Science Applications International Corp (SAIC)

Science Applications International Corporation is a leading provider of technical, engineering and mission and enterprise information technology services primarily to the U.S. government, serving customers through approximately 1,700 active contracts and task orders. The company operates in a heavily regulated environment governed by the Federal Acquisition Regulation and the Defense Federal Acquisition Regulation Supplement, with the U.S. government increasingly relying on indefinite delivery, indefinite quantity contracts, GSA Schedule contracts, and other multi-award contracts, which has led to greater competition and increased pricing pressure. The Department of War has released a new Acquisition Transformation Strategy to rebuild the defense industrial base, prioritizing speed and execution in the acquisition process, and the U.S. government performs ongoing evaluations of federal agencies and existing government contracts for affordability, efficiency, and alignment with U.S. government objectives.

The industry is intensely competitive, with principal competitors including the engineering and technical services divisions of large defense contractors such as General Dynamics Corporation, Lockheed Martin Corporation, Northrop Grumman Corporation, and RTX Corporation; contractors focused principally on technical and IT services for the U.S. government such as Booz Allen Hamilton Inc., CACI International, Inc., Leidos Holdings, Inc., ManTech International Corporation, Parsons Corporation, Peraton, and Serco Group plc; and diversified commercial providers such as Accenture plc, AECOM, Amentum Holdings, Inc., Deloitte, and International Business Machines Corporation. The company competes on technical expertise and qualified and/or security-cleared personnel, ability to deliver innovative cost-effective solutions, successful program execution, reputation and standing with customers, pricing, and size and geographic presence. Competition within the government services industry has intensified, leading to fewer sole-source awards and an increased emphasis on cost competitiveness and affordability.

The company generates revenue primarily through long-term contracts with the U.S. government, including subcontracts with other contractors engaged in work for the U.S. government, under cost-reimbursement, time-and-materials, and firm-fixed price contracts. In fiscal 2026, approximately 62% of total revenues came from cost-reimbursement contracts, 22% from time-and-materials contracts, and 16% from firm-fixed price contracts. The company serves customers through approximately 1,700 active contracts and task orders, with 98% of total revenues attributable to prime contracts with the U.S. government or subcontracts with other contractors engaged in work for the U.S. government in each of the last three fiscal years. The company's Innovation Factory supports the operating segments by developing enterprise-class solutions delivered as stand-alone solutions or integrated with product offerings.

The Defense and Intelligence segment provides a diverse portfolio of national security solutions to the Department of War and the Intelligence Community of the United States Government. For fiscal 2026, the Defense and Intelligence segment reported revenues of $5,581 million ¹ and adjusted operating income of $478 million ², representing 8.6% of segment revenues. Revenues decreased $145 million from fiscal 2025 primarily due to contract completions and ramp down in volume on existing contracts, partially offset by new contracts, with $27 million ³ of revenues attributed to the SilverEdge acquisition. The segment's offerings include IT modernization, digital engineering, artificial intelligence, mission systems support and advisory, training and simulation, and ground vehicles support, with end-to-end solutions spanning design, development, integration, deployment, management and operations, sustainment and security of customers' entire IT infrastructure.

The Civilian segment provides solutions to civilian markets encompassing federal, state, and local governments, delivering services for citizen well-being, border security, and protecting lives. For fiscal 2026, the Civilian segment reported revenues of $1,681 million ⁴ and adjusted operating income of $228 million ⁵, representing 13.6% of segment revenues. Revenues decreased $72 million from fiscal 2025 primarily due to ramp down in volume on existing contracts and contract completions, partially offset by new contracts. Adjusted operating income as a percentage of revenues increased from 12.3% in fiscal 2025 to 13.6% in fiscal 2026 primarily due to improved profitability across the contract portfolio. The segment's offerings include integrating solutions into public service missions impacting travel, trade, health and the economy.

On October 15, 2025, the company acquired SilverEdge Government Solutions, an innovative provider of mission-driven technology solutions and products, for a preliminary purchase price of $203 million ⁶, net of $6 million ⁷ cash acquired, subject to post-closing adjustments. The company funded the transaction from increased borrowings and cash on hand. During fiscal 2026, the company repurchased approximately 4.0 million ⁸ shares of its common stock from the open market under its existing share repurchase plan for approximately $422 million ⁹. In December 2024, the Board of Directors authorized the repurchase of up to $1.2 billion ¹⁰ of outstanding common stock under the existing share repurchase plan. As of January 30, 2026, the company has repurchased approximately 28.5 million ¹¹ shares of common stock under the plan for approximately $2.5 billion ¹². On September 25, 2025, the company issued $500 million ¹³ of unsecured 5.875% Senior Notes due 2033 through a private offering. On September 30, 2025, the company executed the Eighth Amendment to the Third Amended and Restated Credit Agreement, establishing a new $1.1 billion ¹⁴ senior secured term loan credit facility due September 30, 2030. Effective January 31, 2026, the company completed a business reorganization that consolidated its five business groups into three, designed to simplify structure and optimize operations and customer focus for growth.

