Summary
Leidos closed the second quarter of fiscal 2026 with revenue of $4.56 billion, up 7.2% from the prior-year quarter. Organic growth accounted for 4% of that increase, with acquisitions supplying the rest. Management pointed to defense tech products, energy and air traffic management solutions, and intelligence mission support as the drivers. Bookings totaled $4.9 billion for a book-to-bill ratio of 1.1, and backlog ended the quarter at $48.7 billion, of which $10.2 billion was funded. Funded backlog grew 44% year over year while total backlog rose 5%.
Profitability did not keep pace. Operating income fell 10.0% to $514 million, and operating margin slipped to 11.3% from 13.4%, a decline of 2.1 percentage points. Net income attributable to Leidos common stockholders was $354 million, down 9.5%, and diluted EPS came in at $2.81, down 6.6%. The quarter absorbed $29 million of costs tied to the Entrust Solutions Group acquisition and the pending Analogic joint venture, plus restructuring from the NorthStar 2030 realignment. The year-ago quarter also carried a $25 million insurance reimbursement for legal costs that flattered the comparison. On a non-GAAP basis, diluted EPS rose 2% to $3.26, while adjusted EBITDA of $631 million fell 2% and adjusted EBITDA margin of 13.8% narrowed from 15.2%.
Segment results were mixed. Homeland was the standout, with revenue up 32% and non-GAAP operating margin rising to 12.1% from 9.3%, helped by a better mix of security products and improved program performance. Defense revenue rose 6%, with non-GAAP operating margin of 9.9% against 10.0%. Intelligence & Digital revenue rose 6% and non-GAAP operating margin was 10.1%, unchanged from the prior year quarter. Health was the weak spot, with revenue down 8% and non-GAAP operating margin of 23.8% against 26.3%, driven by lower medical disability exam volumes.
Cash generation was the quarter's clearest bright spot. Operating cash flow was $793 million, up 63.2% from the prior-year quarter, and non-GAAP free cash flow reached $761 million. Capital expenditures of $32 million rose 10.3%. Deferred revenue of $359 million rose 31%, and remaining performance obligations of $20 billion rose 25%, both signals of forward demand. The company ended the period with $748 million in cash and $6.0 billion of debt. Financing activity included $300 million of commercial paper repayment, $72 million of share repurchases and $55 million of dividends.
Management raised full-year fiscal 2026 guidance. Revenue is now expected between $18.20 billion and $18.40 billion, non-GAAP diluted EPS between $12.20 and $12.50, adjusted EBITDA margin at the mid 13% level, and operating cash flow of approximately $1.85 billion. The main risk sits in Washington. Congress is expected to lean on a short-term continuing resolution past the September 30, 2026 deadline, and a failure to fund the government would trigger a shutdown. Leidos drew roughly 83% of quarterly revenue from U.S. government contracts, so budget timing matters. International sales were about 9% of revenue, exposing the company to tariff and currency swings. Health volumes remain a drag, and the Entrust integration and Analogic joint venture still need to deliver.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2027 | Q1 FY2027 | QoQ | Q2 FY2026 | YoY |
|---|---|---|---|---|---|
| Revenue | $4.56B | $4.40B | +3.6% | $4.25B | +7.2% |
| Gross profit | $817.0M | $761.0M | +7.4% | $782.0M | +4.5% |
| Gross margin | 17.9% | 17.3% | +0.6 pp | 18.4% | -0.5 pp |
| Sales & marketing | $283.0M | $223.0M | +26.9% | $217.0M | +30.4% |
| Operating income (loss) | $514.0M | $508.0M | +1.2% | $571.0M | -10.0% |
| Operating margin | 11.3% | 11.6% | -0.3 pp | 13.4% | -2.2 pp |
| Net income (loss) | $354.0M | $328.0M | +7.9% | $391.0M | -9.5% |
| Net margin | 7.8% | 7.5% | +0.3 pp | 9.2% | -1.4 pp |
| Diluted EPS | $2.81 | $2.56 | +$0.25 | $3.01 | -$0.20 |
Risks
Leidos generated approximately 83% and 85% of total revenues from U.S. government contracts in the three and six months ended July 3, 2026, and Congress is increasingly expected to rely on a short-term continuing resolution to fund the government beyond September 30, 2026. Failure to pass appropriations bills or a CR by that date would result in a full or partial federal government shutdown, which could delay awards and disrupt revenue recognition.
Operating margin fell to 11.3% in the quarter ended July 3, 2026 from 13.4% a year earlier (down 2.1 pp), and to 11.4% year to date from 13.0% (down 1.5 pp), with operating income down 10.0% in the quarter and 7.2% year to date. The Corporate operating loss widened to $58 million in the quarter from $9 million, driven by prior-year insurance reimbursements and higher acquisition and integration costs.
Health segment revenues declined 7.6% in the quarter and 3.8% year to date, with operating income down 16.2% in the quarter and 9.0% year to date, primarily from a net decrease in volumes. Health backlog also fell to $6,611 million at July 3, 2026 from $8,026 million a year earlier, signaling continued pressure on this higher-margin segment.
The Entrust acquisition consumed $2,338 million of cash, net of cash acquired, in the six months ended July 3, 2026, and drove increased amortization, acquisition and restructuring expenses that partly offset Homeland segment gains. Integration execution and purchase accounting charges could continue to weigh on results.
Non-operating expense, net rose 18.9% in the quarter and 35.2% year to date, driven by increased interest expense from the termination of the senior unsecured bridge loan facility and issuance of $600 million and $800 million senior notes. Total outstanding debt increased to $6.0 billion at July 3, 2026 from $4.6 billion at January 2, 2026.
Changes in international trade policies, including higher tariffs on imported goods and materials, may increase the cost of goods needed to fulfill contractual requirements, though Leidos expects to recover certain portions through contractual measures and currently does not expect a significant effect. International sales represented approximately 9% and 8% of total revenues in the three and six months ended July 3, 2026.
SaaS KPIs
All quarters →Net bookings
Adjusted EBITDA margin
Book-to-bill ratio
Adjusted EBITDA
Funded backlog
Operating cash flow conversion ratio
Non-GAAP free cash flow conversion ratio
Non-GAAP diluted EPS
Non-GAAP net income
Non-GAAP free cash flow
Organic revenue growth
Summary, forecast, risks and KPIs are extracted from Leidos Holdings, Inc.'s SEC filings for Q2 FY2027 (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.