What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-12-04 compared with 2023-09-07 · 46 added, 37 removed, 195 unchanged (30% of the section changed)

25 unchanged sentences

Economic Opportunities, Challenges, and Risks

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

During the three and nine months ended November 3, 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 November 2023, the President signed a continuing resolution which will fund the U.S.

government through January 2024.

If Congress is not able to pass appropriations for GFY 2024 funding by January 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 January 2023, the Federal debt ceiling was reached and the U.S.

15 unchanged sentences

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 Growth Technology and CORE 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.

10 unchanged sentences

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.

Changes in operating cash flows are described with regard to changes in cash generated through the providing of services, significant drivers of fluctuations in assets or liabilities and the impacts of changes in timing of cash receipts or disbursements.

Changes in operating cash flows are described with regard to changes in cash generated through the provision of services, significant drivers of fluctuations in assets or liabilities and the impacts of changes in timing of cash receipts or disbursements.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

2 unchanged sentences

The following table summarizes our results of operations:

Three Months Ended Six Months Ended

change July 29,

2022 August 4,

change July 29,

Three Months Ended Nine Months Ended

change October 28,

2022 November 3,

change October 28,

(dollars in millions)

10 unchanged sentences

Net cash provided by operating activities $ 101 (21 %) $ 128 $ 333 (14 %) $ 387

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.

Revenues decreased $14 million for the three months ended November 3, 2023 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($161 million) and the deconsolidation of FSA ($35 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 10.6%.

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.

Revenues decreased $29 million for the nine months ended November 3, 2023 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($310 million), the deconsolidation of FSA ($106 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 7.3%.

Cost of Revenues.

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.

Cost of revenues decreased $22 million for the three months ended November 3, 2023 as compared to the same period in the prior year primarily due to the sale of the Supply Chain Business ($153 million) and the deconsolidation of FSA ($32 million), 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, cost of revenues increased 10.8%, in line with revenues.

Cost of revenues decreased $43 million for the nine months ended November 3, 2023 as compared to the same period in the prior year primarily due to the sale of the Supply Chain business ($291 million) and the deconsolidation of FSA ($97 million), 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, cost of revenues increased 7.4%, in line with revenues.

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

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.

SG&A remained consistent for the three months ended November 3, 2023 as compared to the same period in the prior year.

SG&A decreased $13 million for the nine months ended November 3, 2023, as compared to the same period 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 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.

Operating income as a percentage of revenues for the three months ended November 3, 2023 increased from the comparable prior year period primarily due to improved profitability across our contract portfolio.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Operating income as a percentage of revenues increased for the nine months ended November 3, 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, lower indirect costs, and lower intangible asset amortization.

Net Cash Provided by Operating Activities.

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.

Net cash provided by operating activities decreased $54 million for the nine months ended November 3, 2023 as compared to the prior year primarily due to higher tax payments in the current year associated with Section 174 of the Internal Revenue Code, tax payments in the current year associated with the sale of the Supply Chain Business and higher cash provided by the MARPA Facility in the prior year, partially offset by timing of vendor payments.

Non-GAAP Measures

10 unchanged sentences

We believe that EBITDA and adjusted EBITDA provide management and investors with useful information in assessing trends in our ongoing operating performance and may provide greater visibility in understanding the long-term financial performance of the Company.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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

Three Months Ended Six Months Ended

2023 July 29,

2022 August 4,

2023 July 29,

Three Months Ended Nine Months Ended

2023 October 28,

2022 November 3,

2023 October 28,

(dollars in millions)

8 unchanged sentences

Restructuring and impairment costs 2 5 8 7

Depreciation included in acquisition and integration costs and restructuring and impairment costs

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

(1) (3) (1) (6)

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

3 unchanged sentences

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

Adjusted EBITDA as a percentage of revenues for the three and nine months ended November 3, 2023 increased to 9.4% from 8.9% 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.

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 $ 23,138 $ 23,802

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

We had net bookings worth an estimated $2.5 billion and $5.3 billion during the three and nine months ended November 3, 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:

Six Months Ended

2023 July 29,

Nine Months Ended

2023 October 28,

Cost reimbursement 60 % 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.

The change in contract mix for the nine months ended November 3, 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 Six Months Ended

2023 July 29,

2022 August 4,

2023 July 29,

Three Months Ended Nine Months Ended

2023 October 28,

2022 November 3,

2023 October 28,

(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.

The change in cost of revenues mix for the three and nine months ended November 3, 2023 reflects a decrease in supply chain materials-related costs due to the divestiture of the Supply Chain Business.

Liquidity and Capital Resources

17 unchanged sentences

The following table summarizes our cash flows:

Six Months Ended

2023 July 29,

Nine Months Ended

2023 October 28,

(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 six months ended August 4, 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 nine months ended November 3, 2023 and the comparable prior year period.

Net Cash Provided by (Used in) Investing Activities.

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.

Cash provided by investing activities for the nine months ended November 3, 2023 was $324 million compared to cash used in investing activities of $23 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 (see Note 4 to the condensed and consolidated financial statements).

Net Cash Used in Financing Activities.

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.

Cash used in financing activities for the nine months ended November 3, 2023 increased compared to the prior year period primarily due to higher share repurchases, partially offset by lower term loan principal payments.

Critical Accounting Policies and Estimates

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.

There have been no changes to our critical accounting policies and estimates during the nine months ended November 3, 2023 from those disclosed in our most recently filed Annual Report on Form 10-K.

Recently Issued But Not Yet Adopted Accounting Pronouncements

4 unchanged sentences

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