Science Applications International Corporation (SAIC) — Q2 FY2024 Form 10-Q
Reporting period: Fiscal quarter and six months ended August 4, 2023; comparatives are the periods ended July 29, 2022. SAIC provides technical, engineering, and enterprise IT services, primarily to the U.S. government, and reports as one segment.
Financial performance
Amounts are in millions, except per-share figures and percentages.
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Revenue | $1,784 | $1,831 | $3,812 | $3,827 |
| Operating income | $362 | $125 | $519 | $250 |
| Operating margin | 20.3% | 6.8% | 13.6% | 6.5% |
| Net income attributable to common stockholders | $247 | $73 | $345 | $146 |
| Diluted EPS | $4.56 | $1.30 | $6.35 | $2.59 |
| Operating cash flow | $150 | $141 | $232 | $259 |
| Adjusted EBITDA margin | 9.8% | 9.1% | 9.5% | 8.9% |
Liquidity and debt: Cash and cash equivalents were $352 million at August 4, 2023, compared with $109 million at February 3, 2023. Total debt was $2.290 billion principal ($2.277 billion net carrying amount), versus $2.390 billion principal at fiscal year-end. No revolver balance was outstanding; the company had a $1.0 billion revolving facility and reported compliance with credit-facility covenants. Six-month capital expenditures were $12 million. SAIC paid $41 million in dividends and repurchased $190 million of stock during the six months.
Material changes and drivers
- Reported Q2 revenue fell 3%; six-month revenue was essentially flat. Excluding the Supply Chain Business sale and FSA deconsolidation, management reported revenue growth of 8.3% for the quarter and 5.7% for the six months, supported by contract ramp-ups.
- Reported operating income includes a $233 million preliminary pre-tax gain on the Supply Chain Business sale and a $7 million gain from deconsolidating FSA. These unusual gains materially elevated GAAP operating income and EPS. Six-month adjusted EBITDA, which excludes divestiture gains, was $363 million versus $339 million.
- The Supply Chain Business sale closed May 6, 2023 for $356 million cash, including $355 million received at closing. SAIC said the transaction enables greater focus on strategic growth areas. It also sold a small portion of its FSA interest and began accounting for its retained interest under the equity method.
- Six-month operating cash flow declined to $232 million from $259 million, primarily reflecting higher tax payments and lower cash benefit from receivables sales than in the prior-year period. Investing cash flow included $355 million of divestiture proceeds.
- Contract mix shifted: for the six months, cost-reimbursement revenue was 58% (56% prior year), T&M 19% (18%), and firm-fixed-price 23% (26%). The lower fixed-price share partly reflects the divested business.
Outlook, risks, and contingencies
- No specific full-year financial guidance is stated in the supplied filing text. At August 4, remaining performance obligations were approximately $5 billion; SAIC expected to recognize about 85% within 12 months and 95% within 24 months. Total backlog was $22.524 billion, including $3.716 billion funded; net bookings were an estimated $0.7 billion for Q2 and $2.7 billion for the six months.
- Management cited potential delays in federal appropriations, continuing resolutions or shutdowns, spending reductions, inflationary pressure on fixed-price contracts, competitive bidding and pricing pressure, and reliance on U.S. government budgets. Approximately 98% of period revenue came from U.S. government contracts.
- A DOJ Antitrust Division investigation remains ongoing; SAIC is cooperating, but the company said it could not determine whether fines, penalties, or other liabilities would result or estimate their amount. Open government contract audits and reviews may lead to cost disallowances, penalties, or other consequences; management believes reserves are adequate.
- A vendor cybersecurity incident involving MOVEit may have exposed personal information of some current and former employees. SAIC reported no material operational or financial impact expected at the time of filing. The company also continues negotiations to recover costs from the 2018 termination for convenience of its Marine Corps Assault Amphibious Vehicle contract.
- SAIC estimated that tax-law requirements to capitalize and amortize research and development costs would increase FY2024 income taxes payable by approximately $76 million, with a corresponding deferred tax asset; actual effects may vary.
Key facts for investors to verify
- Separate ongoing contract performance and adjusted results from the $240 million combined net divestiture gains recognized in the six-month period.
- Track organic revenue growth, bookings, funded backlog, and conversion of remaining performance obligations after the divestitures.
- Monitor operating cash flow, working capital, tax payments, debt repayment, and the cost and pace of share repurchases.
- Follow federal budget developments, fixed-price contract performance, the DOJ investigation, and outcomes of government audits.