Science Applications International Corp

F:85S

Earnings Call Analysis

SAIC's Strong Q2 and Optimistic Future Projections

SAIC's second quarter showed solid performance with a 2% increase in organic revenue as new business wins offset a 5% headwind from contract transitions. Adjusted EBITDA was $170 million with a 9.4% margin. Adjusted diluted EPS rose to $2.05, benefiting from a 19.5% tax rate. The company repurchased $201 million in shares and plans to exceed $400 million for the year. SAIC reaffirmed its revenue, adjusted EBITDA, and free cash flow guidance, with a slight increase in EPS guidance to $8.10-$8.30. The company targets a book-to-bill ratio of 1.2x by FY '26 and aims for 5% organic revenue growth by the end of FY '26.

Introduction to SAIC's Recent Performance

During the second quarter of fiscal year 2025, SAIC demonstrated a resilient performance despite facing some challenges. The company's strategic focus on new business wins and effective cost management helped offset the impacts of contract transitions. SAIC's organic revenue growth stood at 2% year-over-year, with notable contributions from recent contract awards and on-contract growth. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) reached $170 million, representing a solid 9.4% margin.

Strategic Progress and Future Outlook

SAIC's leadership outlined a comprehensive growth strategy focusing on four key pivots: portfolio optimization, go-to-market effectiveness, cultural transformation, and brand enhancement. The company reported a significant increase in its bid volume, with $14.5 billion in submissions during the first half of the year, aiming to exceed $22 billion by year-end. The strategic initiatives are expected to drive long-term shareholder value, positioning SAIC for higher bookings and margin improvement over the coming years.

Guidance and Financial Projections

SAIC reaffirmed its guidance for full-year revenue, adjusted EBITDA, and free cash flow. The company adjusted its guidance for adjusted diluted earnings per share (EPS) to a range of $8.10 to $8.30, an increase due to a favorable tax rate and reduced share count. Revenue growth is projected in the range of 1.5% to 3.5%, factoring in a 5% headwind from recompete pressures. The company anticipates second-half revenue growth primarily driven by ramping volumes in newly won businesses and sustained on-contract growth.

Capital Deployment and Shareholder Returns

SAIC has been actively returning capital to shareholders, with $220 million returned in the quarter, including $201 million in share repurchases. The company intends to exceed its previous target of $350 million to $400 million in share repurchases for the year, while maintaining capacity for strategic mergers and acquisitions (M&A). This capital deployment strategy underscores SAIC’s focus on enhancing long-term shareholder value.

Business Development and Market Opportunities

SAIC's business development momentum continues to build, with net bookings of $1.2 billion, resulting in a book-to-bill ratio of 0.6x for the quarter and 1.1x on a trailing 12-month basis. The company’s growth strategy is also making headway, particularly in the Civilian market and within Enterprise and Mission IT sectors, which are expected to be the key growth drivers. SAIC is targeting a book-to-bill ratio of 1.2x by the first half of fiscal year 2026, with organic revenue growth aligning with a longer-term target of 5%.

Challenges and Competitive Landscape

Despite the positive outlook, SAIC faces competitive pressures, particularly in recompetes and budgetary constraints in defense spending. The company is strategically positioned within bipartisan-supported civilian agencies like the Department of Homeland Security and the Department of Transportation, which buffers it against potential political upheavals. Additionally, SAIC's focus on technology integration and innovation within national defense segments positions it well to capture share gains even in a flat defense spending environment.

Conclusion and Investor Confidence

SAIC's leadership remains optimistic about the company's growth trajectory and its ability to deliver sustainable value to shareholders. With a strategic focus on portfolio differentiation, optimized investment planning, and a robust business development pipeline, SAIC is well-positioned to achieve its long-term financial targets and drive shareholder returns. The reaffirmation of guidance and an aggressive capital deployment strategy further buttress investor confidence in the company’s future prospects.

Earnings Call Transcript 2025-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the SAIC Second Quarter Fiscal Year 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to your first speaker today, Joseph DeNardi, Senior Vice President of Investor Relations, Treasurer. Please go ahead.

[Joseph DeNardi, executive]

Good morning, and thank you for joining SAIC's Second Quarter Fiscal Year 2025 Earnings Call. My name is Joe DeNardi, Senior Vice President of Investor Relations and Treasurer. And joining me today to discuss our business and financial results are Toni Townes-Whitley, our Chief Executive Officer; and Prabu Natarajan, our Chief Financial Officer.

