Core Viewpoint - Science Applications International Corporation (SAIC) is facing challenges with a decline in quarterly sales, but has shown strong adjusted earnings per share (EPS) performance, leading to a mixed outlook for the company [2][3][5] Financial Performance - SAIC reported a 3% year-on-year decline in quarterly sales, totaling $1.77 billion, which was below the analyst consensus estimate of $1.86 billion [2][5] - The adjusted EPS for SAIC was $3.63, exceeding the analyst consensus estimate of $2.24, prompting an upward revision of the annual EPS outlook to a range of $9.40-$9.60 from the previous $9.10-$9.30 [3][5] - The company revised its 2026 revenue outlook downwards to a range of $7.25 billion to $7.325 billion, below the previous forecast of $7.60 billion to $7.75 billion and the analyst consensus estimate of $7.65 billion [3] Stock Performance - Following the financial announcements, SAIC shares fell by 1.7%, trading at $104.41, and the current stock price is $101.86, reflecting a decrease of approximately 2.93% [4] - The stock has fluctuated between a low of $101.52 and a high of $103.86 during the trading day, with a market capitalization of approximately $4.69 billion [4]

Core Insights - Science Applications International Corporation (SAIC) reported mixed results for Q2, with a 3% year-on-year sales decline to $1.77 billion, missing the analyst consensus estimate of $1.86 billion, while adjusted EPS of $3.63 exceeded the consensus estimate of $2.24 [1] - The company revised its 2026 revenue outlook to $7.250 billion-$7.325 billion, down from a prior estimate of $7.60 billion-$7.75 billion, which is below the analyst consensus estimate of $7.65 billion [1] - SAIC updated its annual adjusted EPS outlook to $9.40-$9.60, an increase from the previous range of $9.10-$9.30, and above the analyst consensus estimate of $9.17 [2] Analyst Reactions - Following the earnings announcement, analysts adjusted their price targets for SAIC, with Stifel maintaining a Buy rating and lowering the price target from $130 to $128, while UBS maintained a Neutral rating and reduced the price target from $111 to $110 [5] - SAIC shares fell 1.7% to trade at $104.41 after the earnings report [2]

Core Insights - Science Applications International Corporation (SAIC) reported strong non-GAAP earnings of $3.63 per share for Q2 fiscal 2026, exceeding the Zacks Consensus Estimate of $2.25 by 61.3% and marking a 77% increase from the previous year's earnings of $2.05 per share [1][10] Financial Performance - The company's revenues for Q2 fiscal 2026 declined by 3% year over year to $1.77 billion, falling short of the Zacks Consensus Estimate of $1.86 billion due to delays in new business awards and slower on-contract growth [3][10] - Earnings growth was primarily driven by lower taxes and one-time benefits from legal settlements, which offset the revenue decline [2] - Net bookings for the quarter were approximately $2.6 billion, resulting in a book-to-bill ratio of 1.5, with a trailing 12-month book-to-bill ratio of 1 [5] Segment Performance - Defence and Intelligence revenues, which accounted for 77.7% of total revenues, amounted to $1.37 billion, a decrease of 2.9% year over year [4] - Civilian revenues, making up 22.2% of total revenues, totaled $395 million, down 2% year over year [4] Cost Management - Selling, general and administrative (SG&A) expenses decreased by 2.6% to $75 million, remaining flat as a percentage of revenues at 4.2% [6] - Non-GAAP operating income increased to $182 million from $169 million year over year, with a non-GAAP operating margin expansion of 100 basis points to 10.3% [6] Cash Flow and Balance Sheet - The company generated operating cash flow of $122 million and free cash flow of $150 million in Q2 [9] - As of the end of Q2, SAIC had cash and cash equivalents of $48 million and long-term debt of $1.84 billion [8] Guidance Adjustments - Following the weaker-than-expected revenue performance, SAIC lowered its fiscal 2026 revenue guidance to a range of $7.25 billion to $7.325 billion, down from $7.60 billion to $7.75 billion [12][13] - Adjusted EBITDA guidance was also reduced to $680 million to $690 million from $715 million to $735 million [13] - Conversely, the company raised its adjusted EPS guidance to a range of $9.40 to $9.60, up from $9.10 to $9.30, and increased free cash flow guidance to exceed $550 million [14][15] Shareholder Returns - In Q2, SAIC repurchased shares worth $110 million and paid $17 million in dividends, with total share repurchases in the first half of fiscal 2026 amounting to $252 million [11]

Core Viewpoint - Science Applications International Corporation (SAIC) reported strong earnings per share (EPS) but faced challenges with revenue and bookings, leading to a decline in stock price despite the positive EPS performance [2][3][6] Financial Performance - SAIC reported an EPS of $3.63, significantly exceeding the estimated $2.25, and marking a substantial increase from $2.05 in the same quarter last year, resulting in an earnings surprise of +61.33% [2][6] - The company's revenue was $1.77 billion, which fell short of the estimated $1.86 billion and showed a slight decline from $1.82 billion reported in the previous year [2][6] Market Reaction - Despite the strong EPS performance, SAIC's stock price declined by 7% due to investor concerns over bookings, which fell short of expectations, indicating potential future revenue challenges [3][6] Valuation Metrics - SAIC has a price-to-earnings (P/E) ratio of approximately 14.46, a price-to-sales ratio of about 0.67, and an enterprise value to sales ratio of around 0.99, reflecting its market valuation relative to earnings and sales [4] - The company has a debt-to-equity ratio of approximately 1.62, indicating reliance on debt for financing operations, and a current ratio of around 0.78, suggesting challenges in covering short-term liabilities with short-term assets [5] Consistency in Performance - SAIC has consistently exceeded consensus EPS estimates in three of the last four quarters, which continues to attract attention in the industry despite the recent challenges [5]

