Leidos Holdings, Inc. Q2 FY2025 earnings call

• Proactive enactment of intelligent austerity measures and leveraging AI/automation to enhance performance.
• North Star 2030 strategy with 5 growth pillars: space and maritime, energy infrastructure, digital modernization and cyber, mission software, managed health services.
• Maritime component: U.S. Navy's autonomous fleet plans align with Leidos' capabilities; examples of contracts (e.g., surveying commercial ships, Marines' Sea Specter) and LAVA autonomous vessel architecture.
• AI deployment: Saving over 0.5 million labor hours by year-end, improving proposal efficiency, cash flow processes, and coding productivity.
• Government transitioning from policy to productivity, with Leidos positioned as part of the solution to drive government outcomes smarter and more efficiently.

National Security and digital revenues increased 3% year-over-year, non-GAAP operating income margin 10.4% (unchanged from prior year quarter). Health and Civil revenues increased 1% year-over-year, non-GAAP operating income margin was 24.9%. Commercial International revenue increased 1% year-over-year, non-GAAP operating income margins were 8.5% (up 780 basis points year-over-year). Defense Systems revenue saw the highest growth, increasing 10% year-over-year, non-GAAP operating margins of 9.8% (down from Q2 of 2024, but up sequentially).

• Raised full-year 2025 revenue guidance to $17 billion to $17.25 billion.
• Adjusted EBITDA margin guidance raised from mid- to high 12s range to mid-13s.
• Non-GAAP diluted EPS guidance: $11.15 to $11.45.
• Operating cash flow guidance raised to $1.65 billion, reflecting better EBITDA performance and tax changes in the One Big Beautiful bill.

• Procurement process constraints in the first months of the new administration.
• Uncertainty surrounding new executive orders and their impact on procurement.
• Potential competitive landscape changes, though Leidos sees opportunities despite competition.

Q: Potential financial impact of GSA initiative to purchase commercial software and services directly from vendors.

A: Tom and Chris discuss GSA being positive for the market, Leidos sees opportunities as they prefer outcome-based contracts and are not value-add resellers.

Q: Opportunities in reconciliation bill, scanning business, and border equipment.

A: Tom talks about billions in funding across various areas like FAA modernization, autonomous shipbuilding, border security, etc.

Q: Competitive landscape and impact of large awards to competitors.

A: Tom says large awards are an opportunity start, Leidos continues to leverage AI and trusted mission AI.

Q: Dynamics of bookings and funding as government fiscal year-end approaches.

A: Chris mentions backlog up, momentum building, and funding dynamics improving.

Q: Cost discipline in first half and investment in second half.

A: Chris talks about dialing back austerity measures and planning incremental investments in AI and capabilities.