Sign in
LH

Leidos Holdings, Inc. (LDOS)·Q4 2025 Earnings Summary

Executive Summary

  • Revenue rose 10% year-over-year to $4.37B with non-GAAP EPS up 19% to $2.37; full-year revenue reached $16.66B and non-GAAP EPS $10.21, reflecting strong Health & Civil execution and improved program performance company-wide .
  • Backlog climbed 18% YoY to $43.6B on a Q4 book-to-bill of 1.7, underpinned by notable wins (VBA MDE, TSA logistics, IFPC, C‑HGB/TPS) that bolster 2025 visibility .
  • FY25 guidance initiated: revenue $16.9–$17.3B, mid‑high 12% adjusted EBITDA margin, non‑GAAP EPS $10.35–$10.75, and ~$1.45B operating cash flow; CFO cited expected tax rate of ~23.5–24% and buybacks roughly consistent with 2024 .
  • Segment mix skewed positive: Health & Civil margin expanded to 21% (non‑GAAP 21.6%), though Defense Systems margin compressed due to a $21M airborne surveillance asset write‑down; management emphasized continued pivot away from lower‑margin work as a 2025 focus .

What Went Well and What Went Wrong

  • What Went Well

    • Bookings momentum: $7.6B net bookings in Q4 (book‑to‑bill 1.7) and $23.4B for 2024 (1.4 B2B), lifting backlog to $43.6B (+18% YoY); CEO: “The fourth quarter was especially strong in revenue growth and business development” .
    • Health & Civil outperformance: revenue +16% YoY; operating margin 21.0% (non‑GAAP 21.6%) on higher MHS volumes and case complexity, plus net write‑ups; CFO: “Health and Civil revenues and profitability remained strong” .
    • Cash generation and returns: Q4 operating cash flow $299M (DSO 59), free cash flow $213M; $406M buybacks and $0.40 dividend declared for March 28, 2025 .

  • What Went Wrong

    • Defense Systems margin pressure: operating margin 0.4% (non‑GAAP 3.5%) on a $21M airborne surveillance asset write‑down; non‑GAAP margin declined YoY .
    • National Security & Digital margin down YoY: 9.2% vs 10.3% prior‑year Q4 (non‑GAAP 9.7% vs 11.0%) due to immaterial changes across multiple fixed‑price programs .
    • Sequential normalization from record Q3: Adjusted EBITDA margin 11.6% vs 13.8% in Q3; CFO noted Q4 included enhanced employee benefit costs and that the quarter had an extra week under their 4‑4‑5 calendar .

Financial Results

Note: Q4 refers to quarter ended Jan 3, 2025; prior year quarter ended Dec 29, 2023; Q3 refers to quarter ended Oct 3, 2025.

MetricQ4 (Dec 29, 2023)Q3 (Oct 3, 2025)Q4 (Jan 3, 2025)
Revenue ($B)$3.98 $4.469 $4.365
Net Income ($M)$230 $369 $282
GAAP Diluted EPS ($)$1.66 $2.82 $2.12
Adjusted EBITDA ($M)$452 $616 $508
Adjusted EBITDA Margin (%)11.4% 13.8% 11.6%
Net Income Margin (%)5.8% 8.3% 6.5%
Non‑GAAP Diluted EPS ($)$1.99 $3.05 $2.37
Consensus (EPS/Revenue)N/AN/AN/A
  • Q4 non‑GAAP EPS reconciliation: +$0.21 amortization of acquired intangibles, +$0.03 asset impairment, +$0.01 restructuring; total non‑GAAP EPS $2.37 .
  • CFO note: Q4 included an extra fiscal week under 4‑4‑5 calendar .

