Leidos Holdings, Inc. Q1 FY2025 earnings call

• Tom Bell reported a strong Q1 with organic revenue up 7% YOY, adjusted EBITDA margins at 14.2%, and non-GAAP diluted EPS up 30%. Reaffirmed 2025 guidance. • Introduced NorthStar 2030 strategy with five growth pillars: space and maritime, energy infrastructure, digital modernization and cyber, highly customized critical mission software, managed health services. • Accelerated a $500 million share repurchase agreement and signed a definitive agreement to acquire a leader in full spectrum cyber. • Made progress in areas like air traffic control modernization, Golden Dome project, and various defense and civil programs.

In the first quarter, revenues were $4.25 billion, up 7% organically year-over-year. Adjusted EBITDA was $601 million for the quarter, up 23% year-over-year, and adjusted EBITDA margin increased 190 basis points to 14.2%. Non-GAAP net income was $391 million and non-GAAP diluted EPS was $2.97, up 25% and 30% respectively. National security and digital revenues increased 5% year-over-year, with a non-GAAP operating income margin of 10.1% in line with the prior year quarter. Health and civil revenues increased 8% year-over-year, with a non-GAAP operating income margin of 23.6% driven by strong demand in managed health. Commercial and international revenues increased 12% year-over-year, with non-GAAP operating margins of 8.5% up 20 basis points year-over-year. Defense systems revenues increased 7% over the prior year quarter, driven by increased activity in space sensing and hypersonic programs, with non-GAAP operating margins of 9.1% expanding by 110 basis points year-over-year.

• Reaffirmed 2025 revenue guidance between $16.9 billion to $17.3 billion, adjusted EBITDA guidance in the mid to high 12% range, non-GAAP diluted EPS between $10.35 and $10.75, and operating cash flow of approximately $1.45 billion. • First quarter generated $2.1 billion of net bookings to end with a total backlog of $46.3 billion. • Robust opportunity pipeline of $226 billion, including $25 billion proposals submitted and awaiting adjudication.

• Potential impact from administration changes on bookings and revenue. • Risks associated with continued resolution potentially affecting new program starts.

Q: Peter Arment asked about larger contracts like NGEN and the Health & Civil segment.

A: Tom Bell said macro actions had negligible impact on revenue, and Chris Cage explained backlog changes and the Health & Civil segment's pending opportunities.

Q: Joshua Korn asked about GSA requests.

A: Tom Bell said Leidos actively engaged with GSA and is positioning to help make government smarter and more efficient.

Q: Sheila Kahyaoglu asked about Health & Civil and VA EHR modernization.

A: Tom Bell and Chris Cage discussed the optimism in the health business and the partnership with Oracle.

Q: Colin Canfield asked about Supplemental Defense Bill and missile defense/maritime.

A: Tom Bell and Chris Cage talked about opportunities in areas like FAA modernization, border security, and maritime unmanned capabilities.

Q: Mariana Perez Mora asked about continued resolution and program extensions.

A: Tom Bell said Leidos is in a good position with programs of record and can benefit from program extensions.

Q: Jason Gursky asked about FAA air traffic control.

A: Tom Bell discussed the challenges and opportunities in modernizing air traffic control and Leidos' position in it.

Q: Tyler Barishaw asked about Commercial & International segment growth.

A: Chris Cage and Tom Bell discussed drivers of growth and future prospects in the segment.

Q: Scott Mikus asked about reaffirming guidance.

A: Chris Cage explained that guidance reaffirmation is due to running the business successfully and creating capacity for future investments.

Q: Kenneth Herbert asked about recompetes and contract terms.

A: Tom Bell said they are awaiting adjudication and expect to see outcome-based contracting.

Q: Noah Poponak asked about revenue decline possibility.

A: Tom Bell said he doesn't envision revenue decline and is confident in growth through NorthStar 2030 pillars.

Q: Gavin Parsons asked about GSA contract review and backlog.

A: Chris Cage said conversations with GSA remain ongoing and impacts are included in guidance.

Q: Gautam Khanna asked about Health & Civil profitability and VA headcount.

A: Chris Cage discussed the strong quarter and positive outlook for the Health & Civil segment despite VA staffing considerations.

Q: Colin Canfield asked about capital deployment and portfolio divestment.

A: Tom Bell and Chris Cage talked about share repurchase plans and possible minor divestments in the portfolio