PART I—FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the company's unaudited condensed consolidated financial statements, including statements of income, comprehensive income, balance sheets, equity, and cash flows, along with detailed notes explaining business operations, accounting policies, and specific financial line items [Condensed Consolidated Statements of Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The company reported a significant increase in net income for the three months ended August 1, 2025, reaching $127 million, up from $81 million in the prior year, despite a slight decrease in revenues | Metric | Three Months Ended Aug 1, 2025 (in millions) | Three Months Ended Aug 2, 2024 (in millions) | Six Months Ended Aug 1, 2025 (in millions) | Six Months Ended Aug 2, 2024 (in millions) | |---|---|---|---|---| | Revenues | $1,769 | $1,818 | $3,646 | $3,665 | | Cost of revenues | $1,554 | $1,608 | $3,222 | $3,242 | | Operating income | $139 | $134 | $260 | $265 | | Net income | $127 | $81 | $195 | $158 | | Basic EPS | $2.72 | $1.59 | $4.14 | $3.08 | | Diluted EPS | $2.71 | $1.58 | $4.12 | $3.06 | [Condensed Consolidated Statements of Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income for the three months ended August 1, 2025, was $125 million, an increase from $73 million in the prior year, primarily driven by higher net income | Metric | Three Months Ended Aug 1, 2025 (in millions) | Three Months Ended Aug 2, 2024 (in millions) | Six Months Ended Aug 1, 2025 (in millions) | Six Months Ended Aug 2, 2024 (in millions) | |---|---|---|---|---| | Net income | $127 | $81 | $195 | $158 | | Net unrealized (loss) gain on derivative instruments | $(2) | $(8) | $(3) | $(5) | | Total other comprehensive (loss) income, net of tax | $(2) | $(8) | $(3) | $(5) | | Comprehensive income | $125 | $73 | $192 | $153 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of August 1, 2025, total assets were $5,201 million, a slight decrease from $5,246 million at January 31, 2025, with current assets increasing | Metric | August 1, 2025 (in millions) | January 31, 2025 (in millions) | |---|---|---| | Cash and cash equivalents | $48 | $56 | | Receivables, net | $951 | $1,000 | | Total current assets | $1,204 | $1,154 | | Goodwill | $2,851 | $2,851 | | Intangible assets, net | $721 | $779 | | Total assets | $5,201 | $5,246 | | Total current liabilities | $1,447 | $1,396 | | Debt, net of current portion | $1,844 | $1,907 | | Total stockholders' equity | $1,517 | $1,577 | | Total liabilities and stockholders' equity | $5,201 | $5,246 | [Condensed Consolidated Statements of Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Stockholders' equity decreased to $1,517 million as of August 1, 2025, from $1,577 million at January 31, 2025, primarily due to stock repurchases and cash dividends | Metric | Balance at January 31, 2025 (in millions) | Net income (in millions) | Cash dividends (in millions) | Repurchases of stock (in millions) | Balance at August 1, 2025 (in millions) | |---|---|---|---|---|---| | Total stockholders' equity | $1,577 | $195 | $(36) | $(234) | $1,517 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities for the six months ended August 1, 2025, was $222 million, a decrease from $236 million in the prior year | Metric | Six Months Ended Aug 1, 2025 (in millions) | Six Months Ended Aug 2, 2024 (in millions) | |---|---|---| | Net income | $195 | $158 | | Depreciation and amortization | $71 | $69 | | Deferred income taxes | $109 | $(8) | | Net cash provided by operating activities | $222 | $236 | | Net cash used in investing activities | $(22) | $(16) | | Net cash used in financing activities | $(208) | $(267) | | Net decrease in cash, cash equivalents and restricted cash | $(8) | $(47) | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on the company's business operations, significant accounting policies, financial performance metrics, and other financial instruments and obligations [Note 1—Business Overview and Summary of Significant Accounting Policies](index=9&type=section&id=Note%201%E2%80%94Business%20Overview%20and%20Summary%20of%20Significant%20Accounting%20Policies) The company is a leading provider of technical, engineering, and IT services primarily to the U.S. government, operating through Defense and Intelligence, and Civilian segments - The company is a leading provider of technical, engineering, and enterprise IT services primarily to the U.S. government. It integrates emerging technology into mission-critical operations, focusing on higher-end, differentiated technology services[22](index=22&type=chunk) - The company operates through two reportable segments: Defense and Intelligence (serving DoD and Intelligence Community) and Civilian (serving federal, state, and local governments)[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) - Key offerings include IT modernization, digital engineering, artificial intelligence (AI), mission systems support, training and simulation, and ground vehicles support. The Innovation Factory develops enterprise-class solutions with teams focused on AI, application development, network services, platforms and cloud, engineering, and cybersecurity[26](index=26&type=chunk)[27](index=27&type=chunk) - The company adopted the annual disclosure requirements of ASU No. 2023-07, Segment Reporting, in fiscal 2025 and will adopt the interim disclosure requirements in fiscal 2026, enhancing disclosures about significant segment expenses[39](index=39&type=chunk) [Note 2—Earnings Per Share, Share Repurchases and Dividends](index=11&type=section&id=Note%202%E2%80%94Earnings%20Per%20Share,%20Share%20Repurchases%20and%20Dividends) Diluted EPS for the three months ended August 1, 2025, was $2.71, up from $1.58, with the company repurchasing 2.1 million shares for $231 million | Metric | Three Months Ended Aug 1, 2025 (in millions) | Three Months Ended Aug 2, 2024 (in millions) | Six Months Ended Aug 1, 2025 (in millions) | Six Months Ended Aug 2, 2024 (in millions) | |---|---|---|---|---| | Basic weighted-average number of shares outstanding | 46.7 | 50.9 | 47.1 | 51.3 | | Diluted weighted-average number of shares outstanding | 46.8 | 51.2 | 47.3 | 51.7 | - During the six months ended August 1, 2025, the company repurchased approximately **2.1 million shares** of its common stock from the open market for approximately **$231 million**[45](index=45&type=chunk) - The company declared and paid a quarterly dividend of **$0.37 per share** during the three months ended August 1, 2025, and subsequently declared another quarterly dividend of **$0.37 per share** payable on October 24, 2025[46](index=46&type=chunk) [Note 3—Revenues](index=13&type=section&id=Note%203%E2%80%94Revenues) Revenues decreased slightly due to contract completions, with net favorable adjustments positively impacting operating income and diluted EPS, and the majority of revenues from U.S. government cost reimbursement contracts | Metric | Three Months Ended Aug 1, 2025 (in millions) | Three Months Ended Aug 2, 2024 (in millions) | Six Months Ended Aug 1, 2025 (in millions) | Six Months Ended Aug 2, 2024 (in millions) | |---|---|---|---|---| | Net favorable (unfavorable) adjustments | $5 | $(1) | $3 | $0 | | Net favorable (unfavorable) adjustments, after tax | $6 | $(1) | $3 | $0 | | Diluted EPS impact | $0.13 | $(0.02) | $0.06 | $0.00 | | Customer (Three Months Ended Aug 1, 2025) | Defense and Intelligence (in millions) | Civilian (in millions) | Total SAIC (in millions) | |---|---|---|---| | Department of Defense | $920 | $2 | $922 | | Intelligence and other federal government agencies | $444 | $360 | $804 | | Commercial, state and local governments and international | $10 | $33 | $43 | | Total | $1,374 | $395 | $1,769 | | Contract Type (Three Months Ended Aug 1, 2025) | Defense and Intelligence (in millions) | Civilian (in millions) | Total SAIC (in millions) | |---|---|---|---| | Cost reimbursement | $1,093 | $13 | $1,106 | | Time and materials ("T&M") | $117 | $276 | $393 | | Firm-fixed price ("FFP") | $164 | $106 | $270 | | Total | $1,374 | $395 | $1,769 | - As of August 1, 2025, the company had approximately **$6.1 billion** in Remaining Performance Obligations (RPO), with **79%** expected to be recognized over the next 12 months and **89%** over the next 24 months[57](index=57&type=chunk) [Note 4—Goodwill and Intangible Assets](index=15&type=section&id=Note%204%E2%80%94Goodwill%20and%20Intangible%20Assets) Goodwill remained stable at $2,851 million, while net intangible assets decreased to $721 million due to amortization expense | Metric | August 1, 2025 (in millions) | January 31, 2025 (in millions) | |---|---|---| | Goodwill - Defense and Intelligence | $2,001 | $2,001 | | Goodwill - Civilian | $850 | $850 | | Total Goodwill | $2,851 | $2,851 | | Intangible Assets | Net carrying value (Aug 1, 2025, in millions) | Net carrying value (Jan 31, 2025, in millions) | |---|---|---| | Customer relationships | $716 | $774 | | Developed technology | $5 | $5 | | Trade name | $0 | $0 | | Total intangible assets | $721 | $779 | - Amortization expense related to intangible assets was **$29 million** for the three months and **$58 million** for the six months ended August 1, 2025[60](index=60&type=chunk) [Note 5—Income Taxes](index=16&type=section&id=Note%205%E2%80%94Income%20Taxes) The effective income tax rate significantly decreased to (17.2)% due to an IRS audit settlement benefit and the reinstatement of immediate R&D expensing | Metric | Three Months Ended Aug 1, 2025 | Three Months Ended Aug 2, 2024 | Six Months Ended Aug 1, 2025 | Six Months Ended Aug 2, 2024 | |---|---|---|---|---| | Effective income tax rate | (17.2)% | 19.6% | (0.4)% | 19.3% | - The significant decrease in the effective tax rate was primarily due to a **$47 million benefit** from an IRS audit settlement covering fiscal years 2016 through 2019 and decreases in liabilities for uncertain tax positions[62](index=62&type=chunk) - The "One Big Beautiful Bill Act," enacted July 4, 2025, permanently reinstated the immediate expensing of U.S. research and development expenditures, which the company expects will result in a cash tax benefit in the current year[63](index=63&type=chunk) [Note 6—Debt Obligations](index=17&type=section&id=Note%206%E2%80%94Debt%20Obligations) Total debt increased to $2,292 million, with the company actively managing its Revolving Credit Facility and remaining in compliance with covenants | Debt Type | August 1, 2025 (Net, in millions) | January 31, 2025 (Net, in millions) | Stated Interest Rate (Aug 1, 2025) | |---|---|---|---| | Term Loan A Facility due June 2027 | $1,074 | $1,120 | 5.71% | | Term Loan B3 Facility due February 2031 | $501 | $503 | 6.11% | | Senior Notes due April 2028 | $397 | $397 | 4.88% | | Revolving Credit Facility due June 2027 | $320 | $200 | 6.31% | | Total debt | $2,292 | $2,220 | | - During the six months ended August 1, 2025, the company borrowed **$1.3 billion** and repaid **$1.2 billion** under the Revolving Credit Facility[67](index=67&type=chunk) - The company was in compliance with the covenants under its Credit Facility as of August 1, 2025[68](index=68&type=chunk) [Note 7—Derivative Instruments Designated as Cash Flow Hedges](index=18&type=section&id=Note%207%E2%80%94Derivative%20Instruments%20Designated%20as%20Cash%20Flow%20Hedges) The company uses fixed interest rate swap instruments as cash flow hedges to manage interest rate risks, with the fair value of the swap asset decreasing to $2 million | Derivative Type | Notional Amount (Aug 1, 2025, in millions) | Fair Value of Asset (Aug 1, 2025, in millions) | Fair Value of Asset (Jan 31, 2025, in millions) | |---|---|---|---| | Interest rate swaps | $685 | $2 | $6 | - The company expects to reclassify **$2 million** of unrealized gains from accumulated other comprehensive income into earnings from August 2, 2025, until the interest rate swaps mature on October 31, 2025[71](index=71&type=chunk) [Note 8—Changes in Accumulated Other Comprehensive Income (Loss) by Component](index=19&type=section&id=Note%208%E2%80%94Changes%20in%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)%20by%20Component) Accumulated other comprehensive