Science Applications International Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations and quantitative and qualitative disclosures about market risk should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes. It contains forward-looking statements (which may be identified by words such as those described in “Risk Factors—Forward-Looking Statement Risks” in Part I of the most recently filed Annual Report on Form 10-K), including statements regarding our intent, belief, or current expectations with respect to, among other things, trends affecting our financial condition or results of operations (including our financial targets discussed below under “Management of Operating Performance and Reporting” and “Liquidity and Capital Resources”); backlog; our industry; government budgets and spending; market opportunities; the impact of competition; and the impact of acquisitions and divestitures. Such statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. Risks, uncertainties and assumptions that could cause or contribute to these differences include those discussed below, in “Risk Factors” in Part II of this report and in Part I of the most recently filed Annual Report on Form 10-K. Due to such risks, uncertainties and assumptions, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to update these factors or to publicly announce the results of any changes to our forward-looking statements due to future results or developments. We use the terms "SAIC," the “Company,” “we,” “us” and “our” to refer to Science Applications International Corporation and its consolidated subsidiaries. We utilize a 52/53 week fiscal year, ending on the Friday closest to January 31, with fiscal quarters typically consisting of 13 weeks. Fiscal 2026 began on February 1, 2025 and ends on January 30, 2026, while fiscal 2025 began on February 3, 2024 and ended on January 31, 2025. Business Overview We are a leading technology integrator providing full life cycle services and solutions in the technical, engineering and enterprise information technology ("IT") markets. We developed our brand by addressing our customers’ mission critical needs and solving their most complex problems for over 50 years. As one of the largest pure-play technology service providers to the U.S. government, we serve markets of significant scale and opportunity. Our primary customers are the departments and agencies of the U.S. government. We serve our customers through approximately 1,700 active contracts and task orders and employ approximately 24,000 individuals who are led by an experienced executive team of proven industry leaders. Our long history of serving the U.S. government has afforded us the ability to develop strong and longstanding relationships with some of the largest customers in the markets we serve. Substantially all of our revenues and tangible long-lived assets are generated and located in the United States. We have five customer facing business groups supported by the enterprise organizations, including the Innovation Factory. The five business groups, which are also our operating segments, are aggregated into two reportable segments for financial reporting purposes given the similarity in economic and qualitative characteristics, and based on the nature of the customers they serve. Our two reportable segments are the Defense and Intelligence segment and the Civilian segment. The Defense and Intelligence segment provides a diverse portfolio of national security solutions to the Department of Defense ("DoD") and Intelligence Community of the United States Government. The Civilian segment provides solutions to the civilian markets, encompassing federal, state, and local governments, in order to deliver services for citizen well-being, border security, and protecting lives. This includes integrating solutions into a spectrum of public service missions that impact travel, trade, health and the economy. The offerings of both reportable segments entail the integration of emerging technologies into mission critical operations that modernize and enable national imperatives, including IT modernization, digital engineering, artificial intelligence ("AI"), mission systems support and advisory, training and simulation, and ground vehicles support. These services include end-to-end solutions spanning the design, development, integration, deployment, management and operations, sustainment and security of the customers’ entire IT infrastructure. -19- Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Our Innovation Factory supports the operating segments by developing enterprise-class solutions which are delivered to our customers as stand-alone solutions or integrated with and aligned to our product offerings through the operations of the business to meet complex customer needs and accelerate digital transformation. The Innovation Factory includes designated teams focused on AI, application development, network services, platforms and cloud, engineering, and cybersecurity. It uses a highly automated, cloud-hosted tool set to rapidly build, test and deploy solutions and works with customers to enhance solutions going forward. Costs associated with corporate functions that are not allocable to the reportable segments are presented as Corporate. See Note 10—Business Segments Information to the condensed consolidated financial statements contained within this report for additional information. Economic Opportunities, Challenges, and Risks During the three months ended May 2, 2025, 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 2025, the President signed a continuing resolution ("CR") that extends government funding through the close of government fiscal year ("GFY") 2025. The measure