Science Applications International Corporation (SAIC) — Q1 FY2025 10-Q
Reporting period: Three months ended May 3, 2024; comparable period ended May 5, 2023. SAIC provides technical, engineering, and IT services, primarily to the U.S. government. Effective February 3, 2024, it reorganized into five operating groups, reported in two segments: Defense and Intelligence, and Civilian.
Financial performance
| Metric | Q1 FY2025 | Prior period | Change |
|---|---|---|---|
| Revenue | $1.847 billion | $2.028 billion | Down 9%; up 0.4% excluding the prior-year Supply Chain Business divestiture |
| Operating income / margin | $131 million / 7.1% | $157 million / 7.7% | Down 17%; margin down 0.6 percentage points |
| Net income | $77 million | $98 million | Down 21% |
| Diluted EPS | $1.48 | $1.79 | Down 17% |
| Operating cash flow | $98 million | $82 million | Up 20% |
| Adjusted EBITDA (non-GAAP) | $166 million; 9.0% margin | $189 million; 9.3% margin | Down 12%; margin down 0.3 percentage points |
Cost of revenues was $1.634 billion, or 88.5% of revenue, versus $1.793 billion, or 88.4%. The effective tax rate was 19.0%, compared with 20.0%. Defense and Intelligence revenue was $1.436 billion (down 10%, or up 1.9% excluding the divestiture); operating income was $107 million. Civilian revenue was $411 million (down 5%); operating income was $34 million.
Cash, debt, and capital returns
Cash and cash equivalents were $49 million at May 3, 2024; cash, cash equivalents, and restricted cash totaled $58 million. Total debt principal was $2.094 billion ($2.083 billion net of issuance costs), versus $2.109 billion principal at February 2, 2024. The $1.0 billion revolving facility had no balance outstanding at quarter-end; SAIC reported compliance with credit-facility covenants. Net cash used in financing was $136 million, including $310 million of principal payments, $293 million of borrowings, $103 million for repurchases and equity-award tax withholding, and $20 million of dividends.
Operating cash flow benefited from a $79 million net increase related to the receivables sale facility, partly offset by incentive compensation payments and working-capital changes. Investing cash use was $7 million, compared with $336 million provided in the prior-year quarter, which included $355 million of Supply Chain Business sale proceeds. The quarterly dividend was $0.37 per share; the board declared the same dividend for payment in July 2024.
Material changes, outlook, and risks
- Management attributed the revenue decline mainly to the prior-year divestiture ($188 million of comparative revenue) and contract completions; ramp-up on existing and new contracts partly offset those pressures. Lower operating income also reflected the prior-year divestiture and FSA deconsolidation gain, as well as contract completions.
- Remaining performance obligations were approximately $5.4 billion; SAIC expects to recognize about 81% within 12 months and 91% within 24 months. Total backlog was $23.564 billion, including $20.096 billion of negotiated unfunded backlog; quarterly net bookings were an estimated $2.6 billion.
- The filing provides no specific annual revenue, earnings, or cash-flow guidance. Management stated that cash on hand, expected operating cash flow, and access to bank and capital-market financing should support liquidity needs for at least the next year, while noting financing availability is not assured.
- About 98% of quarterly revenue came from U.S. government contracts. Risks discussed include federal budget priorities, delayed appropriations, continuing resolutions or shutdowns, spending reductions, inflation on fixed-price work, and competitive and pricing pressure. The FY2025 federal budget request assumed 1% growth in defense and non-defense budgets.
- A Department of Justice Antitrust Division criminal investigation is ongoing; SAIC is cooperating, and potential fines or liabilities cannot currently be estimated. Government contract audits and reviews also remain a risk; management believes reserves for estimated indirect-cost adjustments are adequate. SAIC is continuing negotiations with the Marine Corps to recover costs related to the 2018 termination for convenience of its Assault Amphibious Vehicle contract.
- Restructuring costs were $2 million, primarily related to the business reorganization. Net favorable contract-estimate adjustments added $1 million to operating income (about $0.02 diluted EPS), versus $5 million (about $0.07 diluted EPS) a year earlier.
Important facts for investors to verify
- Whether underlying revenue growth and contract ramp-ups offset completions and divestiture comparisons in subsequent quarters.
- Whether the $5.4 billion RPO and $23.564 billion backlog convert to revenue as expected, particularly the unfunded portion.
- How much operating cash flow depends on receivables sales and working-capital timing.
- Debt reduction, interest costs, refinancing exposure, and continued covenant compliance.
- Developments in the DOJ investigation, government audits, and the Marine Corps termination-cost recovery negotiations.