income decreased to $9 million, primarily due to reclassifications from unrealized gains on interest rate swap cash flow hedges into earnings | Metric | Balance at January 31, 2025 (in millions) | Net other comprehensive loss (6 months ended Aug 1, 2025, in millions) | Balance at August 1, 2025 (in millions) | |---|---|---|---| | Total Accumulated other comprehensive income (loss) | $12 | $(3) | $9 | - Amounts reclassified from accumulated other comprehensive income into earnings for the six months ended August 1, 2025, were **$(5) million**, included in "Interest expense, net"[73](index=73&type=chunk) [Note 9—Sales of Receivables](index=20&type=section&id=Note%209%E2%80%94Sales%20of%20Receivables) The company utilizes a MARPA Facility to sell eligible U.S. government receivables, with $240 million outstanding as of August 1, 2025, incurring $7 million in purchase discount fees - The company has a Master Accounts Receivable Purchase Agreement (MARPA Facility) for the sale of up to **$300 million** of certain designated eligible receivables with the U.S. government[74](index=74&type=chunk) | Metric | Six Months Ended Aug 1, 2025 (in millions) | Six Months Ended Aug 2, 2024 (in millions) | |---|---|---| | Purchase discount fees | $7 | $7 | | Outstanding balance sold to Purchaser | $265 | $175 | | Remaining sold receivables | $240 | $144 | [Note 10—Business Segments Information](index=20&type=section&id=Note%2010%E2%80%94Business%20Segments%20Information) The company operates through Defense and Intelligence and Civilian segments, with performance evaluated based on revenues and adjusted operating income, and labor base as a significant expense - The company's two reportable segments are Defense and Intelligence and Civilian, defined by how the CEO (CODM) manages operations for resource allocation and performance assessment[78](index=78&type=chunk) - Segment operating performance is evaluated using "Revenues" and "Adjusted operating income (loss)," which excludes non-recurring transactions. Labor base is identified as a significant expense regularly provided to the CODM[83](index=83&type=chunk) | Segment (Three Months Ended Aug 1, 2025) | Revenues (in millions) | Labor base (in millions) | Adjusted operating income (loss) (in millions) | |---|---|---|---| | Defense and Intelligence | $1,374 | $410 | $124 | | Civilian | $395 | $124 | $54 | | Corporate | $0 | $0 | $4 | | Total SAIC | $1,769 | $534 | $182 | [Note 11—Legal Proceedings and Other Commitments and Contingencies](index=22&type=section&id=Note%2011%E2%80%94Legal%20Proceedings%20and%20Other%20Commitments%20and%20Contingencies) The company is involved in various legal proceedings, including a DOJ antitrust investigation and a patent infringement case that resulted in a favorable $15 million settlement - The company is cooperating with a U.S. Department of Justice, Antitrust Division criminal investigation, having received Federal Grand Jury Subpoenas in April 2022 and October 2023[89](index=89&type=chunk) - In July 2025, the company executed a favorable settlement agreement for a patent infringement complaint, recovering **$15 million** and recognizing **$9 million** as a recovery for previously incurred costs[90](index=90&type=chunk) - The company is routinely subject to government investigations, audits, and reviews, and believes it has adequately reserved for estimated net amounts to be refunded to customers for potential adjustments[91](index=91&type=chunk)[93](index=93&type=chunk)[95](index=95&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, results of operations, and future outlook, detailing revenue trends, segment performance, and liquidity [Business Overview](index=24&type=section&id=Business%20Overview) SAIC is a leading technology integrator for the U.S. government, providing full life cycle services and solutions in technical, engineering, and IT markets through its Defense and Intelligence and Civilian segments - SAIC is a leading technology integrator providing full life cycle services and solutions in technical, engineering, and enterprise IT markets, primarily to the U.S. government[99](index=99&type=chunk) - The company serves customers through approximately **1,700 active contracts** and task orders and employs approximately **24,000 individuals**[99](index=99&type=chunk) - The company's two reportable segments are Defense and Intelligence (serving DoD and Intelligence Community) and Civilian (serving federal, state, and local governments), integrating emerging technologies like IT modernization, digital engineering, and AI[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk) [Economic Opportunities, Challenges, and Risks](index=25&type=section&id=Economic%20Opportunities,%20Challenges,%20and%20Risks) The company's performance is highly dependent on U.S. government spending, with recent legislative actions providing funding certainty, but risks include potential government shutdowns and increased competition - **98%** of the company's revenues are generated from contracts with the U.S. government, making its business performance highly dependent on government spending and budget priorities[106](index=106&type=chunk) - A March 2025 continuing resolution extends government funding through GFY 2025, providing budget certainty and flexibility for new DoD program starts[106](index=106&type=chunk) - A July 2025 budget reconciliation package adds approximately **$150 billion** in new non-border defense spending and **$175 billion** in new border security and enforcement spending, increasing opportunities in areas like Naval operations and border surveillance[107](index=107&type=chunk) - Risks include potential government shutdowns, adverse fiscal and economic conditions (e.g., inflation, spending reductions), and increased competition from competitive bidding processes and small business prime set-aside contracts[108](index=108&type=chunk)[111](index=111&type=chunk)[113](index=113&type=chunk) [Management of Operating Performance and Reporting](index=26&type=section&id=Management%20of%20Operating%20Performance%20and%20Reporting) Management evaluates consolidated