provides budget certainty for agencies through September 30, 2025. The CR also provides flexibility for new starts on programs at the DoD, which are typically not allowed under CRs. Under terms of the Fiscal Responsibility Act, a 1% sequestration is to be applied to all agencies operating under CRs past April 30, 2025. However, the law provides discretion on implementation of these reductions to the Office of Management and Budget ("OMB"). It is unclear where or if the OMB will choose to implement such cuts. Congress is currently working on a budget reconciliation package that will add new defense and border defense spending, among other provisions. The new U.S. government administration is putting in place a number of executive orders and actions which could affect our business. In addition, the Department of Government Efficiency is driving changes in the structure and priorities of Federal agencies. Reductions in personnel, changes in agency alignment, and required reviews of new contracting activity are slowing new awards. Agencies are expected to conduct comprehensive reviews of existing and new contracting activity to identify potential efficiencies or nonalignment with new Administration priorities. SAIC contracts will be subject to these reviews. We have not experienced a material financial statement impact from recent executive orders or program cancellations across the government, however decreases in, or delays in contract awards and in government spending on the types of programs that we support, and terminations or stop-work-orders on government contracts on which we are currently performing could adversely affect our future revenues and profitability. In January 2025, the Federal debt ceiling was reached, and the U.S. Department of the Treasury is operating under "extraordinary measures" to service debt obligations of the U.S. Government. Failure to pass legislation surrounding the Federal debt ceiling could 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. Adverse changes in fiscal and economic conditions could materially impact our business. 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. The U.S. government has increasingly relied on contracts that are subject to a competitive bidding process (including indefinite delivery, indefinite quantity ("IDIQ"), U.S. General Services Administration ("GSA") schedules, and other multi-award contracts), which has resulted in greater competition and increased pricing pressure. Additionally, the U.S. government has put renewed emphasis on increasing the number of small business prime set-aside contracts that further reduce the addressable market in some areas. -20- Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION 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. In doing so, we leverage our expertise and scale to help them execute their mission. 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. Management of Operating Performance and Reporting Our business and program management process is directed by professionals focused on serving our customers by providing high quality services in achieving program requirements. These professionals carefully monitor contract margin performance by constantly evaluating contract risks and opportunities. Throughout each contract's life cycle, program managers review performance and update contract performance estimates to reflect their understanding of the best information available. 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. 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. (1) Non-GAAP measure, see "Non-GAAP Measures" section below for additional information about this measure. -21- Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Condensed Consolidated Results of Operations 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: Three Months Ended May 2, 2025 Percent change May 3, 2024 (dollars in millions) Revenues $ 1,877 2 % $ 1,847 Cost of revenues 1,668 2 % 1,634 As a percentage of revenues 88.9 % 88.5 % Selling, general and administrative expenses 89 5 % 85 Other operating (income) expense (1) (67 %) (3) Operating income 121 (8 %) 131 As a percentage of revenues 6.4 % 7.1 % Provision for income taxes (18) — % (18) Net income $ 68 (12 %) $ 77 Revenues. Revenues increased $30 million for the three months ended May 2, 2025 as compared to the same period in the prior year primarily due to ramp up in volume in existing and new contracts, partially offset by contract completions. Operating Income. Operating income as a percentage of revenues for the three months ended May 2, 2025 decreased from the comparable prior year period primarily due to timing and volume mix in our contract portfolio. Income Taxes. Our effective income tax rate was 20.6% and 19.0% for the three months ended May 2, 2025 and May 3, 2024, 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 tax benefits from employee share-based compensation. Our effective tax rate for the three months ended May 2, 2025 increased compared to the same period in the prior year primarily due to lower tax benefits from employee share-based compensation. Beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years for tax purposes. While the impact to income taxes payable was most significant in fiscal 2023, this impact will decrease over the five-year amortization period and is anticipated to be immaterial in year six. The actual impact will depend on the amount of research and development costs incurred by us, whether Congress modifies or repeals this provision and whether new guidance and interpretive rules are issued by the U.S. Treasury, among other factors. In December 2021, the Organisation for Economic Co-operation and Development (OECD) enacted a 