Leidos Holdings, Inc. Q1 FY2027 earnings

Leidos started its fiscal year with revenue growth but lower GAAP profitability. Revenue for the quarter ended April 3, 2026, was $4.40 billion, up 3.7% from the prior-year quarter. Operating income was $508 million, down 4.2%. Net income attributable to Leidos common stockholders was $328 million, down 9.6%. Diluted EPS was $2.56, down 7.6%. Operating margin was 11.5%, down from 12.5% a year earlier. The quarter absorbed costs tied to the Entrust acquisition and the pending joint venture to combine the Security Enterprise Solutions and Industrial Automation businesses with Analogic. On a non-GAAP basis, diluted EPS was $3.13, up 5%, and adjusted EBITDA was $614 million, up 2%, with adjusted EBITDA margin of 14.0%, down from 14.2%.

Cash generation improved sharply. Operating cash flow was $301 million, up 419% from the prior-year quarter. Capital expenditures were $31 million, up 40.9%. Free cash flow was $270 million. Deferred revenue was $411 million, up 11.7%. Remaining performance obligations were $19.0 billion, up 11.8%. The company funded the Entrust acquisition with new senior notes and commercial paper and returned cash to shareholders through repurchases and dividends.

Operational momentum was mixed. Net bookings were $3.3 billion, a book-to-bill ratio of 0.8. Backlog ended the quarter at $48.4 billion, of which $9.6 billion was funded. Trailing-twelve-month book-to-bill was 1.1, and total and funded backlog grew 4% and 31%, respectively. Notable awards included an $869 million five-year MACRO II task order, over $461 million in GSM-O II awards, a $335 million two-year NSA TechSIGINT contract, and a $284 million ten-year SEC ISS2 contract. Intelligence & Digital led segment growth, while Health was unchanged. Homeland and Defense margins came under pressure. On a non-GAAP basis, segment operating margins were 10.2% for Intelligence & Digital, 24.2% for Health, 8.5% for Homeland, and 8.3% for Defense. Homeland's decline reflected Entrust and joint venture costs, and Defense faced schedule delays on a fixed-price development program.

Guidance moved higher for the full fiscal year. Leidos raised its revenue outlook to $18.00 billion to $18.40 billion from $17.50 billion to $17.90 billion. It kept its adjusted EBITDA margin outlook at mid 13%. Non-GAAP diluted EPS guidance rose to $12.10 to $12.50 from $12.05 to $12.45. Cash flows provided by operating activities guidance increased to approximately $1.80 billion from approximately $1.75 billion. The company does not provide a reconciliation of forward-looking adjusted EBITDA margin or non-GAAP diluted EPS to GAAP measures because it cannot forecast certain deductions with reasonable certainty.

Risks remain tied to the U.S. government. Contracts with the U.S. government generated about 86% of revenue in the quarter. The company cited budget reductions, sequestration, spending limits, the government shutdown, procurement delays, competitor protests, tariffs, inflation, and interest rates as factors that could affect results. Integration of Entrust and the pending joint venture carry execution risk. Fixed-price programs are another pressure point, as shown by the Defense segment's schedule delays and Homeland's changing customer requirements. Non-operating expense increased on a pension settlement loss and higher interest expense from new notes. Leidos also faces cybersecurity, data security, and regulatory compliance risks.