results using revenues, operating income, adjusted operating income, adjusted EBITDA, and operating cash flows, closely monitoring contract margin performance and cost mix - Primary financial measures for evaluating consolidated results include revenues, operating income, adjusted operating income, adjusted EBITDA, and operating cash flows[117](index=117&type=chunk) - Management monitors contract margin performance, updates estimates, and analyzes cost mix (labor, subcontractor, and materials) to understand operating margins, noting that programs with a higher proportion of SAIC labor are generally more profitable[116](index=116&type=chunk)[117](index=117&type=chunk) [Condensed Consolidated Results of Operations](index=27&type=section&id=Condensed%20Consolidated%20Results%20of%20Operations) Revenues decreased slightly, while operating income as a percentage of revenues increased for the three months but decreased for the six months, and net income significantly increased due to an IRS audit settlement benefit | Metric | Three Months Ended Aug 1, 2025 (in millions) | Three Months Ended Aug 2, 2024 (in millions) | Six Months Ended Aug 1, 2025 (in millions) | Six Months Ended Aug 2, 2024 (in millions) | |---|---|---|---|---| | Revenues | $1,769 | $1,818 | $3,646 | $3,665 | | Operating income | $139 | $134 | $260 | $265 | | Operating income as a percentage of revenues | 7.9% | 7.4% | 7.1% | 7.2% | | Net income | $127 | $81 | $195 | $158 | - Revenues decreased **$49 million (3%)** for the three months and **$19 million (1%)** for the six months ended August 1, 2025, primarily due to contract completions and ramp-down in volume on existing contracts[120](index=120&type=chunk) - Operating income as a percentage of revenues increased for the three months due to improved profitability and a patent infringement settlement recovery, but decreased for the six months due to costs related to federal tax audit settlements and the indirect rates impact of state taxes related to the One Big Beautiful Bill Act[121](index=121&type=chunk)[122](index=122&type=chunk) - The effective income tax rate significantly decreased to **(17.2)%** for the three months and **(0.4)%** for the six months, primarily due to a **$47 million benefit** from an IRS audit settlement[123](index=123&type=chunk) [Segment and Corporate Results](index=28&type=section&id=Segment%20and%20Corporate%20Results) Defense and Intelligence segment revenues decreased, while Civilian segment revenues saw mixed results, with both segments showing improved adjusted operating income percentages due to better contract profitability | Segment (Three Months Ended Aug 1, 2025) | Revenues (in millions) | Adjusted Operating Income (in millions) | Adjusted Operating Income as % of Revenues | |---|---|---|---| | Defense and Intelligence | $1,374 | $124 | 9.0% | | Civilian | $395 | $54 | 13.7% | | Corporate | $0 | $4 | N/A | - Defense and Intelligence segment revenues decreased by **$41 million (3%)** for the three months and **$44 million (2%)** for the six months, primarily due to contract completions and ramp-downs[126](index=126&type=chunk)[127](index=127&type=chunk) - Civilian segment revenues decreased by **$8 million (2%)** for the three months but increased by **$25 million (3%)** for the six months, with adjusted operating income as a percentage of revenues increasing for both periods due to improved contract profitability[129](index=129&type=chunk)[130](index=130&type=chunk) - Corporate adjusted operating income was **$4 million** for the three months ended August 1, 2025, compared to an adjusted operating loss of **$1 million** in the prior year, primarily due to a recovery of costs from a patent infringement settlement[132](index=132&type=chunk) [Non-GAAP Measures](index=29&type=section&id=Non-GAAP%20Measures) The company uses non-GAAP measures like adjusted operating income and adjusted EBITDA to provide insights into ongoing operating performance, showing increases as a percentage of revenues due to improved contract profitability - Non-GAAP measures, including adjusted operating income, EBITDA, and adjusted EBITDA, are used to evaluate financial performance by excluding non-recurring transactions and activities not indicative of ongoing operations[134](index=134&type=chunk)[135](index=135&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) | Metric | Three Months Ended Aug 1, 2025 (in millions) | Three Months Ended Aug 2, 2024 (in millions) | Six Months Ended Aug 1, 2025 (in millions) | Six Months Ended Aug 2, 2024 (in millions) | |---|---|---|---|---| | Adjusted operating income | $182 | $169 | $340 | $334 | | Adjusted operating income as a percentage of revenues | 10.3% | 9.3% | 9.3% | 9.1% | | EBITDA | $177 | $169 | $333 | $336 | | Adjusted EBITDA | $185 | $170 | $342 | $336 | | Adjusted EBITDA as a percentage of revenues | 10.5% | 9.4% | 9.4% | 9.2% | - Adjusted operating income and adjusted EBITDA as a percentage of revenues increased for both three and six months ended August 1, 2025, driven by improved contract profitability and the patent infringement settlement recovery, partially offset by state tax impacts from the One Big Beautiful Bill Act[140](index=140&type=chunk)[141](index=141&type=chunk) [Other Key Performance Measures](index=31&type=section&id=Other%20Key%20Performance%20Measures) Total backlog increased to $23,172 million, with net bookings of $2.6 billion for the three months, and the company aims for higher profitability through a greater proportion of SAIC labor - Bookings and backlog are key measures for management and investors to evaluate potential future revenues[142](index=142&type=chunk) | Backlog Category | August 1, 2025 (in millions) | January 31, 2025 (in millions) | |---|---|---| | Funded backlog | $3,594 | $3,444 | | Negotiated unfunded backlog | $19,578 | $18,413 | | Total backlog | $23,172 | $21,857 | - Net bookings were an estimated **$2.6 billion** for the three months and **$5.0 billion** for the six months ended August 1, 2025[146](index=146&type=chunk) | Contract Type (Three Months Ended Aug 1, 2025) | Defense and Intelligence (%) | Civilian (%) | Total SAIC (%) | |---|---|---|---| | Cost reimbursement | 79% | 3% | 63% | | Time and materials ("T&M") | 9% | 70% | 22% | | Firm-fixed price ("FFP") | 12% | 27% | 15% | - Contracts performed with a higher proportion of SAIC labor are generally more profitable, and the company analyzes its cost mix (labor, subcontractor, and materials) to understand operating margin[150](index=150&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) The company expects to fund operations and investments using cash on hand, future operating cash flows, and borrowings from its Revolving Credit Facility and MARPA Facility, considering operating cash flows and financial leverage - The company expects to fund ongoing working capital, commitments, and discretionary investments with cash on hand, future operating cash flows, and borrowings under its **$1.0 billion Revolving Credit Facility** and **$300 million MARPA Facility**[151](index=151&type=chunk) - Future cash needs include working capital, capital expenditures, and contractual commitments, with the capital deployment strategy considering operating cash flows, free cash flow, and financial leverage[152](index=152&type=chunk) [Historical Cash Flow Trends](index=34&type=section&id=Historical%20Cash%20Flow%20Trends) Net cash provided by operating activities decreased by $14 million for the six months ended August 1, 2025, compared to the prior year, mainly due to timing of customer collections and vendor payments, partially offset by higher cash from the MARPA Facility and lower incentive-based compensation | Metric | Six Months Ended Aug 1, 2025 (in millions) | Six Months Ended Aug 2, 2024 (in millions) | |---|---|---| | Net cash provided by operating activities | $222 | $236 | | Net cash used in investing activities | $(22) | $(16) | | Net cash used in financing activities | $(208) | $(267) | | Net decrease in cash, cash equivalents and restricted cash | $(8) | $(47) | - Net cash provided by operating activities decreased **$14 million**, primarily due to timing of customer collections and vendor payments, partially offset by higher cash provided by the MARPA Facility and lower incentive-based compensation payments[154](index=154&type=chunk) - Net cash used in financing activities decreased **$59 million**, primarily due to lower plan share repurchases and higher proceeds from borrowings, net of principal payments[156](index=156&type=chunk) [Critical Accounting Policies and Estimates](index=34&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) No changes to the company's critical accounting policies and estimates were reported during the six months ended August 1, 2025 - No changes to critical accounting policies and estimates were reported for the six months ended August 1, 2025[157](index=157&type=chunk) [Recently Issued But Not Yet Adopted Accounting Pronouncements](index=34&type=section&id=Recently%20Issued%20But%20Not%20Yet%20Adopted%20Accounting%20Pronouncements) Information on recently issued but not yet adopted accounting pronouncements is detailed in Note 1 to the condensed consolidated financial statements - Information on recently issued but not yet adopted accounting pronouncements is detailed in Note 1 of the condensed consolidated financial statements[158](index=158&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to the company's market risks were reported from those discussed in its most recently filed Annual Report on Form 10-K - No material changes to market risks were reported compared to the most recently filed Annual Report on Form 10-K[159](index=159&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, with the CEO and CFO's participation, concluded that the company's disclosure controls and procedures were effective as of August 1, 2025. No material changes in internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of August 1, 2025[160](index=160&type=chunk) - No material changes in internal control over financial reporting occurred during the quarterly period covered by this report[161](index=161&type=chunk) PART II—OTHER INFORMATION [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The company's legal proceedings information, including an update on government investigations and audits, is incorporated by reference from Note 11 to the condensed consolidated financial statements and the fiscal 2025 Annual Report on Form 10-K - Information about legal proceedings and government investigations/audits is updated in Note 11 to the condensed consolidated financial statements and incorporated by reference[163](index=163&type=chunk)[164](index=164&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported from the most recently filed Annual Report on Form 10-K. However, new risks related to trade restrictions, including tariffs and global political volatility, could adversely affect business operations and financial performance by increasing costs or hindering market access - No material changes from the risk factors disclosed in the most recently filed Annual Report on Form 10-K were reported[165](index=165&type=chunk) - New risks related to trade restrictions, including economic tariffs and trade war initiatives, may adversely affect business operations and financial performance by increasing costs for raw materials or hindering the capacity to procure materials from international suppliers or sell products in foreign markets[166](index=166&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 950,840 shares of common stock during the three months ended August 1, 2025, at an average price of $112.09 per share, under its established repurchase plans. As of August 1, 2025, approximately $2.3 billion worth of shares have been repurchased under the program | Period | Total Number of Shares Purchased | Average Price Paid per Share | |---|---|---| | May 3, 2025 - June 6, 2025 | 402,627 | $114.26 | | June 7, 2025 - July 4, 2025 | 284,578 | $107.06 | | July 5, 2025 - August 1, 2025 | 263,635 | $114.20 | | Total (3 months ended Aug 1, 2025) | 950,840 | $112.09 | - As of August 1, 2025, the company has repurchased approximately **26.6 million shares** of common