15% global minimum tax framework (“Pillar Two”) which became effective in certain jurisdictions beginning in fiscal 2024. While U.S. adoption is uncertain, several countries where we operate have implemented it, and others are in the process of adopting. We do not anticipate Pillar Two to have a significant impact on our effective tax rate or our condensed consolidated results of operations, financial position, and cash flows. -22- Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Segment and Corporate Results The primary financial performance measures we use to manage our reportable segments and monitor results of operations are revenues and adjusted operating income. Adjusted operating income is a Non-GAAP measure. See "Non-GAAP Measures" section below for additional information about this measure. The following tables summarize our results of operations by reportable segment: Defense and Intelligence Three Months Ended May 2, 2025 Percent change May 3, 2024 (dollars in millions) Revenues $ 1,433 — % $ 1,436 Operating income 98 (8 %) 107 As a percentage of revenues 6.8 % 7.5 % Amortization of intangible assets 17 — % 17 Restructuring and impairment costs 1 100 % — Recovery of acquisition and integration costs and restructuring and impairment costs (1) (1) 100 % — Adjusted operating income (2) $ 115 (7 %) $ 124 As a percentage of revenues 8.0 % 8.6 % (1) Adjustment reflects the portion of acquisition and integration costs and restructuring and impairment costs recovered through our indirect rates in accordance with U.S. government Cost Accounting Standards. (2) Non-GAAP measure, see "Non-GAAP Measures" section below for additional information about this measure. Revenues: Revenues decreased $3 million for the three months ended May 2, 2025 as compared to the same period in the prior year primarily due to contract completions, partially offset by ramp up in volume on existing and new contracts. Operating and adjusted operating income (2) : Operating and adjusted operating income as a percentage of revenues for the three months ended May 2, 2025 decreased from the comparable prior year period primarily due to timing and volume mix in our contract portfolio. Civilian Three Months Ended May 2, 2025 Percent change May 3, 2024 (dollars in millions) Revenues $ 444 8 % $ 411 Operating income 40 18 % 34 As a percentage of revenues 9.0 % 8.3 % Amortization of intangible assets 12 — % 12 Adjusted operating income (1) $ 52 13 % $ 46 As a percentage of revenues 11.7 % 11.2 % (1) Non-GAAP measure, see "Non-GAAP Measures" section below for additional information about this measure. Revenues: Revenues increased $33 million for the three months ended May 2, 2025 as compared to the same period in the prior year primarily due to ramp up in volume on existing and new contracts. Operating and adjusted operating income (1) : Operating and adjusted operating income as a percentage of revenues for the three months ended May 2, 2025 increased from the comparable prior year period due to ramp up in volume on existing and new contracts. -23- Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Corporate Three Months Ended May 2, 2025 Percent change May 3, 2024 (dollars in millions) Operating loss $ (17) 70 % $ (10) Depreciation of property, plant, and equipment 7 17 % 6 Acquisition and integration costs — 100 % (2) Restructuring and impairment costs 2 — % 2 Recovery of acquisition and integration costs and restructuring and impairment costs (1) (1) — % (1) Adjusted operating loss (2) $ (9) 80 % $ (5) (1) Adjustment reflects the portion of acquisition and integration costs and restructuring and impairment costs recovered through our indirect rates in accordance with U.S. government Cost Accounting Standards. (2) Non-GAAP measure, see "Non-GAAP Measures" section below for additional information about this measure. Operating and adjusted operating loss (2) : Operating and adjusted operating loss increased $7 million and $4 million, respectively, for the three months ended May 2, 2025 as compared to the same period in the prior year primarily due to higher selling, general and administrative expenses. Non-GAAP Measures 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. Adjusted operating income. Adjusted operating income is a performance measure that primarily excludes the impact of non-recurring transactions that we do not consider to be indicative of our ongoing operating performance. Adjusted operating income is calculated by taking operating income and excluding depreciation and amortization, acquisition and integration costs, impairments, restructuring costs, and any other material non-recurring costs. The acquisition and integration costs relate to our acquisitions. The restructuring and impairment costs represent the reorganization and facilities optimization costs and impairments of long-lived assets, along with associated depreciation. The recovery of acquisition and integration costs and restructuring and impairment costs relate to costs recovered through our indirect rates in accordance with Cost Accounting Standards. Depreciation of property, plant, and equipment relates to property, plant, and equipment specifically identifiable for each segment. Adjusted operating income also excludes amortization of intangible assets because we do not have a history of significant acquisition activity, we do not acquire businesses on a predictable cycle, and the amount of an acquisition's purchase price allocated to intangible assets and the related amortization term are unique to each acquisition. We believe that these performance measures provide management and investors with useful information in assessing trends in our ongoing operating performance and may provide greater