Item 1. Business
Item 1. Business
The Company
Science Applications International Corporation (herein referred to as “SAIC,” the “Company,” “we,” “us,” or “our”) is a leading provider of technical, engineering and enterprise information technology (IT) services primarily to the U.S. government. As a technology integrator, we provide engineering, systems integration and information technology offerings for large, complex government projects and offer a broad range of services with a targeted emphasis on higher-end, differentiated technology services. Our end-to-end enterprise IT offerings span the entire spectrum of our customers' IT infrastructure.
Our business has a long and successful history of over 50 years serving all branches (Army, Air Force, Navy, Marines and Coast Guard) and agencies of the Department of Defense (DoD), National Aeronautics and Space Administration (NASA), U.S. Department of State, Department of Justice, Department of Homeland Security and several sensitive intelligence community agencies. Our long-standing customer relationships have enabled us to achieve an in-depth understanding of our customers’ missions and provide differentiated service offerings to meet our customers’ most complex requirements. Our offerings include: engineering; technology integration; IT modernization; maintenance of ground and maritime systems; logistics; training and simulation; operation and program support services; and end-to-end services spanning the design, development, integration, deployment, management and operations, sustainment and security of our customers’ entire IT infrastructure. We serve our customers through approximately 1,900 active contracts and task orders. We have approximately 26,000 employees that are led by an experienced executive team of proven industry leaders.
On July 2, 2021, the Company completed the acquisition of Halfaker and Associates, LLC (Halfaker), a mission focused, pure-play health IT company, which grows the Company's digital transformation portfolio. Additionally, on May 3, 2021, the Company acquired Koverse, a software company that provides a data management platform enabling artificial intelligence and machine learning on complex sensitive data.
On March 13, 2020, we completed the acquisition of Unisys Federal, a former operating unit of Unisys Corporation, which enhances our capabilities in government priority areas, expands our portfolio of intellectual property and technology-driven offerings, and increases our access to current and new customers.
Our core strengths have supported our successful performance on programs of national importance. Those strengths include:
Enduring Customer Relationships and Mission-Orientation. We have strong and long-lasting customer relationships throughout the U.S. government. Our track record of serving the missions of our government customers spans decades, including several enduring customer relationships that have lasted 20 years or more. Our employees, many of whom are deployed at customer sites, work closely with our customers in fulfilling their missions. Our strong customer relationships enable us to develop deep customer knowledge and translate our mission understanding into successful program execution that fosters continued demand for our services.
Full Life Cycle Offerings. We integrate technologies and deliver services that provide our customers with seamless end-to-end solutions. Our expertise includes initial requirements definition, development and integration services, training, logistics and sustainment. These full life cycle offerings, combined with deep customer knowledge, allow us to more effectively support our customers’ missions.
Significant Scale and Diversified Contract Base. With approximately $7.4 billion in revenue in fiscal 2022, we are one of the largest pure-play technology service providers to the U.S. government. Our significant scale advantage enables us to serve as a prime systems integrator on large, complex programs and to allocate resources toward further developing and expanding our repeatable, proven solutions and differentiated technical capabilities. Our diversified revenue base consists of programs ranging from research and development to operations and maintenance.
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Technical Experts Led by Experienced Management. The quality, training and knowledge of our employees are important competitive assets. Our skilled workforce ranges from entry-level technicians to expert-level professionals in network engineering, software design and development, IT modernization, logistics, technology integration and systems engineering. Additionally, the majority of our workforce holds an active security clearance, which is required on many of our existing programs and future program opportunities.
Our workforce is led by a talented and experienced senior leadership team with a long history of solving our customers’ most difficult challenges. Our executive team consists of members who have served as senior leaders in public companies and are recognized as leaders in their respective markets by customers and partners.
Repeatable Methodologies and Certified Processes. Our technical excellence is driven by our proven, repeatable, disciplined processes for management, engineering, technical support and services. We deploy our tools and processes enterprise-wide and emphasize a consistent approach to planning, designing and delivering solutions and services to our customers. We hold certifications from the International Organization for Standardization (including ISO 9001, ISO/IEC 27001, ISO 20000-1 and AS9100D), and from the Capability Maturity Model Integration Institute as a CMMI®-DEV Maturity Level 3 organization.
