Summary
Leidos reported strong second-quarter demand. Revenue reached $3.45 billion, up 18.3% from the prior-year quarter. Excluding $58 million of acquired revenues, the top line grew 16% organically. All three reportable segments contributed. Health led with 62% revenue growth as veterans' disability examinations resumed after a COVID-19 pause and volumes rose on the DHMSM and MFLC programs. Defense Solutions revenue rose 14% on the Navy Next Generation IT contract and weapons systems work. Civil revenue rose 5%, helped by Hanford Site Integration. Operating income was $269 million, up 8.0%. Operating margin was 7.8%, down 0.7 percentage points, because the prior-year quarter included a legal gain tied to VirnetX. Net income attributable to Leidos shareholders was $169 million, up 10.5%, and diluted EPS was $1.18, up 11.3%. For the six months, revenue was $6.76 billion, up 16.5%. Operating income was $577 million, up 30.8%. Operating margin was 8.5%, up 0.9 percentage points. Net income was $374 million, up 39.6%, and diluted EPS was $2.62, up 40.9%.
Bookings and backlog give Leidos a deep pipeline. Net bookings totaled $3.8 billion in the quarter, a book-to-bill ratio of 1.1. Backlog reached $33.5 billion, up 9% year-over-year and the fourteenth consecutive quarterly increase. Funded backlog was $7.2 billion. The quarter included several notable awards. The FAA selected Leidos for the ERAM system under a single-source contract with a total estimated value of approximately $6.8 billion if all options are exercised. The Army awarded the Reserve Health Readiness Program III, a contract with a total estimated value of approximately $999 million. Leidos also won prime positions on a TSA screening equipment IDIQ with a ceiling value of $470.7 million and an Air Force ISR SOF IDIQ with a total estimated value of $950 million. The company completed the acquisition of Gibbs & Cox, a ship design firm, for net consideration of $376 million, and the Defense Solutions segment added $751 million of backlog from acquisitions.
Cash generation was the weak spot in the quarter. Operating cash flow was $17 million, down 96.0% from the prior-year quarter. Year to date, operating cash flow was $256 million, down 67.8%. Capital expenditures were $21 million in the quarter, down 54.3%, and $47 million year to date, down 47.8%. Free cash flow was an outflow of $4 million. The accounts receivable sale program reduced operating and free cash flow by $94 million. Management said operating and free cash inflows ran below typical levels to fund the start-up of new programs and expansion of existing programs. Deferred revenue was $320 million, down 20.2% from the prior-year quarter. Remaining performance obligations were $14.6 billion, down 4.6%. Leidos returned cash to shareholders through a quarterly dividend of $0.36 per share, an increase of $0.02, payable September 30, 2021.
Guidance for the full fiscal year is unchanged. Leidos reaffirmed its fiscal 2021 outlook, with non-GAAP diluted EPS of $6.35 to $6.65 and adjusted EBITDA margin of 10.5% to 10.7%. Adjusted EBITDA was $359 million in the quarter, up 5%, while adjusted EBITDA margin fell to 10.4% from 11.8%. Non-GAAP net income was $218 million, down 2%, and non-GAAP diluted EPS was $1.52, down 2%. Excluding the prior-year VirnetX gain, non-GAAP net income and diluted EPS both rose 37%. Risks remain. The pandemic is not over, and management noted a recent uptick in COVID-19 cases. About 86% of revenue came from U.S. government contracts, so budget delays or a continuing resolution could disrupt awards. International sales were 9% of revenue and carry geopolitical and regulatory risk. Contract protests, fixed-price cost estimates, cybersecurity threats, and the timing of customer payments also pose challenges.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $2.89B | $2.86B | +1.0% | $2.73B | +6.0% |
| Gross profit | $361.0M | $370.0M | -2.4% | $380.0M | -5.0% |
| Gross margin | 12.5% | 12.9% | -0.4 pp | 13.9% | -1.4 pp |
| Sales & marketing | $195.0M | $197.0M | -1.0% | $175.0M | +11.4% |
| Operating income (loss) | $249.0M | $192.0M | +29.7% | $210.0M | +18.6% |
| Operating margin | 8.6% | 6.7% | +1.9 pp | 7.7% | +0.9 pp |
| Net income (loss) | $153.0M | $115.0M | +33.0% | $136.0M | +12.5% |
| Net margin | 5.3% | 4.0% | +1.3 pp | 5.0% | +0.3 pp |
| Diluted EPS | $1.06 | $0.80 | +$0.26 | $0.93 | +$0.13 |
Risks
MD&A states that approximately 86% and 87% of total revenues for the three and six months ended July 2, 2021 came from U.S. government contracts, and a continuing resolution is likely as Congress works through the GFY 2022 appropriations process.
Operating cash flow decreased $405 million, or 96.0%, for the quarter and $538 million, or 67.8%, for the six months ended July 2, 2021, driven by lower sales of accounts receivable, higher tax payments, timing of customer advance payments, and prior-year VirnetX proceeds.
Net bookings were $3.8 billion for the quarter and $7.6 billion for the six months ended July 2, 2021, down from $4.6 billion and $10.2 billion in the prior-year periods, while RPO decreased 4.6% and deferred revenue decreased 20.2% versus the prior-year quarter.
MD&A notes that COVID-19 did not materially impact revenues or operating income for the periods, but the full extent remains uncertain, including duration, spread, vaccine distribution, and the timing and amount of CARES Act Section 3610 recoveries, with relief extended only until September 30, 2021.
The effective tax rate increased to 23.8% for the quarter from 19.8% and to 22.7% for the six months from 16.5%, primarily due to higher state income taxes, the UK tax rate increase, and decreased benefits from employee stock-based payments.
International sales represented approximately 9% of total revenues for the three and six months ended July 2, 2021, exposing the company to international regulatory and geopolitical risks, and changes in trade policies or tariffs may increase procurement costs for certain IT hardware.
SaaS KPIs
All quarters →Net bookings
Adjusted EBITDA margin
Book-to-bill ratio
Adjusted EBITDA
Funded backlog
Backlog
Operating cash flow conversion ratio
Summary, forecast, risks and KPIs are extracted from Leidos Holdings, Inc.'s SEC filings for Q2 FY2021 (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 2, 2026.