Total revenues for fiscal 2026 were $7,262 million ¹⁵, a decrease of $217 million or 3% from $7,479 million ¹⁶ in fiscal 2025, primarily due to contract completions and ramp down in volume on existing contracts, including approximately $26 million ¹⁷ attributable to the government shutdown, partially offset by new contracts. Net income was $358 million ¹⁸ compared to $362 million ¹⁹ in fiscal 2025. Diluted earnings per share were $7.70 ²⁰ compared to $7.17 ²¹ in the prior year. Operating income was $521 million ²² compared to $563 million ²³ in fiscal 2025, with operating income as a percentage of revenues decreasing from 7.5% to 7.2% primarily due to executive transition costs, the favorable resolution of the Assault Amphibious Vehicle contract termination in the prior year ($13 million ²⁴), costs related to the settlement of federal tax audits, and timing and volume mix in the contract portfolio, partially offset by a recovery of costs from the settlement of a patent infringement matter. Net cash provided by operating activities was $609 million ²⁵ compared to $494 million ²⁶ in fiscal 2025.

The acquisition of SilverEdge Government Solutions on October 15, 2025 advances the company's strategy to provide mission focused solutions and commercial products to its customers. The company believes it is well-positioned to protect and expand existing customer relationships and benefit from opportunities that it has not previously pursued, with its scale, size, and prime contractor leadership position expected to help differentiate it from competitors, especially on large contract opportunities. The company's Innovation Factory develops superior enterprise-class solutions delivered as stand-alone solutions or integrated with product offerings to meet complex customer needs and accelerate digital transformation. The company's current cost structure and ongoing efforts to reduce costs by strategic sourcing and developing repeatable offerings sold as a service and as managed services in a more commercial business model are expected to allow the company to compete effectively on price in an evolving environment.

The company's ability to be competitive in the future will continue to be driven by its reputation for successful program execution, competitive cost structure, development of new pricing and business models, and efficiencies in assigning the right people at the right time in support of contracts. The company's long-term, trusted customer relationships and deep technical expertise are expected to provide the sophistication to handle highly complex, mission-critical contracts. The company's value proposition is found in the proven ability to serve as a trusted adviser to customers, leveraging expertise and scale to help them execute their mission. The company's solutions are inspired through innovation based on adoption of best practices and technology integration of the best capabilities available.

Adjusted operating income as a percentage of revenues increased from 9.4% in fiscal 2025 to 9.7% in fiscal 2026, and adjusted EBITDA as a percentage of revenues increased from 9.5% to 9.7% over the same period, primarily due to a recovery of costs from the settlement of a patent infringement matter and lower other selling, general and administrative expenses, partially offset by the favorable resolution of the AAV contract termination in the prior year ($13 million ²⁷) and timing and volume mix in the contract portfolio. The company's current cost structure and ongoing efforts to reduce costs by strategic sourcing and developing repeatable offerings sold as a service and as managed services are expected to allow the company to compete effectively on price in an evolving environment.

The company expects to fund ongoing working capital, commitments and any other discretionary investments with cash on hand, future operating cash flows and, if needed, borrowings under its $1.0 billion ²⁸ Revolving Credit Facility and $300 million ²⁹ Master Accounts Receivable Purchase Agreement. As a services provider, the company's business currently requires minimal infrastructure investment. The company had approximately 23,000 employees as of January 30, 2026, including more than 5,800 active military or veterans representing 25% of the workforce. The company continued to invest in its workforce through various talent development and retention initiatives, such as upskilling, rotational assignments, and leadership development programs accounting for nearly 4,000 hours ³⁰.

Company-funded independent research and development expense was $13 million ³¹ in fiscal 2026, compared to $12 million ³² in fiscal 2025 and $4 million ³³ in fiscal 2024. Expenditures for property, plant, and equipment were $32 million ³⁴ in fiscal 2026, compared to $36 million ³⁵ in fiscal 2025 and $27 million ³⁶ in fiscal 2024. During fiscal 2026, the company repurchased approximately 4.0 million ³⁷ shares of common stock for approximately $422 million ³⁸. As of January 30, 2026, the company has repurchased approximately 28.5 million ³⁹ shares under the plan for approximately $2.5 billion ⁴⁰. The company declared and paid cash dividends of $0.37 per share ⁴¹ each quarterly period of fiscal 2026, 2025 and 2024, with total dividends declared and paid of $1.48 per share ⁴² during each of those fiscal years.

The company faces headwinds from the U.S. government shutdown that began on October 1, 2025 and lasted 43 days, with the Department of Homeland Security currently the only remaining agency with a delay in approved appropriations for government fiscal year 2026 and currently shut down. If the shutdown continues for an extended period, it could have an adverse impact on the company's financial outlook. The company also faces risks from ongoing reductions in personnel, changes in agency alignment, required reviews of new contracting activity, decreases or delays in new or existing contract awards and in government spending on the types of programs that the company supports, and terminations or stop-work-orders and delay in funding on government contracts on which the company is currently performing, which could adversely affect future revenues, cash flows and profitability.

