Q3 2024 Earnings Summary
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | FY 2024 | $16.1B to $16.4B | $16.35B to $16.45B | raised |
Adjusted EBITDA | FY 2024 | Approximately 12% | 12% to the high 12% range | raised |
Non-GAAP Diluted EPS | FY 2024 | $8.60 to $9.00 | $9.80 to $10.00 | raised |
Operating Cash Flow | FY 2024 | $1.3B | $1.35B | raised |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
PACT Act & VA Opportunities | Q2 2024: Emphasis on re-compete risk, near-term volume suppression from budget constraints, but margins up to 24.9%. Q1 2024: Elevated volumes driving high margins (19%), early re-compete concerns. | Exam volumes remain elevated due to the PACT Act, new 2-year contract expected soon, margins continue above 20%, and budget risk partly mitigated by a $3B supplemental and a $12B request for 2025. | Consistently strong performance with ongoing re-compete and budget watch |
Dynetics & IFPC Growth in Defense | Q2 2024: Focus on hypersonics progress and 14 IFPC prototypes; strong backlog but uncertain ramp. Q1 2024: Hypersonics called a “wicked hard problem,” IFPC tests ongoing; book-to-bill 0.9x. | Over 3x book-to-bill in Defense Systems; IFPC progresses toward low-rate production in 2025 and full-rate in 2026; ramp timing still uncertain. | Continued bullishness on growth potential with acknowledged timeline uncertainties |
Pipeline Growth | Q2 2024: $26B in bids awaiting decisions; robust pipeline of $70B over next 12 months. Q1 2024: No specific mention. | Pipeline of bids awaiting decisions increased from $26B to $29B; signals sustained new business potential. | Steady expansion supports future business outlook |
C&I Segment Write-downs in the UK | Q2 2024: $39M in write-downs on two fixed-price UK programs, margin suppressed to 0.7%. Q1 2024: No mention of write-downs, but noted improved C&I performance. | No mention of write-downs; C&I margins improved to 8.8%, UK cited as a positive contributor. | Previous challenges resolved; segment performance improved |
2025 Revenue Growth Deceleration | Q2 2024 & Q1 2024: No mention of 2025 deceleration. | Company projects low single-digit revenue growth for 2025 vs. 6% in 2024, citing a “pivot year” and election-year risks. | Newly emerging caution about slower growth in 2025 |
VA Budget Constraints & PACT Volumes | Q2 2024: Budget gaps suppressed volumes, rebound expected in Q4. Q1 2024: Elevated PACT volumes but budget constraints could moderate margins. | Clarity from $3B supplemental, expect $12B approval; volumes stable at current elevated levels; no major Q4 uptick but backlog remains strong. | Cautious optimism with legislative support keeping volumes robust |
Global Defense Spending & AUKUS | Q2 2024: Strong pursuit of AUKUS (Pillar 2), maritime autonomy in Australia, U.K. hypersonics; bullish sentiment. Q1 2024: Heightened European defense budgets, focus on undersea capabilities and AUKUS Pillar 2. | Some mention of AUKUS Pillar 2 opportunities, but tempered by potential election-year disruptions. | Consistent emphasis on leveraging rising global defense spending, steadily building momentum |
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Health and Civil Profitability and Outlook
Q: What's the outlook for Health and Civil profitability?
A: Leidos' Health and Civil segment had a fantastic quarter, outperforming expectations and delivering strong performance across various programs ( ). The company is confident in maintaining strong profitability, expecting margins north of 20% going forward ( ). They plan to sustain current performance levels and see opportunities for growth, including expanding services in the upcoming VBA recompete ( ). -
VBA Contract Recompete
Q: Will margins hold in the upcoming VBA recompete?
A: Leidos is confident in the continued profitability of the VBA business ( ). The current contract has been extended for two more years under similar terms ( ). The upcoming recompete incentivizes innovation and technology, areas where Leidos excels, and the company expects to maintain volume, throughput, and profitability ( ). -
Dynetics Growth Potential
Q: Is Dynetics positioned for future growth?
A: Dynetics is expected to be a significant growth driver, with key wins leading to an excellent book-to-bill ratio greater than 3x in the defense segment ( ). Leidos is bullish about Dynetics, seeing substantial opportunities in defense programs like small glide munitions and the testing of the Black Arrow small cruise missile ( ). -
National Security and Digital Growth
Q: How will National Security and Digital accelerate growth?
A: The segment has faced budget shifts and recruitment challenges but is focusing on practice areas and efficiencies to drive growth ( ). Recent wins position the business for increased momentum, with expectations of growth accelerating as they manage protests and align with customer priorities ( ). -
Margin Outlook Across Segments
Q: Can margins improve further across segments?
A: Leidos is experiencing improved margins across all segments due to better program execution and bidding discipline ( ). Efforts in practice areas and program management have led to the best Estimate at Completion (EAC) performance in four years ( ). They expect to sustain margins solidly in the 12% range for the corporation, with Health and Civil margins north of 20% ( , ). -
2025 Growth Expectations
Q: What is the growth outlook for 2025?
A: 2025 is seen as a pivot year with expected low single-digit growth due to a muted growth posture in Health and Civil off elevated performance levels ( ). The company is cautious due to potential budget disruptions and the election year but is bullish about long-term growth drivers and expects growth to accelerate beyond 2025 ( ). -
Capital Deployment Priorities
Q: What are the plans for capital allocation?
A: Leidos will complete the remaining $50 million of its $500 million share repurchase program ( ). They are evaluating uses of capital and plan to continue being investor-friendly, evidenced by an increase in the dividend as a commitment to shareholders ( ). -
CHS-6 Program Ramp-Up
Q: How is CHS-6 ramping and affecting margins?
A: The CHS-6 program is ramping up, but margins aren't at long-term expectations yet ( ). Leidos is working to accelerate growth by ensuring customers understand the program's capabilities, expecting it to contribute more significantly in the future as they supercharge the program with the Army's support ( ). -
Buckeye Program Utilization
Q: What is the status of the Buckeye program?
A: The Buckeye program's assets are fully utilized, and Leidos is investing in expansions for future growth ( ). It continues to be a strong part of the Defense segment, with opportunities in airborne ISR support and high return on investment projects ( ). -
Exam Volume Trends
Q: Will exam volumes continue to rise?
A: The high exam volumes seen in Q2 and Q3 are expected to sustain but not increase further in Q4 and beyond ( ). Demand remains elevated due to the PACT Act, with a substantial backlog of claims, but no uptick over recent levels is anticipated ( ). -
2024 Q4 Outlook
Q: Why is there a step-down in Q4 guidance?
A: After a fantastic year, Leidos is making intentional investments in Q4 in innovation, technology, and employee engagement ( ). There's also caution due to potential funding disruptions and higher employee leave in Q4, which may impact revenue and margins temporarily ( ).
Research analysts covering Leidos Holdings Inc.