stock for approximately **$2.3 billion** under its share repurchase plan[172](index=172&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No information is required in response to this item - No information is required in response to this item[169](index=169&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No information is required in response to this item - No information is required in response to this item[170](index=170&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" during the three months ended August 1, 2025 - No Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements were adopted or terminated by any director or officer during the three months ended August 1, 2025[171](index=171&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO under the Sarbanes-Oxley Act and interactive data files - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and Interactive Data Files[173](index=173&type=chunk)[175](index=175&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q2 2026 declined by 2.7% year over year, primarily due to a 3% headwind from Cloud WAN compute and store revenue, not fully offset by new business volume [16][18] - Adjusted EBITDA for Q2 was $185 million, resulting in an adjusted EBITDA margin of 10.5%, reflecting an increase of 180 basis points quarter over quarter and 80 basis points year over year [17] - Free cash flow improved to $150 million in Q2, despite challenges related to the timing of invoice payments [17][20] Business Line Data and Key Metrics Changes - On contract revenue growth slowed to 3% in Q2 from 8% in Q1, impacting overall revenue performance [16][18] - The company experienced program disruptions that contributed to the revenue decline, particularly in areas with significant government transformation initiatives [8][16] Market Data and Key Metrics Changes - The company anticipates organic revenue to decline by approximately 5.54% in Q3 and Q4 of FY 2026, with revised revenue guidance for FY 2026 set between $7.25 billion and $7.325 billion [18][19] - The outlook for FY 2027 assumes a more subdued contribution from on contract growth of 2% to 3% and a modest benefit from new business [18] Company Strategy and Development Direction - The company is focusing on cost efficiency initiatives to align its cost structure with the challenging revenue environment, aiming to mitigate the impact on EBITDA and free cash flow [10][19] - There is a strong emphasis on leveraging artificial intelligence to drive efficiency across core operations, which is expected to provide incremental benefits in the coming years [13][46] Management's Comments on Operating Environment and Future Outlook - Management noted a more challenging environment than previously forecasted, citing slower conversion of on contract growth opportunities, increased program disruptions, and delays in new business awards [6][9] - Despite current market volatility, management remains optimistic about the execution of their strategy and the potential for normalization in revenue growth over time [11][12] Other Important Information - The company is increasing its FY 2026 adjusted EPS guidance to a range of $9.4 to $9.6, benefiting from a favorable tax settlement [19][20] - The capital deployment plans remain focused on driving long-term value for shareholders, with a commitment to share repurchases and capability-focused M&A [20] Q&A Session Summary Question: Can you comment on the impacts on on contract growth? - Management indicated that delays in government transformation initiatives, particularly in the Army and civilian sectors, have hindered on contract growth, attributing it to efficiency efforts by the government rather than a shift in market share [22][25] Question: How do you see the structure of the industry changing? - Management acknowledged the volatility in the market and the impact of reduced government personnel, suggesting that while it is too soon to determine structural changes, they expect normalization in FY 2027 [30][33] Question: What are your expectations for the government fiscal year end flush? - Management noted that the flush environment has been irregular and does not expect significant opportunities from it, while a continuing CR is anticipated [80][82] Question: How would a government shutdown impact the P&L? - Management indicated that a traditional shutdown would likely have a marginal impact on revenues but little to no impact on cash flow [82][83] Question: Has there been a change in customer attitudes towards procurement? - Management stated that while there hasn't been an incremental change in the last ninety days, delays in customer interactions and new business ramp-ups have been significant indicators for adjusting revenue guidance [88][92]

Financial Data and Key Metrics Changes - Revenue for Q2 2026 declined by 2.7% year over year, primarily due to slower conversion of on-contract growth opportunities into revenue and program disruptions [5][14][17] - Adjusted EBITDA for Q2 was $185 million, resulting in an adjusted EBITDA margin of 10.5%, reflecting an increase of 180 basis points quarter over quarter and 80 basis points year over year [15][18] - Free cash flow improved to $150 million in Q2, although challenges related to invoice payment timing were noted [16][19] Business Line Data and Key Metrics Changes - On-contract revenue growth slowed to 3% in Q2 from 8% in Q1, with a significant headwind from Cloud WAN compute and store revenue [14][17] - The company expects organic revenue to decline by approximately 5.54% in Q3 and Q4 of FY 2026 [17] Market Data and Key Metrics Changes - The company is experiencing a more challenging environment than previously forecasted, with delays in new business awards and increased scrutiny on government spending impacting revenue [6][7][12] - The pipeline of expected awards remains solid, with a year-to-date book-to-bill ratio of 1.4 [5][11] Company Strategy and Development Direction - The company is focusing on aligning its cost structure with the expected revenue environment, implementing cost efficiency initiatives to mitigate the impact on EBITDA and