Science Applications International Corp

Previous wording

During the three and six months ended August 2, 2024, we generated 98% of our revenues from contracts with the U.S. government, including subcontracts on which we perform. Our business performance is affected by the overall level of U.S. government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S. government. In March 2024, the President signed appropriation measures that provide funding for GFY 2024 for all of the U.S. government and submitted the GFY 2025 budget request which adheres to the Fiscal Responsibility Act of 2023. The GFY 2025 budget includes 1% growth for defense budgets and an overall 1% growth for non-defense budgets. If Congress is not able to pass the GFY 2025 funding measures by the end of September 2024, it could result in the U.S. government operating on a continuing resolution or could potentially lead to a partial or full government shutdown.

Current wording

During the three and nine months ended November 1, 2024, we generated 98% of our revenues from contracts with the U.S. government, including subcontracts on which we perform. Our business performance is affected by the overall level of U.S. government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S. government. In March 2024, the President signed appropriation measures that provide funding for government fiscal year ("GFY") 2024 for all of the U.S. government and submitted the GFY 2025 budget request which adheres to the Fiscal Responsibility Act of 2023. The GFY 2025 budget includes 1% growth for defense budgets and an overall 1% growth for non-defense budgets. In September 2024, the President signed a continuing resolution which will fund the U.S. government under GFY 2024 levels through December 2024. If Congress is not able to pass appropriations for GFY 2025 funding by December 2024, it could result in the U.S. government operating on additional continuing resolutions and/or could potentially lead to a partial or full government shutdown. In addition, if full-year appropriations are not signed into law by April 30, 2025, a 1% sequestration would be applied to all agencies.

Previous wording

In January 2023, the Federal debt ceiling was reached and the U.S. Department of the Treasury was operating under "extraordinary measures." In June 2023, the President signed the Fiscal Responsibility Act of 2023 which suspends the Federal debt ceiling until January 1, 2025, postponing the threat of a federal government default. If a new debt ceiling agreement is not reached by January 2025, the U.S. Department of the Treasury will return to operating under "extraordinary measures."

Current wording

In January 2023, the Federal debt ceiling was reached and the U.S. Department of the Treasury was operating under "extraordinary measures." In June 2023, the President signed the Fiscal Responsibility Act of 2023 which suspends the Federal debt ceiling until January 1, 2025, postponing the threat of a federal government default. If a new debt ceiling agreement is not reached by January 2025, the U.S. Department of the Treasury will return to operating under "extraordinary measures." Congressional debt limit brinksmanship can lead to negative impacts on our business, and any agreement to raise the ceiling that significantly reduces future funding could affect our addressable market in subsequent years.

Previous wording

We succeed as a business based on the solutions we deliver, our past performance, and our ability to compete on price. Our solutions are inspired through innovation based on adoption of best practices and technology integration of the best capabilities available. Our Innovation Factory develops superior enterprise-class solutions which are delivered to our customers as stand-alone solutions or integrated with and aligned to our product offerings to meet complex customer needs and accelerate the digital transformation. Our past performance was achieved by employees dedicated to supporting our customers' most challenging missions. Our current cost structure and ongoing efforts to reduce costs by strategic sourcing and developing repeatable offerings sold "as a service" and as

Current wording

We succeed as a business based on the solutions we deliver, our past performance, and our ability to compete on price. Our solutions are inspired through innovation based on adoption of best practices and technology integration of the best capabilities available. Our Innovation Factory develops superior enterprise-class solutions which are delivered to our customers as stand-alone solutions or integrated with and aligned to our product offerings to meet complex customer needs and accelerate the digital transformation. Our past performance was achieved by employees dedicated to supporting our customers' most challenging missions. Our 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 us to compete effectively on price in an evolving environment. Our ability to be competitive in the future will continue to be driven by our 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 our contracts.

