Science Applications International Corporation (SAIC) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the SAIC Fiscal Year 2026 Second Quarter Earnings Conference Call. [Operator Instructions]. Please be advised, today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joseph DeNardi, Senior Vice President, Investor Relations and Treasurer. Please go ahead.

Good morning, and thank you for joining SAIC's Second Quarter Fiscal Year 2026 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 2026 that ended August 1, 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 Factors 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 formation for investors and both our press release and supplemental financial presentation slides include reconciliations to the 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.

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 with a book-to-bill comfortably over 1.0x, driving our year-to-date book-to-bill to 1.4x. Our qualified pipeline, planned 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% growth assume several points of contribution from a combination of on-contract growth and new business wins ramping up within certain time frame. While recent new business, including TENCAP HOPE with the Air Force and the 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 plans for the year. Based on trends we've seen in recent months, we now see that is 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 a more changing 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 as 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 recompete win rate is in line with our target. And our planned recompetes over the next 12 months are fairly typical with a handful of programs in the 1% to 3% of revenue range. We expect to show continued progress over time in sustaining our recompete 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 remain 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 emphasize 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 Prabu.

Thank you, Toni, and good morning to those joining our call. Second quarter revenue declined 2.7%, driven mainly by a 3% year-over-year headwind related to Cloud One Compute and Store revenue, not fully offset by new business volume. The variance when compared to our first quarter growth rate and prior expectation is primarily a lesser contribution from on-contract growth, which slowed to 3% in 2Q from 8% in 1Q and a modest increase from the impact of program disruptions. Second quarter adjusted EBITDA was $185 million, resulting in an adjusted EBITDA margin of 10.5%. Results benefited from strong program execution and a favorable legal settlement, which was offset by an impact to state taxes related to the One Big Beautiful Bill Act. The underlying margin adjusting for these two items of 10.2% reflects improved profitability across our contract portfolio and represents an increase of 180 basis points quarter-to-quarter and 80 basis points year-over-year. Adjusted diluted earnings per share of $3.63 benefited from a favorable tax settlement and increased adjusted EBITDA in the quarter. Second quarter free cash flow improved meaningfully from first quarter to $150 million, though we continue to see some challenges related to the timing of invoice payments across a small set of contracts. As Toni indicated, we are updating our guidance for FY '26 and FY '27 to reflect a more challenging revenue environment. We are lowering FY '26 revenue to a range of $7.25 billion to $7.325 billion, representing organic contraction of 2% to 3%. We expect organic revenue to decline by approximately 5.5% and 4% in 3Q and 4Q respectively. Our revised FY '27 revenue guidance of 0% to 3% assumes a more subdued contribution from on-contract growth of 2% to 3%, a modest benefit from new business and a more typical headwind from contract transitions. Note that we will annualize the headwinds related to the NASA EAST loss and the Cloud One Compute and Store program in our third and fourth quarters, respectively. FY '26 adjusted EBITDA margin guidance is being lowered due to the onetime impact from Section 174 changes to our state and local taxes, which represents a 10 basis points headwind this year. We are reiterating our FY '27 adjusted EBITDA margin guidance of 9.5% to 9.7%. As Toni indicated, we will look to mitigate the impact of lower revenue with cost efficiency initiatives, which increase our confidence in the year-over-year margin improvement plans we've outlined. We will update you on our Q3 and Q4 calls regarding the implementation of these plans and the potential upside to our margin targets they could drive. We are increasing our FY '26 adjusted EPS guidance to a range of $9.40 to $9.60, which benefits from the tax settlement in 2Q and a revised full year effective tax rate assumption of 14%. Our revised FY '27 EPS guidance of $9 to $9.20 assumes a more normalized effective tax rate of approximately 23%. We are increasing our FY '26 free cash flow guidance to greater than $550 million, which reflects a reduction in cash flow due to lower expected EBITDA, offset by lower cash taxes due to Section 174 and we are assuming a similar dynamic in FY '27. We are still finalizing our planning and the relative impact on cash taxes between FY '26, FY '27 and FY '28 but expect the three years combined to see a reduction in cash taxes of approximately $200 million. We are on track to deliver nearly $12 in free cash flow per share in FY '26 and between $13 and $14 in free cash flow per share in FY '27, both higher than prior estimates. Our capital deployment plans over the next few years remain focused on driving long-term value for shareholders with sufficient capacity to support this with both share repurchases and capability-focused M&A. I will now turn the call over for Q&A.