The Company is organized as a matrix comprised of two customer facing operating sectors supported by an enterprise solutions and operations organization. The two operating sectors are responsible for customer relationships, business development and program management, and delivery and execution, while the enterprise solutions and operations organization manages the development of our offerings, solutions and capabilities. Each of the Company’s two operating sectors is focused on providing the Company’s comprehensive technical, engineering and enterprise IT service offerings to one or more agencies of the U.S federal government. The Company's operating sectors are aggregated into one reportable segment for financial reporting purposes.
For additional discussion and analysis related to recent business developments, see “Economic Opportunities, Challenges and Risks” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this report.
Key Customers
In each of fiscal 2022, 2021 and 2020, 98% of our total revenues were attributable to prime contracts with the U.S. government or to subcontracts with other contractors engaged in work for the U.S. government. Substantially all of our revenues were earned by entities located in the United States.
The U.S. Army and U.S. Navy each generated more than 10% of our revenues during each of the last three fiscal years. The percentages of total revenues for the U.S. government, its agencies and other customers, including those comprising more than 10% of total revenues for each of the periods presented were approximately:
Year Ended
January 28, 2022 January 29, 2021 January 31, 2020
U.S. Army 15 % 17 % 21 %
U.S. Navy 12 % 11 % 12 %
Other DoD 21 % 19 % 19 %
Other federal government 50 % 51 % 46 %
Total U.S. government 98 % 98 % 98 %
Other 2 % 2 % 2 %
Total 100 % 100 % 100 %
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Regulation
Our business is heavily regulated and we must comply with and are affected by laws and regulations, including Federal Acquisition Regulations (FAR) and Cost Accounting Standards (CAS), relating to the award, administration and performance of U.S. government and other contracts. These regulations set forth policies, procedures and requirements for the acquisition of goods and services by the U.S. government and impose a broad range of requirements, many of which are unique to government contracting and include procurement, import and export, security, contract termination and adjustment, and audit requirements. In addition, these regulations govern contract pricing and reimbursable costs by, among other things, requiring certification and disclosure of cost or pricing data in connection with certain contract negotiations, defining allowable and unallowable costs, and otherwise governing the right to reimbursement under various flexibly priced contracts. These laws and regulations impose specific cost accounting practices that may increase accounting and internal control costs associated with compliance with government standards. The U.S. government may revise its procurement practices or adopt new contract rules and regulations at any time. Our compliance with these regulations is monitored by the Defense Contract Management Agency (DCMA) and the Defense Contract Audit Agency (DCAA).
The U.S. government has the ability to cancel contracts at any time through a termination for the convenience of the U.S. government. Most of our contracts have cancellation terms that would permit us to recover all or a portion of our incurred costs and contract profit for work performed when the U.S. government issues a termination for convenience.
Some of our operations and service offerings involve our access to and use of personally identifiable information and protected health information, which activities are regulated by extensive federal and state privacy and data security laws requiring organizations to provide certain privacy protections and security safeguards for such information.
Internationally, we are subject to foreign government laws and regulations, and U.S. government laws, regulations, and procurement policies and practices (including laws and regulations relating to bribery of foreign government officials, import and export control, investments, exchange controls and repatriation of earnings). We are also susceptible to varying political and economic risks.
In order to help ensure compliance with these complex laws and regulations, we have established policies and procedures that address our approach to meeting these requirements and also administer a robust ethics and compliance training program to maintain a compliance-oriented workforce.
These regulations and risks affecting our business are described in more detail under “Risk Factors” in this report.
