Business Context and Reporting Period
Company: Science Applications International Corporation (SAIC)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended August 1, 2025 (Fiscal 2026 Q2)
Business Overview: SAIC is a leading provider of technical, engineering, and enterprise IT services primarily to the U.S. government. Operations are divided into two reportable segments: Defense and Intelligence, and Civilian. The company serves approximately 1,700 active contracts and employs roughly 24,000 individuals.
Key Financial Metrics
| Metric (in millions) | 3 Months Ended Aug 1, 2025 | 6 Months Ended Aug 1, 2025 |
|---|---|---|
| Revenues | $1,769 | $3,646 |
| Operating Income | $139 | $260 |
| Net Income | $127 | $195 |
| Diluted EPS | $2.71 | $4.12 |
| Operating Cash Flow | N/A | $222 |
| Total Debt (Principal) | $2,300 | $2,300 |
| Cash and Equivalents | $48 | $48 |
| Adjusted Operating Income | $182 | $340 |
Margins: Operating margin was 7.9% for the quarter and 7.1% for the six-month period. Adjusted operating margin was 10.3% for the quarter and 9.3% for the six-month period.
Material Changes vs. Prior Period
- Revenue: Decreased 3% ($49 million) for the quarter and 1% ($19 million) for the six months compared to the prior year, primarily due to contract completions and volume ramp-downs, partially offset by new contracts.
- Net Income: Increased 57% ($46 million) for the quarter and 23% ($37 million) for the six months. This significant increase was driven by a $47 million tax benefit from an IRS audit settlement (fiscal years 2016-2019) and a $9 million recovery from a patent infringement settlement.
- Operating Income: Increased 4% for the quarter but decreased 2% for the six months. The six-month decline was due to costs related to federal tax audit settlements and state tax impacts from new legislation, partially offset by the patent settlement recovery.
- Segment Performance:
- Defense & Intelligence: Revenues decreased 3% (quarter) and 2% (six months). Adjusted operating income remained flat for the quarter but decreased 4% for the six months.
- Civilian: Revenues decreased 2% (quarter) but increased 3% (six months). Adjusted operating income increased 17% (quarter) and 15% (six months) due to improved profitability.
Guidance, Outlook, and Risks
Management Commentary: Management attributes improved profitability to better contract portfolio performance and cost recoveries. The company expects to recognize 79% of its $6.1 billion remaining performance obligations (RPO) over the next 12 months.
Legislative Impact: The "One Big Beautiful Bill Act" enacted in July 2025 reinstated immediate expensing of R&D expenditures. Management expects an immaterial increase to the effective tax rate for the year pending IRS guidance.
Risks and Contingencies:
- Government Funding: Reliance on U.S. government spending creates exposure to shutdowns or continuing resolutions. A continuing resolution extended funding through September 30, 2025, but full-year appropriations are required to avoid a shutdown starting October 1, 2025.
- Legal Proceedings: The company is cooperating with a DOJ Antitrust Division investigation initiated in 2022 and 2023; potential fines or penalties cannot be estimated at this time.
- Backlog: Total backlog stands at $23.2 billion, with $3.6 billion funded and $19.6 billion negotiated unfunded.
Investor Verification Checklist
- Tax Benefit Sustainability: Verify the final administrative approval of the $47 million IRS audit settlement benefit, as this significantly boosted current period net income.
- Government Appropriations: Monitor the status of U.S. federal appropriations bills to determine if a government shutdown occurs after September 30, 2025, which could impact contract funding.
- DOJ Investigation: Track updates on the ongoing Department of Justice Antitrust Division investigation for potential material liabilities.
- Debt Maturity: Review the debt schedule, noting $385 million in principal payments due in the remainder of fiscal 2026 and $128 million in 2027.
- Share Repurchases: Confirm the remaining capacity under the $1.2 billion share repurchase plan authorized in December 2024.