[Operator Instructions]. Our first question comes from Jonathan Siegmann with Stifel.

The disaggregation, how you broke down the revenue outlook change is helpful specific to on-contract growth? Can you comment a bit more on what type of work or customers you're seeing the greatest impacts? And does the loss of this mid-single digit on contract growth represent a share shift to someone else or a deferral of that potential work? Or is this a real efficiency that government is driving?

Yes. Let me take both the first and second part of your question. In terms of -- as we -- so as I mentioned in the script, in some of the areas for on-contract growth where we've seen the challenge in converting that to revenue, the delays and the environmental, if you will, conditions. We've seen that in areas where there's great transformation across government, particularly in the Army where we have the Army transformation initiative, which was launched earlier this year, which represents a double-digit cut to the Army and in specific areas, some areas where SAIC is supporting in programs like S3I for us in Huntsville. In these areas, we see a slowdown, if you will, a delay in our ability to grow and present new capabilities and opportunities to our customers timing switch turnover in personnel, new processes, new norms, new reviews and that is creating some of this delay. Other areas in some parts of the civilian space, where for example, the Department of Treasury, where we have a large T-Cloud program, that too has experienced significant delays in our ability to increase our on-contract position. And then I could offer up a couple of other programs, maybe in the Space Force arena. So we're seeing it across government. Look, is it related to a share battle with competitors versus an efficiency of the government, I would argue for the latter. The efficiency which, in many ways, we have to acknowledge that the government, OMB and other parts of government GSA have been very diligent in driving government efficiency efforts. Many to the benefit of the U.S. taxpayer. And so we have to applaud many of those efforts, but the day-to-day reality on the ground is that it has caused delays. And as we navigate those delays, our ability to convert revenue from those opportunities has stalled. And hence, we have tried to show a prudent framework for how we look at the rest of the year, assuming that, that environment continues, and we believe that it will normalize over time over the next few quarters, which is why we've tried to de-risk, if you will, our guidance to you at the Street relative to assuming little to no improvement on the on-contract growth or in a change -- a fundamental change in the award of new business over the next two, three quarters. So that's what's represented in our call.

Our next question comes from Seth Seifman with JPMorgan.

I wanted to maybe a follow-up on that a little bit. Do you think -- you're talking about some changes in the customer approach here. Does that -- Toni, how do you think that should affect kind of the structure of this industry over time and the number of players and what type of returns that people can expect?

Yes. Let me take a first swing and I'd like Prabu also to respond as well. Look, I think we have all acknowledged the volatility in the market over the last few quarters with changes of fundamental reduction in the government personnel and I would say a disproportionate impact on government acquisition personnel, which is the channel to the private sector. And, hence, delays and changes in process, escalations for approvals. I think that should be anticipated -- should have been anticipated. We brought that forward, and I'm sure our peers have brought to you. In terms of whether that resets the market in any structural way, a, I would say it would be very -- it would be too soon to tell. But b, I would suggest to you that I think all are trying to react to this new environment and delay does not mean that we don't expect things normalize over time. As we look into fiscal year '27 for us which would be in the next few quarters, we are starting to see signals of, I would say, normalization. Does anyone have a crystal ball exactly when that will convert to revenue as we've seen in the past? No. But I would say things have started to settle. And we are expecting that they will in fiscal year '27. We're actually encouraged in some of the clarity we have on where the government is putting budget and priorities that line up with some of the investments in areas of our capability. And we are also encouraged that we see reform of acquisition that we think will be positive for many parts of our market as well. So I don't want to suggest to you that this is a durable effect over time, but I would suggest to you that organizations like ourselves who want to be prudent and want to be conservative in our view are going to try to explain and express this environment, I'd say, for the next two to four quarters. Prabu, any other thoughts you might have.