Previous wording

We evaluate our results of operations by considering the drivers causing changes in revenues, operating income and operating cash flows. Given that revenues fluctuate on our contract portfolio over time due to contract awards and completions, changes in customer requirements, and increases or decreases in ordering volume of materials, we evaluate significant trends and fluctuations resulting from these factors. Whether performed by our employees or by our subcontractors, we primarily provide services and, as a result, our cost of revenues are predominantly variable. We also analyze our cost mix (labor, subcontractor and materials) in order to understand operating margin because programs with a higher proportion of SAIC labor are generally more profitable. Changes in cost of revenues as a percentage of revenues other than from revenue volume or cost mix are normally driven by fluctuations in shared or corporate costs, or cumulative revenue adjustments due to changes in estimates.

Current wording

We evaluate our results of operations by considering the drivers causing changes in revenues, operating income, adjusted operating income(1), adjusted EBITDA(1), and operating cash flows. Given that revenues fluctuate on our contract portfolio over time due to contract awards and completions, changes in customer requirements, and increases or decreases in ordering volume of materials, we evaluate significant trends and fluctuations resulting from these factors. Whether performed by our employees or by our subcontractors, we primarily provide services and, as a result, our cost of revenues are predominantly variable. We also analyze our cost mix (labor, subcontractor and materials) in order to understand operating margin because programs with a higher proportion of SAIC labor are generally more profitable. Changes in cost of revenues as a percentage of revenues other than from revenue volume or cost mix are normally driven by fluctuations in shared or corporate costs, or cumulative revenue adjustments due to changes in estimates.

Previous wording

The primary financial performance measures we use to manage our business and monitor results of operations are revenues, operating income, and cash flows from operating activities. The following table summarizes our condensed consolidated results of operations:

Current wording

The primary financial performance measures we use to manage our consolidated business and monitor results of operations are revenues, operating income, and cash flows from operating activities. The following table summarizes our condensed consolidated results of operations:

Previous wording

Revenues decreased $147 million for the six months ended August 2, 2024 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($188 million) in the prior year (see Note 4—Divestitures to the condensed consolidated financial statements), and contract completions. This was partially offset by ramp up in volume on existing and new contracts. Adjusting for the impact of the divestiture, revenues grew 1.1%.

Current wording

Revenues decreased $66 million for the nine months ended November 1, 2024 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($188 million) in the prior year (see Note 4—Divestitures), and contract completions. This was partially offset by ramp up in volume on existing and new contracts. Adjusting for the impact of the divestiture, revenues grew 2.2%.

Previous wording

Operating income as a percentage of revenues for the six months ended August 2, 2024 decreased from the comparable prior year period primarily due to the gain on the sale of the Supply Chain Business ($233 million) in the prior year, a gain recognized from the deconsolidation of FSA ($7 million), and contract completions, partially offset by ramp up in volume on existing and new contracts.

Current wording

Operating income as a percentage of revenues for the nine months ended November 1, 2024 decreased from the comparable prior year period primarily due to the prior year gains on the sale of the Supply Chain Business ($233 million) and deconsolidation of FSA ($7 million), and contract completions, partially offset by ramp up in volume on existing and new contracts.

Previous wording

Income Taxes. Our effective income tax rate was 19.6% and 19.3% for the three and six months ended August 2, 2024, respectively, and 26.4% and 24.7% for the three and six months ended August 4, 2023, respectively. Our effective tax rate differs from the statutory tax rate primarily due to the deduction for foreign derived intangible income, research and development tax credits, and stock-based compensation windfalls.

Current wording

Income Taxes. Our effective income tax rate was 15.6% and 17.8% for the three and nine months ended November 1, 2024, respectively, and 18.0% and 23.4% for the three and nine months ended November 3, 2023, respectively. Our effective tax rate differs from the statutory tax rate primarily due to the deduction for foreign derived intangible income, research and development tax credits, and stock-based compensation windfalls. The effective tax rate in the prior year further differed from the statutory tax rate due to a gain from the disposition of the Supply Chain Business and the associated non-deductible goodwill.

Previous wording

Our effective tax rate for the three and six months ended August 2, 2024 decreased compared to the same periods in the previous year due to the non-recurrence of a gain from the disposition of the Supply Chain Business and the associated non-deductible goodwill.

