SAIC

Business Context and Reporting Period

Company: Science Applications International Corporation (SAIC)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three and six months ended July 31, 2026 (Fiscal 2027)
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 serves the Department of War (formerly Department of Defense) and the Intelligence Community, as well as civilian federal, state, and local governments.

Key Financial Metrics

Margins: Operating margin was 8.1% for the quarter and 8.7% for the six-month period. Adjusted operating margin was 10.2% for the quarter and 10.9% for the six-month period.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 6% ($111 million) for the quarter and 4% ($140 million) for the six months compared to the prior year. Growth was driven by volume ramp-up on existing/new contracts and the acquisition of SilverEdge Government Solutions ($20 million and $39 million contribution for the respective periods).
• Profitability: Operating income increased 9% for the quarter and 27% for the six months. Net income decreased 20% for the quarter ($102 million vs. $127 million) but increased 11% for the six months ($217 million vs. $195 million). The prior year quarter included a $47 million tax benefit from an IRS audit settlement, which distorted year-over-year comparisons.
• Segment Performance:
  • Defense and Intelligence: Revenues up 5% (quarter) and 4% (six months). Adjusted operating income up 11% and 19% respectively.
  • Civilian: Revenues up 9% (quarter) and 4% (six months). Adjusted operating income up 4% and 17% respectively.
• Acquisition: The acquisition of SilverEdge (completed Oct 2025) contributed to revenue growth and added $93 million in goodwill and $101 million in intangible assets.

Guidance, Outlook, and Risks

Management Commentary: Management attributes improved profitability to better contract portfolio performance and a $12 million gain from the sale of an investment in the current year. The company expects to recognize 75% of its $6.4 billion Remaining Performance Obligations (RPO) over the next 12 months.

Capital Allocation:

• Dividends: Declared quarterly dividend of $0.37 per share (paid Oct 23, 2026).
• Share Repurchases: Repurchased approximately 2.7 million shares for $265 million in the first six months of fiscal 2027. Approximately $1.2 billion remains authorized under the current plan.

Risks and Contingencies:

• Government Spending: 97% of revenue is derived from U.S. government contracts. Risks include budget cuts, sequestration, delayed appropriations, and potential shutdowns (e.g., DHS shutdown in early 2026).
• Legal Proceedings: Ongoing DOJ antitrust investigation (subpoenas issued in 2022 and 2023); potential fines or penalties cannot be estimated at this time.
• Competition: Increased pricing pressure due to competitive bidding processes and small business set-asides.

Investor Verification Checklist

• Backlog Quality: Verify the composition of the $22.1 billion backlog, noting that $18.3 billion is "Negotiated Unfunded," which is subject to future appropriation and cancellation.
• Tax Rate Volatility: Confirm the sustainability of the current effective tax rate (14.2% - 17.9%) given the one-time $47 million tax benefit in the prior year and the impact of the "One Big Beautiful Bill Act" on R&D expensing.
• Debt Servicing: Review the $2.5 billion debt load and interest expense ($33 million for the quarter) in the context of rising interest rates and the company's ability to service debt while maintaining share buybacks.
• Antitrust Investigation: Monitor updates on the DOJ antitrust investigation for potential material liabilities or operational restrictions.
• Acquisition Integration: Assess the integration progress and revenue contribution of the SilverEdge acquisition against initial projections.