Leidos Holdings, Inc. Q3 FY2025 earnings

Leidos reported revenue of $4.19 billion for the third quarter, up 6.9% from $3.92 billion in the prior-year quarter. Growth was broad, with all four segments contributing and managed health services doing the heaviest lifting. Operating income swung to $516 million from a loss of $336 million a year earlier, and operating margin reached 12.3% against negative 8.6%. Net income attributable to Leidos common stockholders was $364 million, compared with a loss of $399 million a year earlier. Diluted EPS was $2.68, compared with a loss of $2.91 per diluted share. The year-ago period carried a $699 million pre-tax, non-cash impairment and restructuring charge tied mostly to the Security Enterprise Solutions reporting unit, so the comparison is not a clean read on the underlying trend.

Health & Civil led the growth, with revenue up 16% on higher volumes and case complexity in managed health services and net write-ups on certain programs. Defense Systems revenue rose 13% on program wins and better execution on fixed-price development work. Commercial & International revenue increased 5%, helped by security product deliveries and commercial energy engineering services. National Security & Digital grew just 1%, as gains on enterprise IT programs were offset by reductions on certain Intelligence Community contracts. Corporate costs rose on higher general and administrative expenses and legal fees.

Cash generation was mixed. Operating cash flow was $656 million in the quarter, down 17.5% from $795 million, on unfavorable working capital changes. Through nine months, operating cash flow rose 26.9% to $1.09 billion. Capital expenditures fell 54.0% to $23 million in the quarter. Free cash flow, a non-GAAP measure, was $633 million. Net bookings totaled $8.1 billion, a book-to-bill ratio of 1.9 for the quarter and 1.1 on a trailing twelve-month basis. Backlog was $40.6 billion, of which $9.1 billion was funded. Leidos ended the quarter with $1,185 million in cash and $4.7 billion of debt. It returned $254 million to shareholders, including $203 million of share repurchases and $51 million of dividends, and declared a quarterly dividend of $0.40 per share, up 5.3% from the prior quarter's amount.

On a non-GAAP basis, adjusted EBITDA was $596 million, a 14.2% margin, up from $451 million and 11.5% a year ago. Non-GAAP diluted EPS was $2.93, up 44% year over year. The company attributed the profitability gains to higher volumes on managed health services programs and improved program execution and cost control across the business.

Management raised full-year fiscal 2024 guidance. Revenue is now expected between $16.35 billion and $16.45 billion, up from a prior range of $16.10 billion to $16.40 billion. Adjusted EBITDA margin is guided to high-12%, versus approximately 12% previously. Non-GAAP diluted EPS is projected at $9.80 to $10.00, up from $8.60 to $9.00. Operating cash flow guidance moved to approximately $1.35 billion from approximately $1.30 billion. The company does not reconcile forward-looking non-GAAP figures to GAAP.

Federal budget risk remains the central exposure. About 87% of revenue came from U.S. government contracts in the quarter. Congress passed a continuing resolution on September 26, 2024 that funds the government through December 20, 2024, and failure to pass appropriations or another continuing resolution by then would trigger a partial or complete shutdown. International sales were roughly 8% of revenue. The effective tax rate rose to 23.0%, driven by prior-year non-deductible goodwill impairments and higher unrecognized tax benefits this year. Deferred revenue fell 21.4% to $353 million, while remaining performance obligations rose 3.2% to $16.0 billion.