company’s core offerings encompass systems engineering and integration, mission support, cybersecurity, data analytics, and cloud solutions. SAIC’s work spans the full program lifecycle, from research and development to deployment and sustainment, addressing complex defense, space, and national security challenges.
Founded in 1969 by J.
