Government IT services provider Science Applications International Corporation (NASDAQ: SAIC) fell short of the market’s revenue expectations in Q4 CY2025, with sales falling 4.8% year on year to $1.75 billion. The company’s full-year revenue guidance of $7.1 billion at the midpoint came in 2.8% below analysts’ estimates. Its non-GAAP profit of $2.62 per share was 30% above analysts’ consensus estimates.
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SAIC (SAIC) Q4 CY2025 Highlights:
- Revenue: $1.75 billion vs analyst estimates of $1.77 billion (4.8% year-on-year decline, 1% miss)
- Adjusted EPS: $2.62 vs analyst estimates of $2.01 (30% beat)
- Adjusted EBITDA: $181 million vs analyst estimates of $171.2 million (10.3% margin, 5.7% beat)
- Adjusted EPS guidance for the upcoming financial year 2027 is $9.60 at the midpoint, in line with analyst estimates
- EBITDA guidance for the upcoming financial year 2027 is $710 million at the midpoint, in line with analyst expectations
- Operating Margin: 7.6%, in line with the same quarter last year
- Backlog: $22.62 billion at quarter end, up 3.5% year on year
- Market Capitalization: $4.20 billion
StockStory’s Take
Science Applications International Corporation’s most recent quarter reflected ongoing challenges in government IT services, as revenue declined 4.8% year over year and missed Wall Street expectations. Management attributed the top-line shortfall primarily to procurement delays and customer disruptions, as well as a strategic shift away from low-margin, commoditized enterprise IT contracts. CEO Jim Reagan acknowledged these issues, stating that the company’s “decision to no-bid low-margin Cloud One revenue” and a “nonrecurring software license sale in the prior-year quarter” were significant factors. Despite these headwinds, Science Applications International Corporation delivered stable margins and strong free cash flow, outcomes management credited to recently enacted cost-efficiency efforts and robust execution on core programs.
Looking forward, Science Applications International Corporation’s guidance reflects continued margin improvement, with management targeting a double-digit adjusted EBITDA margin for the first time. CEO Jim Reagan highlighted strategic initiatives including a renewed focus on differentiated, higher-margin work, increased investment capacity from $100 million in cost reductions, and ongoing organizational transformation. He emphasized that “the speed of these innovations is essential for helping our customers address the evolving threat landscape and meet affordability objectives.” Management also pointed to ramping new business wins and a supportive budget environment as potential offsets to ongoing headwinds from recent recompete losses, while cautioning that revenue contraction is likely to persist in the near term.
Key Insights from Management’s Remarks
Management identified the deliberate reduction of low-margin enterprise IT work, procurement delays, and a focused shift toward higher-value programs as the key drivers of recent performance and future priorities.
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Enterprise IT De-emphasis: The company continued its pivot away from commoditized, cost-plus enterprise IT contracts, such as Cloud One, prioritizing work where it can differentiate and achieve higher margins. Management indicated this segment will shrink to about 10% of revenue next year.
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Leadership and Portfolio Realignment: Jim Reagan’s appointment as permanent CEO was accompanied by the hiring of a new Chief Growth Officer, with a mandate to focus on business development discipline and target opportunities with higher win rates and customer retention.
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Margin and Cost Discipline: Despite revenue pressure, Science Applications International Corporation delivered improved margins, supported by ongoing cost reduction initiatives. CFO Prabhu Natarajan cited $100 million in cost reductions as providing flexibility for future investment and margin enhancement.
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Backlog and Pipeline Focus: The company ended the quarter with a backlog of $22.62 billion, up 3.5% year over year. Management emphasized a more selective bidding approach, targeting $25–28 billion in submissions for higher-return programs, while moving away from less differentiated work.
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Technology and Innovation Investment: Science Applications International Corporation is investing in capabilities such as AI-powered network management, mission data platforms, and hardware-software integration centers. Management described these areas as aligned with customer demand for outcome-based solutions and critical infrastructure support.
Drivers of Future Performance
Looking ahead, management expects portfolio focus, operational efficiency, and a supportive government funding environment to shape the company’s performance, while headwinds from recent recompete losses remain a constraint.
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Selective Growth Strategy: Management aims to grow by prioritizing differentiated, mission-critical contracts—especially in engineering, mission IT, and defense—over commoditized enterprise IT. This shift is expected to help mitigate revenue contraction and support margin gains.
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Margin Expansion Initiatives: Continued execution of cost-efficiency programs and organizational transformation is projected to drive margin improvement. Management is targeting a double-digit adjusted EBITDA margin for the first time and expects operational changes to free up investment capacity.
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Budget and Procurement Dynamics: The company views a robust defense budget and increasing urgency around federal procurement reform as tailwinds. However, management cautioned that the full benefit of these factors depends on timely government outlays and the pace at which new business ramps up to offset lost recompetes.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the impact of Science Applications International Corporation’s enterprise transformation on operational efficiency and margin expansion, (2) progress on ramping new business wins and the pace of backlog monetization, and (3) developments in federal procurement processes and budget outlays. Execution on cost reduction targets and the company’s ability to win and retain large recompete contracts, such as the State Department’s Vanguard program, will also serve as critical markers of progress.
SAIC currently trades at $92.64, in line with $91.91 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).
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