Today, we will discuss our results for the second quarter of fiscal year 2025 that ended August 2, 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 Factors 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, Toni Townes-Whitley.

[Toni Townes-Whitley, executive]

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 5 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 we'll 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 customer's 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. Prabu 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% year-over-year as increases from new business wins and on-contract growth were partially offset by an approximately 5-point headwind from contract transitions.

Adjusted EBITDA of $170 million and margin of 9.4% reflect solid program performance. Due to revised bid thresholds we 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 Prabu 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 FY '25 and sustain momentum into FY '26.

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 4 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 ability 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, 2 of the 4 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% 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 2 to 3 quarters with the associated revenue impact following 1 to 2 quarters later. This should translate into a book-to-bill of 1.2x 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 Prabu.

[Prabu Natarajan, executive]

Thank you, Toni, and good morning to those joining our call. I will now provide a review of our business development results, updated outlook for the fiscal year and our capital deployment plans. Net bookings of $1.2 billion resulted in a book-to-bill in the quarter of 0.6x and 1.1x on a trailing 12-month basis. We submitted approximately $6.5 billion of total contract value in the quarter, bringing the year-to-date submitted bids value to approximately $14.5 billion. We are encouraged by the momentum and increased velocity we are seeing within our business development organization and remain on track to exceed our target for $22 billion of submissions this year with further growth in FY '26 and FY '27 beyond our initial estimates. The processes and metrics we have put in place give me confidence that we will be able to improve our business development and capture outcomes over the next few years.

We returned approximately $220 million to shareholders in the quarter, including $201 million of share repurchases, reflecting a planned increase in our pace and opportunistic repurchases on top of that. We remain on track to exceed the high end of our prior target of $350 million to $400 million in repurchases for the year. We intend to achieve this while maintaining sufficient capacity for M&A.

I'll now provide an update on our outlook for the year. We are reaffirming our prior guidance for revenue, adjusted EBITDA and free cash flow. We are increasing our guidance for adjusted diluted earnings per share by $0.10 and to a range of $8.10 to $8.30, due to a lower tax rate and share count offsetting modestly higher interest expense. Our revenue guidance, which reflects pro forma organic growth in a range of 1.5% to 3.5% continues to assume an approximately 5% headwind from recompete pressures. At the midpoint, this implies an improvement in our second half growth compared to first half results. We expect the improvement to be driven primarily by the further ramp-up in volume on previously won new business and continued momentum from on-contract growth.

Consistent with what we communicated last quarter, and based on our expectation for 3Q and 4Q revenue growth as provided on Slide 7, we see the midpoint to the lower end of our revenue guidance as more likely than the higher end. We are reaffirming our prior guidance for adjusted EBITDA in a range of $680 million to $700 million and margin in a range of 9.2% to 9.4%.

We are reaffirming our free cash flow guidance of $490 million to $510 million and expect to sustain the momentum we built during a very strong second quarter. Our capital deployment strategy remains focused on maximizing long-term shareholder value. We have confidence that the strategy we are executing will produce free cash flow growth in excess of what is implied by current market valuations.

Given this view and the opportunity we see to drive significant improvement from our existing business, we expect our threshold for M&A to remain high and capital deployment to remain targeted on our repurchase program. However, we retain sufficient balance sheet flexibility to add differentiated businesses to our company should an opportunity meet our risk-adjusted threshold for returns.

In closing, I am proud of the team's focus on delivering value for our shareholders and on executing our strategy to drive sustainable growth going forward. The progress we are making is clear and will begin converting into stronger financial performance in the coming years.

I'll now turn the call over to begin Q&A.

[Operator]

[Operator Instructions]. Our first question comes from the line of Matt Akers of Wells Fargo.

[Matthew Akers, analyst]

I wanted to ask about the comment about book-to-bill getting to 1.2x [indiscernible] what gives you confidence to get there? And specifically, just curious if there are any new big kind of new work opportunities that we should watch out for?

[Toni Townes-Whitley, executive]

Matt, it's Toni. Thank you for the question. Thank you for joining us on the call. Yes. There are a couple of indicators that get us more comfortable around that kind of book-to-bill expectation. One is just the submission rate, as you've seen. We are at $14.5 billion now against last year was $17 billion full year. We fully expect to surpass our $22 billion expectation on our submissions this year and feel strong about that.

