Summary
Leidos Holdings reported third quarter fiscal 2021 results for the period ended October 1, 2021. Revenue was $3.48 billion, up 7.4% from the prior year quarter. Operating income was $305 million, up 18.2%. Net income attributable to Leidos common stockholders was $205 million, up 25.8%. Diluted EPS was $1.43, up 26.5%. Operating margin was 8.8%, up 0.8 percentage points. On a non-GAAP basis, adjusted EBITDA was $403 million, up 16%, and adjusted EBITDA margin was 11.6%, compared with 10.7%. Non-GAAP diluted EPS was $1.80, up 22%, and non-GAAP net income was $260 million, up 23%. The company described the quarter as producing record revenues, adjusted EBITDA, non-GAAP diluted EPS, and backlog.
The Health segment led the operational story. Its non-GAAP operating margin was 20.7%, compared with 16.3%. That improvement came from increased volume on fixed unit price programs and higher direct labor utilization. The Health segment benefited from a rebound in medical examinations after the COVID-19 pause, plus increased volumes on the Defense Healthcare Management System Modernization program and the ramp-up of the Military and Family Life Counseling program. Defense Solutions had a non-GAAP operating margin of 8.8%, unchanged from the prior year quarter. Its revenue growth came from the start-up of the Navy Next Generation IT contract, which offset the completion of the NASA Human Landing System base contract. Civil had a non-GAAP operating margin of 9.6%, compared with 10.5%, as fewer deliveries of airport screening systems weighed on profitability. Civil revenue growth was driven by increased demand from the Federal Aviation Administration, the National Science Foundation, and commercial energy providers.
Cash flow and backlog provided a mixed picture. Operating cash flow was $565 million, down 4.6% from the prior year quarter. Capital expenditures were $24 million, down 20.0%. Free cash flow was $541 million. The operating cash flow conversion ratio was 276%, and the free cash flow conversion ratio was 211%. Deferred revenue was $413 million, down 28.5%. Remaining performance obligations were $14.60 billion, down 4.6%. The decline in operating cash flow reflected the prior year's deferral of employer payroll taxes and the timing of customer advance payments, partially offset by lower income tax payments. On the positive side, net bookings were $4.7 billion, a book-to-bill ratio of 1.4. Backlog reached $34.7 billion, of which $7.3 billion was funded. Notable awards included the Army Buckeye program with a total estimated value of $600 million, the NSA TechSIGINT contract with a ceiling value of $300 million, the Army IFPC award valued at $237 million over the next 2.5 years, and the CBP Low-Energy Portal contract with a total ceiling value of $390 million.
For the first nine months of fiscal 2021, revenue was $10.25 billion, up 13.3%. Operating income was $882 million, up 26.2%. Net income attributable to Leidos common stockholders was $579 million, up 34.3%. Diluted EPS was $4.05, up 35.5%. Operating margin was 8.6%, up 0.9 percentage points. Operating cash flow was $821 million, down 40.8%. Capital expenditures were $71 million, down 40.8%. The year-to-date cash flow decline was driven by lower sales of accounts receivable, the prior year's payroll tax deferral, higher income tax payments, and the timing of customer advance payments.
Leidos updated its full fiscal year 2021 guidance. The company now expects revenues of $13.7 billion to $13.9 billion, an adjusted EBITDA margin of 10.9% to 11.1%, non-GAAP diluted EPS of $6.55 to $6.75, and cash flows provided by operating activities at or above $875 million. The revenue range narrowed from the prior range of $13.7 billion to $14.1 billion, while the adjusted EBITDA margin and non-GAAP diluted EPS ranges moved higher. Risks remain. The company relies heavily on U.S. government contracts, so budget delays and continuing resolutions matter. A continuing resolution funds the government through December 3, 2021. Leidos also faces a vaccine mandate for federal contractors, with a December 8, 2021 deadline, and is assessing the impact on its workforce. Beginning in 2022, tax law changes eliminate the option to currently deduct research and development costs, which could materially decrease cash from operations in 2022. Other risks include supply chain pressures, tariffs, international regulatory exposure, and the timing of contract awards. The decline in deferred revenue and remaining performance obligations also bears watching.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $3.22B | $2.89B | +11.3% | $2.78B | +15.9% |
| Gross profit | $444.0M | $361.0M | +23.0% | $327.0M | +35.8% |
| Gross margin | 13.8% | 12.5% | +1.3 pp | 11.8% | +2.0 pp |
| Sales & marketing | $200.0M | $195.0M | +2.6% | $177.0M | +13.0% |
| Operating income (loss) | $258.0M | $249.0M | +3.6% | $249.0M | +3.6% |
| Operating margin | 8.0% | 8.6% | -0.6 pp | 9.0% | -1.0 pp |
| Net income (loss) | $163.0M | $153.0M | +6.5% | $161.0M | +1.2% |
| Net margin | 5.1% | 5.3% | -0.2 pp | 5.8% | -0.7 pp |
| Diluted EPS | $1.13 | $1.06 | +$0.07 | $1.11 | +$0.02 |
Risks
Leidos mandated vaccination or negative testing for U.S. facility access effective October 1, 2021, and as a federal contractor must ensure U.S. employees are fully vaccinated by December 8, 2021 unless legally exempt. The filing states that if significant portions of the workforce are unable to work effectively or do not comply with the vaccination mandate, business and results of operations could be materially and adversely impacted.
Approximately 88% and 87% of total revenues for the three and nine months ended October 1, 2021 came from U.S. government contracts, making performance sensitive to U.S. government spending levels and priorities. A Continuing Resolution funds the federal government at current levels through December 3, 2021, and a re-evaluation of spending priorities could impact business performance.
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to currently deduct research and development costs for tax purposes and requires amortization over five years for domestic and 15 years for foreign research costs. Leidos' initial assessment is that cash from operations would materially decrease in 2022 and net deferred tax assets would increase by a similar amount.
The filing states that new contract awards have been and may continue to be delayed and that ability to perform on existing contracts has been and may continue to be delayed or impaired due to COVID-19, which will negatively impact revenues.
Program costs have increased as a result of COVID-19, and these cost increases may not be fully recoverable or adequately covered by insurance or equitable adjustments to contract prices, which could impact profitability.
The global spread of COVID-19 has resulted in a substantial decline in demand for air travel, adversely impacting demand for products and services related to the airport security detection and automation business. The filing notes uncertainty over permanent changes to air travel behaviors, including reduced business travel.
Section 3610 of the CARES Act, which authorized government reimbursement for qualifying contractor costs from certain COVID-19 impacts, expired on September 30, 2021. A portion of Leidos' recoveries resulted from Section 3610, and the expiration removes that reimbursement mechanism.
SaaS KPIs
All quarters →Net bookings
Adjusted EBITDA margin
Book-to-bill ratio
Adjusted EBITDA
Funded backlog
Backlog
Free Cash Flow
Operating cash flow conversion ratio
Non-GAAP operating income
Free Cash Flow Conversion Ratio
Non-GAAP diluted EPS
Non-GAAP net income
Summary, forecast, risks and KPIs are extracted from Leidos Holdings, Inc.'s SEC filings for Q3 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 1, 2026.