SCIENCE APPLICATIONS INTERNATIONAL CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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 and 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. 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 International Society for Scientific Applications and its consolidated subsidiaries.

The Company utilizes a 52/53 week fiscal year, ending on the Friday closest to
January 31, with fiscal quarters typically consisting of 13 weeks. Fiscal 2023
began on January 29, 2022 and ends on February 3, 2023, while fiscal 2022 began
on January 30, 2021 and ended on January 28, 2022.

Company 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 1,900 active contracts and task orders and employ
approximately 26,000 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 by or owned by entities
located in the United States.

Economic opportunities, challenges and risks

During the three months ended April 29, 2022, we generated approximately 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. Appropriations measures
passed in March 2022 provided full funding for the federal government through
the end of government fiscal year 2022. In October 2021, the Federal debt
ceiling was increased by $480 billion and in December 2021 was further increased
by $2.5 trillion which is expected to allow the U.S. government to operate into
2023. It is unlikely but possible these measures could expire without extension
and lead to a partial or full government shutdown.

Adverse changes in fiscal and economic conditions could materially impact our
business. Some changes that could have an adverse impact on our business include
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, inability to increase or suspend the Federal debt ceiling, and
potential government shutdowns.

Spending sets, including the infrastructure bill and potential future spending sets, may provide additional opportunities in SAIC’s areas of focus such as broadband, cybersecurity and climate resilience.

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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.

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 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.

On July 2, 2021, we completed the acquisition of Halfaker and Associates, LLC
(Halfaker). The acquisition of Halfaker, in alignment with our long-term
strategy, grows the Company's digital transformation portfolio while expanding
its ability to support the government's healthcare mission.

Impacts of the COVID-19 pandemic

We are continuing to monitor the ongoing outbreak of the coronavirus disease
2019 ("COVID-19") and we continue to work with our stakeholders to assess
further possible implications to our business, supply chain and customers, and
to take actions in an effort to mitigate adverse consequences.

The CARES Act allowed for the deferral of certain payroll tax payments through
December 31, 2020 and we deferred total payments of approximately $103 million.
The first installment of these deferred payroll taxes was paid during the third
quarter of fiscal 2022 (approximately $51 million) with the remaining amounts
due in the fourth quarter of fiscal 2023.

In September 2021, the President issued an executive order which requires all
federal employees and contractors to be fully vaccinated by January 18, 2022,
unless an employee is legally entitled to an accommodation. In December 2021, a
federal district judge issued an order, which temporarily enjoined the federal
contractor vaccine mandate. We had taken steps to comply with the vaccine
mandate across our workforce until it was enjoined. We are continuing to monitor
the impact that the enforcement of this executive order will have on our
workforce and operations, but at this point the impact has not been material.

We have not experienced a significant impact to our liquidity or access to
capital as a result of the COVID-19 pandemic. While we continue to navigate the
impacts of the COVID-19 pandemic, COVID-19 did not have as significant an impact
on revenues and operating income as compared to the prior year. The full extent
of the impact of COVID-19 on our business and our operational and financial
performance will depend on future developments, including the duration and
spread of the pandemic, all of which are uncertain and cannot be predicted.

Operational performance management and reporting

Our business and program management process is directed by professional managers
focused on serving our customers by providing high quality services in achieving
program requirements. These managers 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. For performance obligations satisfied over time, updates
to estimates are recognized on inception-to-date activity, during the period of
adjustment, resulting in either a favorable or unfavorable impact to operating
income.

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We evaluate our results of operations by considering the drivers causing changes
in revenues, operating income 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 in
these terms. 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 or
materials) in order to understand operating margin because programs with a
higher proportion of SAIC labor are generally more profitable. Changes in costs
of revenues as a percentage of revenue 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 delivery of services, significant drivers of fluctuations
in assets or liabilities and the impacts of changes in timing of cash receipts
or disbursements.

Results of Operations

The primary financial performance measures we use to manage our business and
monitor results of operations are revenues, operating income, and cash flows
from operating activities. The following table summarizes our results of
operations:

                                                               Three Months Ended
                                                       April 29,     Percent       April 30,
                                                            2022     change             2021
                                                              (dollars in millions)
    Revenues                                         $  1,996           6  %     $  1,878
    Cost of revenues                                    1,770           7  %        1,661
    As a percentage of revenues                          88.7  %                     88.4  %
    Selling, general and administrative expenses           92          15  %           80
    Acquisition and integration costs                       9         (10  %)          10
    Other operating income                                  -        (100  %)          (3)
    Operating income                                      125          (4  %)         130
    As a percentage of revenues                           6.3  %                      6.9  %
    Net income attributable to common stockholders   $     73         (10  %)    $     81
    Net cash provided by operating activities        $    118         (38  %)    $    189


Revenues. Revenues increased $118 million for the three months ended April 29,
2022 as compared to the same period in the prior year primarily due to ramp up
on new and existing contracts and the acquisition of Halfaker (approximately $42
million), partially offset by contract completions. Adjusting for the impact of
acquired revenues and divested revenues, revenues grew 3.9% primarily due to
ramp up on new and existing contracts.

Cost of Revenues. Cost of revenues increased $109 million for the three months
ended April 29, 2022 as compared to the same period in the prior year primarily
due to ramp up on new and existing contracts and the acquisition of Halfaker.

Selling, General and Administrative Expenses. SG&A increased $12 million for the
three months ended April 29, 2022 as compared to the same period in the prior
year primarily due to higher indirect expenses and the acquisition of Halfaker.

Operating Income. Operating income as a percentage of revenues for the three
months ended April 29, 2022 decreased from the comparable prior year period
primarily due to higher indirect costs in the current year period and higher
benefit from net favorable settlement of prior indirect rate years in the prior
year period, partially offset by improved profitability across our contract
portfolio.