Second, we're also submitting -- we have a larger qualified pipeline, and we see the size of that qualified pipeline increasing quarter-over-quarter. We're sitting with about $10 billion of submitted bids at this point, pending award. And so and 2/3 of those being, definitely, the third being recompetes. And so when you look at this, the shape of our pipe, what we've submitted, the velocity, we feel strongly that we've got all of the indicators that drive to a north of 1.0x into the 1.2x range of book-to-bill in the next 12 months.

[Matthew Akers, analyst]

Got it. And I think you also called out in the opening remarks, I think civilian maybe a little bit of a focus area. I guess one of the questions I get from people is, depending on who wins in November, maybe the budget shifts one way versus the other defense versus nondefense. Is that a consideration? And just how you think of civilian versus defense?

[Toni Townes-Whitley, executive]

Yes. No, thank you for that. Look, we get that question a lot. If you look at our portfolio, we have called out civilian as 1 of our 4 growth vectors. We find that to be not only a large addressable market for us, but also one that's fairly accretive to our portfolio.

But if you look at where we're positioned in the civilian agencies, agencies like Department of Transportation, Department of Homeland Security, State Department, VA and others, we feel like we are inoculated from any major swing post-November from a partisan perspective. We are in agencies that have bipartisan support and have had that for many, many years. And we're positioned in those agencies, both across enterprise, IT and sort of mission-critical IT, which tends to be generally funded going forward. So we feel pretty strong there in terms of the defense and national security, look, we believe that there'll be political support for defense spending, given the global environment, geopolitical challenges that the country faces. We also happen to be, I would argue, across areas of national defense that are integrating more technology, more innovation, and that's where we're positioned. So we feel like in both regards, our portfolio is balanced and stable enough to be able to continue to move forward and grow independent of the progress and outcome.

Look, defense spending, we think, is going to be flat. I mean, I think everyone's made that call. And so it becomes a shared gain. But again, we feel like we're positioned with the right differentiators in our portfolio. Prabu, any thoughts you might have on that?

[Prabu Natarajan, executive]

Yes, the only thing I would add, Matt, to that would be that we are looking to add market share in the civilian space. I would say we are somewhat underrepresented as a percent of market share in that area. And therefore, as we look at our pipeline, it continues to reflect towards higher levels of new business even in the civilian space. So that's why we're cautiously optimistic that there's a real opportunity to gain market share.

[Operator]

Our next question comes from the line of Jason Gursky of Citi.

[Jason Gursky, analyst]

Just a quick question on the bidding activity that's going on. I'm wondering if you can just give a sense of what the contract types that you're chasing look like? And kind of what the risk around execution is on all the bids that you're chasing at this point? And whether it kind of is any different than what you've kind of wrestled with in the past?

[Toni Townes-Whitley, executive]

So look, when we think about our bid, sort of our bid profile, we are tracking and increasing our bidding into our growth vectors. So we are bidding more into civilian. We are bidding more into enterprise and mission IT than we have. And each of those has its own its own sort of characteristic in terms of with enterprise IT, the risks that go from end-to-end IT operations all the way through cloud at an enterprise level to mission-critical IT, which has its own risk portfolio. We are bidding more fixed price than we have in our backlog and our current contract portfolio, we're bidding more fixed price deals. And that is another area that we said was part of the pivot to move more into some fixed-price engagements. And so we are about 10 points up on the difference between what's in our backlog and what's in our bid pipeline on fixed price.

Overall, we're also bidding, as I mentioned into the growth factors, we're also bidding in areas of differentiation. So we are tracking the bids with the use of our factory differentiators. And we see an increase in uptick in the use of those differentiators across operational AI, digital engineering, secure cloud as well as some of the work that we're doing with data platform, secure data platform.

So when we think about the complexion of our bid price -- of our bidding, we be ourselves bidding more strategically, bidding more margin accretively, which we've seen a higher bid margin in what's going out the door than what has been in prior years and we see ourselves bidding in areas that leverage our differentiation. So in that regard, I feel like, and obviously, fixed price. So in that regard, I feel like the future bodes well, you still have to win them. So let's just acknowledge this -- we're bidding more, we feel better, we're bidding better, but we still have to win. We have to execute. We mentioned execution risk. We're also tightening with our enterprise operating model, our execution expectations with our program managers. And so we are really refining and adding more metrics and more review and more monitoring quality assurance as it relates to executing these bids, particularly our mission-critical work. Prabu, any thoughts there?