Contracts
We must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. government and other contracts. The U.S. government procurement environment has evolved due to statutory and regulatory procurement reform initiatives. Budgetary pressures and reforms in the procurement process have increasingly caused many U.S. government agencies to purchase services and solutions using contracting processes that give them the ability to select multiple winners or pre-qualify certain contractors to provide various services or solutions on established general terms and conditions rather than through single award contracts. The predominant contracting methods through which U.S. government agencies procure services and solutions include the following:
Single Award Contracts. U.S. government agencies may procure services and solutions through single award contracts, which specify the scope of work that will be delivered and identify the contractor that will provide the specified services. When an agency has a requirement, interested contractors are solicited, qualified and then provided with a request for proposal. The process of qualifying prospective bidders, soliciting proposals and evaluating contractor bids requires the agency to maintain a large, professional procurement staff and the bidding and selection process can take a year or more to complete. This method of contracting may provide the contractor with greater certainty of the timing and amounts to be received at the time of contract award because it generally results in the customer contracting for a specific scope of work from the single successful awardee.
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Indefinite Delivery, Indefinite Quantity (IDIQ) Contracts. The U.S. government uses IDIQ contracts to obtain commitments from contractors to provide certain services or solutions on pre-established terms and conditions. The U.S. government then issues task orders under the IDIQ contracts to purchase the specific services or solutions it needs. IDIQ contracts are awarded to one or more contractors following a competitive procurement process. Under a single award IDIQ contract, all task orders under that contract are awarded to one pre-selected contractor. Under a multi-award IDIQ contract, task orders can be awarded to any of the pre-selected contractors, which can result in further limited competition for the award of task orders. Multi-award IDIQ contracts that are open for any government agency to use for the procurement of services are commonly referred to as “government-wide acquisition contracts.” IDIQ contracts often have multi-year terms and unfunded ceiling amounts that enable, but not commit, the U.S. government to purchase substantial amounts of services or solutions from one or more contractors. At the time an IDIQ contract is awarded (prior to the letting of any task orders), a contractor may have limited or no visibility as to the ultimate amount of services or solutions that the U.S. government will purchase under the contract, and, in the case of a multi-award IDIQ, the contractor from which such purchases may be made.
U.S. General Services Administration (GSA) Schedule Contracts. The GSA maintains listings of approved suppliers of services and solutions with pre-negotiated prices for use throughout the U.S. government. In order for a company to provide services under a GSA Schedule contract, a company must be pre-qualified and awarded a contract by the GSA. When an agency uses a GSA Schedule to meet its requirements, the agency (or the GSA on behalf of the agency) conducts the procurement and bidders are limited to GSA Schedule-qualified contractors. GSA Schedule contracts are designed to provide the user agency with reduced procurement time and lower procurement costs. Similar to IDIQ contracts, at the time a GSA Schedule contract is awarded, a contractor may have limited or no visibility as to the ultimate amount of services or solutions that customers will ultimately purchase under the contract.
Contract Types
Generally, the type of contract used for the acquisition of our services and solutions is determined by or negotiated with the U.S. government and may depend on certain factors, including: the type and complexity of the work to be performed; degree and timing of the responsibility to be assumed by the contractor for the costs of performance; the extent of price competition; and the amount and nature of the profit incentive offered to the contractor for achieving or exceeding specified standards or goals. We generate revenues under several types of contracts, including the following:
• Cost-reimbursement contracts provide for reimbursement of our direct contract costs and allocable indirect costs, plus a fee (contract profit). This type of contract is generally used when uncertainties involved in contract performance do not permit costs to be estimated with sufficient accuracy to use a fixed-price contract. Cost-reimbursement contracts usually subject us to lower risk and generally require us to use our best efforts to accomplish the scope of the work within a specified time and amount of costs.
• Time-and-materials (T&M) contracts typically provide for negotiated fixed hourly rates for specified categories of direct labor plus reimbursement of other direct costs. This type of contract is generally used when there is uncertainty of the extent or duration of the work to be performed by the contractor at the time of contract award or it is not possible to anticipate costs with any reasonable degree of confidence. On T&M contracts, we assume the risk of providing appropriately qualified staff to perform these contracts at the hourly rates set forth in the contracts over their period of performance.