free cash flow [8][9] - There is an emphasis on leveraging artificial intelligence to drive efficiency and improve margins in the coming years [12][45] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the current market volatility and its impact on near-term revenue but remains optimistic about long-term growth opportunities [10][12] - The company has revised its revenue guidance for FY 2026 to a range of $7.25 billion to $7.325 billion, reflecting a more subdued outlook [17][18] Other Important Information - The company is increasing its FY 2026 adjusted EPS guidance to a range of $9.4 to $9.6, benefiting from a favorable tax settlement [18][19] - The capital deployment plans remain focused on driving long-term value for shareholders, with a commitment to share repurchases and capability-focused M&A [19] Q&A Session Summary Question: Can you comment on the impacts on on-contract growth? - Management noted challenges in converting on-contract growth to revenue, particularly in areas undergoing significant transformation, such as the Army and the Department of Treasury [21][22][24] Question: How do you see the structure of the industry changing? - Management indicated that while there are new entrants in the market, the focus remains on mission integration, which is essential for operating within the government environment [28][32][54] Question: What are the expectations for government fiscal year-end flush? - Management expressed that the flush environment has been irregular and does not expect significant opportunities from it [80][81] Question: How would a government shutdown impact the P&L? - A traditional shutdown is expected to have a marginal impact on revenues, with little to no impact on cash flow [82][83] Question: What would it take to become more constructive on the outlook? - Key indicators include improvements in on-contract growth, timely adjudication of new business awards, and increased ramp-up velocity on existing programs [96][97]

Financial Performance - Q2 FY26 - Revenue decreased from $1.818 billion in FY25 to $1.769 billion in FY26[13], a decrease of approximately 2.7% - Adjusted EBITDA increased from $170 million in FY25 to $185 million in FY26[14], representing an increase of approximately 8.8% - Adjusted Diluted EPS increased significantly from $2.05 in FY25 to $3.63 in FY26[15] - Free Cash Flow decreased from $241 million in FY25 to $150 million in FY26[16] Fiscal Year 2026 Guidance - Revenue guidance is revised downwards to $7.250 billion - $7.325 billion, compared to the prior guidance of $7.60 billion - $7.75 billion[19] - Organic growth is expected to be approximately -2% to -3%[19] - Adjusted EBITDA is projected to be $680 million - $690 million, with a margin of 9.3% - 9.5%[19] - Adjusted Diluted EPS is expected to be $9.40 - $9.60[19] - Free Cash Flow is projected to be greater than $550 million[19] Business Development - The company is navigating near-term revenue pressure due to a challenging environment for on-contract growth and new business award delays [5] - The company is implementing cost efficiency initiatives, including artificial intelligence, to drive greater efficiency and leverage investments [5]

分组1 - SAIC reported quarterly earnings of $3.63 per share, exceeding the Zacks Consensus Estimate of $2.25 per share, and up from $2.05 per share a year ago, representing an earnings surprise of +61.33% [1] - The company posted revenues of $1.77 billion for the quarter ended July 2025, missing the Zacks Consensus Estimate by 4.81%, and down from $1.82 billion year-over-year [2] - Over the last four quarters, SAIC has surpassed consensus EPS estimates three times and topped consensus revenue estimates three times [2] 分组2 - The stock has added about 2.1% since the beginning of the year, underperforming the S&P 500's gain of 9.6% [3] - The current consensus EPS estimate for the coming quarter is $2.59 on revenues of $2.02 billion, and for the current fiscal year, it is $9.16 on revenues of $7.65 billion [7] - The Zacks Industry Rank for Computers - IT Services is currently in the bottom 39% of over 250 Zacks industries, indicating potential challenges for stock performance [8]

Core Viewpoint - Science Applications International Corporation (SAIC) reported a challenging revenue environment for the second quarter of fiscal year 2026, with a decrease in revenues and a cautious outlook for the remainder of the year [2][4][5]. Financial Performance - Revenues for the quarter were $1.769 billion, a decrease of 3% compared to $1.818 billion in the same period last year [3][4]. - Operating income increased by 4% to $139 million, with an operating income margin of 7.9%, up from 7.4% [3][6]. - Net income rose significantly by 57% to $127 million, compared to $81 million in the prior year [3][5]. - Adjusted EBITDA was $185 million, representing 10.5% of revenues, an increase from 9.4% in the prior year [3][7]. - Diluted earnings per share increased to $2.71 from $1.58, while adjusted diluted earnings per share rose to $3.63 from $2.05 [3][8]. Cash Flow and Capital Deployment - Net cash provided by operating activities decreased by 12% to $122 million, while free cash flow dropped by 38% to $150 million [3][9]. - The company deployed $130 million in capital, primarily for share repurchases and dividends [10]. Backlog and Contract Awards - Net bookings for the quarter were approximately $2.6 billion, with a book-to-bill ratio of 1.5, and year-to-date net bookings reached $5.0 billion [5][12]. - The estimated backlog at the end of the quarter was approximately $23.2 billion, with $3.6 billion funded [12][40]. - Notable contract awards included a $928 million contract with the U.S. Air Force and a $728 million task order for the Department of Treasury [13][14]. Guidance - The company revised its fiscal year 2026 guidance, projecting revenues between $7.250 billion and $7.325 billion, down from the previous range of $7.60 billion to $7.75 billion [21][22]. - Adjusted EBITDA guidance was also lowered to a range of $680 million to $690 million, compared to the prior range of $715 million to $735 million [22].