[Prabu Natarajan, executive]

Toni, that was perfect. Jason, the only thing I would add is that over the course of the last few years, as we do the debriefs on our wins and losses, we know that on average, we tend to do just fine on cost and we've fallen short on technical differentiation. So part of the enterprise operating model is to get the solution architects working directly with the capture teams to ensure that we are crisply putting together, a technical proposition that we can execute to.

Our history with fixed price work is actually pretty good. We've actually executed the work at good margins. So for example, most of the civilian portfolio happens to be fixed price and T&M work. And as you can see, we're comfortably in the double-digit EBITDA margins there on that work. So I'd say it's a little more of, let's not be that cost-conscious, let's actually focus on getting the right solution in place and then how do we start executing in a way that gives us comfort that we can actually get to these thresholds that we are anticipating the program to use to get to. So a lot of work going around just the muscles required to execute effectively. But I think the most important thing I would say is -- we want to take good shots and that means not being rash. We're not chasing growth for the sake of growth. As we've said on calls before, it's vitamins, not calories. Thanks Jason.

[Jason Gursky, analyst]

Right. Okay. And if you don't mind, just a quick follow-up to that double-click a touch on the firm fixed-price bids that you're chasing. The firm fixed price development hasn't been such a great story across the industry over the last number of years. I'm just kind of curious how mature the technologies are that you are leading with on some of these firm fixed-price bids and how much work do you think you've got ahead of you to still develop some of the solutions that you're trying to solve forward?

[Toni Townes-Whitley, executive]

Jason, I think it's a fair statement. When I look at our portfolio, though we, why we made some investments, quite frankly, in the differentiation coming out of the factories that we would lead with that differentiation where we've been able to build up our capability, probably have said we've got track record of delivering fixed price with solid estimates that complete meeting the financial profile, meeting the customer expectation. We don't have sort of disastrous fixed-price programs as many organizations has had to face.

We're leading with our secure multi-cloud. We're leading with our digital engineering capabilities. We're leading with our data platforms and our operational AI capabilities generally when we're introducing new solutions into this space. And quite frankly, we're ensuring that we have the right human capital answer, meaning individuals program managers who have led fixed price engagements and tightening all of the controls around how we deliver fixed-price engagement and monitor it over time.

So right now, we're not feeling overly concerned about increasing our fixed price portfolio. But of course, we've got quite a bit of attention to day-to-day execution to meet the customer expectation.

[Operator]

Our next question comes from the line of Seth Seifman of JPMorgan.

[Seth Seifman, analyst]

I wanted to ask, you mentioned probably exceeding the goal for submitted bids this year. And it would seem you're very much on the way to doing that. I guess what led to the submitted bids in the first half being so much higher? Is there a particular reason why you -- and is there a particular reason why you see the opportunity set in the second half being so much lower? I mean it would seem like you're probably on a pace to have submitted bids on par with what you're looking for in fiscal '27 right here in fiscal '25?

[Toni Townes-Whitley, executive]

Well, we appreciate that forecast, though. Let me first say that why the focus on and what's happened in terms of submitted bids. Part of centralizing the business development function. When I first came in, Seth, was we get to a standard process and set of protocols, quite frankly, into how we bid and the acknowledgment that over the last 3 years, our bid velocity has been dropping and that we needed to reverse that if we were going to underpin the kind of growth that we are setting is expectations for ourselves.

And in doing that, the centralization allowed us to allocate resources much more dynamically across the full enterprise towards the bids that needed our attention, the quick determination of whether a bid was qualified, so increasing our conversion rate to from an unqualified to a qualified bid. And again, the resource allocation of our talent towards those bids. That's all improved our submission process in terms of the number of bids. And quite frankly, I would argue changing some thresholds in terms of the role of the ELT, our executive team in reviewing our bids and many more bids that we take a look at on a weekly basis have improved the quality of those bids and setting a measure of what a good bid looks like.