• Firm-fixed price (FFP) contracts provide for a predetermined price for specific solutions. These contracts offer us potential increased profits if we can complete the work at lower costs than planned. While FFP contracts allow us to benefit from cost savings, these contracts also increase our exposure to reduced profits or losses from increased or unexpected costs.
Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract, the nature of services or solutions provided, as well as the achievement of performance objectives and the stage of performance at which the right to receive fees is finally determined. Given the relative amount of risk assumed by the contractor, cost-reimbursement and T&M contracts generally have lower profitability than FFP contracts. For the proportionate amount of revenues derived from each type of contract for the last three fiscal years, see “Other Key Performance Measures—Contract Types” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this report.
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Backlog
Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed. Our backlog consists of funded backlog and negotiated unfunded backlog. At January 28, 2022 and January 29, 2021 our total backlog was $24.1 billion and $21.5 billion, respectively. For a complete description of our backlog, see “Other Key Performance Measures—Net Bookings and Backlog” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this report.
Competition
Competition for contracts is intense and we often compete against a large number of established multinational companies, which may have greater name recognition, financial resources and larger technical staffs than we do. We also compete against smaller, more specialized companies that concentrate their resources on particular areas, as well as the U.S. government’s own capabilities. As a result of the diverse requirements of the U.S. government, we frequently collaborate with other companies to compete for large contracts and bid against these same companies in other situations. Our principal competitors include the following:
• the engineering and technical services divisions of large defense contractors that provide IT services in addition to other hardware systems and products, which include companies such as General Dynamics Corporation, Northrop Grumman Corporation, and Raytheon Technologies Corporation;
• contractors focused principally on technical and IT services, such as Booz Allen Hamilton Inc., CACI International, Inc., Leidos Holdings, Inc., ManTech International Corporation, and Serco Group plc;
• diversified commercial providers that also provide U.S. government IT services, such as Accenture plc and International Business Machines Corporation; and
• contractors providing supply chain management and other logistics services, such as Agility Logistics Corporation and SupplyCore.
We compete on various factors, which include: our technical expertise and qualified and/or security-cleared personnel; our ability to deliver innovative cost-effective solutions in a timely manner; successful program execution on previous programs; our reputation and standing with customers; pricing; and the size and geographic presence of our Company.
Competition within the government services industry has intensified, which has led to fewer sole-source awards and an increased emphasis on cost competitiveness and affordability. In addition, procurement initiatives to improve efficiency, refocus priorities, increase small business awards and enhance best practices could result in fewer new opportunities for our industry as a whole, which would intensify competition within the industry as companies compete for a more limited set of new programs.
Patents and Proprietary Information
Our technical services and solutions are not generally dependent on patent protection, although we do selectively seek patent protection. We claim a proprietary interest in certain of our solutions, software programs, methodologies and know-how. This proprietary information is protected by copyrights, trade secrets, licenses, contracts and other means. We selectively pursue opportunities to license or transfer our technologies to third parties.
In connection with the performance of services, the U.S. government has certain rights to inventions, data, software codes and related material that we develop under U.S. government-funded contracts and subcontracts. Generally, the U.S. government may disclose or license such information to third parties, including, in some instances, our competitors. In the case of some subcontracts that we perform, the prime contractor may also have certain rights to the programs and solutions that we develop under the subcontract.
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People and Culture
Overview
SAIC’s purpose is to advance the power of technology and innovation to serve and protect our world . We achieve our purpose with and through our people, who are fundamental to our success. Our values underpin our culture and are at the heart of how we operate:
• Passion: Love what you do
• Empowerment: Decide and act
• Integrity: Be real
• Inclusion: Embrace differences
• Innovation: Think courageously
Attracting and retaining top talent is an essential element of SAIC’s business strategy and our value proposition for our shareholders, customers, and employees. To deliver on this strategy, we seek to be a company that provides meaningful work and purpose, and creates a fulfilling and differentiated experience for our employees. Our investments in our employees drive a productive, innovative and inclusive culture, where our people are empowered to be their best authentic selves and to do their best work.
