Leidos Holdings, Inc. Q1 FY2026 earnings

Leidos reported first-quarter results for the period ended April 4, 2025. Revenue was $4,245 million, up 6.8% year over year. Operating income was $530 million, up 27.7%. Operating margin was 12.5%, up 2.0 percentage points. Net income attributable to Leidos common stockholders was $363 million, up 27.8%. Diluted EPS was $2.77, up 33.8%. The company also reported adjusted EBITDA of $601 million, a 14.2% margin, and non-GAAP diluted EPS of $2.97, up 30%. Those non-GAAP figures exclude acquisition, integration and restructuring costs and amortization of acquired intangibles. Management said the profit increase came from higher volumes on managed health services programs and improved program execution and cost control.

The segment picture was mixed but generally strong. Health & Civil posted a non-GAAP operating margin of 23.6%, up from 19.0%. Defense Systems non-GAAP operating margin was 9.1%, up from 8.0%. Commercial & International non-GAAP operating margin was 8.5%, up from 8.3%. National Security & Digital non-GAAP operating margin was 10.1%, unchanged. Leidos won several notable awards in the quarter. They included a $205 million DTRA task order, a $150 million DTIC task order, a $148 million Project Night Owl managed services award, a $116 million NIWC Pacific task order, and a $40 million Interior wildland fires contract. Backlog at the end of the quarter was $46.3 billion, of which $7.3 billion was funded. Net bookings were $2.1 billion, a book-to-bill ratio of 0.5. Remaining performance obligations were $17.0 billion, up 18.9%. Deferred revenue was $368 million, down 11.1%.

Cash generation was weaker than the prior year quarter. Operating cash flow was $58 million, down 48.7%. Capital expenditures were $22 million, up 29.4%. Free cash flow, a non-GAAP measure, was $36 million. The company said the operating cash flow decline was mainly due to the timing of payroll and employee benefit payments, partly offset by higher earnings and favorable working capital. Days sales outstanding was 62, in line with the prior year period. Leidos issued $500 million of 5.40% senior unsecured notes due 2032 and $500 million of 5.50% senior unsecured notes due 2035. Proceeds retired $500 million of notes due May 2025 and funded a $500 million accelerated share repurchase. The board declared a quarterly dividend of $0.40 per share. Leidos also agreed to acquire a cyber platforms company for a preliminary purchase price of $300 million, with the deal expected to close in the second quarter of 2025.

Guidance for the full fiscal year 2025 was reaffirmed. Leidos expects revenues of $16.90 billion to $17.30 billion, an adjusted EBITDA margin in the mid-high 12% range, non-GAAP diluted EPS of $10.35 to $10.75, and cash flows provided by operating activities of approximately $1.45 billion. The company does not provide a reconciliation of forward-looking adjusted EBITDA margin or non-GAAP diluted EPS to GAAP net income margin or diluted EPS. Risks remain centered on the federal budget. The government is operating under a continuing resolution through September 30, 2025. The Department of Government Efficiency has pushed to streamline federal operations and reduce expenditures, which has led to contract cancellations, modifications and stop work orders. About 87% of Leidos revenues come from U.S. government contracts, and international sales are about 8% of revenues. Higher tariffs could raise the cost of certain goods, though Leidos expects to recover some of that through contractual measures and does not currently expect a significant effect. Other risks include budget reductions, sequestration, delays in the budget process, a government shutdown, procurement delays, competitor protests, and cybersecurity threats.