Summary
Leidos reported third quarter revenue of $4.47 billion, up 6.7% from the prior-year quarter. Organic revenue grew 6.0%. Operating income was $535 million, up 3.7%. Operating margin was 12.0%, down 0.3 percentage points from the prior-year quarter. Net income attributable to Leidos common stockholders was $367 million, up 0.8%. Diluted EPS was $2.82, up 5.2%. Non-GAAP diluted EPS was $3.05, up 4%. Non-GAAP net income was $399 million, up 1%. Adjusted EBITDA was $616 million, and adjusted EBITDA margin was 13.8%, down from 14.2%. The company absorbed higher legal reserves while still growing profit.
For the nine months ended October 3, 2025, revenue was $12.97 billion, up 5.4%. Operating income was $1.64 billion, up 16.4%. Operating margin was 12.6%, up 1.2 percentage points. The nine-month operating margin of 12.6% compared with 11.4% in the prior-year period. Net income attributable to Leidos common stockholders was $1.12 billion, up 15.6%. Diluted EPS was $8.62, up 20.9%. These year-to-date figures show margin expansion and stronger bottom-line growth than the quarter alone.
Segment performance was mixed. National Security Digital revenue grew 8% on Defense IT and Intelligence Community work, and the Kudu Dynamics acquisition contributed. Health Civil revenue grew 6% on managed health services volumes and incentive award timing. Commercial International revenue fell 1% on product mix in security products. Defense Systems revenue rose 11% on integrated air defense programs, but profitability was pressured by higher material costs on production programs. Non-GAAP operating margins were 10.0% for National Security Digital, down from 10.5%; 25.7% for Health Civil, up from 24.2%; 8.1% for Commercial International, down from 8.8%; and 8.9% for Defense Systems, down from 10.2%. Corporate results included higher legal reserves.
Cash flow and backlog were solid. Operating cash flow was $711 million, up 9.9%. Capital expenditures were $31 million, up 34.8%. Free cash flow was $680 million. Deferred revenue was $396 million, up 12.2%. RPO was $17 billion, up 6.2%. For the nine months, operating cash flow was $1.26 billion, up 10.0%, and capital expenditures were $82 million, up 30.2%. Days sales outstanding was 60. Backlog was $47.7 billion, up 5% year over year. Funded backlog was $9.1 billion, up 27% sequentially. Net bookings were $5.9 billion, a book-to-bill ratio of 1.3. Nine-month bookings were $11.9 billion, down from $15.8 billion in the prior-year period. Awards included a $2.2 billion classified mission support contract, a $760 million NASA subcontract, a $540 million classified software contract, a $370 million DHMSM contract, a $188 million NUWC contract, and a 19-year Kazakhstan air traffic management agreement.
Guidance and risks frame the outlook. Full-year 2025 revenue guidance is $17.00 billion to $17.25 billion, unchanged. Full-year adjusted EBITDA margin guidance was raised to high 13% from mid 13%. Full-year non-GAAP diluted EPS guidance was raised to $11.45 to $11.75 from $11.15 to $11.45. Operating cash flow guidance is approximately $1.65 billion, unchanged. The CEO said the company is raising earnings and margin guidance and holding revenue and cash guidance despite the government shutdown. He also said the company is optimistic about alignment with administration priorities and expects customers to move out aggressively for smarter and more efficient outcomes. Risks include the U.S. government shutdown that began October 1, 2025, after the expiration of a continuing resolution. Congress is working to reopen the government and resume consideration of fiscal year 2026 appropriations bills. Leidos generates about 87% of revenue from U.S. government contracts. International markets are about 8% of revenue. Tariffs may raise costs, though the company does not expect a significant effect. Higher interest expense from senior notes issued in February 2025 also weighs on non-operating expense. The One Big Beautiful Bill Act is expected to lower future tax payments, but the timing and amount depend on future guidance. The company said it was in compliance with all financial covenants as of October 3, 2025.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2026 | Q2 FY2026 | QoQ | Q3 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $4.47B | $4.25B | +5.1% | $4.17B | +7.2% |
| Gross profit | $821.0M | $782.0M | +5.0% | $741.0M | +10.8% |
| Gross margin | 18.4% | 18.4% | -0.0 pp | 17.8% | +0.6 pp |
| Sales & marketing | $286.0M | $217.0M | +31.8% | $247.0M | +15.8% |
| Operating income (loss) | $535.0M | $571.0M | -6.3% | $516.0M | +3.7% |
| Operating margin | 12.0% | 13.4% | -1.5 pp | 12.4% | -0.4 pp |
| Net income (loss) | $367.0M | $391.0M | -6.1% | $364.0M | +0.8% |
| Net margin | 8.2% | 9.2% | -1.0 pp | 8.7% | -0.5 pp |
| Diluted EPS | $2.82 | $3.01 | -$0.19 | $2.68 | +$0.14 |
Risks
On October 1, 2025, the federal government shutdown following the expiration of a continuing resolution. MD&A states the company may experience reduced or delayed work on existing contracts and delays in other government contracting actions and payments.
Approximately 87% of total revenues came from contracts with the U.S. government in both the three and nine months ended October 3, 2025, and September 27, 2024. This concentrates performance on U.S. government spending, especially national security, homeland security, and intelligence spending.
Net bookings decreased to an estimated $5.9 billion and $11.9 billion for the three and nine months ended October 3, 2025, respectively, compared to $8.0 billion and $15.8 billion for the three and nine months ended September 27, 2024. Lower bookings could pressure future revenue growth.
The OBBBA was enacted on July 4, 2025, and the effective tax rate increased to 23.8% for the quarter and 23.9% year to date, compared to 23.0% and 23.3% in the prior-year periods. Estimated tax benefits depend on future guidance or interpretive rules from the U.S. Treasury.
Corporate operating loss increased 63.9% for the quarter ended October 3, 2025, primarily due to a $24 million increase in legal reserves and general and administrative expenses. Legal matters and reserves could affect future results.
Non-operating expense, net increased 10.9% for the quarter and 9.9% year to date, primarily driven by increased interest expense from two $500 million senior notes issued in February 2025. Higher debt service costs could weigh on earnings.
Changes in international trade policies, including higher tariffs on imported goods and materials, may increase the cost of certain goods necessary to fulfill contractual requirements and for internal purposes. The company expects to recover certain portions through contractual measures but continues to evaluate the tariff environment.
SaaS KPIs
All quarters →Net bookings
Adjusted EBITDA margin
Book-to-bill ratio
Adjusted EBITDA
Funded backlog
Backlog
Operating cash flow conversion ratio
Non-GAAP operating income
Non-GAAP free cash flow conversion ratio
Days Sales Outstanding (DSO)
Non-GAAP free cash flow
Summary, forecast, risks and KPIs are extracted from Leidos Holdings, Inc.'s SEC filings for Q3 FY2026 (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.