Current wording

Our effective tax rate for the three and nine months ended November 1, 2024 decreased compared to the same periods in the prior year due to the non-recurrence of a gain from the disposition of the Supply Chain Business and the associated non-deductible goodwill. In addition, the effective tax rates for the three and nine months ended November 1, 2024 benefited from the release of certain state liabilities for uncertain tax positions.

Previous wording

The primary financial performance measures we use to manage our reportable segments and monitor results of operations are revenues and operating income. The following tables summarize our results of operations by reportable segment:

Current wording

The primary financial performance measures we use to manage our reportable segments and monitor results of operations are revenues and adjusted operating income(1). The following tables summarize our results of operations by reportable segment:

Previous wording

Revenues decreased $135 million for the six months ended August 2, 2024 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($188 million) in the prior year, and contract completions. This was partially offset by ramp up in volume on existing and new contracts. Adjusting for the impact of the divestiture, revenues grew 1.9%.

Current wording

Revenues decreased $99 million for the nine months ended November 1, 2024 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($188 million) in the prior year, and contract completions. This was partially offset by ramp up in volume on existing and new contracts. Adjusting for the impact of the divestiture, revenues grew 2.1%.

Previous wording

Operating income as a percentage of revenues for the six months ended August 2, 2024 decreased from the comparable prior year period primarily due to contract completions and the sale of the Supply Chain Business in the prior year, partially offset by ramp up in volume on existing and new contracts.

Current wording

Operating and adjusted operating income as a percentage of revenues for the nine months ended November 1, 2024 increased from the comparable prior year period primarily due to ramp up in volume on existing and new contracts, and the resolution of the AAV contract termination, partially offset by contract completions and the gain on the sale of the Supply Chain Business in the prior year.

Previous wording

Operating Income: Operating income as a percentage of revenues for the three months ended August 2, 2024 decreased from the comparable prior year period partially due to timing and volume mix.

Current wording

Operating and adjusted operating income: Operating and adjusted operating income as a percentage of revenues for the three months ended November 1, 2024 decreased from the comparable prior year period due to timing and volume mix.

Previous wording

Operating loss increased $221 million for the six months ended August 2, 2024 as compared to the same period in the prior year primarily due to the divestiture of the Supply Chain Business in the prior year ($233 million) and the gain recognized from the deconsolidation of FSA ($7 million), partially offset by lower selling, general and administrative expenses.

Current wording

Operating loss increased $211 million for the nine months ended November 1, 2024 as compared to the same period in the prior year primarily due to the gain on the sale of the Supply Chain Business in the prior year ($233 million) and the gain recognized from the deconsolidation of FSA ($7 million), partially offset by lower selling, general and administrative expenses in the current year.

Previous wording

Earnings before interest, taxes, depreciation and amortization ("EBITDA"), and adjusted EBITDA are non-GAAP financial measures. While we believe that these non-GAAP financial measures are also useful for management and investors in evaluating our financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Reconciliations, definitions, and how we believe these measures are useful to management and investors are provided below. Other companies may define similar measures differently.

Current wording

Adjusted operating income, earnings before interest, taxes, depreciation and amortization ("EBITDA"), and adjusted EBITDA are non-GAAP financial measures. While we believe that these non-GAAP financial measures are also useful for management and investors in evaluating our financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Reconciliations, definitions, and how we believe these measures are useful to management and investors are provided below. Other companies may define similar measures differently.

Previous wording

Adjusted EBITDA as a percentage of revenues for the three and six months ended August 2, 2024 decreased compared to the same periods in the prior year primarily due to contract completions, partially offset by ramp up in volume on existing and new contracts.

Current wording

Adjusted EBITDA as a percentage of revenues for the three months ended November 1, 2024 increased compared to the same periods in the prior year primarily due to the resolution of the AAV contract termination, and ramp up in volume on existing and new contracts, partially offset by contract completions.

