What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-09-07 compared with 2023-06-05 · 47 added, 29 removed, 185 unchanged (29% of the section changed)

25 unchanged sentences

Economic Opportunities, Challenges, and Risks

During the three months ended May 5, 2023, we generated 98% of our revenues from contracts with the U.S.

During the three and six months ended August 4, 2023, we generated 98% of our revenues from contracts with the U.S.

government, including subcontracts on which we perform.

2 unchanged sentences

Appropriations measures passed in December 2022 provided full funding for the federal government through the end of government fiscal year (GFY) 2023.

Delayed passage of appropriations for GFY 2024 funding could result in the U.S.

government operating on one or more continuing resolutions and/or could potentially lead to a partial or full government shutdown.

In January 2023, the Federal debt ceiling was reached and the U.S.

2 unchanged sentences

Some changes that could have an adverse impact on our business include adverse regulations, the implementation of future spending reductions (including sequestration), delayed passage of appropriations bills resulting in temporary or full-year continuing resolutions, extreme inflationary increases adversely impacting fixed price contracts, and potential government shutdowns.

Spending packages, including the infrastructure bill, Inflation Reduction Act, and CHIPS and Science Act, as well as future potential spending packages, may provide additional opportunity in areas of SAIC focus such as digital modernization, cyber, microelectronics support, and climate resiliency.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

government has increasingly relied on contracts that are subject to a competitive bidding process (including indefinite delivery, indefinite quantity (IDIQ), U.S.

26 unchanged sentences

The following table summarizes our results of operations:

Three Months Ended

change April 29,

Three Months Ended Six Months Ended

change July 29,

2022 August 4,

change July 29,

(dollars in millions)

3 unchanged sentences

Selling, general and administrative expenses

88 (5 %) 93 172 (7 %) 185

Acquisition and integration costs 1 — % 1 1 (90 %) 10

4 unchanged sentences

Net cash provided by operating activities $ 150 6 % $ 141 $ 232 (10 %) $ 259

Revenues increased $32 million for the three months ended May 5, 2023 as compared to the same period in the prior year primarily due to ramp up on existing and new contracts, partially offset by contract completions and $37 million due to the deconsolidation of FSA (see Note 4 for additional information).

Adjusting for the impact of the deconsolidation of FSA, revenues grew 3.5%.

Revenues decreased $47 million for the three months ended August 4, 2023 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($149 million) and the deconsolidation of FSA ($34 million) (see Note 4 for additional information), and contract completions, partially offset by ramp up on existing and new contracts.

Adjusting for the impact of the divestiture of the Supply Chain Business and the deconsolidation of FSA, revenues grew 8.3%.

Revenues decreased $15 million for the six months ended August 4, 2023 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($149 million), the deconsolidation of FSA ($71 million), and contract completions, partially offset by ramp up on existing and new contracts.

Adjusting for the impact of the divestiture of the Supply Chain Business and the deconsolidation of FSA, revenues grew 5.7%.

Cost of Revenues.

Cost of revenues increased $23 million for the three months ended May 5, 2023 as compared to the same period in the prior year primarily due to ramp up on existing and new contracts, partially offset by the deconsolidation of FSA ($33 million).

Cost of revenues decreased $44 million for the three months ended August 4, 2023 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($138 million) and the deconsolidation of FSA ($32 million), partially offset by ramp up on new and existing contracts.

Cost of revenues decreased $21 million for the six months ended August 4, 2023 as compared to the same period in the prior year primarily due to the sale of the Supply Chain business ($138 million) and the deconsolidation of FSA ($65 million), partially offset by ramp up on new and existing contracts.

Selling, General and Administrative Expenses (SG&A).

SG&A decreased $8 million for the three months ended May 5, 2023 as compared to the same period in the prior year primarily due to lower indirect costs and intangible asset amortization.

SG&A decreased $5 million and $13 million for the three and six months ended August 4, 2023, respectively, as compared to the same periods in the prior year primarily due to lower indirect costs and intangible asset amortization.

Operating Income.

Operating income as a percentage of revenues for the three months ended May 5, 2023 increased from the comparable prior year period primarily due to lower indirect costs, lower acquisition and integration costs, and a $7 million gain recognized from the deconsolidation of FSA (see Note 4).

Operating income as a percentage of revenues for the three months ended August 4, 2023 increased from the comparable prior year period primarily due to the gain recognized from the sale of the Supply Chain Business, improved profitability across our contract portfolio, and lower indirect costs.

Operating income as a percentage of revenues increased for the six months ended August 4, 2023 from the comparable prior year period primarily due to a $233 million gain recognized from the sale of the Supply Chain Business, a $7 million gain recognized from the deconsolidation of FSA, improved profitability across our contract portfolio, and lower indirect costs.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Net Cash Provided by Operating Activities.

Net cash provided by operating activities decreased $36 million for the three months ended May 5, 2023 as compared to the prior year primarily due to the timing of payroll payments, partially offset by the timing of customer collections and vendor payments, and cash payments during the prior year associated with certain change in control provisions related to the acquisition of Halfaker and Associates, LLC.

Net cash provided by operating activities decreased $27 million for the six months ended August 4, 2023 as compared to the prior year primarily due to higher cash provided by the MARPA Facility in the prior year and higher tax payments in the current year, partially offset by other changes in working capital.

Non-GAAP Measures

3 unchanged sentences

Other companies may define similar measures differently.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

EBITDA and Adjusted EBITDA.