When we look at the year, we are pleased with our progress. There's absolutely no question that we are on a great pace. We have bids that move out, as you know, every quarter, and we have a few key bids that are right on the cusp, large bids that are on the cusp of our fiscal year. And so those of us who've been in the industry for a while know that when you start to get to the cost to in fourth quarter bids, you start to sort of almost have to handicap that amount, that number to make sure that you can really pull them into the fiscal year.

So do I feel good about us exceeding '22? Absolutely. I feel good about it. Do I -- do we overstate that we change that? Right now, no, we're halfway through. We see it. We've got line of sight. We feel good about it. As we go into next year as well, we've got quite a bit of submitted bids that they're pending, and we're excited about what that might mean for fiscal year '26.

[Seth Seifman, analyst]

Okay. Okay. Excellent. And then just maybe following up, taking to the next step beyond bids to the awards and you have an outlook for book-to-bill. When you think about what's in front of us in terms of CR and most likely and an election and the protest that we often see around all kinds of contracts, to what degree is there still risk around your kind of book-to-bill targets for those items? Or do you feel like you've kind of handicapped all of those fairly well in the book-to-bill outlook?

[Toni Townes-Whitley, executive]

Seth, I'm going to let Prabu speak to that, and I'll add any color.

[Prabu Natarajan, executive]

Seth, so look, I think as we think about where our backlog is right now and the volume of the bids that are awaiting adjudication. We like to calibrate our expectations around book-to-bill for the year based on many things, including the things you mentioned. So I think that's the way we're thinking about it. Thankfully, we're sitting in a place where there is enough volume in the pipeline that 1 or 2 things moving out of the year would not have a material outsized negative impact to our expectations for book-to-bill, as Toni, I think, correctly pointed out, I think our expectation is to get to a book-to-bill that's comfortably north of 1.0x, and hopefully, we keep the volume up. One of the benefits of I was going to add the benefit of increasing the qualified pipeline and the backlog of submitted bids is that's not emotion in perpetuity. In other words, there's a point at which you've got enough pipeline and you've got enough in the way of submitted bids. It becomes a question of, can you replicate that consistency in volume over multiple years? And candidly, one of the richest of having a rich backlog is that you get to actually improve the kinds of things you go after. So I think there's more of a focus on the quality of what's in the backlog in the pipeline, versus just increasing the absolute volume there.

[Operator]

Next question comes from the line of Bert Subin of Stifel.

[Bert Subin, analyst]

Maybe just to start, I guess, following up on Seth's questions there. I mean if we look at the fiscal second quarter coming in at 2% organic, I guess this is really like 7% organic, probably you've called out 5 points of recompete headwinds. And maybe normally in a year, you would have some headwinds, so maybe it's like 6% organic, but that being pretty good. Can you just break down maybe what the components that are driving that is versus from new awards ramping to on-contract growth to other items?

[Toni Townes-Whitley, executive]

Yes. So, Bert, we as we look at Q2 and even looking forward to H2, we've got ramping of existing programs, right, that have been won earlier in the year or prior year that we see on the civilian side, which with the T-cloud in our Air Force business, you've seen with our AOC and our Cloud One, probably just recently seen an extension of our Cloud One business at $262 million, I think, is recruited there.

So we have the sort of ramps that are happening. And then we have long contract growth occurring, particularly in our civilian and our Army businesses and some significant on-contract growth that's occurring there. It's a combination of those that not only provided the uplift on the second quarter, but is what we anticipate to help us close the year as we've indicated.

We even have a new business win in our combat and command that is going to probably start to ramp even towards the end of this year that will add a little bit of relief but what we have to be aware of is that there's still risk. There's still risk. We have that 5-points that you mentioned that we'll have throughout the full H2, that 5-point headwind that we are dealing with. We know it will ease going into fiscal year '26, but we have to -- it's really an all hands on deck field that everybody is pushing for growth with your existing contracts, ramping and obviously, ramping in an environment where there's a lot still happening, politically, a lot happening in Congress and so. And a lot happening with our customers. So we're trying to be thoughtful about how we think about revenue growth here, but we are still fairly positive that we can stay within the guidance that we have offered.

[Prabu Natarajan, executive]

Thank you, Toni. And Bert, the only thing I would add is in DTAMM is expected to ramp a little more in the second half relative to the first half. That's a program we won earlier this year. So that program has not ramped in any material sense. T-Cloud will be a growth driver for us in the second half of this year. And of course, the program that Toni just referred to in our Air Force Combat and Command business, that is also expected to ramp in the second half of this year. So we've got some good momentum on things that are either already in backlog, and we expect to grow off of or things that we are winning, we're not just focused on contract growth here. There are some good growth drivers.

[Bert Subin, analyst]

Toni and Prabu, just 1 follow-up. The 2% organic, particularly with the recompete was positive. And then when you put it into the context of O&M outlays only being up 1% and that quarter looks certainly better. As we think about the current quarter, can you give sort of any early indications to what you're seeing? I know you've given the 1% to 3% viewpoint, but outlays were up 19% in July. We have the potential for maybe a significant budget flush going into an election year. So I'm just curious, from an on-contract perspective, do you think there are maybe more opportunities out there?

[Prabu Natarajan, executive]

Bert, I'll take that first part of the question here. So in terms of outlays, I think you're exactly right. I think we are expecting outlays to be normal as one might define normal. We do think that we started to see a little bit of a pickup in the outlays, maybe in the July time frame. Our sort of internal views at that typically translates to maybe higher levels of revenue growth in about 3 to 6 months. So as we sort of close out the year starting next year, we will expect to see some of that outlay in -- or do our benefit, obviously, last year was a fantastic year for outlays, and this year feels a little more normal. But there's, again, that's why the focus on making sure that we're bidding the right kinds of work. And overall, we expect the environment to remain supportive, but we're not bullish about that happening anytime soon.

[Toni Townes-Whitley, executive]

And Bert, I think you heard what the Q3, if you're looking at a Q3 outlay environment that you think it's slightly increasing probably has just indicated that's not a one-for-one by timing. There's about a 3-month lag. You can see that our Q4 guidance suggests a higher growth in Q4 than Q3. So we're aware of the outlay environment we think is reflected in the call.

[Operator]

Our next question comes from the line of Tobey Sommer of Truist.

[Jack Wilson, analyst]

This is Jack Wilson on for Tobey. Can we just double click on sort of the growth trajectory for some of those bigger contracts that were mentioned, sort of the Air Force work and the GMASS work specifically?

[Prabu Natarajan, executive]

Sure. Sure. I'll do that, Jack. I'll take a first stab at it. I think DTAMM was a program on earlier this year. It's a $450 million program, roughly the way the program works is to technical directives. So we call them PDLs in our business. And that takes a little bit of time to ramp as we sit with the customer and sort of plan out the year with them. And so that program is expected to ramp in the second half of the year. T-Cloud was obviously a big win for us a little over a year ago, and obviously, we are well on the ramp. We said T-cloud will get to between 1% to 1.5% of total company revenue this year with some expected growth to maybe up to 2% next year. So that one is a growth driver and then the one in Air Force. That's a new takeaway win and that's expected to add about, let's call it, $30 million or so a year, starting hopefully in the Q3 time frame. So we'll certainly provide a little more other, but that's just a sample of the 2 or 3 things that we called out.

[Jack Wilson, analyst]

Okay. And maybe as a quick follow-up. Can you just speak to how this Space franchise compares to sort of the rest of the company as a whole in terms of growth and margins?

[Prabu Natarajan, executive]

Sure. So I think, as you know, we've got a good chunk of a space [ CEDA-work ] at many of the restricted customers. That is a really good portfolio that is solidly margin producing as well as a good cash generator for us. So we like our positioning. Having said that, I think the team there is doing a really nice job continuing to inflect that portfolio towards non [ CEDA-work ] Obviously, DTAMM is an example of that win capability that we can take some of the expertise we have in the [ CEDA ] space and go build a market outside of [ CEDA. ] So that one was an important win. GMASS was another program we won last year that was a takeaway from one of the primes, and that is another program out there that the team is executing on that is really interesting. And then, of course, we've talked publicly about BMC3, which is real-time software development for the SDA. So there is a good balance. I think we are developing between CEDA and non-CEDA, but our objective is the CEDA business is a really high-quality business. and we're developing a non-CEDA business as we go here.

[Toni Townes-Whitley, executive]

And I would say that a non-CEDA business is moving into mission IT, and that's the important part of our portfolio shift is what we believe to be the more critical and more tech heavy, if you will, tech-enabled mission IT within space, but will be more accretive over time.

[Operator]

Our next question comes from the line of Cai von Rumohr of TD Cowen.

[Cai Von Rumohr, analyst]

Yes. Thanks so much. So the 1.2x book-to-bill, is that -- are you defining that as trailing 12 months or in the second quarter. And then secondly, what does that assume about your win rate?

[Prabu Natarajan, executive]

So Cai, the first part of the question, it is trailing 12 months. And I think in terms of what it implies for win rates is, I think it assumes that business win rate, and we've said this publicly before, it is higher than 30%, comfortably higher. And so I think it -- we expect our new business win rate to be sort of where the industry is on new business. And we are expecting to get our recompetes back to what's normal for the industry, let's call it high 80%, approximately 90%. So that's what we're assuming.

At this point, the only known recompete headwind going into next year is NCAPS. And that's about a little over 1%. And so I think maybe even to Bert's question on earlier on the call, when we have 1% or 2% recompete headwinds, then organic growth tends to be mid-single digits, and we demonstrated that last year with 7.5% organic growth with a headwind of 1% to 2% on recompetes, so that's what we're assuming in terms of the math. Obviously, a lot that goes into what's getting bid and what we're expecting to show up before the end of the year, but that is what we've assumed, Cai.

[Cai Von Rumohr, analyst]

And in terms of recompete, I mean, you mentioned, I don't know whether that was evolved. What is the status of that recompete and also very importantly, S1, because that's your bigger contract. What is the status of that potential recompete?

[Toni Townes-Whitley, executive]

So Cai, I heard the first part of your question on Evolve, I may have to ask you to repeat the second part of the question.

The first part of the question on Evolve. As you know, that's an ongoing procurement, we're super pleased about our current performance with that contract and with that customer set. As it continues to move right, we expect that there will not be any award activity until beginning of next year possibly and even that followed by an extended protest period that would probably have any revenue impact or change late fiscal year '26 maybe early fiscal year '27. So if that continues to move right, we're focusing on our performance on that contract. As you know, that's a consolidation of many contracts. So there's upside potential, there's obviously a risk on recompete there. But overall, we're very pleased with what we're hearing from the customer on our performance there, and we think we're positioned but don't see that having a '26 impact immediately.

What was the other?

[Cai Von Rumohr, analyst]

The other one was the Army S1 contract.

[Toni Townes-Whitley, executive]

Yes, we happen to be sitting here in Huntsville. So it's appropriate for us to comment there. So look, the timing of that, we believe, is probably on the cost towards the end of our fiscal year, beginning of the next fiscal year is our timing. We feel very, very solid about our performance to date. And obviously, this is the first of a series of contracts of recompete for the next 18, 24 months with this customer set. But for this, and one of the largest of the recompete we feel very, very solid about it. But the timing, we are now sort of thinking about it in the fiscal year '26 time frame in terms of the actual award.

[Prabu Natarajan, executive]

And Cai, the only thing I would add is last time on the AMCOM recompete as it was known about 5 years or so ago, we went [ 444 ]. The team is doing an amazing job and great relationships here, and we're hoping to keep the streak alive.

[Cai Von Rumohr, analyst]

And refresh my memory, is this to be bid similar to OEM compass bid in terms of separate packages? Or what's the structure you're looking at for this bid?

[Toni Townes-Whitley, executive]

I think we're looking at a very similar structure. We have 4 separate contracts, and this is the first of the 4 guide that shows up, as I said, in the January, February time frame is when we're expecting that award.

[Operator]

Our next question comes from the line of David Strauss of Barclays.

[Joshua Korn, analyst]

This is Josh Korn on for David. Just wanted to ask about the drop in civilian margins over the last 2 quarters and sort of what the trajectory is there, how variable those would be over time?

[Toni Townes-Whitley, executive]

Yes. So Josh, just to put it in context on civilian the year-over-year comparison, we had a major -- a high revenue activity that happened last year. One time, sort of a nominal surge of revenue in one of our programs that was not repeatable this year as well as the ramp-up of some of our new programs in civilian has had a lower margin start. We fully expect this as a tailwind as the margin is coming up over time on those programs, so we talk about moving into H2 with contract, on-contract growth as well as ramp up the civilian portfolio is ramping up and the margin expectations on execution are higher than where we started. And so we feel like we'll be back in the range, the appropriate range for civilian minus that onetime event of prior fiscal year.

[Operator]

Thank you. I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.