Science Applications International Corporation

Good day and thank you for standing by. Welcome to the SAIC Fiscal Year 2026 Quarter 1 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will 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 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joseph DiNardi, Senior Vice President, Investor Relations and Treasurer. Please go ahead.

Good morning, and thank you for joining SEIC's first quarter fiscal year 2026 earnings call. My name is Joe DiNardi, 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 first quarter of fiscal year 2026 that ended May 2, 2025. 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. We may elect to update the forward-looking statements at some point in the future, but we specifically disclaim any obligation to do so. It is now my pleasure to introduce our CEO, Toni Towns-Whitley.

Toni Towns- Thank you, Joe, and good morning to everyone on our call. I will focus my remarks on an update of our current operating environment followed by a review of our business development and financial results in the quarter. As I did last quarter, I want to start by thanking our employees for their dedication to our mission and their support of our customers. While the operating environment has stabilized in recent months and recent budget developments provide improved clarity around future spending, we continue to see higher rates of turnover among our customers, contributing to procurement delays and award timelines, moving to the right. The year-to-date net impact to our financial results from the government's efficiency initiatives remain nominal with an estimated annualized revenue impact of less than 1%. We expect conditions to remain very fluid over the next few months as budget negotiations play out and agencies continue to implement the strategic priorities of this administration. Our initial assessment of the President's government fiscal year 26 budget request is that the overall funding levels and strategic priorities create both opportunities and potential challenges, but on balance are supportive of our growth strategy. We were encouraged to see a solid request for defense spending with a proposed increase of 13%, including reconciliation and political support to provide additional funding in excess of that requested. As the administration prioritizes spending, with a focus on readiness, we do expect certain branches of the DOD to see stronger budget support than others, with a particular emphasis on the Navy, Air Force, and Space Force. While the Army may face a more challenging budget outlook, we believe the balance we have across the Department of Defense, with roughly comparable levels of revenue from these four branches, positions us well to navigate these uncertain times. The mission criticality of our work is evidence by the durability of our portfolio throughout DOGE-related scrutiny in recent months and our ability to support many of the Department of Defense's 17 top priorities as detailed by Secretary Hegseth. We have key programs and demonstrated technical leadership in a number of these, most notably Southwest Border Activities, Homeland Missile Defense, Virginia-class submarines, priority critical cybersecurity, core readiness, and combatant command support agency funding. The strategy we began implementing roughly 18 months ago to pivot our portfolio to mission and enterprise IT aligns with the priorities of the new administration and the acceleration of technology adoption to increase lethality and efficiency. The Space Development Agency's recent decision to include a mission integrator role for Tranche 3 after having not done so for tranches one and two, highlights the importance of integration to achieving complex outcomes on schedule. SAIC was awarded this new cost plus program role in Q1 as part of a $55 million contract where we will leverage our proven expertise in mission integration and digital engineering to drive program success at speed. Regarding non-defense budgets, The areas of focus for SAIC at our five largest civilian agency customers were well supported, including over $1 billion of additional budget for the Department of Transportation to fund improvements at the FAA, over $40 billion to the Department of Homeland Security, focused in part on procuring advanced border security technology, stable funding for our Department of State IT operations, as evidenced by the recent two-year extension awarded for our Vanguard program, specific support for technology improvements to drive greater efficiency at the Department of Treasury, and over $1 billion for the Department of Veterans Affairs to accelerate the modernization of health records and simplification of legacy IT systems. As a reminder, annual revenue from these top five agencies represents over 70% of total revenue for our civilian segment. I will now provide a review of our first quarter business development and financial results. We delivered net bookings of $2.4 billion for a book-to-bill of 1.3, which included securing a key recompete, the five-year system software lifecycle engineering contract for the Army, and an eight-year IT services program for the Pension Benefit Guarantee Corporation. In addition, subsequent to quarter close, we have received awards with a total contract value exceeding $2 billion, including a two-year extension on our Department of State Vanguard program and a large new business win with the Air Force. While certain of the quarter-to-date awards remain in the protest window and may not be reflected in second quarter bookings as a result, we are pleased with the progress we are seeing in our business development efforts. In the first quarter, we submitted proposals with a total contract value of $7 billion, and we're seeing continued strong momentum in submit volume in the second quarter and expect to reach approximately $28 billion to $30 billion for the full year. Our backlog of pending awards remains steady at approximately $20 billion and provides us with good line of sight into continued improvement in bookings as we target 1.2 trailing 12-month book to bill in the coming quarters. While our pipeline and backlog of submissions continues to support reaching this target by the second quarter, it is reasonable to assume that procurement delays could lead to this moving to the right by one to two quarters. We do not expect these potential award delays to materially impact our revenue performance in fiscal year 26 or fiscal year 27, assuming the broader operating environment remains stable. I will now review our first quarter financial results. We reported revenue of $1.877 billion, representing growth of approximately 2% due to the continued ramp on new and existing programs, including T-Cloud, IMDC2, and GMAS, which offset lower revenue from contract completions and transitions. Adjusted EBITDA in the first quarter was $157 million, resulting in an adjusted EBITDA margin of 8.4%. Margin performance was impacted by the typical seasonality of investments, including our healthy submit volumes and higher cost on a fixed price program in our space business. Subsequent to quarter close, we received favorable option period extensions on this program and moved into the sustainment phase of this program, which we expect will contribute to improve financial performance going forward. Adjusted diluted earnings per share of $1.92 was flat year over year as a lower share count offset a higher tax rate and lower adjusted EBITDA in the quarter. Free cash flow was negative $44 million and was impacted by the timing of receivables on two programs, which resulted in approximately $75 million shifting out of the first quarter. Shortly after quarter closed, we caught up on one of those two programs, are making progress on the second, and do not expect this to impact full-year guidance. The delays experienced are not related to program performance, but rather to new personnel and processes in place at certain customers as we navigate these uncertain times with them. Overall, we're off to a solid start in fiscal year 26 with palpable enthusiasm for the momentum we are building across the company. We expect to make further demonstrable progress against our strategy to position SAIC for sustained, profitable growth in the coming quarters and look forward to sharing our results with you. I'll now turn the call over to Prabhu.