Science Applications International Corp Annual Report - FY2026 Review

Dive into Science Applications International Corp.'s (SAIC) performance for the fiscal year ended January 30, 2026 (FY2026). This summary distills key financial and strategic insights from SAIC's latest annual report, presenting them in an accessible format for investors.

Business Overview: Leading Government Technology Integrator

Science Applications International Corp. (SAIC) is a premier technology integrator. It offers a wide range of technical, engineering, and enterprise information technology (IT) services and solutions, primarily to the U.S. government. SAIC uses its deep expertise and advanced capabilities to support national security, defense, intelligence, and civilian agency missions. Its offerings include systems engineering and integration, cybersecurity, cloud migration, digital engineering, data analytics, and mission support services.

SAIC primarily serves the U.S. government, delivering technology-driven services and solutions through two main segments:

• Defense & Intelligence: The largest contributor, this segment generated $5.6 billion in FY2026, a slight increase from $5.5 billion in FY2025. SAIC supports national security missions with services such as systems engineering, cybersecurity, IT modernization, and mission support.
• Civilian Agencies: Revenue from other federal government agencies grew to $1.56 billion in FY2026, up from $1.50 billion in FY2025. SAIC supports agencies involved in healthcare, space, and environmental protection.

Key Customer Breakdown:

• Department of Defense (DoD): SAIC's largest client, the DoD, contributed $4.4 billion in FY2026 (up from $4.3 billion).
• Other Federal Government Agencies: This category maintained stable revenue at $2.6 billion in both FY2026 and FY2025.
• Commercial, State & Local Agencies: This segment grew significantly, increasing to $160 million in FY2026 from $100 million in FY2025, though it still represents a small portion of total revenue.

The U.S. government generates approximately 98% of SAIC's total revenue. This highlights both the stability of its client base and its significant reliance on government spending and policy.

Financial Performance: Consistent Growth and Strong Pipeline

SAIC delivered solid financial and operational performance in FY2026, marked by revenue growth, improved profitability, and a robust backlog.

• Revenue Growth: SAIC's billed revenues reached $7.16 billion for FY2026, a 2.3% increase from $7.00 billion in FY2025. This growth demonstrates SAIC's continued success in securing and executing government contracts.
• Profitability: Operating income rose to $550 million (a 7.7% operating margin) in FY2026, up from $520 million (7.4% operating margin) in FY2025. Net income also increased, reaching $350 million ($6.20 diluted earnings per share, or EPS) in FY2026, compared to $330 million ($5.80 diluted EPS) in FY2025. This indicates effective cost management and revenue expansion.
• Strong Backlog: SAIC's total contract backlog, which represents future secured work, grew to an impressive $24 billion by the end of FY2026, up from $23 billion in FY2025. This substantial pipeline offers significant revenue visibility and stability for future periods.
• Free Cash Flow: SAIC generated $450 million in free cash flow in FY2026, an increase from $420 million in FY2025, demonstrating robust operational cash generation.

Management Discussion and Analysis (MD&A) Highlights

Management's discussion of SAIC's FY2026 financial condition and operational results highlights consistent growth and strategic execution. Strong contract performance and the strategic acquisition of SilverEdge Government Solutions primarily drove the 2.3% increase in billed revenues to $7.16 billion. Completed in October 2025 for approximately $700 million, this acquisition significantly bolstered SAIC's capabilities in high-demand areas like cybersecurity, cloud migration, and digital engineering, especially within the Defense & Intelligence sector. It also added $1.2 billion to SAIC's backlog. SilverEdge is expected to boost diluted EPS in FY2027.

Operating income rose to $550 million (7.7% operating margin) and net income reached $350 million, reflecting improved profitability. These gains stem from effective cost management and operational efficiencies across SAIC's segments. The robust $24 billion total contract backlog offers significant revenue visibility and stability for future periods.

Regarding liquidity and capital resources, SAIC generated $450 million in free cash flow, demonstrating robust operational cash generation. Management disciplined its capital allocation, focusing on optimizing debt, making strategic investments, and returning capital to shareholders. SAIC refinanced a portion of its debt, reducing its June 2027 Credit Facility Term Loan A from $1.1 billion to $1 billion and issuing $500 million in Senior Notes due November 2033. These actions aimed to optimize interest rates and extend debt maturities. Share repurchases of $200 million and quarterly dividends totaling $2.48 per share underscore SAIC's commitment to consistent shareholder returns.