Thank you, Toni. That was perfect. Seth, on the structural question, I'd sort of break this down into two components. One is sort of players in the industry. Clearly, there, we are seeing new entrants in the market, non-traditionals with more commercial orientation to them and I then would break down the other component of change being more commercial-like terms and conditions, maybe a little more expectation that contractors bear a little more risk on fixed-price programs. So I'd sort of bifurcate the structural changes potentially underlined as being in those two buckets. Obviously, we've talked about the benefit of having more fixed price in the portfolio. Our civil business is predominantly fixed price in T&M and obviously, we're delivering very healthy margins from that business. So I think we're almost welcoming the chains to more fixed price orientation, more outcome-based orientation to our programs. And as far as the structural change with new entrants, I think we welcome newcomers in the industry as a mission integrator. I think we believe sincerely that the offerings from commercial vendors still will require mission integration at its core to be able to operate inside of the government environment. So we welcome the competition in the industrial base, and we are looking forward to the change. And then last footnote, I would say, we're not really seeing any significant changes in the terms and conditions yet. And therefore, I would say there's probably more rhetoric than reality right now on the expectation for terms and conditions to change dramatically. So while we're watching the change, and we're navigating as best as we can in an uncertain environment, our fundamental focus is growing EBITDA and growing cash for our shareholders and remaining shareholder friendly.

Okay. Okay. That's very helpful. And then maybe just a follow-up on that. I think during the -- earlier, you mentioned Huntsville, and kind of think of that as an area where due to the Army Missile Command being there a place where we should be seeing a lot more resources flowing into given the focus on missiles and missile defense. So is that something where you see maybe some temporary. Is that more of a temporary disruption there and a place where you see opportunity over time?

No, I think that's fair. I think there is a mixed reaction there temporarily and what we have sort of guided to, we do have challenges on the day-to-day changes there. There's been quite a bit of transformation happening there, as you know, within the Army, but particularly within AvMC or the Missile Command. But as you've also heard, Space Force moving to Huntsville, there's a lot of opportunity moving in that direction as well. And we are very well positioned, as you know, with a significant footprint there and engagement in that community. So we see upside. But I think, again, it's prudent for us to at least communicate to you that the environmental day-to-day experience is one that has challenged our ability to convert revenue from our existing contractual footprint, and we expect that to improve over time. And obviously, we'll come back to you with any updates to guidance as we see greater improvement on our on-contract growth.

Our next question comes from Tobey Sommer with Truist.

I was wondering if you could talk about the cost efficiency measures that you cited to allow you to get year-over-year margin expansion? And maybe speak to the tension between doing something on the cost side now and the revenue top line is sort of tepid as long as you think that's transitory and not sort of multiyear in nature?

I appreciate the question and the two dimensions of the question first in terms of what we're doing and then the balance that should be there that is not reactive, but actually part of a -- that we are still committed to and continuing to invest in certain parts of our value creation for the business. If I was to describe sort of broadly, and I think we said in the script that we would come back to you next quarter to give some more specifics. But at this stage, I'd like to characterize we're leveraging our enterprise operating model, which was part of our strategic input over the last two years to really build rigor in any full-scale enterprise operating model to accelerate the adoption of AI across our core functions. That's really one of the areas that we think has the ability to have margin improvement, both what we can provide for our customers, but also, quite frankly, for our shareholders. And that said, we have a pretty full-scale program of how that's being rolled out across the organization, and we can give some more detail there. But it is important to suggest that, that has been part of our strategy throughout. I believe the market across the market companies are looking at this kind of capability. And whether that be agentic or generative or various forms of AI and automation, we're building that into our core infrastructure and expect that to have some results over the next few quarters. And again, to the extent that we can continue to do that, have that as a lever as we go forward, it gives us greater confidence that we can meet the expected EBITDA expectations of the Street if revenue continues to be compromised on the top line.

