Summary
Leidos closed fiscal 2023 with fourth quarter revenue of $3.98 billion, up 7.7% from the prior-year quarter. Operating income rose 36.2% to $361 million, and operating margin reached 9.1%, up from 7.2%. Net income attributable to Leidos common stockholders was $229 million, up 29.4%. Management pointed to improved program execution, reduced indirect spending, and higher volumes and incentive awards in the medical examination business as the main drivers.
The full year looks very different. Fiscal 2023 revenue was $15.44 billion, up 7.2%, but operating income fell 42.9% to $621 million and net income attributable to Leidos dropped 70.9% to $199 million. Diluted EPS for the year was $1.44, down 71%. Full-year operating margin was 4.0%, down 3.5 percentage points from 7.6%. The damage came from $699 million of pre-tax impairment and restructuring charges, mostly tied to the Security Enterprise Solutions reporting unit, recorded in the third quarter.
Health was the standout segment. Its revenue rose 17% in the quarter and 13% for the year, and it carried the strongest profitability. Defense Solutions revenue rose 7% in the quarter and 6% for the year, helped by digital modernization work on the Navy NGEN-R SMIT contract, offensive hypersonics, and higher task order volume on the Sentinel program. Civil revenue rose 2% in the quarter and 6% for the year, with Federal Aviation Administration infrastructure spending driving the quarterly gain. Civil's full-year results were swamped by the SES charges.
Cash generation was the cleanest part of the story. Operating cash flow was $304 million in the quarter, up 143.2%, and $1.16 billion for the year, up 17.4%. Capital expenditures were $78 million in the quarter and $207 million for the year, up 47.2% and 60.5%. Free cash flow, a non-GAAP measure, was $226 million for the quarter and $958 million for the year. Days sales outstanding was 56, a one-day improvement from the third quarter of 2023 and a two-day improvement from the fourth quarter of fiscal 2022.
Bookings totaled $2.8 billion in the quarter and $16.5 billion for the year, book-to-bill ratios of 0.7 and 1.1. Backlog at year end was $37.0 billion, of which $8.8 billion was funded. Remaining performance obligations were $15.4 billion, flat against the prior-year quarter, and deferred revenue rose 16.3% to $442 million. The board declared a quarterly cash dividend of $0.38 per share on February 8, 2024, payable March 28, 2024.
Guidance for fiscal year 2024 targets an adjusted EBITDA margin in the mid-to-high 10% range and non-GAAP diluted EPS of $7.50 to $7.90. The cash outlook absorbs roughly $60 million of tax payments tied to the TCJA provision requiring capitalization and amortization of research and development costs. Non-GAAP diluted EPS was $1.99 for the quarter, up 9%, and $7.30 for the year, up 11%. Adjusted EBITDA was $452 million in the quarter and $1.67 billion for the year.
The budget calendar is the main risk. Congress passed a third continuing resolution on January 18, 2024, with deadlines of March 1 and March 8, 2024. Failure to pass appropriations bills or another CR would trigger a partial or complete federal government shutdown. Leidos drew about 87% of fiscal 2023 revenue from U.S. government contracts, with roughly 49% from the Department of Defense and the Intelligence Community. Competitive pressure from multiple-award contract vehicles and pricing pressure add to the mix.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2023 | Q3 FY2023 | QoQ | Q4 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $3.95B | $3.90B | +1.4% | $3.66B | +7.8% |
| Gross profit | $565.0M | $563.0M | +0.4% | $487.0M | +16.0% |
| Gross margin | 14.3% | 14.4% | -0.1 pp | 13.3% | +1.0 pp |
| Research & development | $128.0M | — | — | $116.0M | +10.3% |
| Sales & marketing | $233.0M | $239.0M | -2.5% | $223.0M | +4.5% |
| Operating income (loss) | $361.0M | -$336.0M | +207.4% | $265.0M | +36.2% |
| Operating margin | 9.1% | -8.6% | +17.8 pp | 7.2% | +1.9 pp |
| Net income (loss) | $229.0M | -$399.0M | +157.4% | $177.0M | +29.4% |
| Net margin | 5.8% | -10.2% | +16.0 pp | 4.8% | +1.0 pp |
| Diluted EPS | $1.66 | -$2.91 | +$4.57 | $1.28 | +$0.38 |
Risks
Leidos recognized a non-cash goodwill impairment charge of $596 million in fiscal 2023 for the SES reporting unit after delays in airline travel infrastructure projects, strategic exits from certain product offerings and countries, and higher servicing costs; $308 million of goodwill remained at SES as of December 29, 2023.
Approximately 87% of fiscal 2023 total revenues came from U.S. government contracts and 49% from DoD and U.S. Intelligence Community contracts; a third continuing resolution passed January 18, 2024 has March 1 and March 8, 2024 deadlines, and failure to pass appropriations could cause a partial or complete federal government shutdown and delay procurement.
The TCJA provision requiring capitalization and amortization of research and development costs increased tax cash payments by approximately $260 million in fiscal 2023, and Leidos anticipates an additional increase of approximately $60 million in fiscal 2024 unless Congress modifies or repeals the provision.
Leidos faces increased competition from a shift toward multiple-award contracts and competitive bidding, which has reduced backlogs by shortening performance periods and increased pricing pressure; a majority of business sought in the foreseeable future is expected to be awarded through competitive bidding.
Leidos added a risk factor on its use of artificial intelligence, including generative AI and machine learning, citing risks of flawed algorithms, hallucinatory outputs, evolving regulation, and failure to keep pace with competitors.
As a government contractor, Leidos is subject to customer-driven cybersecurity certification requirements including CMMC, and failure to implement these requirements could prevent it from bidding on relevant government programs; cyber threats are increasingly sophisticated and may be enhanced by AI and global conflicts.
Competition for skilled science, engineering, technical, and professional personnel is intense, and many U.S. government programs require security clearances that are difficult and time-consuming to obtain; failure to attract, train, retain, and motivate employees could impair contract performance and growth.
Firm-fixed-price contracts represented approximately 39% of total revenues for fiscal 2023, and failure to accurately estimate costs or manage cost overruns, including from inflationary pressures, could result in reduced profits or losses.
As of December 29, 2023, total backlog was $37.0 billion, including $8.8 billion in funded backlog; the U.S. government can decline to exercise options or terminate, modify, or curtail contracts, so Leidos may not realize the full amounts reflected in backlog as revenues.
Revenue from services provided outside the United States to non-U.S. customers was approximately 9% of total revenue in fiscal 2023; ongoing Russia/Ukraine and Israel/Hamas conflicts, related sanctions, and export controls could disrupt operations, supply chains, and international business.
As of December 29, 2023, indirect cost audits by the DCAA remain open for fiscal 2021 and subsequent fiscal years; adverse audit findings could result in retroactive cost adjustments, customer refunds, decremented billing rates, or suspension or debarment from government contracting.
SaaS KPIs
All quarters →Net bookings
Adjusted EBITDA margin
Adjusted EBITDA
Free Cash Flow
Non-GAAP operating income
Non-GAAP diluted EPS
Non-GAAP net income
Free Cash Flow Conversion
Organic revenues
Operating Cash Flow Conversion
Summary, forecast, risks and KPIs are extracted from Leidos Holdings, Inc.'s SEC filings for Q4 FY2023 (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.