SAIC continues to invest in and expand its offerings in digital transformation, artificial intelligence (AI), machine learning (ML), and data analytics, meeting evolving government client needs. The company also prioritizes attracting and retaining skilled talent, especially in specialized technology, to ensure successful contract execution and innovation. These efforts are critical for strengthening SAIC's competitive position and securing future growth.

Financial Health: Debt Management and Shareholder Returns

SAIC actively manages its capital structure and returns value to shareholders:

• Debt Management: SAIC's total debt was approximately $2.5 billion as of FY2026, with net debt (total debt minus cash and equivalents) at $2.3 billion. Its debt-to-EBITDA ratio of approximately 2.5x indicates a manageable leverage profile. SAIC refinanced a portion of its debt, reducing its June 2027 Credit Facility Term Loan A from $1.1 billion to $1 billion and issuing $500 million in Senior Notes due November 2033. This strategy aims to optimize interest rates and extend debt maturities.
• Shareholder Returns: SAIC repurchased $200 million of its common stock during FY2026, demonstrating confidence in its valuation. These buybacks increase earnings per share by reducing the number of outstanding shares. The company also paid quarterly dividends totaling $2.48 per share for FY2026, reflecting its commitment to consistent shareholder returns.

Future Outlook: Continued Growth Expected

Leveraging its strong FY2026 performance and robust backlog, SAIC provided the following guidance for the fiscal year ending January 31, 2027 (FY2027):

• Revenue: $7.3 billion to $7.5 billion
• Diluted EPS: $6.40 to $6.70
• Free Cash Flow: $470 million to $500 million

This outlook reflects SAIC's confidence in its strong government relationships, strategic acquisitions, and focus on high-demand technology services.

Competitive Position: Differentiated in a Dynamic Market

SAIC navigates a highly competitive and fragmented government services market. Its competitive advantages include:

• Deep Client Relationships and Mission Understanding: SAIC cultivates long-standing relationships with key U.S. government agencies, offering a deep understanding of their complex missions and operational requirements.
• Technical Expertise and Innovation: SAIC differentiates itself through specialized technical capabilities in areas like digital engineering, cybersecurity, cloud solutions, and artificial intelligence — all critical for modernizing government operations.
• Proven Past Performance: A strong track record of successful contract execution and complex solution delivery enhances SAIC's ability to win new business and retain existing contracts.
• Skilled Workforce: SAIC's ability to attract and retain a highly skilled and cleared workforce critically differentiates it, enabling the delivery of advanced technological solutions.
• Robust Contract Vehicles: Access to a broad portfolio of government-wide and agency-specific contract vehicles offers efficient pathways to secure new work.

This positioning enables SAIC to compete effectively against a diverse range of competitors, from large prime contractors to smaller, specialized firms.

Risk Factors for Investors

While SAIC shows stability, investors should consider these inherent risks:

• Dependence on U.S. Government Spending: SAIC's revenue heavily relies on U.S. government contracts. Changes in government spending priorities, budget cuts, sequestration, or political shifts could significantly impact SAIC's financial performance.
• Competitive Environment: The government contracting market is intensely competitive. SAIC must continually win new contracts and perform effectively on existing ones, competing against numerous well-established rivals.
• Cybersecurity Risks: As a critical IT and defense services provider, SAIC faces ongoing cyberattack threats. These could lead to data breaches, operational disruptions, and reputational damage.
• Talent Retention: Attracting and retaining highly skilled technical personnel is crucial for SAIC's success. A shortage of qualified employees or increased labor costs could negatively affect operations and profitability.
• Acquisition Integration Risks: While acquisitions like SilverEdge offer growth opportunities, they also carry risks. These include challenges with successful integration, achieving anticipated synergies, and potential impairment of goodwill.
• Contractual Risks: Many of SAIC's contracts are fixed-price. This means the company bears the risk of cost overruns if project execution is not managed efficiently.

Considering these factors, investors can weigh SAIC's consistent performance and strategic positioning against the inherent risks of its government-dependent business model.