Previous wording

We had net bookings worth an estimated $1.2 billion and $3.8 billion during the three and six months ended August 2, 2024.

Current wording

We had net bookings worth an estimated $1.5 billion and $5.3 billion during the three and nine months ended November 1, 2024, respectively.

Previous wording

The change in contract mix for the six months ended August 2, 2024 is primarily due to a decrease in firm-fixed price type contracts due to the divestiture of the Supply Chain Business in the prior year, which historically had a higher proportion of these contracts.

Current wording

The change in contract mix for the nine months ended November 1, 2024 is primarily due to a decrease in firm-fixed price type contracts due to the divestiture of the Supply Chain Business in the prior year, which historically had a higher proportion of these contracts.

Previous wording

The change in cost of revenues mix for the six months ended August 2, 2024 is primarily due to a decrease in supply chain materials-related costs due to the divestiture of the Supply Chain Business in the prior year.

Current wording

The change in cost of revenues mix for the nine months ended November 1, 2024 is primarily due to a decrease in supply chain materials-related costs due to the divestiture of the Supply Chain Business in the prior year.

Previous wording

During the first quarter of fiscal 2025, we amended our Credit Facility. See Note 7—Debt Obligations to the condensed consolidated financial statements contained within this report for additional information.

Current wording

During the first and third quarters of fiscal 2025, we amended our Credit Facility. See Note 7—Debt Obligations to the condensed consolidated financial statements contained within this report for additional information.

Previous wording

Net Cash Provided by Operating Activities. Cash flows provided by operating activities increased $4 million for the six months ended August 2, 2024 as compared to the prior year primarily due to timing of customer collections and vendor payments, lower tax payments in the current year, and other net favorable changes in working capital, partially offset by higher incentive-based compensation payments and higher cash used from the Master Accounts Receivable Purchase Agreement ("MARPA Facility") in the current year (see Note 10—Sales of Receivables to the condensed consolidated financial statements contained within this report for additional information).

Current wording

Net Cash Provided by Operating Activities. Cash flows provided by operating activities increased $46 million for the nine months ended November 1, 2024 as compared to the prior year primarily due to higher cash provided by the Master Accounts Receivable Purchase Agreement ("MARPA Facility") in the current year (see Note 10—Sales of Receivables to the condensed consolidated financial statements contained within this report for additional information), and lower tax payments in the current year, partially offset by timing of customer collections and vendor payments, higher incentive-based compensation payments in the current year, and other changes in working capital.

Previous wording

Net Cash (Used in) Provided by Investing Activities. Cash used in investing activities for the six months ended August 2, 2024 was $16 million compared to cash provided by investing activities of $334 million in the prior year period. This change is primarily due to the $355 million of cash proceeds for the sale of the Supply Chain Business in the prior year period (see Note 4 to the condensed consolidated financial statements).

Current wording

Net Cash (Used in) Provided by Investing Activities. Cash used in investing activities for the nine months ended November 1, 2024 was $15 million compared to cash provided by investing activities of $324 million in the prior year period. This change is primarily due to the $356 million of cash proceeds for the sale of the Supply Chain Business in the prior year period (see Note 4 to the condensed consolidated financial statements).

Previous wording

Net Cash Used in Financing Activities. Cash used in financing activities for the six months ended August 2, 2024 decreased compared to the prior year period primarily due to higher proceeds received from borrowings, net of principal payments, partially offset by higher share repurchases in the current year.

Current wording

Net Cash Used in Financing Activities. Cash used in financing activities for the nine months ended November 1, 2024 decreased compared to the prior year period primarily due to higher proceeds received from borrowings, net of principal payments, partially offset by higher share repurchases in the current year.

Previous wording

There have been no changes to our critical accounting policies and estimates during the six months ended August 2, 2024 from those disclosed in our most recently filed Annual Report on Form 10-K.

Current wording

There have been no changes to our critical accounting policies and estimates during the nine months ended November 1, 2024 from those disclosed in our most recently filed Annual Report on Form 10-K.