0001571123-25-000166
SEC filingSAIC's revenue dipped 1% but net income surged 23% on tax benefits and portfolio improvements, with margins stable.
For the six months ended August 1, 2025, SAIC reported revenues of $3.646 billion, a 1% decline from $3.665 billion in the prior-year period. The decrease was primarily due to contract completions, partially offset by ramp-up in volume on existing and new contracts. Gross margin improved slightly to 11.6% from 11.5%, as cost of revenues as a percentage of revenues decreased from 88.5% to 88.4%. Operating income fell 2% to $260 million, with operating margin contracting 10 basis points to 7.1%. The decline was driven by $7 million in costs related to the settlement of federal tax audits and the indirect rate impact of state taxes from the One Big Beautiful Bill Act, partially offset by improved contract profitability and a recovery of costs from a patent infringement settlement. Net income surged 23% to $195 million, benefiting from a $47 million IRS audit settlement benefit and lower income tax expense (effective tax rate of -0.4% vs. 19.3%).
The Defense and Intelligence segment, representing 77% of total revenue, saw a 2% revenue decline to $2.807 billion due to contract completions and lower volume. Adjusted operating income decreased 4% to $239 million, with margin slipping 20 basis points to 8.5% on unfavorable timing and volume mix. The Civilian segment grew revenue 3% to $839 million, driven by ramp-up on existing contracts. Adjusted operating income increased 15% to $106 million, with margin expanding 130 basis points to 12.6% due to improved profitability across the portfolio. Corporate adjusted operating loss improved $1 million to $5 million, helped by the patent settlement recovery.
Management highlighted positive tailwinds from recent budget reconciliation packages adding $325 billion in defense and border security spending through fiscal 2029, which aligns with SAIC's capabilities. However, risks remain from potential government shutdowns, ongoing reviews of contracting activity by the Department of Government Efficiency, and competitive pressure. The company expects to leverage its scale, innovation factory, and strong customer relationships to compete effectively. No specific numerical guidance was provided.
Cash and cash equivalents total $48M as of August 1, 2025, down from $56M at January 31, 2025. Restricted cash of $8M is included in prepaid and other assets. Total debt stands at $2,292M (net of $8M unamortized issuance costs), with $448M classified as current. The debt structure comprises a $1,074M Term Loan A (due June 2027), $501M Term Loan B3 (due February 2031), $397M Senior Notes (due April 2028), and $320M drawn on the $1.0B Revolving Credit Facility (due June 2027). During H1 FY2026, the Company borrowed $1,307M and repaid $1,235M under the revolver. Subsequent to quarter end, $95M of revolver principal was repaid. Shareholders' equity is $1,517M, reflecting $234M in share repurchases and $36M in dividends during the six-month period.
Remaining performance obligations (RPO) total $6.1B as of August 1, 2025, with 79% expected to be recognized within 12 months and 89% within 24 months. Contract liabilities (deferred revenue) are $27M current and $1M non-current. The Company has outstanding letters of credit of $8M and surety bonds of $19M. Additionally, the Company is subject to ongoing DCAA audits for prior years; reserves have been established for estimated adjustments.
During H1 FY2026, the Company repurchased 2.1M shares for $231M (cumulative ~26.6M shares for $2.3B). Dividends totaled $36M ($0.37/quarter). The Board declared a $0.37 dividend for Q3 payable October 24, 2025. Net debt increased by $72M during the six months, driven by revolver borrowings. Capital expenditures were $15M (H1), up from $12M in the prior year period. Total stock repurchases (including withholding for taxes) were $252M in H1 FY2026 vs $304M in H1 FY2025.
The Company operates two reportable segments: Defense and Intelligence ($1,374M revenue, $124M adjusted operating income) and Civilian ($395M revenue, $54M adjusted operating income). Revenue decreased 2.9% and 2.0% YoY respectively in Q2. Cost-reimbursement contracts constitute 62.5% of total revenue ($1,106M), T&M 22.2% ($393M), and FFP 15.3% ($270M). Prime contractor to federal government accounts for 88.6% of total revenue ($1,568M). Labor base (direct labor) was $534M for Q2, with $410M in Defense & Intelligence and $124M in Civilian.
For the six months ended August 1, 2025, net cash provided by operating activities (CFO) was $222 million, compared to net income of $195 million, yielding a CFO-to-net-income ratio of 1.14x, indicating solid cash conversion. The primary non-cash adjustments were depreciation and amortization ($71 million), stock-based compensation ($25 million), and a large deferred income tax benefit of $109 million (which added to cash flow). Working capital was a net use of cash: receivables decreased (source of $49 million), but prepaid expenses and other current assets consumed $107 million, and accounts payable and other accrued liabilities decreased by $84 million, reflecting timing of payments.
Capital expenditures (capex) were $15 million, representing a modest 6.8% of CFO, indicating low capital intensity. Free cash flow (not explicitly stated) would approximate CFO minus capex, or roughly $207 million. This FCF amply covered the combined capital returns of $288 million ($252 million in share repurchases and $36 million in dividends).
Anomalies: The $109 million deferred income tax benefit is a significant non-cash item that boosted CFO; the large swing in prepaid expenses and other current assets ($107 million use) and the decline in accounts payable ($84 million use) are notable working capital outflows that reduced CFO versus the prior year. Overall, cash generation remains healthy despite the working capital drag.