6 unchanged sentences

EBITDA and adjusted EBITDA for the periods presented were calculated as follows:

Three Months Ended

2023 April 29,

Three Months Ended Six Months Ended

2023 July 29,

2022 August 4,

2023 July 29,

(dollars in millions)

8 unchanged sentences

Restructuring and impairment costs 5 2 6 2

Recovery of acquisition and integration costs and restructuring and impairment costs (1)

Gain on divestitures, net of transaction costs (234) — (240) —

1 unchanged sentence

Adjusted EBITDA as a percentage of revenues 9.8 % 9.1 % 9.5 % 8.9 %

Adjusted EBITDA as a percentage of revenues for the three months ended May 5, 2023 increased to 9.3% from 8.7% for the same period in the prior year primarily due to lower indirect costs and improved profitability across our contract portfolio.

(1) Adjustment reflects the portion of acquisition and integration costs and restructuring and impairment costs recovered through the Company's indirect rates in accordance with U.S.

government Cost Accounting Standards.

Adjusted EBITDA as a percentage of revenues for the three and six months ended August 4, 2023 increased to 9.8% from 9.1% and increased to 9.5% from 8.9% for the same periods in the prior year, respectively, primarily due to improved profitability across our contract portfolio and lower indirect costs.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Other Key Performance Measures

8 unchanged sentences

Additionally, we do not include in backlog contract awards that are under protest until the protest is resolved in our favor.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

We segregate our backlog into two categories as follows:

18 unchanged sentences

Total backlog $ 22,524 $ 23,802

We had net bookings worth an estimated $2.1 billion during the three months ended May 5, 2023.

Total backlog at the end of the first quarter of fiscal 2024 is consistent with our total backlog at prior year end.

We had net bookings worth an estimated $0.7 billion and $2.7 billion during the three and six months ended August 4, 2023.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

3 unchanged sentences

The following table summarizes revenues by contract type as a percentage of revenues for the periods presented:

Three Months Ended

2023 April 29,

Six Months Ended

2023 July 29,

Cost reimbursement 58 % 56 %

2 unchanged sentences

Total 100 % 100 %

The change in contract mix for the six months ended August 4, 2023 reflects a decrease in firm-fixed price type contracts due to the divestiture of the Supply Chain Business which historically had a higher proportion of these contracts.

Cost of Revenues Mix.

3 unchanged sentences

The following table presents cost mix for the periods presented:

Three Months Ended

2023 April 29,

Three Months Ended Six Months Ended

2023 July 29,

2022 August 4,

2023 July 29,

(as a % of total cost of revenues)

4 unchanged sentences

Total 100 % 100 % 100 % 100 %

The change in cost of revenues mix for the three and six months ended August 4, 2023 reflects a decrease in supply chain materials-related costs due to the divestiture of the Supply Chain Business.

Liquidity and Capital Resources

4 unchanged sentences

When our cash generation enables us to exceed our target average minimum cash balance, we intend to deploy excess cash through dividends, share repurchases, debt prepayments or strategic acquisitions.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Our ability to fund these needs will depend, in part, on our ability to generate cash in the future, which depends on our future financial results.

3 unchanged sentences

Nevertheless, we believe that our existing cash on hand, generation of future operating cash flows, and access to bank financing and capital markets will provide adequate resources to meet our short-term liquidity and long-term capital needs.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 requires the capitalization of research and development costs for tax purposes and requires taxpayers to amortize such expenditures over five years.

5 unchanged sentences

The following table summarizes our cash flows:

Three Months Ended

2023 April 29,

Six Months Ended

2023 July 29,

(in millions)

4 unchanged sentences

Net Cash Provided by Operating Activities.

Refer to “Results of Operations” above for a discussion of the changes in cash provided by operating activities between the three months ended May 5, 2023 and the comparable prior year period.

Refer to “Results of Operations” above for a discussion of the changes in cash provided by operating activities between the six months ended August 4, 2023 and the comparable prior year period.

Net Cash Provided by (Used in) Investing Activities.

Cash provided by investing activities for the three months ended May 5, 2023 was $336 million compared to cash used in investing activities of $6 million in the prior year period.

This change is primarily due to the $355 million refundable cash deposit received for the sale of our logistics and supply chain management business which closed subsequent to the end of the first quarter of fiscal 2024 (see Note 4 and Note 12 to the condensed and consolidated financial statements).

Cash provided by investing activities for the six months ended August 4, 2023 was $334 million compared to cash used in investing activities of $17 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 (see Note 4 to the condensed and consolidated financial statements).

Net Cash Used in Financing Activities.

Cash used in financing activities for the three months ended May 5, 2023 decreased compared to the prior year period due to term loan principal payments in the prior year period.

Cash used in financing activities for the six months ended August 4, 2023 increased compared to the prior year period due to higher share repurchases and higher term loan principal payments compared to the prior year period.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies and estimates during the three months ended May 5, 2023 from those disclosed in our most recently filed Annual Report on Form 10-K.

There have been no changes to our critical accounting policies and estimates during the six months ended August 4, 2023 from those disclosed in our most recently filed Annual Report on Form 10-K.

Recently Issued But Not Yet Adopted Accounting Pronouncements

2 unchanged sentences

There have been no material changes to our market risks from those discussed in our most recently filed Annual Report on Form 10-K.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis