SAIC Form 10-K Summary
Business context and reporting period
Science Applications International Corporation (SAIC) provides technology, engineering, IT, logistics and mission-support services, primarily to the U.S. government. This 10-K covers fiscal 2023, ended February 3, 2023; the 53-week year included an extra week in the fourth quarter. Fiscal 2022 ended January 28, 2022 and had 52 weeks. The company reports one segment.
About 98% of revenue came from U.S. government prime contracts or subcontracts. SAIC had approximately 25,000 employees and 1,900 active contracts and task orders.
Financial results and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $7.704 billion | $7.394 billion |
| Operating income / margin | $501 million / 6.5% | $462 million / 6.2% |
| Net income | $303 million | $279 million |
| Net income attributable to common stockholders | $300 million | $277 million |
| Diluted EPS | $5.38 | $4.77 |
| Operating cash flow | $532 million | $518 million |
| Adjusted EBITDA / margin | $680 million / 8.8% | $686 million / 9.3% |
At year-end, cash and cash equivalents were $109 million ($118 million including restricted cash). Current assets were $1.197 billion and current liabilities $1.126 billion. Debt principal totaled $2.390 billion; reported debt net of issuance costs was $2.374 billion, including $31 million current and $2.343 billion long-term. The $1.0 billion revolving facility had no balance outstanding at year-end. SAIC reported compliance with its debt covenants.
Operating cash flow increased $14 million year over year. Cash used in investing was $36 million, and cash used in financing was $493 million. The MARPA receivables facility increased operating cash flow by a net $50 million during FY2023; the filing also cites working-capital timing as a factor. SAIC repurchased approximately 2.6 million shares for $245 million and paid $83 million in dividends.
Material changes versus the prior period
- Revenue increased 4% as reported, supported by contract ramp-ups, Halfaker revenue of approximately $72 million, and four additional working days. Excluding acquired/divested revenue and the extra days, management estimated growth of approximately 1.5%.
- Operating margin improved from 6.2% to 6.5%, reflecting better contract-portfolio profitability and lower acquisition and integration costs, partly offset by higher restructuring costs and lower net favorable contract-estimate adjustments.
- Net favorable contract-estimate adjustments contributed $4 million to operating income, down from $13 million in FY2022.
- Adjusted EBITDA margin declined to 8.8% from 9.3%, primarily due to lower favorable contract-estimate changes and higher indirect expenses.
- Net bookings were an estimated $7.4 billion, versus $9.4 billion. Total backlog was $23.802 billion, down from $24.092 billion; funded backlog was $3.554 billion and negotiated unfunded backlog was $20.248 billion.
Outlook, commentary, risks and unusual items
Management said cash on hand, expected operating cash flow and access to financing should provide adequate resources for short- and long-term needs. The filing provides no numerical revenue or earnings guidance. Management identified digital modernization, cyber, microelectronics support and climate resiliency as potential opportunity areas, while noting competitive bidding, pricing pressure, small-business set-asides and federal budget uncertainty.
- Customer and funding concentration is significant: 98% of revenue was U.S. government-related; the Army and Navy accounted for 15% and 12%, respectively.
- Government shutdowns, continuing resolutions, delayed awards, spending shifts, contract termination, cost overruns on fixed-price work, workforce constraints, cybersecurity events, and audit or regulatory findings could adversely affect results. DCAA indirect-cost audits remain open for prior and current years; final outcomes are uncertain.
- SAIC is cooperating with a DOJ Antitrust Division criminal investigation following a federal grand jury subpoena received in April 2022. The company said it could not determine whether liabilities would arise or reasonably estimate any amount.
- In FY2023, restructuring and impairment costs totaled $24 million. A new restructuring program is expected to be completed in FY2024.
- Tax-law changes requiring five-year amortization of certain R&D costs increased income taxes payable by approximately $94 million. The filing also reports $158 million of unrecognized tax benefits, of which $90 million would affect the effective tax rate if recognized; a further increase of approximately $50 million related to R&D costs was considered reasonably possible within 12 months.
- Subsequent to year-end, SAIC agreed to sell its logistics and supply-chain management business for $350 million pre-tax cash proceeds, subject to closing conditions; the transaction was expected to close in the first half of FY2024 and to result in a gain.
- The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective. The auditor identified revenue recognition using cost-to-cost estimates and unrecognized tax benefits as critical audit matters.
Important facts for investors to verify
- Whether the logistics-business sale closes on the announced terms and how proceeds are used.
- Backlog conversion, task-order awards and bookings, particularly given the decline in net bookings and the large unfunded backlog.
- Cash-flow quality and reliance on MARPA receivables sales and working-capital timing.
- Debt repayment, interest expense and covenant headroom; variable-rate debt is partly hedged with swaps.
- Outcomes of the DOJ investigation, DCAA audits and tax examinations, including any resulting costs or liabilities.
- Whether contract profitability and adjusted EBITDA margins improve despite lower contract-estimate benefits and competitive pricing pressure.