10-K: SAIC Navigates Government Spending Shifts, Reports Revenue Dip

Science Applications International Corporation (SAIC) reported a 3% revenue decrease in fiscal 2026, driven by contract completions and a government shutdown, alongside strategic reorganizations and an acquisition.

Summary

• Total revenues for fiscal 2026 decreased by 3% to $7,262 million from $7,479 million in fiscal 2025, primarily due to contract completions and ramp-down in volume, including a $26 million impact from a government shutdown.
• Net income for fiscal 2026 was $358 million, a 1% decrease from $362 million in fiscal 2025.
• Operating income for fiscal 2026 was $521 million, a 7% decrease from $563 million in fiscal 2025.
• The effective income tax rate for fiscal 2026 was 7.5%, a significant decrease from 15.5% in fiscal 2025, primarily due to a $47 million tax benefit from an IRS audit settlement and the 'One Big Beautiful Bill Act' reinstating immediate R&D expensing.
• Net bookings for fiscal 2026 increased to an estimated $7.8 billion, up from $6.6 billion in fiscal 2025.
• Total backlog grew to $22,622 million as of January 30, 2026, compared to $21,857 million as of January 31, 2025.
• Cash flows provided by operating activities increased by $115 million to $609 million in fiscal 2026 from $494 million in fiscal 2025.
• SAIC acquired SilverEdge Government Solutions on October 15, 2025, for a preliminary purchase price of $203 million (net of cash acquired), which contributed $27 million in revenue to the Defense and Intelligence segment in fiscal 2026.
• A business reorganization was completed effective January 31, 2026, consolidating five business groups into three to simplify structure and optimize operations for growth.
• The company repurchased approximately 4.0 million shares of its common stock for $422 million in fiscal 2026.
• Quarterly cash dividends of $0.37 per share were declared and paid, totaling $1.48 per share for fiscal 2026.

Sentiment

Score: 5

Explanation: StockSavvy.ai views this as a neutral-to-slightly-negative report. While the company demonstrated strong cash flow generation and increased backlog, the decline in core revenue and operating income, coupled with ongoing government funding uncertainties and executive transition costs, indicates challenges in the current operating environment. Strategic reorganizations and the SilverEdge acquisition are positive long-term moves, but their immediate impact on profitability is not yet fully realized.

Positives

• Net bookings increased significantly to $7.8 billion in fiscal 2026 from $6.6 billion in fiscal 2025, indicating strong future contract awards.
• Total backlog grew to $22.622 billion as of January 30, 2026, up from $21.857 billion in fiscal 2025, providing a solid revenue pipeline.
• Cash flows provided by operating activities increased substantially by $115 million to $609 million in fiscal 2026, demonstrating improved operational cash generation.
• The effective income tax rate decreased to 7.5% in fiscal 2026, driven by a $47 million tax benefit from an IRS audit settlement and favorable provisions of the 'One Big Beautiful Bill Act' regarding R&D expensing.
• A favorable settlement agreement in a patent infringement matter resulted in a $15 million award and a $9 million recovery of previously incurred costs.
• The acquisition of SilverEdge Government Solutions advances SAIC's strategy to provide mission-focused solutions and commercial products to customers.
• SAIC maintained a low voluntary attrition rate of just under 12% in fiscal 2026, positioning it as an industry leader in employee retention.
• The company's culture survey results exceeded the national benchmark by 4%, reflecting strong employee engagement and a positive work environment.
• SAIC received several noteworthy accolades in fiscal 2026, including Forbes Americas Dream Employers and Best Employers for Veterans, and Glassdoor Best Places to Work.
• The federal debt limit was increased by $5 trillion, expected to extend protection from a potential government default until at least the end of calendar year 2026, providing some stability for government contracts.