As of January 28, 2022, we employed approximately 26,000 employees, of which 93% are full time with the majority l ocated in the United States.
To cultivate a differentiated employee experience, we are focused on fostering a flexible work environment, strengthening diversity, equity and inclusion (DE&I), and enhancing employee well-being.
Fostering flexibility
The pandemic has caused people to re-evaluate their priorities and expectations about work. Flexibility of work schedule and location is a key reason why people join and stay at companies, and we are creating an environment at SAIC where our employees can use the power of flexibility to thrive.
We implemented flexible work schedules including a 4-day workweek and other schedule options and increased remote and hybrid work opportunities. Our definition of flexibility is not a one-size fits all, rather it is tailored and nurtured through the engagement between our employees and their leaders.
Flexibility has helped us widen the talent pool and attract and retain highly skilled people in extremely sought after disciplines such as science, technology, engineering and cybersecurity. During fiscal 2022, we hired more than 5,800 new employees and kept voluntary turnover below our industry’s average rate.
Strengthening diversity, equity, and inclusion
Our ongoing diversity, equity, and inclusion efforts demonstrate our continuing promise to share our intentions, to hold ourselves accountable, and to be transparent about both our progress and our areas of opportunity. We believe diversity creates unparalleled innovation and is critical to the delivery of exceptional business results.
We seek to drive tangible change through our commitments to:
1. Fight racism, bias, and prejudice in our workplace.
2. Make SAIC more inclusive and diverse.
3. Support non-profit organizations that are uplifting people of color in our communities.
4. Measure and hold ourselves accountable for results.
The strength of our leadership is greatest when it fully reflects the diversity of our workforce. In fiscal 2022, we established goals to achieve parity in the representation of women and people of color between our leadership and non-leadership roles within five years. We made meaningful progress toward our goals this year, with women now representing 27% of our leadership and people of color representing 22%.
While we have achieved parity between women in leader and non-leader roles and made considerable progress toward our people of color leader representation goal, we know there is more work to be done. To hold ourselves
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accountable for results, SAIC’s executive compensation incentive plans are tied to meeting our diversity goals. As of January 28, 2022, our diversity representation was:
SAIC Leaders 27% Women 22% People of Color
SAIC Non-leader Employees 27% Women 33% People of Color
To build our diversity pipeline, we instituted a new approach to ensure SAIC job descriptions, recruiting tools and processes eliminated the potential for bias, and we required a diverse slate of candidates for leadership roles. We launched the AcceleratHER Women's Leadership Academy, a nomination-based development and mentoring program focused on accelerating the advancement of SAIC's high-potential women.
Among our efforts to fight racism, bias, and prejudice in the workplace, we added unconscious bias training as a requirement for all new employees and continued to require that all leaders complete our “From Unconscious Bias to Inclusion” training course.
As an important demonstration of SAIC’s commitment to advance diversity, equity and inclusion, we added Juneteenth as a paid holiday for our employees, being one of the first in our industry to do so. Our employees are encouraged to actively participate in our multiple employee resource groups (ERG) where they can enhance their personal networks and their sense of belonging. This year, we added a new accessibility ERG to advocate and support employees and their family members with visible and non-visible disabilities including mental health and neurodiversity.
Our progress on our DE&I initiatives has been recognized: SAIC is a Forbes 2022 Best Large Employers; a Forbes America’s Best Employers for Veterans; a Human Rights Campaign Best Places to Work for LGBTQ Equality; and a Forbes Best Employers for Diversity. We are honored that 23% of our employees are veterans of the U.S. armed forces.
Enhancing employee well-being
Through our annual culture survey, we gather confidential feedback from our employees to learn how we can improve our efforts to provide an exceptional employee experience. To ensure all levels of management understand employee sentiment, every individual leader receives aggregated results to develop an action plan to address their team’s needs. Strengths and opportunities are identified leading to focused investments to build on our cultural strengths and address areas for improvement. Training to upskill our leaders in coaching, enhancing team well-being, and engaging hybrid teams inclusively was implemented this year as a result of survey feedback.
