Chris Cage
Chief Financial Officer at Leidos
Thanks, Roger, and thanks to everyone for joining us today. With lots to cover, let's jump right into the results, beginning with the income statement on Slide 5. Revenues for the quarter were $3.49 billion, up 7% compared to the prior year quarter. Excluding acquired revenues of $52 million, revenues increased 6% organically. For the year, revenues were $13.74 billion, which was up 12% in total and 9% organically compared to 2020.
In the quarter, we saw a continuation of the behavior that we cited on our Q3 call, where some customers, especially in the defense and intelligence sectors, worried about the extended CR and held back on funding. This was exacerbated by the limited ability to meet with customers with the onset of the Omicron variant and lower-than-anticipated direct labor given higher-than-normal paid time off usage by employees on cost reimbursable contracts. These factors led to revenues in the lower half of the guidance range that we gave on the last call.
Turning to earnings. Adjusted EBITDA was $359 million for the fourth quarter for an adjusted EBITDA margin of 10.3%. Margins were down sequentially and year-over-year, consistent with our prior messaging, although higher-than-normal leave-taking and lower-than-normal net favorable impacts from EACs lowered margins 20 basis points to 30 basis points below our expectations. For the year, adjusted EBITDA was $1.51 billion, which was up 14% over fiscal year 2020. Adjusted EBITDA margin of 11% was an improvement of 20 basis points over 2020.
In 2021, we benefited from a $26 million gain related to the Mission Support Alliance joint venture recorded in the first quarter and the backlog of disability exam cases that were pushed from 2020 to 2021 because of COVID. These two items added 60 basis points to the 2021 adjusted EBITDA margin.
Non-GAAP net income was $224 million for the quarter and $952 million for the year, which generated non-GAAP diluted EPS of $1.56 for the quarter and $6.62 for the year. For the year, non-GAAP net income and non-GAAP diluted EPS were up 13% and 14%, respectively, compared to fiscal year 2020. EPS growth benefited from a reduction of about 2 million shares from repurchases during the year. The non-GAAP effective tax rate came in at 22.4% for the year, which was in line with expectations.
Now for an overview of our segment results and key drivers on Slide 6. Q4 defense solutions revenues of $2.06 billion increased by 7% compared to the prior year quarter. Excluding the acquisitions of 1901 Group, Gibbs & Cox and a small strategic acquisition, defense solutions revenue were up 4% organically. The largest growth driver was the NGEN SMIT ramp, which more than offset the completion of the human landing system-based contract within Dynetics and the program supporting operations in Afghanistan. For the full year, defense solutions revenues were $8.03 billion, an increase of 9% in total and 6% organically.
Civil revenues were $800 million in the quarter compared to $811 million the prior year quarter, down 1% in total and organically. In the quarter, lower deliveries of security products outweighed increased demand on existing programs with commercial energy providers, the FAA and the National Science Foundation and the transfer of a small number of programs from the defense solutions segment. For the year, civil revenues increased from $2.99 billion in 2020 to $3.16 billion, driven by on-contract growth across many programs and a full year of contribution from the L3Harris Technologies Security Detection and Automation business acquisition.
Health revenues were $630 million for the quarter, an increase of 23% compared to the prior year quarter, and all of that growth was organic. The largest year-over-year increase was in the disability examination business, with the Military and Family Life Counseling program and DHMSM up nicely as well. As we previewed on the last call, fourth quarter revenues for the Health segment were down from the third quarter as we completed the backlog of cases from 2020. Health revenues were $2.55 billion for the year, up 30% over 2020 with the same drivers that I cited for the quarter.
On the margin front, on Slide 7, defense solutions margins were relatively stable. Non-GAAP operating margin came in at 8.2% for the quarter compared to 8.9% in the prior year quarter and 8.6% for the year compared to 8.2% in 2020.
Civil non-GAAP operating margin for the quarter was 10%, which was up sequentially, but down from 12.3% in the prior year quarter. Civil non-GAAP operating margin for the year was 10.2% compared to 11.7% in the prior year. Declines in segment profitability for the quarter and year were primarily attributable to lower volumes of security product deliveries.
Health non-GAAP operating margin for the quarter decreased from 18.5% in the prior year quarter to 17.8% primarily from investments to enhance long-term program execution. Health non-GAAP operating margin for the year increased from 14.4% in fiscal year 2020 to 18.8%, primarily from increased volume on fixed unit price programs.
Turning now to cash flow and the balance sheet on Slide 8. Operating cash flow for the quarter was $210 million, and free cash flow, which is net of capital expenditures, was $177 million. This was exceptional performance across every segment and enabled us to close out the year with operating cash flow of $1.03 billion, well above our guidance threshold of $875 million. Free cash flow for the year was $927 million for a 98% conversion rate. Without the $62 million headwind from the CARES Act tax deferral, we would have exceeded our 100% conversion target for the fourth straight year.
