Executive Summary

Q3 results showed top-line and earnings strength with revenue $4.47B, non-GAAP EPS $3.05, and adjusted EBITDA $616M, while margins compressed modestly sequentially as mix shifted and investments stepped up .
The quarter delivered a clear beat vs S&P Global consensus: revenue beat by ~$0.19B and non-GAAP EPS beat by ~$0.33; 12 estimates were included for both EPS and revenue (Values retrieved from S&P Global)*.
Guidance was raised again for FY25: non-GAAP EPS to $11.45–$11.75 and adjusted EBITDA margin to “high-13%”; revenue and operating cash flow maintained at $17.00–$17.25B and ~$1.65B, respectively .
Cash conversion was exceptional (OCF $711M; FCF $680M), funded backlog rose 27% sequentially, and capital deployment included $450M term loan paydown, $102M buybacks, and a dividend hike to $0.43, reinforcing confidence into 2026 .

Note: Q3 2026 documents were not available in the system. This recap synthesizes the latest available primary sources (Q3 2025) alongside prior two quarters and consensus estimates.

What Went Well and What Went Wrong

What Went Well

Strong beat vs consensus: non-GAAP EPS $3.05 vs ~$2.72* and revenue $4.47B vs ~$4.28B* (Values retrieved from S&P Global).
Funded backlog rose 27% sequentially to $9.1B; total backlog reached $47.7B, supported by notable awards (e.g., $2.2B classified mission support; $760M NASA HHP subcontract) .
Management raised FY25 margin and EPS guidance despite the shutdown: “we are raising our 2025 earnings and margin guidance” — CEO Tom Bell .

What Went Wrong

Margins compressed: adjusted EBITDA margin 13.8% vs 15.2% in Q2; company cited mix (Defense Systems production phases with higher materials) and stepped-up investments .
Commercial & International revenue (-1% YoY) and margin softness driven by security products mix and AI investment timing; deliveries shifted into Q4 .
Legal reserves increased by $24M during the quarter, partially weighing profitability .

Financial Results

Metric	Q3 2024	Q1 2025	Q2 2025	Q3 2025
Revenue ($USD Billions)	$4.190	$4.245	$4.253	$4.469
GAAP Diluted EPS ($USD)	$2.68	$2.77	$3.01	$2.82
Non-GAAP Diluted EPS ($USD)	$2.93	$2.97	$3.21	$3.05
Adjusted EBITDA ($USD Millions)	$596	$601	$647	$616
Adjusted EBITDA Margin (%)	14.2	14.2	15.2	13.8
Net Income Margin (%)	8.6	8.6	9.2	8.3
Cash from Operations ($USD Millions)	$647	$58	$486	$711

Segment Breakdown

Segment	Q1 2025 Revenue ($MM)	Q1 2025 OI Margin (%)	Q2 2025 Revenue ($MM)	Q2 2025 OI Margin (%)	Q3 2025 Revenue ($MM)	Q3 2025 OI Margin (%)
National Security & Digital	$1,878	9.9	$1,872	10.0	$2,015	9.5
Health & Civil	$1,291	23.2	$1,272	24.4	$1,301	25.2
Commercial & International	$568	6.5	$566	7.1	$571	6.7
Defense Systems	$508	6.7	$543	7.6	$582	6.4

KPIs

KPI	Q1 2025	Q2 2025	Q3 2025
Net Bookings ($B)	$2.1	$3.9	$5.9
Book-to-Bill	0.5	0.9	1.3
Backlog Total ($B)	46.3	46.2	47.7
Funded Backlog ($B)	7.3	7.1	9.1
DSO (days)	62	—	60
Cash & Equivalents ($MM)	842	930	974
Total Debt ($B)	5.1	5.1	4.7
Share Repurchases ($MM)	500 ASR initiated	9	102
Dividend per Share ($)	0.40	0.40	0.43 (declared 10/31)
Term Loan Repayment ($MM)	—	—	450

Actuals vs Estimates (Q3 2025)

Metric	Consensus	Actual	Surprise
Revenue ($USD Billions)	$4.2805*	$4.469	+$0.1885*
Non-GAAP EPS ($USD)	$2.7159*	$3.05	+$0.3341*
EPS Estimates (#)	12*	—	—
Revenue Estimates (#)	12*	—	—

