Business Context and Reporting Period
Company: Science Applications International Corporation (SAIC)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended May 2, 2025 (Fiscal Q1 2026)
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 | Q1 2026 (May 2, 2025) | Q1 2025 (May 3, 2024) |
|---|---|---|
| Revenues | $1,877 million | $1,847 million |
| Operating Income | $121 million (6.4% margin) | $131 million (7.1% margin) |
| Net Income | $68 million | $77 million |
| Diluted EPS | $1.42 | $1.48 |
| Operating Cash Flow | $100 million | $98 million |
| Total Debt (Principal) | $2,289 million | $2,228 million |
| Cash and Equivalents | $47 million | $56 million |
| Backlog (Total) | $22,343 million | $21,857 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 2% ($30 million) year-over-year, driven by volume ramp-up in existing and new contracts, partially offset by contract completions.
- Profitability Decline: Operating income decreased 8% ($10 million) and Net income decreased 12% ($9 million). Operating margin compressed from 7.1% to 6.4% due to timing and volume mix in the contract portfolio.
- Segment Performance:
- Defense and Intelligence: Revenues were flat (-$3 million); Adjusted Operating Income decreased 7% to $115 million.
- Civilian: Revenues increased 8% ($33 million); Adjusted Operating Income increased 13% to $52 million.
- Debt Activity: Total debt principal increased by $61 million. The company borrowed $750 million and repaid $665 million under its Revolving Credit Facility during the quarter.
- Shareholder Returns: The company repurchased approximately 1.2 million shares for $125 million and paid a quarterly dividend of $0.37 per share.
Outlook, Risks, and Management Commentary
- Government Funding Environment: A continuing resolution (CR) signed in March 2025 extends funding through September 30, 2025. While the CR allows flexibility for new DoD starts, a 1% sequestration may apply to agencies operating under CRs past April 30, 2025, though implementation discretion remains with the Office of Management and Budget.
- Administrative Changes: The new U.S. administration is implementing executive orders and the Department of Government Efficiency is driving structural changes. These factors are slowing new awards as agencies review contracting activity for alignment with new priorities.
- Backlog Visibility: Total backlog stands at $22.3 billion, with $3.3 billion funded and $19.1 billion negotiated unfunded. Management expects to recognize 83% of remaining performance obligations ($5.8 billion) over the next 12 months.
- Risks: Key risks include potential government shutdowns, sequestration impacts, delayed appropriations, and the outcome of ongoing DOJ antitrust investigations (subpoenas received in 2022 and 2023). Management states no material financial impact is currently expected from the DOJ investigation.
Investor Verification Checklist
- Contract Mix Impact: Verify how the shift in volume mix between Defense and Civilian segments affects future margin stability, given the 0.7% compression in operating margin.
- Sequestration Exposure: Assess the potential financial impact of the 1% sequestration on agencies operating under the continuing resolution, specifically regarding unfunded backlog.
- Debt Servicing: Review the interest rate exposure on the $2.3 billion debt portfolio, noting the weighted average rates on Term Loans (approx. 5.7% - 6.2%) and the Revolving Credit Facility (6.11%).
- Legal Contingencies: Monitor updates on the DOJ Antitrust Division investigation and ongoing DCAA indirect cost audits, which could result in cost disallowances or penalties.
- Backlog Conversion: Track the conversion rate of the $19.1 billion negotiated unfunded backlog into funded revenue, particularly given the current administrative review of contracting activities.