Additionally, we invest in our people through technical and professional skills training, leadership development programs, higher education programs and tuition assistance programs for continuing education or industry certification. In fiscal 2022, our employees completed approximately 134,000 hours of training including 55,000 hours of ethics and compliance training. Our leaders completed over 11,000 hours of leadership development training.
SAIC provides wide-ranging options to support employees’ well-being, including an Employee Assistance Program and a wellness program. This year, based on employee feedback, we substantially raised paid family leave to further support parents and multi-generational families and offered company-subsidized backup child and elder care. Additionally, for the second year in a row, SAIC is fully covering the increased costs of employee premiums in the Company’s medical insurance plans and holding employee premiums flat.
Employee health and safety is paramount to our business and contributes to our employees’ well-being. We encourage employees to prevent workplace hazards and engage in health and wellness initiatives. Throughout the COVID-19 pandemic, our priority has been the safety and well-being of our employees and business partners. We continue to closely monitor COVID-19 matters and provide comprehensive resources and programs for managing through the pandemic, working virtually and handling associated stress as well as sharing timely information on the topic.
Research and Development
For information related to our research and development activities, see Note 1 to the consolidated financial statements contained within this report.
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Seasonality
The U.S. government’s fiscal year ends on September 30. It is not uncommon for U.S. government agencies to award extra tasks or complete other contract actions leading up to the end of its fiscal year in order to avoid the loss of unexpended fiscal year funds, which may favorably impact our third fiscal quarter. In addition, revenues may be unfavorably impacted during our fourth fiscal quarter due to a greater number of holidays and higher utilization of vacation time.
Environmental Matters
Our operations are subject to various foreign, federal, state and local environmental protection and health and safety laws and regulations.
SAIC is committed to being a good steward of the environment through assessing, mitigating and reducing the impact we have on the world around us. Due to the nature of our business, SAIC has limited exposure to environmental risks, yet we set self-imposed goals related to the reduction of greenhouse gas emissions, energy conservation, recycling and other important environmental initiatives. In 2014, SAIC set a goal of reducing greenhouse gas emissions by 15% by 2025 and exceeded that goal by reaching the reduction of 25% in 2016. To further encourage cuts to our carbon footprint, we used 2019 as a new baseline and made significant progress in reducing emissions in 2020. Specifically, direct emissions from owned or controlled sources (Scope 1) were 25% below 2019 emissions levels, and indirect emissions from purchased electricity (Scope 2) were 21% below 2019 levels. For energy conservation, SAIC’s efforts are sharply focused on electrical energy consumption. We track and evaluate electricity consumption and efficiency at those facilities over which we have operational control. In calendar year 2020, partially due to decreased facility use as a result of the COVID-19 pandemic, SAIC reduced its electrical energy consumption by 3% from 2019 levels, with a total consumption of 34,813,703 kWh.
For additional information regarding environmental matters, see SAIC's 2022 Corporate Responsibility Report, which is expected to be issued during the second quarter of fiscal 2023 and will be available on our website at www.saic.com . The information on our website is not incorporated by reference into and is not a part of this report.
Although we do not currently anticipate that compliance costs or the liabilities associated with environmental laws or climate change will adversely affect our business, financial position, and results of operations and/or cash flows, it is possible that we may incur material costs or liabilities in the future. These regulations and risks are described in more detail under “Risk Factors” in this report.
Executive Officers
For information about our executive officers, see “Directors, Executive Officers and Corporate Governance” in Part III of this report.
Company Website and Available Information
Our corporate headquarters is located at 12010 Sunset Hills Road, Reston, VA 20190. Our phone number is (703) 676-4300 and our homepage is www.saic.com , which contains information about our Company and operations. Through a link on the Investor Relations section of our website, copies of each of our filings with the Securities and Exchange Commission (SEC) can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC. The information on our website is not incorporated by reference into and is not a part of this report.
You may also request hard copies of the materials referenced in the preceding paragraph, at no cost, by emailing investor relations at InvestorRelations@saic.com.
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