Leidos NYSE: LDOS reported second-quarter fiscal 2026 revenue growth of 7% year over year to a record $4.56 billion, supported by demand across defense, homeland security, intelligence and digital businesses. The company raised portions of its full-year outlook after reporting record second-quarter operating cash flow and solid booking activity.
Chief Executive Officer Tom Bell said organic revenue grew 4%, while adjusted EBITDA margin was 13.8%. The company generated $793 million in operating cash flow and $761 million in free cash flow during the quarter. Leidos booked $5 billion in net awards, producing a 1.1 book-to-bill ratio.
“Customer procurement activity is beginning to accelerate, so we anticipate continued positive bookings momentum through the rest of this year,” Bell said.
The company raised the midpoint of its 2026 revenue guidance by $100 million, increased the midpoint of its earnings-per-share outlook by $0.05, and raised operating cash flow guidance by $50 million. CFO Chris Cage said the company raised the lower ends of its revenue and non-GAAP diluted EPS ranges by $200 million and $0.10, respectively. Leidos maintained adjusted EBITDA margin guidance in the mid-13% range.
Segment growth led by Homeland and Defense
Homeland Security was the company’s fastest-growing segment, with revenue up 32% in total and 15% organically. Cage attributed the growth to commercial energy infrastructure, domestic and international air traffic management, and foreign-exchange effects.
Defense organic revenue growth accelerated to 6% as the company increased production on integrated air defense and counter-unmanned aircraft systems programs. The segment recorded a 2.2 book-to-bill ratio in the quarter and a 1.9 ratio over the trailing 12 months.
Bell said defense bookings did not yet include the potential benefits of several major technology programs, including a Department of Defense framework agreement valued at more than $1 billion to deliver 3,000 Low-Cost Containerized Munitions by 2030. He also cited Leidos’ work on the Navy’s Medium Unmanned Surface Vessel testing phase, where a potential production award could come in the fourth quarter, and an award to provide sensor payloads for 18 additional missile-warning and missile-tracking satellites supporting Golden Dome.
In addition, Bell pointed to the company’s participation in the Army’s Operation Jailbreak Hackathon, where Leidos engineers developed secure, open application programming interfaces designed to integrate hardware with the Army’s evolving command-and-control architecture.
“We believe this truly positions us to lead in the defense tech of the future,” Bell said.
Management expects Defense to post high-single-digit growth for the full year. Excluding the airborne intelligence, surveillance and reconnaissance business, which is in a transition phase, Cage said the segment is expected to grow at a double-digit rate in 2026.
Health business absorbs VBA incentive change
Health segment revenue declined as a fourth vendor was fully incorporated into the Veterans Benefits Administration Medical Disability Examination Regions contract. However, Cage said the company maintained health margins through technology-enabled efficiencies.
The Department of Veterans Affairs has suspended incentive payments for all vendors in the medical disability examination program for the remainder of the year while it reviews administrative aspects of the program. Bell said Leidos has incorporated the impact of the suspension into its updated 2026 guidance.
Management expects health revenue to remain around second-quarter levels for the rest of the year, with non-GAAP operating income margins of about 20%.
Bell said the VA is likely to extend the current domestic Regions contract into early 2027, potentially through midyear, as the recompete process proceeds. He said Leidos expects a draft request for proposals soon, followed by a formal solicitation in the coming months. The company also expects extensions for its pre-discharge and international work.
While acknowledging uncertainty around the eventual recompete terms, Bell said the VA remains focused on quality, veteran experience, timeliness and cost. Leidos is also pursuing growth in behavioral health, rural health and related programs, including the My Service Treatment Record pilot initiative.
MHS GENESIS and contracting trends
Bell addressed the next phase of MHS GENESIS, the Department of Defense electronic health records system. He said Leidos developed and deployed the system globally under its original 10-year contract, and the Defense Health Agency may now procure underlying software directly from commercial vendors.
Leidos expects to continue supporting and enhancing MHS GENESIS under a sole-source bridge contract while the agency determines its long-term acquisition strategy. Bell said agencies are showing greater interest in insourcing systems integration and commercial technology procurement, but he believes they will continue to need contractor support for maintenance, enhancement and mission systems integration.
The company also sees a growing opportunity for fixed-price, outcome-based contracts. Bell said government customers are increasingly asking Leidos to propose fixed-price arrangements, while Cage said the company’s expanding software and technology offerings could support that model.
Cash flow, balance sheet and capital deployment
Leidos repaid the remaining $300 million of commercial paper associated with the ENTRUST acquisition during the quarter. It ended the period with $6 billion in debt, $748 million in cash and cash equivalents, and gross leverage of 2.5 times.
The company spent $66 million on open-market share repurchases in the second quarter, completing its prior 2022 repurchase authorization. Bell said a new board authorization is in place and Leidos expects to resume repurchases when its trading window opens.
Cage said expected capital expenditures for the year have been reduced to approximately $250 million, increasing implied free-cash-flow guidance by about $150 million. Management said it expects the business to remain relatively low in capital intensity even as it invests in defense technology programs and other growth initiatives.
About Leidos (NYSE:LDOS)
Leidos is an American technology and engineering company that provides services and solutions to government and commercial customers, with a strong focus on national security, defense, intelligence, and civil government markets. The company delivers systems integration, engineering, cybersecurity, software development, data analytics, cloud migration and managed IT services, as well as mission support for complex programs. Leidos' work spans areas such as C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance), secure communications, sensors and systems engineering, and health IT solutions for public-sector healthcare programs.
Leidos traces its corporate roots to Science Applications International Corporation (SAIC) and emerged as an independent, publicly traded company following a corporate separation in 2013.
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