Tobey, the only thing I would add to that is that we -- the actions have begun. We are sort of on our way there. The reality is, I think we're going to take the rest of the year to calibrate against expectations for next year. The one area, and I want to be really clear about this, in the PowerPoint charts that we attached to the earnings release, we said there are two variables here. We don't really want to impact the submissions that we are committed to making for this year or next year. So I think if there's a bias, there's a bias towards ensuring that we don't decelerate on the submission volume, because we are continuing to put in good bids. We're winning our share of recompetes and new. So the focus is keep that up while we get efficiencies elsewhere in the business to be able to fund and pay for that. And the reality is that's where the focus is right now. And we are continuing to be very specific about our expectations on recompetes for margin. Our expectations for new business margin as well as execution margins and the operating model is allowing us to spend a little more time with the program teams on generating more margin from the portfolio that we have today, and I will simply call out the Civil business that is really delivering mid- to high 13% margins now up nearly 100 basis points year-over-year. So we have some real opportunity but what you're hearing from us is a lot of focus around where the attention should be spent and what we expect to get out of the portfolio we have, instead of hoping for a portfolio we don't have. So the focus is running the business effectively day-to-day.

And I kind of wanted to ask a follow-up on a previous question with respect to industry composition, consolidation, portfolio shaping, not just from an SAIC perspective, but broadly, this experience with those and a change in the way the market has historically operated. Do you think that management teams and the industry have had enough time with it to develop action plans for sort of composing the business in a portfolio of exposures in a way that they have a direction for the longer term? Or are we still in sort of a wait and see in information and gathering phase?

I think we see -- it's a very fair question. I think I would kind of find a midpoint between your two bookends there. Have we had -- have we seen some information? Has there been clarity on budget in terms of budget priorities as there've been indication of going commercial, commercial direct and that type of demand signals that are being sent. I think we've seen those and we started to collate, I think as all companies are in this market, we've adapted to those demand signals. Where we're encouraged, I would suggest to you is in the nature of the work we do, when we call ourselves a mission integrator, we are encouraged when the market also acknowledges that as a need across various government agencies. As we've seen with an award we mentioned last quarter with FDA or the space agency as part of looking for a mission integrator to help with the management of the satellite program. We've seen that in the recent requirements from the Department of Defense as they revised their requirements process to ask for mission engineering and mission integration as the key touch point to the private sector for new capabilities being brought. And we've seen that even in the conversations with FAA as they look to modernize what they've asked for is integration. So in many ways, we feel like what we do and what we said we do well is being -- is showing up in demand signals across the government. So that part and the prioritization of programs has become clear. To Prabu's earlier statements there are new entrants. There is a clear signal for commercial capability and as an integrator of commercial capability, we see that as a tailwind, not a headwind. Notwithstanding the current environment where we have some challenges in revenue conversion, we still see, I would argue, still feel bullish about the portfolio we have to Prabu's point being conservative in the frame of how we speak to on-contract growth and new business over the next few quarters doesn't suggest that as we start to see new signals, we can adjust that guidance back to the street.

And Tobey, the only thing I would add to that is, I think DOGE and sort of the related disruptions in fairness, I think, would be a good wake up call for industry. And I do think that there are parts of the market where if you're focused on pure labor-based services without differentiation, in sort of either enterprise IT or mission IT that is hard to differentiate you are vulnerable for recompetes. And I think that has been our experience. And I think it would be a crisis that's wasted by industry. If we don't step up and change the way we go to market, approach labor-based models and frankly, convert more of labor based into differentiated tech offerings for our customers. And I think that is what the new entrants are promising. Now query can, anyone you deliver at scale in the way that the traditional, I'm going to say, players deliver, I think to me, that's the challenge for industry, and we are determined to not waste this crisis.

And the news I'll just add is the final [indiscernible] is this we started this conversation 18 to 24 months ago. We started in the conversion of our portfolio towards mission, differentiated mission and enterprise IT. You see our venturing has increased in all things we've been doing commercial. So not only is a crisis one thing you don't want to waste, but we want to be ahead of that in terms of not just reacting, but really driving and maybe accelerating parts of our strategy that we put in place, as I said, about 18 to 24 months ago.

Our next question comes from Colin Canfield with Cantor Fitzgerald.

Maybe following up to Seth's question. Could the team maybe quantify kind of the bridge for '27 growth. So essentially like the three buckets of on contract growth, new program growth and efficiency headwinds. Maybe if you could break that out quantitatively kind of -- or maybe just high level, like what are the kind of big moving pieces, '26 to'27?

