Science Applications International (NASDAQ:SAIC) CFO Prabu Natarajan said the company reduced its fiscal 2027 revenue guidance following two major recompete losses and a softer late-quarter revenue environment that highlighted uneven government funding flows and slower-than-expected program ramps.
Guidance cut follows two recompete losses and slower funding flow
Natarajan said SAIC had previously expected fiscal 2027 revenue growth to be flat to up 3% and had indicated it would likely land at the low end of that range if it lost an Army Corps of Engineers recompete representing about 3% of revenue. SAIC later lost that recompete, and also lost Cloud One, another recompete representing roughly 1% of revenue.
Q4 revenue softness tied to January compression and timing items
Asked about fourth-quarter revenue appearing light by about 2%, Natarajan attributed the shortfall primarily to a slowdown in January, SAIC’s twelfth fiscal month. He said growth rates were “fine” in November and December but “compressed” in January.
He also cited several contributors:
- Residual disruption from an earlier shutdown, which he estimated at roughly $5 million to $10 million, as recovery did not fully occur.
- Disruption from Hurricane Fern and winter weather in the Washington, D.C. area, which led to certain customer shutdowns for close to a week.
- Materials timing shifts, with some materials expected in Q4 slipping into Q1 of fiscal 2027.
Breakdown of the revised fiscal 2027 revenue impact
Natarajan said the revised guidance reflected approximately a 5% reduction in sales. He outlined the mechanics as a combination of recompete losses and more conservative assumptions on growth and ramps.
For the former Army Corps of Engineers work, he said SAIC assumed about a $200 million year-over-year impact tied to CastleNet (formerly RITS), with some transition revenue expected to extend into at least the first half of the first quarter, and possibly later. For Cloud One, he cited an impact of about $75 million. He said the remaining reduction came from lowering assumptions around “robustness” of on-contract growth and the ramp of new work already won, which he described as adding roughly another 1% headwind.
Signposts for returning to growth: on-contract trends and program ramps
Looking ahead, Natarajan said the company is watching for improvement in on-contract growth and a faster ramp on recently won programs. He said SAIC’s guidance assumes on-contract growth of roughly 1% to 3% throughout the year, which he described as near the low end of what the company has experienced over his five-year tenure, compared with prior peaks of 7% to 8%.
He also pointed to three wins that are in backlog but ramping slowly:
- Air Force TENCAP, described as a $1 billion program won last year.
- Navy ATSO, described as $350 million over five years, or roughly $75 million per year.
- Army OSINT work, described as a takeaway win from BAE Systems worth about $75 million per year.
He said the revised guidance assumes only nominal contributions from these programs, despite his view that “the funding is there” and the work is appropriately reflected in backlog. Natarajan added that eventually lapping the CastleNet and Cloud One headwinds would also improve comparisons in the following year.
On backlog, he said SAIC’s trailing twelve-month book-to-bill was 1.2 through the first three quarters, and the company expected to finish fiscal 2026 with a trailing twelve-month book-to-bill above 1.0, although he noted numbers were still being finalized.
Portfolio focus: selectivity in large DoD enterprise IT and emphasis on mission work
Natarajan said SAIC is seeing increased commoditization in parts of the enterprise IT market, particularly large Department of Defense cost-plus contracts, where he said it can be harder to differentiate offerings. He tied that dynamic to a pattern he observed in SAIC’s recompete losses over time, and said the company intends to be more selective in which large enterprise IT opportunities it pursues.
He contrasted that with SAIC’s performance outside enterprise IT, saying non-enterprise IT recompete win rates have been between 85% and 90% over the last five years, with new-work win rates around or above 50%.
He said “large enterprise IT” represents roughly 10% of the company, or about $700 million out of a $7 billion base. Within that segment, he highlighted two major programs:
- Department of State’s Vanguard, which he said is being broken into five components; SAIC is bidding four workstreams and expects to retain its share, while acknowledging it may not keep 100% of current work. He added that the overall Vanguard program is expected to become larger as additional incumbent work rolls in.
- Department of the Treasury T-Cloud, described as a $1.3 billion program with four years remaining and still ramping, which he said the company expects to grow from fiscal 2026 into fiscal 2027.
On capital allocation, Natarajan said SAIC’s discounted stock price raises the bar for acquisitions versus buying back shares, while noting an executive order discussion around prioritizing investment over buybacks could become a factor. He said the company remains selective on M&A, favoring small tuck-in deals, and noted SAIC’s recent acquisition of SilverEdge. He also said SAIC has operated a venture program for about five years and made two or three investments last year, including one that later went public through a SPAC.
Natarajan also said the board is in the process of searching for a permanent CEO and that an announcement could come “within the next few quarters,” emphasizing a desire for an execution-focused leader with a track record of creating shareholder value. He added that SAIC is investing in training and talent retention as it begins what he described as an end-to-end transformation process.
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.
