Business Context and Reporting Period
Company: Science Applications International Corporation (SAIC)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended May 1, 2026 (Fiscal 2027 Q1)
Business Overview: SAIC is a leading provider of technical, engineering, and IT services primarily to the U.S. government. Effective January 31, 2026, the company reorganized its operations into three business groups, aggregated into two reportable segments: Defense and Intelligence, and Civilian. The company derives approximately 97% of its revenue from U.S. government contracts.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Revenues | $1,906 million | $1,877 million |
| Operating Income | $179 million | $121 million |
| Operating Margin | 9.4% | 6.4% |
| Net Income | $115 million | $68 million |
| Diluted EPS | $2.61 | $1.42 |
| Adjusted Operating Income | $221 million | $158 million |
| Adjusted EBITDA | $222 million | $157 million |
| Operating Cash Flow | $127 million | $100 million |
| Total Debt (Principal) | $2,500 million | $2,501 million |
| Cash and Cash Equivalents | $109 million | $182 million (Jan 30, 2026) |
| Total Backlog | $22,860 million | $22,622 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 2% ($29 million) year-over-year. This was driven by $19 million in revenue from the acquisition of SilverEdge Government Solutions and volume ramp-up on existing contracts, partially offset by contract completions.
- Profitability Expansion: Operating income surged 48% to $179 million. This improvement was primarily due to better contract portfolio profitability and a one-time $12 million gain from the sale of an equity investment.
- Segment Performance:
- Defense and Intelligence: Revenues rose 2% to $1,466 million; Adjusted Operating Income increased 27% to $146 million.
- Civilian: Revenues declined 1% to $440 million due to contract completions; however, Adjusted Operating Income grew 31% to $68 million due to improved profitability.
- Cash Flow: Operating cash flow increased 27% to $127 million, aided by timing of vendor payments and lower cash incentive payments. Investing activities turned positive ($1 million) due to proceeds from investment sales, whereas the prior year was negative ($15 million).
- Capital Allocation: The company repurchased approximately 1.9 million shares for $175 million and paid dividends of $0.37 per share.
Guidance, Outlook, and Risks
- Outlook: Management expects to recognize revenue on approximately 76% of the $6.6 billion Remaining Performance Obligations (RPO) over the next 12 months. Net bookings for the quarter were estimated at $2.1 billion.
- Government Funding: The company noted a temporary shutdown of the Department of Homeland Security (DHS) from February to April 2026 due to appropriations delays, which was resolved in April 2026. Full-year funding for most agencies is now secured through September 30, 2026.
- Acquisition Integration: The acquisition of SilverEdge ($203 million purchase price) is substantially complete regarding purchase price allocation, contributing to the Defense and Intelligence segment.
- Risks and Contingencies:
- Legal Proceedings: The company is cooperating with a U.S. Department of Justice Antitrust Division investigation initiated via subpoenas in 2022 and 2023. No material adverse effect is currently expected, but potential fines or penalties cannot be estimated.
- Government Audits: Ongoing indirect cost audits by the Defense Contract Audit Agency (DCAA) could result in disallowance of costs or penalties if reserves are insufficient.
- Market Risks: Continued reliance on U.S. government spending, potential sequestration, and competitive pricing pressures on IDIQ contracts.
Investor Verification Checklist
- Investment Gain Impact: Verify the sustainability of the 48% operating income increase, which includes a non-recurring $12 million gain from the sale of an investment.
- Debt Servicing: Review the $2.5 billion debt principal and interest expense of $33 million to assess leverage relative to cash flow.
- Backlog Quality: Analyze the composition of the $22.9 billion backlog, noting that a significant portion ($19.1 billion) is "Negotiated Unfunded," which is subject to future appropriations.
- Legal Exposure: Monitor updates regarding the DOJ Antitrust investigation for any potential fines or penalties.
- Share Repurchases: Confirm the remaining authorization under the $1.2 billion repurchase plan (approx. $5.6 million shares remaining as of May 1, 2026).