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Net Cash Provided by Operating Activities. Net cash provided by operating
activities was $118 million for the three months ended April 29, 2022, a
decrease of $71 million compared to the prior year, primarily due to lower net
earnings, cash payments during the quarter associated with certain change in
control provisions related to the acquisition of Halfaker, and timing of
customer collections and vendor disbursements.

Non-GAAP Measures

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 may be useful 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.

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 costs that we do not consider to be
indicative of our ongoing performance. Adjusted EBITDA is calculated by taking
EBITDA and excluding acquisition and integration costs, impairments,
restructuring costs, and any other material non-recurring costs. Integration
costs are costs to integrate acquired companies including costs of strategic
consulting services, facility consolidation and employee related costs such as
retention and severance costs. The acquisition and integration costs relate to
the Company's acquisitions of Halfaker and Koverse in fiscal 2022 and Unisys
Federal in fiscal 2021.

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.

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

                                                                                   Three Months Ended
                                                                              April 29,               April 30,
                                                                                   2022                    2021
                                                                                      (in millions)
Net income                                                                $      74                $      82
Interest expense and loss on sale of receivables                                 28                       28
Provision for income taxes                                                       21                       23
Depreciation and amortization                                                    41                       42
EBITDA                                                                          164                      175
EBITDA as a percentage of revenues                                              8.2  %                   9.3  %
Acquisition and integration costs                                                 9                       10
Depreciation included in acquisition and integration costs                        -                       (1)
Adjusted EBITDA                                                           $     173                $     184
Adjusted EBITDA as a percentage of revenues                                     8.7  %                   9.8  %


Adjusted EBITDA as a percentage of revenues for the three months ended April 29,
2022 decreased to 8.7% from 9.8% for the same period in the prior year primarily
due to higher indirect costs in the current year period and higher benefit from
net favorable settlement of prior indirect rate years in the prior year period,
partially offset by improved profitability across 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.

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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 separate 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.

• Negotiated unfunded arrears. Negotiated unfunded backlog represents the estimated amounts of revenue to be earned from negotiated contracts for which funding has not been allocated or otherwise authorized and unexercised priced contract options. The Negotiated Unfunded Backlog does not include any estimates of potential future task orders expected to be awarded under IDIQ, GSA Appendices, or other Master Agreement contractual vehicles.

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 at the dates presented was:

                                                April 29,       January 28,
                                                     2022              2022
                                                      (in millions)
                Funded backlog                $   3,218      $      3,491
                Negotiated unfunded backlog      20,894            20,601
                Total backlog                 $  24,112      $     24,092

We had net reservations of an estimated value $2.0 billion in the three months ended April 29, 2022. The total backlog at the end of the first quarter is our total backlog at the end of the prior year.

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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 "Contract Types" in Part I of the most recently filed Annual
Report on Form 10-K. The following table summarizes revenues by contract type as
a percentage of revenues for the periods presented:

                                                  Three Months Ended
                                                    April 29,      April 30,
                                                         2022           2021
               Cost reimbursement                       55  %          53  %
               Time and materials (T&M)                 19  %          22  %
               Firm-fixed price (FFP)                   26  %          25  %
               Total                                   100  %         100  %


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 for the periods presented:

                                                                                              Three Months Ended
                                                                                         April 29,                April 30,
                                                                                              2022                     2021
                                                                                      (as a % of total cost of revenues)
Labor-related cost of revenues                                                               54  %                    54  %
Subcontractor-related cost of revenues                                                       29  %                    29  %
Supply chain materials-related cost of revenues                                               7  %                     8  %
Other materials-related cost of revenues                                                     10  %                     9  %
Total                                                                                       100  %                   100  %

Breakdown of cost of revenue for the three months ended April 29, 2022 corresponded to the same period of the previous year.

Cash 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 $400 million 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. 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.

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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.

Beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 requires the
capitalization of research and development costs for tax purposes, which can
then be amortized over five years. Congress has proposed tax legislation to
delay the effective date of this change to 2026, but it is uncertain whether the
proposed legislation will ultimately be enacted into law. If the current
effective date and current legislation remains in place, the Company's initial
assessment is that our cash flows from operations in fiscal 2023 will decrease
by a minimum of $90 million, but our net deferred tax assets will increase by a
similar amount.

Historical cash flow trends

The following table summarizes our cash flows:

Three months completed

                                                                             April 29,           April 30,
                                                                                  2022                2021
                                                                                   (in millions)
Net cash provided by operating activities                                $      118          $      189
Net cash used in investing activities                                            (6)                 (4)
Net cash used in financing activities                                          (162)                (95)

(decrease) net increase in cash, cash equivalents and restricted cash $

(50) $90

Net cash from operating activities. Refer to the “Operating Results” section above for an analysis of the changes in cash provided by operating activities between the three months ended. April 29, 2022 and the comparable period of the previous year.

Net Cash Used in Investing Activities. Cash used in investing activities for the
three months ended April 29, 2022 increased compared to the prior year period
primarily due to proceeds from divestitures in the prior year period, partially
offset by lower capital expenditures for property, plant, and equipment.

Net Cash Used in Financing Activities. Cash used in financing activities for the
three months ended April 29, 2022 increased compared to the prior year period as
a result of higher term loan principal payments in the current year period and
higher share repurchases.

Critical accounting policies

There have been no changes to our critical accounting policies during the three months ended April 29, 2022 from those disclosed in our most recent annual report filed on Form 10-K.

Accounting pronouncements recently issued but not yet adopted

For more information on accounting pronouncements recently published but not yet adopted, see note 1 of the notes to the summary and consolidated financial statements contained in this report.

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