Science Applications International Corporation

Good day, and thank you for standing by. Welcome to the SAIC second quarter fiscal year 2025 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I'd like to hand the conference over to your first speaker today, Joseph DiNardi, Senior Vice President of Investment Relations Treasurer. Please go ahead.

Good morning and thank you for joining SEIC's second quarter fiscal year 2025 earnings call. My name is Joe Donardi, Senior Vice President of Investor Relations and Treasurer, and joining me today to discuss our business and financial results are Tony Towns-Whitley, our Chief Executive Officer, and Prabhu Natarajan, our Chief Financial Officer. Today we will discuss our results for the second quarter of fiscal year 2025 that ended August 2nd, 2024. Earlier this morning, we issued our earnings release, which can be found at investors.saic.com, where you will also find supplemental financial presentation slides to be utilized in conjunction with today's call and a copy of management's prepared remarks. These documents, in addition to our Form 10-Q to be filed later today, should be utilized in evaluating our results and outlook, along with information provided on today's call. Please note that we may make forward-looking statements on today's call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call. I refer you to our SEC filings for a discussion of these risks, including the risk factor section of our annual report on Form 10-K. In addition, the statements represent our views as of today, and subsequent events may cause our views to change. We may elect to update the forward-looking statements at some point in the future, but we specifically disclaim any obligation to do so. In addition, we will discuss non-GAAP financial measures and other metrics, which we believe provide useful information for investors, and both our press release and supplemental financial presentation slides include reconciliations to the most comparable GAAP measures. The non-GAAP measures should be considered in addition to and not a substitute for financial measures in accordance with GAAP. It is now my pleasure to introduce our CEO, Tony Towns-Whitley.

Thank you, Joe, and good morning to everyone on our call, which we're doing today from our offices in Huntsville. SAIC has deep roots in the Rocket City with over five decades of support and community involvement. We are proud to be the third largest employer with more than 2,600 employees calling Alabama home. We recently held our board meeting here and will be taking our board members and other leaders to visit the Chamber of Commerce and an amazing high school that we support, the Alabama School of Cyber Technology and Engineering. It is vitally important for us to develop and foster STEM education in our youth to ensure our future workforce can fill critical skills needs now and into the future. We'll also visit key customer sites where we support some of the country's most mission-critical operations in the space and missile defense sectors. In our support of the U.S. Army and Missile Defense Agency, we strive to ensure we provide leading-edge capabilities and technology to help them solve their hardest problems and field mission-critical systems to our warfighters and military leaders. Our work includes modeling and simulation, live virtual constructive training, and digital engineering, and I'm extremely proud of this workforce and am committed to our ongoing upskilling initiatives, which will see us grow in expertise and skill to match and exceed our customers' requirements. My remarks today will focus on a quick review of our second quarter performance, followed by an update on the execution of our enterprise growth strategy. Prabhu will then discuss our updated outlook and capital deployment plans in greater detail. Overall, I'm pleased with our solid financial performance on all key metrics and the strategic progress we've made in the quarter. We reported second quarter organic revenue growth of 2 percent year-over-year, as increases from new business wins and on-contract growth were partially offset by an approximately five-point headwind from contract transitions. Adjusted EBITDA of $170 million and margin of 9.4 percent reflect solid program performance. Due to revised bid thresholds we've put in place and a focus on improved shot selection, we continue to expect an improved margin trajectory over the next several years. Adjusted diluted earnings per share of $2.05 benefited from an effective tax rate of approximately 19.5% and a 5% year-over-year reduction in our weighted average share count. Second quarter free cash flow of $241 million was very strong due to a continued focus on working capital efficiency and good blocking and tackling from the team. This brings first half free cash flow to $262 million, representing over 50% of our full year guidance. While we still have some revenue challenge in front of us in the second half of the year, as Prabhu will describe later, I'm encouraged by the performance shown in the second quarter and the focus I see inside our company to meet our guidance for FY25 and sustain momentum into FY26. I'll now provide an update on our enterprise growth strategy execution. We flattened our organization, centralized business development, and implemented our enterprise operating model designed to optimize investment planning and align our pipeline with growth vectors. We continue to tune across all four pivots portfolio, go-to-market, culture, and brand. The earliest indicators of progress against our strategy will be improved business development performance, which we believe will unlock significant long-term value for shareholders. The outcome is a more differentiated, more efficient, faster growing, and higher margin SAIC. Simply put, we expect that our execution of the strategy will initially translate into bid more, bid better, win more. The first step, bid more, is significantly increasing the total value of submissions to a level more aligned with our growth aspirations. We continue to see good progress as evidenced by the $14.5 billion of submit volume in the first half of the year, compared to $17 billion for full year, fiscal year 24. And we have improved visibility into exceeding our submissions target of $22 billion for the full year. The second step, bid better, is aligning our pipeline and bid processes with key strategic and financial objectives. Strategically, we will drive outsized growth in the civilian market and within enterprise and mission IT, two of the four growth vectors where we see the opportunity to leverage our strength in the market to gain share. These growth vectors align with our financial objectives to shift our pipeline towards higher value programs that are more margin accretive. The third step, win more, is driving bookings and backlog growth and eventually revenue growth more aligned with our long-term target. We will accomplish this by increasing our volume and quality of bid submissions, returning our recompete win rate to the 90 percent range, and sustaining our strong new business performance. In terms of how long it will take before we start to see results, our expectation is for bookings to continue to improve with a particular inflection over the next two to three quarters with the associated revenue impact following one to two quarters later. This should translate into a book to bill of 1.2 by the first half of fiscal year 26 with organic revenue growth aligning with our longer term target of 5% towards the end of fiscal year 26. I want to thank the team at SAIC for the enthusiasm and focus they bring to the company and the execution of our strategy. Thanks to their efforts, we are well on our way towards building a stronger SAIC for the future. I look forward to sharing further updates on our progress going forward. I'll now turn the call over to Prabhu.