visibility in understanding our long-term financial performance. EBITDA and Adjusted EBITDA. The performance measure EBITDA is calculated by taking net income and excluding interest and loss on sale of receivables, provision for income taxes, and depreciation and amortization. Adjusted EBITDA is a performance measure that excludes the impact of non-recurring transactions that we do not consider to be indicative of our ongoing operating performance. Adjusted EBITDA is calculated by taking EBITDA and excluding acquisition and integration costs, impairments, restructuring costs, and any other material non-recurring costs. The acquisition and integration costs relate to our acquisitions. The restructuring and impairment costs represent the reorganization and facilities optimization costs or impairments of long-lived assets. The recovery of acquisition and integration costs and restructuring and impairment costs relate to costs recovered through our indirect rates in accordance with Cost Accounting Standards. 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 our long-term financial performance. -24- Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION EBITDA and adjusted EBITDA for the periods presented were calculated as follows: Three Months Ended May 2, 2025 May 3, 2024 (dollars in millions) Revenues $ 1,877 $ 1,847 Net income $ 68 $ 77 Interest expense, net and loss on sale of receivables 34 37 Provision for income taxes 18 18 Depreciation and amortization 36 35 EBITDA 156 167 EBITDA as a percentage of revenues 8.3 % 9.0 % Acquisition and integration costs — (2) Restructuring and impairment costs 3 2 Recovery of acquisition and integration costs and restructuring and impairment costs (1) (2) (1) Adjusted EBITDA $ 157 $ 166 Adjusted EBITDA as a percentage of revenues 8.4 % 9.0 % (1) Adjustment reflects the portion of acquisition and integration costs and restructuring and impairment costs recovered through our indirect rates in accordance with U.S. government Cost Accounting Standards. Adjusted EBITDA as a percentage of revenues for the three months ended May 2, 2025 decreased compared to the same period in the prior year primarily due to timing and volume mix in our contract portfolio. Other Key Performance Measures In addition to the financial measures described above, we believe that bookings and backlog are useful measures for management and investors to evaluate our potential future revenues. We also consider measures such as contract types and cost of revenues mix to be useful for management and investors to evaluate our operating income and performance. Net Bookings and Backlog. Net bookings represent the estimated amount of revenues to be earned in the future from funded and negotiated unfunded contract awards that were received during the period, net of adjustments to estimates on previously awarded contracts. We calculate net bookings as the period’s ending backlog plus the period’s revenues less the prior period’s ending backlog and initial backlog obtained through acquisitions. Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed. We do not include in backlog estimates of revenues to be derived from IDIQ contracts, but rather record backlog and bookings when task orders are awarded on these contracts. Given that much of our revenue is derived from IDIQ contract task orders that renew annually, bookings on these contracts tend to refresh annually as the task orders are renewed. Additionally, we do not include in backlog contract awards that are under protest until the protest is resolved in our favor. We segregate our backlog into two categories as follows: • Funded Backlog. Funded backlog for contracts with government agencies primarily represents estimated amounts of revenue to be earned in the future from contracts for which funding is appropriated less revenues previously recognized on these contracts. It does not include the unfunded portion of contracts in which funding is incrementally appropriated or authorized on a quarterly or annual basis by the U.S. government and other customers even though the contract may call for performance over a number of years. Funded backlog for contracts with non-government customers represents the estimated value on contracts, which may cover multiple future years, under which we are obligated to perform, less revenues previously recognized on these contracts. -25- Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION • Negotiated Unfunded Backlog. Negotiated unfunded backlog represents estimated amounts of revenue to be earned in the future from negotiated contracts for which funding has not been appropriated or otherwise authorized and from unexercised priced contract options. Negotiated unfunded backlog does not include any estimate of future potential task orders expected to be awarded under IDIQ, GSA Schedules or other master agreement contract vehicles, with the exception of certain IDIQ contracts where task orders are not competitively awarded and separately priced but instead are used as a funding mechanism, and where there is a basis for estimating future revenues and funding on future anticipated task orders. We expect to recognize revenue from a substantial portion of our funded backlog within the next twelve months. However, the U.S. government can adjust the scope of services of or cancel contracts at any time. Similarly, certain contracts with commercial customers include provisions that allow the customer to cancel prior to contract completion. Most of our contracts have cancellation terms that would permit us to recover all or a portion of our incurred costs and fees (contract profit) for work performed. The estimated value of our total backlog as of the dates presented was: May 2, 2025 January 31, 2025 Defense and Intelligence Civilian Total SAIC Defense and Intelligence Civilian Total SAIC (in millions) Funded backlog $ 2,524 $ 741 $ 3,265 $ 2,599 $ 845 $ 3,444 Negotiated unfunded backlog 15,857 3,221 19,078 15,341 3,072 18,413 Total backlog $ 18,381 $ 3,962 $ 22,343 $ 17,940 $ 3,917 $ 21,857 We had net bookings worth an estimated $2.4 billion during the three months ended May 2, 2025. Contract Types. Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract. For a discussion of the types of contracts under which we generate revenues, see “Business - Contract Types” in Part I, Item 1 of the most recently filed Annual Report on Form 10-K. The following table summarizes revenues by contract type as a percentage of each reportable segment and total SAIC revenues for the periods presented: Three Months Ended May 2, 2025 May 3, 2024 Defense and Intelligence Civilian Total SAIC Defense and Intelligence Civilian Total SAIC Cost reimbursement 79 % 4 % 62 % 79 % 5 % 62 % Time and materials ("T&M") 10 % 66 % 23 % 10 % 65 % 23 % Firm-fixed price ("FFP") 11 % 30 % 15 % 11 % 30 % 15 % Total 100 % 100 % 100 % 100 % 100 % 100 % -26- Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Cost of Revenues Mix. We generate revenues by providing a customized mix of services to our customers. The profit generated from our service contracts is affected by the proportion of cost of revenues incurred from the efforts of our employees (which we refer to below as labor-related cost of revenues), the efforts of our subcontractors and the cost of materials used in the performance of our service obligations under our contracts. Contracts performed with a higher proportion of SAIC labor are generally more profitable. The following table presents cost mix as a percentage of each reportable segment and total SAIC revenues for the periods presented: Three Months Ended May 2, 2025 May 3, 2024 Defense and Intelligence Civilian Total SAIC Defense and Intelligence Civilian Total SAIC Labor-related cost of revenues 59 % 58 % 59 % 58 % 59 % 58 % Subcontractor-related cost of revenues 29 % 32 % 29 % 30 % 30 % 30 % Other materials-related cost of revenues 12 % 10 % 12 % 12 % 11 % 12 % Total 100 % 100 % 100 % 100 % 100 % 100 % Liquidity and Capital Resources As a services provider, our business generally requires minimal infrastructure investment. We expect to fund our ongoing working capital, commitments and any other discretionary investments with cash on hand, future operating cash flows and, if needed, borrowings under our $1.0 billion Revolving Credit Facility and $300 million MARPA Facility. We anticipate that our future cash needs will be for working capital, capital expenditures, and contractual and other commitments. We consider various financial measures when we develop and update our capital deployment strategy, which include evaluating cash provided by operating activities, free cash flow and financial leverage. 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. Our future results are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our direct control. Although we believe that the financing arrangements in place will permit us to finance our operations on acceptable terms and conditions for at least the next year, our future access to, and the availability of financing on acceptable terms and conditions will be impacted by many factors (including our credit rating, capital market liquidity and overall economic conditions). Therefore, we cannot ensure that such financing will be available to us on acceptable terms or that such financing will be available at all. 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. Historical Cash Flow Trends The following table summarizes our cash flows: Three Months Ended May 2, 2025 May 3, 2024 (in millions) Net cash provided by operating activities $ 100 $ 98 Net cash used in investing activities (15) (7) Net cash used in financing activities (94) (136) Net decrease in cash, cash equivalents and restricted cash $ (9) $ (45) Net Cash Provided by Operating Activities. Cash flows provided by operating activities for the three months ended May 2, 2025 increased $2 million 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 9—Sales of Receivables to the condensed consolidated financial statements contained within this report for additional -27- Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION information) and lower incentive-based compensation payments in the current year, partially offset by timing of vendor payments and other changes in working capital. Net Cash Used in Investing Activities. Cash used in investing activities for the three months ended May 2, 2025 increased $8 million compared to the prior year primarily due to higher contributions to investments in the current year. Net Cash Used in Financing Activities. Cash used in financing activities for the three months ended May 2, 2025 decreased $42 million compared to the prior year period primarily due to higher proceeds from borrowings, net of principal payments, partially offset by higher plan share repurchases in the current year. Critical Accounting Policies and Estimates There have been no changes to our critical accounting policies and estimates during the three months ended May 2, 2025 from those disclosed in our most recently filed Annual Report on Form 10-K. Recently Issued But Not Yet Adopted Accounting Pronouncements For information on recently issued but not yet adopted accounting pronouncements, see Note 1 to the condensed consolidated financial statements contained within this report. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to our market risks from those discussed in our most recently filed Annual Report on Form 10-K.