Leidos Holdings, Inc. Q4 FY2025 earnings

Leidos closed the quarter ended January 3, 2025 with revenue of $4.36 billion, up 9.7% from the prior-year quarter. Full-year revenue was $16.66 billion, up 7.9%. Operating income was $421 million for the quarter, up 16.6%, and $1.83 billion for the year, up 194.2%. Operating margin was 9.6% for the quarter, up 0.6 percentage points, and 11.0% for the year, up 6.9 percentage points. Net income attributable to Leidos common stockholders was $284 million for the quarter, up 24.0%, and $1.25 billion for the year, up 530.2%. Diluted EPS for the year was $9.22, up 540.3%. The quarter's growth came on strong demand across customer segments, especially managed health services.

Cash generation was mixed. Operating cash flow was $299 million for the quarter, down 1.6%, but $1.39 billion for the year, up 19.5%. Capital expenditures were $86 million for the quarter, up 10.3%, and $149 million for the year, down 28.0%. Free cash flow was $213 million for the quarter and $1.24 billion for the year. Operating cash flow conversion was 105% for the quarter and 111% for the year. Free cash flow conversion was 67% for the quarter and 90% for the year. Deferred revenue was $333 million, down 24.7% from the prior-year quarter. Remaining performance obligations were $16.30 billion, up 5.8%. Backlog ended the year at $43.6 billion, up 18%, with $8.4 billion funded. Net bookings were $7.6 billion in the quarter and $23.4 billion for the year, representing book-to-bill ratios of 1.7 and 1.4. Days Sales Outstanding was 59, unchanged from the third quarter of 2024.

Operationally, managed health services drove growth, with higher volumes and case complexity. National Security Digital profitability declined on immaterial changes across multiple fixed-price programs. Commercial International faced product mix pressure and higher growth investments. Defense Systems absorbed a write-down in its airborne surveillance business. Corporate costs rose. On a non-GAAP basis, adjusted EBITDA was $508 million for the quarter, an 11.6% margin, up 12% from the prior-year quarter. Full-year adjusted EBITDA was $2.15 billion, a 12.9% margin, up 29%. Non-GAAP diluted EPS was $2.37 for the quarter, up 19%, and $10.21 for the year, up 40%. Non-GAAP net income was $316 million for the quarter and $1.39 billion for the year.

For fiscal year 2025, management initiated guidance that forecasts continued growth in revenues, non-GAAP diluted earnings per share, and cash flows provided by operating activities. The guidance calls for an adjusted EBITDA margin in the mid-high 12% range, non-GAAP diluted EPS of $10.35 to $10.75, and cash flows provided by operating activities of approximately $1.45 billion. The company said 2024 results were at or above the high end of its guidance range across all metrics. Leidos declared a quarterly cash dividend of $0.40 per share, payable March 28, 2025 to stockholders of record on March 14, 2025. Leidos does not provide a reconciliation of forward-looking adjusted EBITDA margins or non-GAAP diluted EPS to GAAP measures due to difficulty in forecasting certain amounts.

Risks remain tied to the U.S. government. Contracts with the U.S. government generated approximately 87% of total revenues. A continuing resolution funds the government through March 14, 2025, and failure to pass appropriations or another resolution could cause a partial or complete shutdown. Competitive pressures, a shift toward multiple-award contracts, and pricing pressure could affect future awards. Higher tariffs on imported goods may raise procurement costs, though Leidos expects to recover certain portions through cost-plus contracts. Goodwill is a significant asset, and prior-year results included a large goodwill impairment at the SES reporting unit. The company also faces international regulatory, foreign currency, and geopolitical risks, along with inflation, interest rate, cybersecurity, and skilled labor challenges.