Summary
Leidos closed FY2022 Q2 with revenue of $3.60 billion, up 4.3% from the prior-year quarter. Growth was organic and broad, with all three reportable segments contributing. Defense Solutions, Civil, and Health each expanded, helped by the Navy NGEN-R SMIT contract and the DHMSM program. Operating income was $271 million, up 0.7% year over year. Net income attributable to Leidos common stockholders was $171 million, up 1.2%. Diluted EPS was $1.24, up 5.1%. Operating margin was 7.5%, down 0.3 percentage points from the prior-year quarter. Non-GAAP adjusted EBITDA was $366 million, up 2%, while adjusted EBITDA margin slipped to 10.2% from 10.4%. Non-GAAP diluted EPS was $1.59, up 5%.
Cash generation improved sequentially but remained uneven. Operating cash flow was $40 million, up 135.3% from the prior-year quarter. Free cash flow was $19 million. Capital expenditures were $21 million, flat year over year. Deferred revenue was $312 million, down 2.5%. Remaining performance obligations were $15.10 billion, up 3.4%. Backlog ended at $34.7 billion, up 4%, with $7.5 billion funded. Net bookings were $2.2 billion, a book-to-bill ratio of 0.6. For the first six months, operating cash flow was $133 million, down 48.0%, and capital expenditures were $49 million, up 4.3%. Management tied the year-to-date cash decline to unfavorable timing of customer payments and higher tax and interest payments.
Operational awards were a bright spot. The Defense Information Systems Agency awarded Leidos the Defense Enclave Services contract, a single-award IDIQ with a total estimated value of $11.5 billion. The company also won a follow-on contract for PEO IWS Undersea Warfare Combat System and Product Support valued at approximately $291 million, and a Navy Medical Performance Research task order valued at approximately $53 million. Health results included $28 million in COVID-19 recoveries related to stop work orders. Civil profitability was hurt by a $17 million adverse arbitration ruling and associated legal fees tied to the IS&GS acquisition. Defense Solutions faced $24 million in unfavorable exchange rate movements, and total backlog took a $268 million negative hit from currency. After quarter end, Leidos agreed to acquire Cobham Aviation Services Australia's Special Mission business, subject to regulatory approvals. The board declared a quarterly dividend of $0.36 per share.
Guidance for the full fiscal year 2022 was maintained. Leidos still expects revenues of $13.9 billion to $14.3 billion, an adjusted EBITDA margin of 10.3% to 10.5%, non-GAAP diluted EPS of $6.10 to $6.50, and cash flows provided by operating activities at or above $1.0 billion. The outlook depends on U.S. government spending and the budget process, including the risk of a continuing resolution. Other risks include inflation and interest rates, supply chain constraints, competition for talent, contract protests, legal disputes, and the TCJA research cost capitalization provision, which could increase income taxes payable and net deferred tax assets by approximately $150 million in fiscal 2022 and affect cash in fiscal 2023. LIBOR transition, COVID-19, and international currency swings also remain watch items. The quarter showed solid top-line growth and stable non-GAAP earnings, but margin pressure and weaker year-to-date cash conversion leave execution risk in the second half.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Net income (loss) | $177.0M | $175.0M | +1.1% | $153.0M | +15.7% |
Risks
Approximately 86% of total revenues for the three and six months ended July 1, 2022 came from U.S. government contracts, so Leidos is exposed to federal budget and appropriations risk. Failure to pass GFY 2023 appropriations bills before October 1, 2022 would require a continuing resolution to avoid a federal government shutdown.
An adverse arbitration ruling related to the 2016 IS&GS Business acquisition increased legal reserves and fees by $17 million in the quarter and $19 million in the six months ended July 1, 2022, and Leidos anticipates a $25 million payment in the third quarter of fiscal 2022.
The TCJA research cost capitalization provision effective in 2022 is expected to increase income taxes payable and net deferred tax assets by approximately $150 million each in fiscal 2022, with the related negative cash impact realized in fiscal 2023. Unrecognized tax benefits increased $55 million for the six months ended July 1, 2022 due to uncertain tax positions from TCJA provisions.
Non-operating expense, net increased for the six months ended July 1, 2022 primarily due to higher interest expenses driven by changes in interest rates. LIBOR is expected to be discontinued or unavailable by June 2023, and an alternative benchmark may increase interest expense or disrupt refinancing.
International sales represented approximately 8% of total revenues for the three and six months ended July 1, 2022, exposing Leidos to international regulatory and geopolitical risks. Unfavorable exchange rate movements reduced Defense Solutions revenue by $24 million in the quarter and $34 million in the six months, and total backlog had a negative $268 million impact from British pound and Australian dollar movements.
Net bookings were an estimated $2.2 billion in the quarter ended July 1, 2022, down from $3.8 billion in the prior-year quarter, while six-month bookings were flat at $7.6 billion. This may signal uneven award timing or sales cycle pressure.
During the six months ended July 1, 2022, Leidos sold $209 million of accounts receivable and received proceeds of $209 million, compared with $693 million sold in the prior-year six months. The company cites sales of accounts receivable as part of meeting liquidity needs over the next 12 months.
COVID-19 did not materially impact revenues or operating income for the three and six months ended July 1, 2022 other than $28 million in Health segment recoveries from stop work orders. The vaccine mandate for federal contractors remains under a nationwide injunction, and the full duration and spread of the pandemic remain uncertain.
SaaS KPIs
All quarters →Net bookings
Adjusted EBITDA margin
Book-to-bill ratio
Adjusted EBITDA
Funded backlog
Backlog
Free Cash Flow
Non-GAAP operating income
Free Cash Flow Conversion Ratio
Summary, forecast, risks and KPIs are extracted from Leidos Holdings, Inc.'s SEC filings for Q2 FY2022 (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.