0001571123-25-000189
SEC filingRevenue declined 6% to $1.87B due to contract ramp downs, partially offset by Civilian margin expansion; net income fell 26% on executive transition costs.
For the three months ended October 31, 2025, SAIC reported revenues of $1,866 million, a 6% decrease from $1,976 million in the same period last year. The decline was driven by ramp down in volume on existing contracts (including approximately $16 million attributable to the government shutdown) and contract completions, partially offset by new business. Gross margin improved slightly to 12.2% from 12.0% due to favorable mix, but operating income fell 20% to $128 million (6.9% of revenues) versus $160 million (8.1%) in the prior year. Primary drivers of the margin contraction were $16 million in executive transition costs (net of recoveries) and the absence of a $14 million favorable resolution of the AAV contract termination recorded in Q3 last year. Net income decreased 26% to $78 million, with the effective tax rate rising to 16.7% from 15.6% due to the enactment of the One Big Beautiful Bill Act.
Defense and Intelligence segment revenues declined 5% to $1,439 million, driven by contract completions and volume reductions. Adjusted operating income was $118 million (8.2% of revenue), down 20% from $148 million (9.8%) as margin was pressured by portfolio mix and the prior-year AAV benefit. Civilian segment revenues fell 7% to $427 million, but adjusted operating income surged 27% to $62 million, with margin expanding to 14.5% from 10.6%, reflecting improved profitability across contracts. Corporate recorded adjusted operating income of $3 million versus a loss of $2 million a year ago, benefiting from lower selling, general and administrative expenses.
Management highlighted several macroeconomic factors influencing near-term performance: the federal government shutdown in October 2025 (43 days) ended with a spending agreement that funds certain agencies through FY2026, while others continue under a CR through January 30, 2026. The budget reconciliation package signed in July 2025 provides $150 billion in non-defense spending and $175 billion for border security, which could benefit SAIC's Navy and surveillance portfolios. However, executive orders and Department of Government Efficiency reviews pose risks of project cancellations or delays. The acquisition of SilverEdge in October 2025 adds IP-based solutions and is expected to modestly contribute. The company maintains a backlog of $23.8 billion, up from $21.9 billion at fiscal year-end, and booked $2.2 billion in new awards during the quarter. No specific financial guidance was provided, but the emphasis on cost structure and innovation indicates a focus on margin protection amid revenue headwinds.
As of October 31, 2025, SAIC held $45M in cash and cash equivalents, with total debt of $2.487B (net of $16M unamortized debt issuance costs). The company had $39M in marketable securities (Level 1 fair value). Total shareholders' equity stood at $1.512B. The debt structure includes a new $1.1B Term Loan A Facility due September 2030 (5.21% stated rate), a $503M Term Loan B3 Facility due February 2031 (5.71% stated), $400M Senior Notes due April 2028 (4.88%), and $500M Senior Notes due November 2033 (5.88%). The Revolving Credit Facility had no outstanding balance. The company also has $8M in letters of credit and $19M in surety bonds.
Remaining performance obligations (RPO) totaled $6.5B as of October 31, 2025, with approximately 80% expected to be recognized over the next 12 months and 89% over 24 months. Contract liabilities (deferred revenue) were $25M ($24M current, $1M non-current). The company has a $300M Master Accounts Receivable Purchase Agreement (MARPA) with MUFG Bank, with $192M in sold receivables outstanding as of period end. No other material purchase commitments were disclosed.
During the nine months ended October 31, 2025, SAIC repurchased 3.0M shares for $325M under its existing share repurchase plan (total repurchases including tax withholdings were $329M). Dividends totaled $53M ($1.11 per share, $0.37 quarterly). The company issued $2.745B in new debt (including the $1.1B Term Loan A and $500M Senior Notes) and repaid $2.473B, resulting in a net debt increase of $267M. Capital expenditures were $24M (0.4% of sales). The company also paid $203M for the SilverEdge acquisition, funded by borrowings and cash.
SAIC reports two segments: Defense and Intelligence (D&I) and Civilian. For Q3 FY2026, D&I revenue was $1.439B (down 5.0% YoY) with adjusted operating income of $118M (8.2% margin). Civilian revenue was $427M (down 7.4% YoY) with adjusted operating income of $62M (14.5% margin). For the nine-month period, D&I revenue was $4.246B and Civilian $1.266B. Revenue is heavily weighted to U.S. government customers (98%+), with the Department of War (DoW) being the largest customer ($972M in Q3). Cost-reimbursement contracts dominate D&I (80% of Q3 revenue), while Civilian is primarily time-and-materials (67%). Prime contractor revenue was $1.668B in Q3.
Operating cash flow (CFO) of $351M for the nine months ended October 31, 2025 exceeded net income of $273M, indicating reasonable cash conversion. The primary non-cash add-backs were depreciation and amortization ($109M), stock-based compensation ($51M), and deferred income taxes ($101M). CFO declined 7.4% year-over-year from $379M, driven largely by unfavorable working capital changes: a significant increase in prepaid expenses and other current assets (outflow of $68M vs. an inflow of $31M in the prior year) and a swing in accounts payable and other accrued liabilities to an outflow of $22M from an inflow of $119M. These were partly offset by a smaller increase in receivables (outflow of $31M vs. $108M).
Capex remained low at $24M (6.8% of CFO), reflecting a capital-light business model. The company returned $400M to shareholders through $347M in share repurchases (including shares withheld for taxes) and $53M in dividends, which together exceeded CFO, indicating reliance on debt and cash reserves. Financing activities included $2,745M in borrowings and $2,473M in repayments, resulting in net debt proceeds of $272M, alongside $203M used for acquisitions. The investing cash flow was negative $237M, primarily due to acquisitions and capex. The net decrease in cash was $11M.
Anomalies: The large swing in prepaid expenses ($68M outflow vs. $31M inflow) and accounts payable (outflow of $22M vs. inflow of $119M) warrant attention as they drove the CFO decline. Deferred income taxes swung from a $15M benefit to a $101M expense, reducing CFO from non-cash accruals but increasing the quality of cash flow.