Leidos Holdings, Inc. Q4 FY2025 earnings call

• 2025 was a strong year with revenue toward top of guidance, earnings and cash above guidance. Adjusted EBITDA margin 14.1% up 120 basis points. Non-GAAP diluted EPS up 17%, free cash flow up 26%.
• Q4 revenue $4,200,000,000, down 3.6% but normalized up ~4%. Net bookings $5,600,000,000, book-to-bill ratio 1.3 times, funded backlog up 15%.
• Key awards: Air Force $2,200,000,000 contract, Air Force Cloud One Next $455,000,000 program, positions on Missile Defense Agency and Defense Microelectronic Activities IDIQs.
• Organizational realignment: Five sectors into four reporting segments. Defense led by Cindy Grunsfelder, Homeland by Roy Stevens, Intelligence by Jason O'Connor, Digital Modernization by Steve Hull, Health by Liz Porter. Ted Tanner as CTO, Will Johnson as Enterprise Transformation Leader.
• 2026 plans: Triple capital expenditures to $350,000,000 for key investments, etc.

All four segments contributed to strong results. Defense Systems had sustained robust revenue growth in 2025, with Q4 performance bolstered by accelerated production. Health and Civil had revenues up a bit for the year and down a bit for the quarter, but non-GAAP operating margins increased. Commercial and International saw revenues grow nicely in the quarter and year, with non-GAAP operating margins jumping. Intelligence and Digital segments rolled up into the relevant reporting segment, with growth and margin performance as discussed. For the year, revenues were $17,200,000,000 up 3.1%, Q4 revenues $4,200,000,000 down 3.6%. Adjusted EBITDA margin for Q4 was 13.2% up 160 basis points year over year, full-year 14.1% up 120 basis points. Non-GAAP diluted EPS $2.76 for Q4 and $11.99 for the year, up 17%. Cash generation was strong with record operating cash flows, free cash flow for Q4 $452,000,000, full-year $1,630,000,000. Balance sheet had $1,100,000,000 in cash, $4,600,000,000 in debt, leverage ratio 1.9 times.

• 2026 revenue expected between $17,500,000,000 and $17,900,000,000, up to 4% over 2025.
• Adjusted EBITDA margin mid-13s in 2026.
• Non-GAAP diluted earnings per share between $12.05 and $12.45.
• Operating cash flow expected at $1,750,000,000 despite 174 timing headwind. Free cash flow down a bit due to tripling CapEx to $350,000,000. Guidance doesn't include Entrust acquisition, will update post close.
• Segments: Intelligence and Digital expected mid to high single-digit revenue growth, Health modestly lower revenue and margin in 2026 but inflecting to growth beyond, Homeland expected growth tracking corporate average, Defense expected revenue growth above corporate range with modest margin decline in 2026 but growth and margin expansion potential through 2030.

Q: Talk about investment areas for additional CapEx and how it supports defense business and co-investment opportunities with DOD.

A: Investing in co-development with DOD, DOT, FAA, and health business. Defense area has seen growth with increasing growth rates, 2026 CapEx for defense-related programs like Maritime Growth Builder, integrated air defense, hypersonics.

Q: Thoughts on book-to-bill and award activity accelerating.

A: 1.3 book-to-bill ratio in Q4 and 2025 not accident, purposeful plan. Robust pipeline, awards slip from Q4 into 2026, but expect awards to come in and feed growth.

Q: VA medical exam recompete expectations.

A: Proud of Health's work in reducing veterans awaiting exams. Expect RF and bid in middle of 2026, focused on cost, volume, efficiency.

Q: FY 2026 growth guidance, margin, key milestones.

A: Conservatism in guide, opportunities in Defense (bill funding, Golden Dome, Maritime), FAA, Health. Some one-timers not factored in guide.

Q: Product and defense tech areas hit their stride and developing.

A: IFPIC, hypersonics, ABADS award, wide field of view, SDA programs.

Q: Capital allocation, incremental M&A, buybacks.

A: Rigorous return on investment analysis, North Star 2030 allows investment in growth pillars. Pro forma gross levered ~2.6 times after Entrust. Not baking buybacks into 2026 guide, priorities as per strategy.

Q: AI impact on digital modernization programs.

A: AI seen as force multiplier, not threat. Embracing AI internally for efficiency, to help customers shift budgets to mission outcomes.

Q: Backlog from IDIQs and guide assumptions.

A: IDIQs not included in backlog, guide doesn't include task orders from IDIQs, but business development expects task orders to convert to revenue.

Q: Maritime program progress and timing.

A: Department of Navy MUSV program has robust dialogue, eager for firm plans soon.

Q: Margin expansion beyond 2026.

A: Homeland segment and Defense have upside potential, transformation office to help with efficiency and margin uplift.