Yes. Colin, I appreciate the question. I'll take a first crack at it here. Big picture, flat to 3% is our guide, and I'm going to try and bridge us to the midpoint of that number, about 1.5%. I think we are generally assuming that growth will come out of backlog. So we expect to end the year with, I'm going to say, roughly between 70% and 90% in backlog that's going to convert into revenue next year. And I would say, on top of that, we are assuming about, I'm going to say, 1% to 3% of on-contract growth, more in line with where we expect to be this year. In other words, our baseline assumption is that things don't get worse, that they remain stable. And obviously, to the extent on contract growth recovers next year, then obviously, there's potential for us to do better inside of that range at this point on the 3% -- 0% to 3%. On new business, all we are sort of factoring right now are wins that we already have in our midst and that we expect to convert to revenue. And those are a couple of programs that Toni referenced in her script that have been slower to ramp this year. And we are hoping that those programs begin to ramp up. The only other note I would make here is that, since the end of the quarter, we have about another $1 billion of wins that have not cleared protest windows. So we're sort of out there but it's another $1 billion potentially to our bookings in Q3. So a combination of those three things, but fundamentally, a clear-eyed conservative view of, I would say, what growth looks like with no expectation that things dramatically improve on contract growth. Toni?

Yes. The only thing I would add there are the levers that are in place. We've tested these levers. And obviously, we've had conversations with the Street about these levers. And I think, as Prabu mentioned, we have a way to understand whether this condition, this environmental condition is changing, and when we can make any changes to update this guidance. When I look at our underlying levers for book-to-bill, obviously, we feel good about where we are at this year. We had mentioned 1.2 by H1. We still see line of sight to that within this fiscal year. Our submits holding and sustaining our win rates at target for both recompete and new business, which was a question we had, I would say, a couple of years ago that we feel good that we turned that corner and a pending award backlog that's still covers at the $20 billion. I think those are the levers that are there that suggest that when we can address the delay environment, we have enough in the kitty, if you will, to start to drive to within the range we've offered as well as hopefully be able to improve upon it.

Got it. And then maybe focusing on leverage. I appreciate the kind of commentary around the presentation around 3x. But you've gone above that in the past, and obviously, shares are off today. And like given the kind of Section 174 benefits, I think it's 14% free cash flow yield on 27% free cash flow per share. So how do you think about going above 3x net debt-to-EBITDA to do something like an accelerated share repurchase or more repo?

Yes. Colin, fair question. I mean, look, I think what we've signaled in the past is target about 3x that we don't mind being a little bit over or a little bit under 3x. Obviously, we approach our share repurchases with a grid in place, and we get to update the grid every quarter. And to the extent price reacts negatively, we have the capacity to buy more shares. So fundamentally, no change to the capital deployment. I think given the compression we've seen in our EBITDA, I think it's only fair to ensure that we don't run leverage up to a place where we are not comfortable in an uncertain environment, so I think that's the balance. But I would say big picture, we're on our way to buying between $350 million and $400 million this year, and we'll probably end up retiring more shares at these prices than what we previously contemplated, but I'm cognizant of leverage.

Got it. And just one more. A lot of focus on efficiency on this call, but I think it's probably worth differentiating between like what I would call is 1/2 calendar efficiencies, which is folks ripping up contracts and trying to rip up contracts and then posting it on Twitter. And then kind of second half position fees, which is government officials trying to kind of shake the FY '26 budget process and that taking some kind of slowness dynamics that are -- that come with new administration. So maybe just digging into it, can you maybe differentiate how much of the efficiency dynamics you're seeing or what we would call kind of 1/2 disruptive efficiencies or more kind of second half FY '26, FY '27 shaping efficiencies?

Yes. I'm going to maybe take a first crack at this. I would say, by and large, the disruptions have been to our current fiscal year. We -- I think, are expecting that the flavor of the disruptions probably continue into the end of the year for us, in our end of our fiscal year. But I would say not yet disruptions that we believe are about FY '27. So more of a '26 flavor to it, which is why I think we are off the view at this point that the environment is stable, though we would love for it to improve. That has not actually happened. And the trades that our customers are making, frankly, are trades with respect to current government fiscal year that ends at this end of September. So -- and our expectation is that we're going to be in a CR to start the new fiscal year. So I think that's our assumption, but it's mostly '26 focused.