Leidos Q4 Earnings Call Highlights

Key Points

• Leidos beat expectations on profitability and cash generation in fiscal 2025, with adjusted EBITDA margin expanding to 14.1%, non‑GAAP EPS of $11.99 (up 17% YoY and $0.24 above prior guidance), helped by share repurchases that reduced diluted share count ~4.4%.
• Under its NorthStar 2030 plan the company is significantly increasing investments — IRAD/capex was $312M in 2025 and capex will “triple” to $350M in 2026 — and agreed to acquire ENTRUST Solutions for $2.4 billion, to be funded with cash, commercial paper and new bonds (pro forma leverage ~2.6x).
• Demand signals remain healthy: Q4 net bookings were $5.6B (book‑to‑bill 1.3x), funded backlog rose 15% to about $49B with $20B pending awards, and 2026 guidance calls for revenue of $17.5–17.9B, a mid‑13% adjusted EBITDA margin and EPS of $12.05–12.45, though free cash flow will be pressured by higher capex and guidance excludes Entrust.

Leidos NYSE: LDOS executives struck an upbeat tone on the company’s fourth-quarter and fiscal 2025 earnings call, pointing to results that exceeded guidance on profitability and cash generation despite what management described as a “very dynamic year” that included a six-week U.S. government shutdown. CEO Tom Bell also detailed strategic moves under the company’s “NorthStar 2030” plan, including portfolio actions, a major increase in capital spending, and a reorganization of reporting segments.

Fiscal 2025 results and Q4 comparisons

For fiscal 2025, Leidos reported revenue of $17.2 billion, up 3.1% year over year, according to CFO Chris Cage. Fourth-quarter revenue was $4.2 billion, down 3.6% year over year. Management emphasized that comparisons were affected by two timing factors: an extra workweek in the fourth quarter of 2024 due to the company’s 4-4-5 calendar, and the six-week government shutdown in 2025. Cage said those two items reduced fourth-quarter revenue growth by about seven percentage points and full-year revenue growth by about two percentage points.

Adjusted EBITDA margin expanded to 14.1% for the year, up 120 basis points, and was 13.2% in the fourth quarter, up 160 basis points. Non-GAAP diluted EPS was $11.99 for the year and $2.76 for the quarter. Cage said fiscal 2025 non-GAAP diluted EPS increased 17% versus 2024 and finished $0.24 above the high end of the company’s prior guidance, driven primarily by stronger EBITDA and share repurchases. Leidos retired 4.4% of its diluted share count during the year, which Cage said contributed about $0.50 to EPS.

Bookings, backlog, and demand signals

Bell highlighted net bookings of $5.6 billion in the fourth quarter, producing a book-to-bill ratio of 1.3x for the quarter, matching the third quarter’s 1.3x. He added that funded backlog was up 15% year over year. In the Q&A, management said award timing has been uneven, attributing some delays to the prior shutdown.

Bell said Leidos saw about $7 billion in awards slip from the fourth quarter into the next quarter, and the company reported $20 billion of pending awards and $49 billion of backlog. Executives said they expect growth to accelerate as delayed awards convert to funded work and as new program starts ramp through the year.

Notable contract wins and strategic investments

Management cited several major awards and contract vehicles during the quarter, including:

• Air Force passive radar base defense: A five-year, $2.2 billion award to deploy passive radar systems, which Bell said validates the company’s investments in its ALPS and Mirador systems.
• Air Force Cloud One Next: A six-year, $455 million program to support cloud architecture and shared services.
• Positions on large IDIQ vehicles: Leidos secured spots on the Missile Defense Agency’s $151 billion SHIELD program and the Defense Microelectronics Activity’s $25 billion modernization program. Bell noted these IDIQs are not counted in backlog until task orders are awarded.

Bell said Leidos invested $312 million in IRAD and capital expenditures in 2025, supporting programs such as IFPC, Wide Field of View, and Maritime Autonomy. He also said the company will “triple” capital expenditures in 2026 to $350 million to expand production capacity and upgrade classified facilities, framing the spending as targeted at “key national priority, high-return projects.” In response to analyst questions, executives said the stepped-up spending supports multiple growth pillars, including defense production capacity and maritime facilities, but also areas such as FAA-related opportunities and health investments.

Portfolio actions, Entrust acquisition, and capital allocation

Bell reviewed portfolio changes tied to the company’s energy growth pillar. Leidos divested Varec in October, describing it as a non-core legacy energy asset. He also said the company has agreed to acquire ENTRUST Solutions Group, which management characterized as a top energy engineering firm with a track record of growth and profitability.

Cage provided financing details for the planned $2.4 billion all-cash purchase price, saying Leidos intends to fund the deal with $500 million of cash on hand, $500 million in commercial paper to be paid down during 2026, and $1.4 billion in new bonds. The company expects the transaction to close in the second quarter, subject to regulatory approval and customary conditions. Cage said pro forma gross leverage at close is expected to be 2.6x, below the company’s 3x target.

On capital allocation, Bell said organic and inorganic investment would become a larger share of capital deployment under NorthStar 2030, while continuing the dividend. Cage added that the company’s 2026 guidance does not assume share repurchases.

2026 guidance and segment expectations

For 2026, Leidos guided to revenue of $17.5 billion to $17.9 billion, implying growth of up to 4% from 2025. Cage said the company expects lower growth in the first half and acceleration in the back half, with management pointing to potential catalysts including “Golden Dome initiatives” and FAA modernization activity, as well as program startups from recent wins.

Leidos guided to a “mid-13” adjusted EBITDA margin in 2026, which Cage said normalizes some one-time benefits realized in 2025 while establishing a sustainable baseline. Non-GAAP diluted EPS guidance was $12.05 to $12.45, assuming about $200 million of interest expense, a roughly 24% effective tax rate, and an average share count of about 129 million.

The company expects operating cash flow of $1.75 billion in 2026, despite a $90 million year-over-year headwind tied to Section 174 timing. Free cash flow is expected to decline due to the higher capex plan. Cage noted the 2026 guidance does not include any contribution from the planned Entrust acquisition, and management said it would update guidance after close, likely on the first-quarter call.

Management also discussed expectations under a new segment structure and provided views on 2026 performance by segment. Intelligence and Digital is expected to post mid- to high-single-digit growth at steady margins, supported by a full year of Kudu Dynamics and phase-in of cyber and IT awards. Health is expected to see modestly lower revenue and margin in 2026 due to an additional vendor on VBA medical disability exams work and continued transition on DHMSM, though management reiterated a longer-term view of profitability above 20% for the segment. Homeland is expected to grow around the corporate average with relatively stable margins in 2026, while Defense is expected to grow above the corporate range with modest margin pressure as some high-margin airborne programs “ebb.”

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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