Summary
Leidos started fiscal 2023 with revenue growth but lower profitability. First quarter revenue was $3.70 billion, up 5.9% from the prior-year quarter. Operating income was $265 million, down 2.2%. Net income attributable to Leidos common stockholders was $162 million, down 7.4%. Diluted EPS was $1.17, down 6.4%. Operating margin was 7.2%, down 0.6 percentage points from the prior-year quarter. The company said revenue grew in all segments, led by broad-based strength in Civil and Health. Defense Solutions also grew, helped by the Cobham Special Mission acquisition and programs such as NGEN-R SMIT and SDA WFOV T1, though the UFS contract loss and foreign exchange rates worked against it.
Cash generation was the weak spot. Operating cash flow was negative $98 million, down from positive $93 million in the prior-year quarter. Capital expenditures were $39 million, up 39.3%. The company used $191 million for tax payments tied to prior-year activities, mostly from the Tax Cuts and Jobs Act of 2017 provision that requires capitalization and amortization of research and development costs. Deferred revenue was $352 million, down 7.9%. Remaining performance obligations were $14.50 billion, down 5.8%. Leidos also moved to strengthen its balance sheet. It issued $750 million of 5.75% senior notes due March 2033, entered into a $1.0 billion term loan and a $1.0 billion revolving facility, and repaid the $500 million 2.95% notes and the $1.9 billion term loan. The board declared a quarterly dividend of $0.36 per share.
Operational momentum was mixed. Net bookings totaled $3.0 billion, a book-to-bill ratio of 0.8 and a trailing twelve month ratio of 0.9. Backlog at quarter end was $35.1 billion, of which $8.3 billion was funded. The quarter included several awards: a combined ceiling value of about $1.25 billion for Intelligence Community work, a seven-year $375 million ODNI contract, a five-year $79 million CMS contract plus $23 million in subcontracts, and a USV task order with a maximum value of about $95 million. Leidos also won airport security work with the TSA, Frankfurt Airport, and Luton Airport. On a non-GAAP basis, adjusted EBITDA was $346 million, down 3%, and adjusted EBITDA margin fell to 9.4% from 10.2%. Non-GAAP diluted EPS was $1.47, down 7%. Non-GAAP net income was $205 million, down 8%. The earnings decline came from expected reductions in certain disability examinations due to additional competition and higher expenses in the security products business. Net interest expense increased.
Management maintained its fiscal year 2023 guidance. The outlook includes an adjusted EBITDA margin range of 10.3% to 10.5% and non-GAAP diluted EPS of $6.40 to $6.80. The company expects earnings and cash performance to build momentum as the year progresses. Risks remain significant. About 87% of revenue comes from U.S. government contracts, so the company is exposed to budget debates, the debt ceiling, and the appropriations process. Inflation and interest rates could pressure costs and financing. Supply chain disruptions hurt Civil margins in the quarter. The disability examinations business faces additional competition. The security products business is investing in research and development. Tax payments tied to the TCJA research and development provision are expected to rise by $300 million in 2023. Leidos also faces the LIBOR transition and the usual risks of government procurement, audits, and contract protests. Roger Krone is stepping down as CEO, which adds a leadership transition to the list of items investors will watch.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $3.68B | $3.66B | +0.4% | $3.48B | +5.8% |
| Gross profit | $475.0M | $487.0M | -2.5% | $496.0M | -4.2% |
| Gross margin | 12.9% | 13.3% | -0.4 pp | 14.3% | -1.3 pp |
| Sales & marketing | $233.0M | $223.0M | +4.5% | $236.0M | -1.3% |
| Operating income (loss) | $265.0M | $265.0M | ±0.0% | $271.0M | -2.2% |
| Operating margin | 7.2% | 7.2% | -0.0 pp | 7.8% | -0.6 pp |
| Net income (loss) | $162.0M | $177.0M | -8.5% | $175.0M | -7.4% |
| Net margin | 4.4% | 4.8% | -0.4 pp | 5.0% | -0.6 pp |
| Diluted EPS | $1.17 | $1.28 | -$0.11 | $1.25 | -$0.08 |
Risks
Approximately 87% of total revenues for the three months ended March 31, 2023 came from U.S. government contracts, and MD&A notes Congress is working to raise or suspend the debt limit to prevent U.S. default, which could affect government spending and contract funding.
Net bookings were an estimated $3.0 billion for the three months ended March 31, 2023, compared to $5.4 billion for the prior-year quarter, and total backlog decreased to $35.086 billion from $36.345 billion at April 1, 2022.
The TCJA provision requiring capitalization and amortization of research and development costs is estimated to increase fiscal 2023 income taxes payable and net deferred tax assets by $112 million and unrecognized tax benefits by $75 million, and Leidos anticipates tax cash payments to increase by $300 million in 2023.
Operating cash flow decreased to negative $98 million for the three months ended March 31, 2023 from positive $93 million in the prior-year quarter, primarily due to higher tax payments of $127 million and a $62 million CARES Act payroll tax payment.
Non-operating expense, net increased to $58 million for the three months ended March 31, 2023 from $49 million in the prior-year quarter, primarily due to higher net interest expense driven by increased interest rates and refinancing activities, with outstanding debt at $5.0 billion at March 31, 2023.
Health operating margin decreased to 15.1% for the three months ended March 31, 2023 from 18.2% in the prior-year quarter, and Civil operating margin decreased to 4.6% from 5.4%, driven by reduced volume on higher margin contracts, supply chain disruptions, labor ramp-up, and R&D investment.
International sales represented approximately 8% of total revenues for the three months ended March 31, 2023, exposing Leidos to international regulatory and geopolitical risks, and higher tariffs on imported goods and materials may increase procurement costs for certain IT hardware.
SaaS KPIs
All quarters →Net bookings
Adjusted EBITDA margin
Book-to-bill ratio
Adjusted EBITDA
Operating cash flow conversion ratio
Non-GAAP operating income
Non-GAAP free cash flow conversion ratio
Organic revenues
Non-GAAP free cash flow
Summary, forecast, risks and KPIs are extracted from Leidos Holdings, Inc.'s SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.