As we close out the year, we remain committed to a target leverage ratio of 3 times. Our long-term, balanced capital deployment strategy remains the same and consists of being appropriately levered and maintaining our investment-grade rating; returning a quarterly dividend to our shareholders; reinvesting for growth, both organically and inorganically; and returning excess cash to shareholders in a tax-efficient manner.
On now to the forward outlook on Slide 9. Before commenting on 2022, let me first close out the financial projections we gave at our 2019 Investor Day. FY '21 marked the end of a three-year forecast period, and we exceeded or achieved all of our financial targets. Over the period, we grew organically at a compound annual growth rate of 7% versus a 5% target, achieved an adjusted EBITDA margin of 10.8% versus a 10% or greater target and converted 116% of adjusted net income into free cash flow above our 100% or greater target.
As we look towards 2022, there are some important factors to consider. There is no guarantee that we'll get an omnibus spending bill in February; the continuing impacts of COVID are unknown, and it's likely that Omicron won't be the last coronavirus variant; we can't be sure how long it will take to get our two large takeaway awards through the protest cycle; and we should expect that the large awards that we will receive this year will be delayed through protest. We want to take a measured, balanced approach to guidance, recognizing that there are significant outside forces to contend with.
With that, let's walk through the drivers for each metric. We expect revenues between $13.9 billion and $14.3 billion, reflecting growth in the range of 1% to 4% over fiscal year 2021. This growth would almost entirely be organic when balancing the remaining revenues from 2021 acquisitions with the divestiture that Roger mentioned.
To put that growth into context, let's consider the puts and takes moving from 2021 to 2022. On the positive side, we have NGEN and some other wins that are still ramping that provide good visibility into the upside. On the negative side, we have about $160 million of headwind from the Afghanistan drawdown, about $80 million reduction in disability exam volume and another $80 million from the human landing system program. These were all known and discussed as of the Q3 call.
Since then, a few additional headwinds have emerged. First, we were not awarded the follow-on to our NGA UFS work that was consolidated into the UDS procurement. UFS represented about $100 million of revenue in 2021 with the opportunity to more than double that amount if we had won UDS. In addition, the customer has recently notified us that they are not yet ready to complete the RHRP transition. This program should generate about $150 million of revenue a year and the start date has now been pushed from January until September. Finally, the multibillion-dollar FAA network procurement known as FENS has just been pushed from an expected award date in Q1 to at least Q4.
Moving on, we expect 2022 adjusted EBITDA margin between 10.3% and 10.5%. The midpoint of the margin range is the same as 2021 when you exclude the $26 million MSA gain and the extra disability exam case load. And the top end of the range is consistent with the target we laid out at our October Investor Day. We're committed to long-term margin expansion with multiple levers over time. We expect non-GAAP diluted earnings per share for the year between $6.10 and $6.50 on the basis of 142 million shares outstanding, which is unchanged from fourth quarter levels. Finally, we expect operating cash flow of at least $1 billion. This guidance incorporates the final $62 million repayment of the 2020 CARES Act payroll tax deferral.
As you're aware, there was a provision of the Tax Cuts and Jobs Act of 2017 that went into effect at the start of the year that requires us to capitalize and amortize research and development costs. Our operating cash flow guidance assumes that the provision will be deferred, modified or repealed. We currently estimate the impact of the provision on fiscal year 2020 operating cash flow -- 2022 operating cash flow to be about $150 million.
Expanding on Rogers' capital allocation comments, we expect to deploy a significant portion of our operating cash flow towards share repurchases, assuming no unforeseen material developments in our operating environment. Depending upon the share price and timing of any repurchases, we currently estimate this could add $0.10 to $0.20 to 2022 non-GAAP EPS. The $6.10 to $6.50 range we provided does not account for any repurchases, and we'll update you all as we go through the year. Given the industry factors that we've addressed, we expect a slower start to the year with a sequential decline in revenues in Q1, which is normal for us. We expect both revenues and margins to build significantly throughout the year.
Now a couple of other comments to help you with modeling 2022. We expect net interest expense of approximately $190 million and a non-GAAP tax rate of about 23%. Capital expenditures are targeted at approximately $150 million or roughly 1% of revenues.
Before we open up for questions, I would like to comment on something you will see in our upcoming 10-K filing related to a portion of our business that conducts international operations. In late 2021, we discovered through our internal processes, activities by certain of our employees and third parties raising concerns that there may have been violations of our code of conduct and potentially applicable laws, including the FCPA. We're conducting an internal investigation led by an independent committee of our Board and have retained outside counsel to investigate. We voluntarily self-reported our investigation to the DOJ and SEC. Because the investigation is ongoing, we're not able to anticipate the ultimate outcome or impact.
As we look to 2022, we recognize the challenges but believe we're well positioned to navigate them. Ultimately, the issues facing our industry are transitory and what remain are urgent needs for our customers and a compelling value proposition that we can offer as the largest, most capable company in our industry. With that, I'll turn the call over to Rob so we can take some questions.