Negatives

• Total revenues decreased by 3% ($217 million) in fiscal 2026 compared to fiscal 2025, primarily due to contract completions and ramp-down in volume on existing contracts.
• Operating income decreased by 7% ($42 million) in fiscal 2026, impacted by executive transition costs, costs related to federal tax audit settlements, and timing/volume mix in the contract portfolio.
• Net income decreased by 1% ($4 million) in fiscal 2026 compared to fiscal 2025.
• The Defense and Intelligence segment experienced a 3% ($145 million) decrease in revenues.
• The Civilian segment experienced a 4% ($72 million) decrease in revenues.
• A government shutdown contributed approximately $26 million to the revenue decrease in fiscal 2026.
• The Department of Homeland Security is currently shut down due to delayed appropriations for GFY 2026, which could adversely impact SAIC's financial outlook if prolonged.

Risks

• Dependence on U.S. government agencies as primary customers; harm to reputation or relationships could adversely impact financial performance.
• Reduced U.S. government defense spending, changes in acquisition priorities, significant delays in appropriations, and delays in contract awards could adversely affect future revenues and cash flow.
• Aggressive competition from larger, smaller specialized companies, and the U.S. government's own capabilities can impact contract acquisition and profitability.
• Profitability and cash flow may vary based on contract mix and failure to accurately estimate and manage costs, time, and resources.
• Use of estimates in revenue recognition; changes to these estimates could adversely affect future financial results.
• Failure to comply with laws and regulations governing organizational conflicts of interest (OCIs) could lead to penalties or contract termination.
• U.S. government may issue or revise rules, regulations, and directives at any time, creating uncertainty and requiring unanticipated compliance investments.
• Government audits, cost adjustments, reviews, and investigations could adversely affect profitability, cash flows, or growth prospects, including potential penalties, sanctions, or debarment.
• U.S. government may terminate, cancel, modify, or curtail contracts at any time, which could adversely affect revenues, revenue growth, and profitability.
• Limitations on the use of net operating loss carryforwards and other tax attributes if an ownership change occurs.
• Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect financial results.
• Legal disputes could require large damage awards, be costly to defend, and damage reputation.
• Violations of numerous legal and regulatory requirements or misconduct by employees, subcontractors, agents, or business partners could harm business and reputation.
• Failure to attract, train, retain, and utilize skilled employees and senior management team would adversely affect strategy execution and operations.
• Acquisitions, divestitures, investments, or joint ventures involve numerous risks, including integration failures, inability to retain key personnel, and assumption of liabilities.
• Use and deployment of AI solutions could harm reputation, create liability if they do not function as predicted, or be subject to regulatory action or supply chain risk.
• Risks related to health epidemics, pandemics, and similar outbreaks could have material adverse effects on business, financial position, results of operations, and/or cash flows.
• Customer systems failures could damage reputation and adversely affect revenues and profitability.
• Dependence on teaming arrangements and relationships with other contractors and subcontractors; failure of these parties could adversely affect revenues and profitability.
• Limited ability to protect intellectual property rights, which are important to success.
• Risks related to climate change if extreme weather events adversely affect ability to work or customer requirements or priorities.
• Significant liabilities and negative publicity if detection systems (e.g., tsunami buoys) fail to operate as intended or assessment reports prove to be inaccurate.
• Services and operations sometimes involve using, handling, or disposing of hazardous substances or dangerous materials, exposing to potentially significant liabilities.
• Risks associated with international business, including compliance with U.S. government laws and operating in politically unstable regions.
• Pension funding and costs are dependent upon several economic assumptions, which, if changed, may cause future earnings and cash flow to fluctuate significantly.
• Goodwill and intangible assets represent a significant amount of total assets; any impairment of these assets would negatively affect results of operations.
• Cash held at financial institutions, often in balances that exceed federally insured limits, poses a risk of loss in case of bank failure.
• Cybersecurity threats could negatively affect business and financial results, including attempts to disrupt critical systems, gain unauthorized access to data, release or corrupt sensitive information, and interfere with operations.

