Leidos Holdings, Inc. Q1 FY2025 earnings

Leidos opened fiscal 2024 with first-quarter revenue of $3.98 billion, up 7.5% from $3.70 billion in the prior-year quarter. Demand rose across all four customer segments. Health & Civil led the growth on higher volumes and case complexity in the managed health services business. National Security and Digital advanced on the Sentinel contract and the Defense Enclave Services program. Commercial & International gained from security product deliveries, and Defense Systems grew on airborne surveillance and reconnaissance and hypersonics work.

Profitability improved sharply. Operating income reached $415 million, up 56.6% from $265 million, and operating margin climbed to 10.4% from 7.2%. Net income attributable to Leidos common stockholders was $284 million, up 75.3% from $162 million. Diluted EPS was $2.07, up 76.9% from $1.17. On a non-GAAP basis, adjusted EBITDA was $490 million at a 12.3% margin, non-GAAP net income was $313 million, up 53%, and non-GAAP diluted EPS was $2.29, up 56%. Management credited higher volumes on fixed-rate managed health services work and tighter cost control across the company. Defense Systems was the exception, where program mix shifts pushed segment profitability lower.

Cash generation swung positive. Operating cash flow was $63 million, up from a use of $98 million in the prior-year quarter. Capital expenditures were $17 million, down 56.4% from $39 million. Free cash flow, a non-GAAP measure, was $46 million. Deferred revenue was $414 million, up 17.6% from $352 million, while remaining performance obligations slipped 1.4% to $14.30 billion from $14.50 billion. Net bookings totaled $3.7 billion, a book-to-bill ratio of 0.9 for the quarter and 1.1 for the trailing twelve months. Backlog ended the quarter at $36.6 billion, of which $8.0 billion was funded. Days sales outstanding was 62, in line with the prior-year quarter. The company held $633 million in cash and $4.7 billion of debt and returned $236 million to shareholders, including $183 million of share repurchases and $53 million of dividends. The board declared a quarterly dividend of $0.38 per share.

Leidos raised full-year fiscal 2024 guidance on every metric. Revenue guidance moved up, adjusted EBITDA margin is now expected at mid-to-high 11%, and non-GAAP diluted EPS is guided to $8.40 to $8.80. The prior outlook called for adjusted EBITDA margin of mid-to-high 10% and non-GAAP diluted EPS of $7.50 to $7.90, alongside lower revenue and operating cash flow expectations. The company does not reconcile forward-looking non-GAAP figures to GAAP because it cannot forecast the excluded items with reasonable certainty.

Government budgets remain the dominant risk. About 87% of total revenues come from U.S. government contracts. Congress passed two appropriations packages in March 2024 and now turns to fiscal 2025 bills before the current ones expire at the end of September 2024. A shutdown, a prolonged continuing resolution, or delays in contract awards would all weigh on results. Other named risks include competitor protests, higher tariffs on imported IT hardware, the 15% global minimum tax framework known as Pillar Two, cost estimation on fixed-price contracts, cybersecurity threats, and competition for cleared talent. Leidos also flagged that its international business, roughly 8% of revenues, adds regulatory and geopolitical exposure.