Science Applications International Corporation

Good day and thank you for standing by. Welcome to the SAIC Fiscal Year 2026 Second Quarter 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'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 today's conference is being recorded. I would 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 second 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 second quarter of fiscal year 2026 that ended August 1st, 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 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. 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. Overall, our results in the quarter were mixed, with revenue below our expectations, declining 2.7% year-over-year, but profit margins rebounding well from the first quarter by strong program execution. In addition, we delivered a second consecutive quarter, the book-to-bill comfortably over 1.0, driving our year-to-date book-to-bill to 1.4. Our qualified pipeline, plan submit levels, and backlog of pending awards all remain strong. And we believe the investments made and business development processes implemented in recent quarters position us well to capitalize on a rich set of opportunities. As you can see from our revenue performance in the quarter and our updated outlook, we are seeing a more challenging environment than we had previously forecasted. There are three drivers behind this. First, Slower conversion of on-contract growth opportunities into revenue. Second, an increase in the impact from program disruptions. And third, delays on our new business awards. As we highlighted on our first quarter call, our prior revenue guidance for the year of 2 to 4 percent growth assumed several points of contribution from a combination of on-contract growth and new business wins ramping up within a certain timeframe. While recent new business, including Ten Cap Hope with the Air Force and a key program with the Navy, valued at approximately $350 million, will contribute modestly to this year and further ramp in fiscal year 27, on-contract revenue growth has been impacted by funding uncertainty, added scrutiny related to efforts to reduce government spending, and a government workforce dealing with increased turnover. These headwinds have been more pronounced at customers working through particularly meaningful transformation or facing greater budget uncertainty. As you will recall from our first quarter call, we indicated that delays in new business awards would require a greater contribution from on-contract revenue in order for us to meet our plan for the year. Based on trends we've seen in recent months, we now see that as unlikely to materialize. and we've updated our guidance for fiscal year 26 and fiscal year 27 accordingly. Our revised outlook for fiscal year 26 revenue assumes that current trends continue through the remainder of the year with very little contribution from additional new business or on-contract growth. While we believe that much of the revenue headwind we are facing is temporary and will normalize over time, We are taking purposeful action to align our cost structure with the more challenging revenue environment expected over the next several quarters. As we highlighted on last year's Q3 call, our cost structure is variable and the preparation we have taken in recent quarters positions us well to respond appropriately with cost efficiency initiatives to mitigate the impact on EBITDA and free cash flow from lower revenue. While some of these initiatives are already underway, we will discuss the specifics in greater detail on our third quarter call. The savings resulting from these initiatives give us greater confidence in our ability to continue to deliver margin improvement while investing appropriately for growth and value creation in the coming years. Given the relative magnitude of our revision to revenue, I want to be very clear that the revised outlook assumes that impacts from on-contract growth and new business award delays continue, which we believe is a prudent assumption given the current market. As a result, we see the updated guidance range is appropriately de-risked based on our current assessment of market conditions. Now, while the current market volatility and the impact it is having on our near-term revenue is disappointing, I'm encouraged by the signs of progress we're seeing in the execution of our strategy. When I became CEO approximately two years ago, the strategy review we completed indicated that substantial changes were needed across many facets of the business in order for SAIC to regain a position of leadership and maximize long-term value for our employees, customers, and shareholders. We knew that the path towards regaining the leadership would not be linear. While this quarter's results, revised outlook, and recent market volatility have been challenging, and we are addressing them head on, I will draw your attention to factors that are most relevant for our success beyond this period of revenue softness and over the long term. Our year-to-date re-compete win rate is in line with our target, and our planned re-competes over the next 12 months are fairly typical, with a handful of programs in the 1 to 3 percent of revenue range. We expect to show continued progress over time in sustaining our re-compete win rate at current levels. Our win rate on new business is also roughly in line with our target, as we have been successful on two of the six larger pursuits adjudicated year-to-date. As I indicated earlier, our pipeline of expected awards in the coming quarters remains solid. Restoring our recompete win rates to our target range and winning our fair share of new business pursuits while increasing our submit levels is a good formula for sustainable growth over the long term. We are encouraged by the political support to provide solid levels of funding in areas including border security, FAA modernization, and homeland missile defense. However, we expect this administration's focus on efficiency to continue and suspect that budget timelines are likely to be dynamic in the coming quarters. We remain confident that our strategy and business model position us well to adapt and win by delivering outcomes at speed for our customers. We are seeing increased opportunities to drive greater efficiency across our business as we leverage artificial intelligence for core operations. We expect this to materialize as an incremental tailwind to margins and savings for our customers in the coming years. I want to conclude by thanking our employees for their dedication and focus. During our recent quarterly review of the business, I emphasized to our teams the importance of culture, leadership, and employee engagement as we continue to navigate a dynamic market and more challenging near-term revenue outlook. I am proud of how we've shown up for our customers and each other over the past several months. Our culture, anchored around our dedication to the mission of national security, positions us well to grow and create long-term value for all of our stakeholders. I'll now turn the call over to Prabhu.