Future Outlook

SAIC expects to continue deriving substantially all of its revenues from U.S. government contracts, anticipating potential stagnation or decrease in future spending and shifts in program authorizations. Despite budget and competitive pressures, the company believes it is well-positioned to protect and expand existing customer relationships and pursue new opportunities, leveraging its scale, prime contractor leadership, and deep technical expertise. Management anticipates its current cost structure and ongoing cost reduction efforts will enable effective price competition. The company intends to continue paying quarterly cash dividends in the near future, subject to Board determination. SAIC expects to recognize revenue on approximately 78% of its Remaining Performance Obligations (RPO) over the next 12 months and 89% over the next 24 months. The company does not anticipate compliance costs or liabilities associated with environmental laws to adversely affect its business, financial position, results of operations, and/or cash flows. Management is committed to continuously evaluating and enhancing cybersecurity measures to adapt to emerging threats and comply with evolving regulatory requirements.

Management Comments

• The reorganization is designed to simplify our structure and optimize operations and customer focus for growth.
• We do not expect the reorganization to have an impact on our reportable segments.
• We will remain engaged and responsive to these new requirements and assess impacts on our procurement, contracting and program execution.
• As always, we are committed to complying with all applicable laws and regulations, and we do not anticipate an adverse impact on our future operations and revenues related to these executive orders.
• We are actively monitoring and adapting to changes in environmental laws, assessing the physical risks posed by climate change, and implementing sustainability initiatives aimed at reducing the environmental impact of our operations.
• Despite the budget and competitive pressures affecting the industry, we believe we are well-positioned to protect and expand existing customer relationships and benefit from opportunities that we have not previously pursued.
• Our scale, size, and prime contractor leadership position are expected to help differentiate us from our competitors, especially on large contract opportunities.
• We believe our long-term, trusted customer relationships and deep technical expertise provide us with the sophistication to handle highly complex, mission-critical contracts.
• Our value proposition is found in the proven ability to serve as a trusted adviser to our customers.
• 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.
• Management will continue to evaluate and enhance its cybersecurity measures to adapt to emerging threats and comply with evolving regulatory requirements.

Industry Context

StockSavvy.ai notes that SAIC operates in a highly competitive U.S. government contracting market, characterized by intense competition, increased reliance on multi-award contracts (IDIQ, GSA Schedule), and pricing pressure. The Department of War's new Acquisition Transformation Strategy, prioritizing speed and execution, could restructure contract requirements and shift acquisition strategies, potentially increasing competition from non-traditional defense contractors. The ongoing government budget uncertainties, including continuing resolutions and potential shutdowns, are a persistent challenge for the sector, impacting contract awards and funding. SAIC's strategic reorganizations and focus on 'higher-end, differentiated technology services and solutions' like AI and digital engineering align with broader government modernization initiatives, positioning it to capture opportunities in these evolving areas.

Comparison to Industry Standards

• SAIC is identified as one of the largest pure-play technology service providers to the U.S. government, competing with major defense contractors (e.g., General Dynamics Corporation, Lockheed Martin Corporation, Northrop Grumman Corporation, RTX Corporation), specialized IT services contractors (e.g., Booz Allen Hamilton Inc., CACI International, Inc., Leidos Holdings, Inc., ManTech International Corporation, Parsons Corporation, Peraton, Serco Group plc), and diversified commercial providers (e.g., Accenture plc, AECOM, Amentum Holdings, Inc., Deloitte, International Business Machines Corporation).
• The company's voluntary attrition rate of just under 12% in fiscal 2026 is highlighted as an 'industry leader in employee retention,' suggesting a performance superior to many peers in attracting and retaining talent, which is crucial in a service-based industry.
• SAIC's fiscal 2026 culture survey results exceeded the national benchmark by 4%, indicating a higher level of employee engagement and satisfaction compared to broader industry averages.
• SAIC holds certifications from the International Organization for Standardization ('ISO') (including ISO 9001, ISO/IEC 27001, and AS9100D) and from the Capability Maturity Model Integration Institute as a CMMI-DEV Maturity Level 3 organization, demonstrating adherence to recognized industry standards for quality management and process maturity, comparable to leading technology and defense service providers.