The company faces constraints from the U.S. government's increasing reliance on contracts subject to a competitive bidding process, including IDIQ, GSA Schedule, and other multi-award contracts, which has resulted in greater competition and increased pricing pressure. The U.S. government has put renewed emphasis on increasing the number of small business prime set aside contracts that further reduce the addressable market in some areas. The company also faces risks from adverse changes in fiscal and economic conditions, including implementation of future spending reductions, delayed passage of appropriations bills resulting in temporary or full-year continuing resolutions, inflationary increases adversely impacting fixed-price contracts, and potential government shutdowns.

Management's message emphasizes the company's position as a leading technology integrator with over 50 years of history serving the U.S. government, focusing on the integration of emerging technologies into mission critical operations that modernize and enable national imperatives. The key strategic priorities emphasized for the period ahead include the business reorganization effective January 31, 2026 that consolidated five business groups into three to simplify structure and optimize operations and customer focus for growth, the integration of the SilverEdge acquisition to provide mission focused solutions and commercial products, and continued investment in the Innovation Factory to develop enterprise-class solutions. Management believes the company is well-positioned to protect and expand existing customer relationships and benefit from opportunities not previously pursued, with scale, size, and prime contractor leadership position expected to differentiate the company from competitors, especially on large contract opportunities.

Total revenues were $7,262 million ⁴⁵ for fiscal 2026 compared to $7,479 million ⁴⁶ for fiscal 2025 and $7,444 million ⁴⁷ for fiscal 2024. Net income was $358 million ⁴⁸ for fiscal 2026 compared to $362 million ⁴⁹ for fiscal 2025 and $477 million ⁵⁰ for fiscal 2024. Diluted earnings per share were $7.70 ⁵¹ for fiscal 2026 compared to $7.17 ⁵² for fiscal 2025 and $8.88 ⁵³ for fiscal 2024. Operating income was $521 million ⁵⁴ for fiscal 2026 compared to $563 million ⁵⁵ for fiscal 2025 and $741 million ⁵⁶ for fiscal 2024, with operating income as a percentage of revenues of 7.2% ⁵⁷ compared to 7.5% ⁵⁸ and 10.0% ⁵⁹ in the prior two years. Adjusted operating income was $702 million ⁶⁰ for fiscal 2026 compared to $705 million ⁶¹ for fiscal 2025 and $659 million ⁶² for fiscal 2024, with adjusted operating income as a percentage of revenues of 9.7% ⁶³ compared to 9.4% ⁶⁴ and 8.9% ⁶⁵ in the prior two years. Adjusted EBITDA was $708 million ⁶⁶ for fiscal 2026 compared to $710 million ⁶⁷ for fiscal 2025 and $668 million ⁶⁸ for fiscal 2024, with adjusted EBITDA as a percentage of revenues of 9.7% ⁶⁹ compared to 9.5% ⁷⁰ and 9.0% ⁷¹ in the prior two years. Net cash provided by operating activities was $609 million ⁷² for fiscal 2026 compared to $494 million ⁷³ for fiscal 2025 and $396 million ⁷⁴ for fiscal 2024. The effective income tax rate was 7.5% ⁷⁵ for fiscal 2026 compared to 15.5% ⁷⁶ for fiscal 2025, with the decrease primarily driven by a $47 million ⁷⁷ tax benefit related to an IRS audit settlement covering fiscal years 2016 through 2019 and adjustments in liabilities for uncertain tax positions. The Defense and Intelligence segment reported revenues of $5,581 million ⁷⁸ and adjusted operating income of $478 million ⁷⁹, while the Civilian segment reported revenues of $1,681 million ⁸⁰ and adjusted operating income of $228 million ⁸¹.

The company generated 98% of total revenues during each of the last three fiscal years from contracts with the U.S. government, making it heavily dependent on U.S. government spending and appropriations. A significant decline in overall U.S. government spending, a shift in spending priorities, or budget-related delays in contract awards could adversely affect future revenues and limit growth prospects. The company faces intense competition from larger companies with greater financial resources and technical staffs, as well as smaller specialized companies, with the U.S. government increasingly relying on competitive bidding processes that have led to greater pricing pressure. The company's profitability and cash flow may vary materially depending on the mix of contract types, with approximately 62% of fiscal 2026 revenues from cost-reimbursement contracts, 22% from time-and-materials contracts, and 16% from firm-fixed price contracts, each carrying different risk profiles. The company is subject to government audits by the DCAA and DCMA, which can result in adjustments to contract costs, mandatory customer refunds, withholding of payments, suspension of payments, and increased government scrutiny, with indirect cost audits remaining open for certain prior years and the current year. The company has estimated $656 million ⁴³ of gross net operating loss carryforwards and gross tax basis in acquired amortizable goodwill and other intangible assets of approximately $1.1 billion ⁴⁴ as of January 30, 2026, which are subject to annual limitations under Sections 382 and 383 of the Internal Revenue Code following an ownership change.