*Values retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($B)	FY25	$17.00–$17.25	$17.00–$17.25	Maintained
Adjusted EBITDA Margin (%)	FY25	Mid-13%	High-13%	Raised
Non-GAAP Diluted EPS ($)	FY25	$11.15–$11.45	$11.45–$11.75	Raised
Operating Cash Flow ($B)	FY25	~$1.65	~$1.65	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q3 2025)	Trend
AI/Technology Initiatives	Trusted Mission AI improves productivity; coder enablement; FAA dev +60%	Continued AI-driven cost efficiencies; innovation fund investments	Accelerating deployment
Energy Infrastructure	Highlighted as growth pillar; double-digit growth/margins; Skywire AI reduces costs by ~30%	Reaffirmed as strong growth area into 2026	Sustained strength
Government Shutdown/DOGE	Early headwinds; bookings snapback in Q2; modest revenue impacts	Shutdown impact modest; wider guidance ranges; cash timing risk	Managing through
Defense Systems Performance	7–10% revenue growth, margin building	11% revenue growth; margins lower from materials mix in production ramps	Growth up, margin mix headwind
Border Security & ATC	Funding tailwinds; CBP and FAA modernizations	Orders for mobile VACIS; Kazakhstan ATC modernization (SkyLine-X)	Execution + awards
International (UK/AU)	UK program rebaseline; AU IT refresh impact	AU/UK leadership strengthening; select opportunities; Kazakhstan ATC win	Improving
Legal/One-time Items	$25M insurance reimbursement (Q2)	$24M legal reserve increase	Non-recurring
Capital Deployment	$500M ASR; debt issuance	$450M debt paydown; dividend increase; $102M buybacks	Shareholder-friendly

Management Commentary

“Despite the government shutdown, we are raising our 2025 earnings and margin guidance and holding firm on our 2025 revenue and cash guidance.” — CEO Tom Bell .
“Q3 was a phenomenal collections quarter… we aggressively managed working capital, improved DSO by two days.” — CFO Chris Cage .
“We had a 27% sequential increase in funded backlog… customers are moving out to accomplish missions with pace.” — CEO Tom Bell .
“Reduction of project costs enabled by Skywire of 30% is routine.” — CEO Tom Bell on energy infrastructure AI tooling .

Q&A Highlights

M&A posture: more targeted toward North Star 2030 pillars; judicious, shareholder-value lens; inorganic will complement organic investments .
Defense Systems outlook: ~10 franchise programs, ~$15B potential over five years; pivoting from R&D to LRIP/programs of record; margin path to double-digit .
Health & Civil sustainability: robust VBA exam volumes; record non-GAAP margins; expansion into rural/behavioral health; competition manageable .
Shutdown impact & guidance: wider ranges as hedge; OCF timing risk if shutdown persists; EPS/revenue trending to high end if resolved quickly .
Capex: underspend in 2025 due to customer decision timing; capacity ready for production programs; tens of millions incremental investment in H2 .

Estimates Context

Q3 2025 delivered a beat vs S&P Global consensus: revenue $4.469B vs ~$4.2805B*, non-GAAP EPS $3.05 vs ~$2.7159*; 12 estimates for both metrics underline broad coverage (Values retrieved from S&P Global).
Estimate revisions likely to bias upward on FY EPS/margins after the raise and strong cash conversion, though management cautioned cash timing given shutdown uncertainty .

Key Takeaways for Investors

Quality beat with strong cash conversion and sequential funded backlog build (27%) positions LDOS favorably into FY25 close and 2026 pipeline adjudications .
Guidance raise (EPS/margins) amid macro uncertainty is a constructive signal; revenue and OCF maintained, suggesting confidence in demand and execution .
Defense Systems growth is accelerating; watch margin normalization as programs move beyond initial high-materials phases .
Health & Civil continues to be a margin engine with durable demand (VBA exams) and adjacencies in rural/behavioral health; monitor competitive dynamics and incentive timing .
Commercial & International softness appears timing/mix-related; awards (Kazakhstan ATC) and ports/border opportunity could re-accelerate .
Capital deployment remains shareholder-friendly: debt paydown, dividend hike, buybacks; balance sheet flexibility supports M&A aligned with growth pillars .
Near-term trading: beats and guidance raise are positive catalysts; medium-term thesis: backlog quality, AI-enabled efficiency, and pillar-aligned demand (Golden Dome, ATC, border security) support multi-year growth .

Additional Relevant Press Releases (Q3 2025)

Dividend increase to $0.43 per share (10/31) .
Agreement to sell Varec (10/30) .
AI platform Imperium launch (10/17) .
Kazakhstan ATC modernization (10/08) .

Leidos Holdings, Inc. (LDOS)·Q3 2026 Earnings Summary