Management Changes

Corporate Governance

Legal Proceedings

• Received Federal Grand Jury Subpoenas in April 2022 and October 2023 from the U.S. Department of Justice, Antitrust Division, in connection with a criminal investigation. The company is cooperating, but the outcome and potential fines/penalties are currently indeterminable.
• Filed a patent infringement complaint in June 2017 against the United States and three other parties, alleging infringement of its patents. A favorable settlement agreement was executed in fiscal 2026, resulting in a $15 million award and $9 million recovery of costs.
• Routinely subject to investigations and reviews relating to compliance with various laws and regulations, particularly as a contractor to federal, state, and local government customers. Adverse findings could lead to disallowance of previously billed costs, penalties, fines, compensatory damages, and suspension or debarment from doing business with governmental agencies.
• Indirect cost audits by the DCAA remain open for certain prior and current years. The company believes it has adequately reserved for estimated net amounts to be refunded to customers for potential adjustments.

Stakeholder Impact

• Shareholders: Impacted by decreased revenue and net income, but also by increased backlog, share repurchases, and continued dividend payments. The tax benefit and patent settlement are positive one-off events.
• Employees: Affected by business reorganizations (consolidation of business groups) and executive transitions. Strong employee retention and positive culture survey results indicate a generally favorable environment.
• Customers (U.S. Government): Continued provision of technical, engineering, and IT services across Defense, Intelligence, and Civilian segments. Impacted by government shutdowns and budget delays, which can affect contract performance and funding.
• Suppliers/Subcontractors: Dependence on teaming arrangements and subcontractors means their performance and compliance issues could impact SAIC.
• Creditors: Debt obligations and credit facility covenants are actively managed. The issuance of Senior Notes and amendments to the Credit Facility affect the debt structure.

Next Steps

• The target Long-Term Incentive (LTI) award for CEO James C. Reagan will be granted in April 2026.
• Interest payments on the $500 million Senior Notes due November 2033 commence semi-annually on May 1 and November 1, 2026.
• Quarterly amortization for the $1.1 billion Term Loan A Facility due September 2030 begins on October 31, 2026.
• Management will continue to evaluate and enhance cybersecurity measures to adapt to emerging threats and comply with evolving regulatory requirements.
• The company is currently evaluating the impact of ASU No. 2024-03 (Income Statement Expense Disaggregation Disclosures) and ASU No. 2025-06 (Internal-Use Software Accounting) on its financial statements and related disclosures.

Key Dates

Recommendation

SAIC's fiscal 2026 results present a mixed picture for investors. While the 3% decline in revenue and 7% drop in operating income are concerning, reflecting challenges from contract completions and government shutdowns, the significant increase in net bookings to $7.8 billion and total backlog to $22.6 billion provides a strong foundation for future revenue. The substantial improvement in operating cash flow to $609 million and the one-time $47 million tax benefit are positive, as is the strategic acquisition of SilverEdge. However, the ongoing uncertainty in government appropriations, particularly the Department of Homeland Security shutdown, and the costs associated with executive transitions, suggest continued headwinds. The appointment of a permanent CEO and strategic reorganizations aim to optimize for growth, but their full impact is yet to be seen. Given these balancing factors, a 'hold' recommendation is appropriate, advising investors to monitor the execution of strategic initiatives and the stability of government spending.

Keywords

Government contractor, IT services, Defense, Intelligence, Civilian, Digital transformation, Cybersecurity, AI, Systems integration, Risk management, SEC filing, 10-K, Financial performance, Backlog, Acquisitions, Share repurchase, Dividends, U.S. government spending