Segment performance (revenues and operating margins)

SegmentQ4 (Dec 29, 2023) Revenue ($M)Q4 (Dec 29, 2023) OI MarginQ3 (Oct 3, 2025) Revenue ($M)Q3 (Oct 3, 2025) OI MarginQ4 (Jan 3, 2025) Revenue ($M)Q4 (Jan 3, 2025) OI Margin
National Security & Digital1,796 10.3% 2,015 9.5% 1,894 9.2%
Health & Civil1,141 14.2% 1,301 25.2% 1,328 21.0%
Commercial & International538 7.2% 571 6.7% 604 6.6%
Defense Systems505 3.6% 582 6.4% 539 0.4%

KPI snapshot

KPIQ3 (Oct 3, 2025)Q4 (Jan 3, 2025)
Net bookings ($B)$5.9 $7.6
Book‑to‑bill1.3 1.7
Backlog ($B)$47.7 total; $9.1 funded $43.6 total; $8.4 funded
DSO (days)60 59
Operating Cash Flow ($M)711 299
Free Cash Flow ($M)680 213
Share Repurchases ($M)102 406
Dividend per share ($)0.40 (declared Oct 31) 0.40 (declared Feb 7 for Mar 28)
Cash / Debt ($B)$0.974 / $4.7 $0.943 / $4.7

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($B)FY25—$16.9 – $17.3 Initiated
Adj. EBITDA MarginFY25—Mid‑High 12% Initiated
Non‑GAAP EPS ($)FY25—$10.35 – $10.75 Initiated
Operating Cash Flow ($B)FY25—~ $1.45 Initiated
Effective Tax RateFY25—~23.5–24% (call) Provided on call
DividendQ1 2025 payout—$0.40 per share declared for 3/28/25 Declared

Subsequent updates (for context):

  • Raised at Q2 call (Aug 5, 2025): Revenue $17.0–$17.25B; adj. EBITDA margin mid‑13%; non‑GAAP EPS $11.15–$11.45; OCF ~$1.65B .
  • Raised again at Q3 (Nov 4, 2025): Revenue maintained $17.0–$17.25B; adj. EBITDA margin high‑13%; non‑GAAP EPS $11.45–$11.75; OCF ~$1.65B .

Earnings Call Themes & Trends

TopicQ2 2025 (Aug 5)Q3 2025 (Nov 4)Q4 2025 (Feb 11)Trend
AI/Technology initiativesInternal Trusted Mission AI driving efficiency; >0.5M labor hours saved; AI‑enabled proposals and coding tools; FAA dev productivity +60% Continued AI-enabled mission software wins; legal reserve added but margins strong Using AI in proposals; outcome-based contracting focus; 43% fixed‑price mix supports model Broadening AI deployment, linking to margin expansion and BD effectiveness
Supply chain/operational rigorSES profitability improved via global service footprint, supply chain fix; indirect spend austerity in H1 OCF strength; capex light; funded backlog up sequentially DSO steady at 59; strong collections; extra week in Q4 Stable execution; working capital discipline
Macro/government dynamics“One Big Beautiful Bill” funding priorities align to Leidos pillars; procurement slowness early in admin Government shutdown noted; guidance still raised Minimal disruption; brief pauses resolved; CR incorporated in 2025 outlook Improving award flow; cautious planning persists
Product/segment performanceDefense Systems ramp (IFPC, SDA Tranche 2); Health & Civil high throughput; C&I recovering Health & Civil margins 25.2%; Defense Systems 6.4% amid material mix; NS&D 9.5% Health & Civil strong (21%); Defense Systems margin hit by $21M write‑off Durable Health & Civil strength; DS volatile near-term
Regulatory/legal$25M insurance reimbursement; $8M tax refund (one‑time lift) +$24M legal reserves increase No new legal items highlighted; standard risk language One‑offs fade; conservative outlook

Management Commentary

  • CEO Tom Bell: “2024 was a fantastic year for Leidos… The fourth quarter was especially strong in revenue growth and business development… Our outlook for the future remains decidedly positive” .
  • Strategy (North Star 2030): “Keys on growth pillars where customer needs are growing, profitability is robust and Leidos differentiation is evident… we are even more confident our growth pillars position us for success” .
  • Capital deployment and valuation: “Since 12 November, our stock has traded down about 25%… we repurchased an additional $400 million of shares in the fourth quarter” .
  • CFO Chris Cage on profitability: “Adjusted EBITDA margin of 11.6% was up 20 bps YoY… Q4 margin includes the cost of enhancing some of our employee benefits… For the year… adjusted EBITDA margin increased 210 bps to 12.9%” .
  • Portfolio mix: “Currently, 43% of our portfolio is fixed price, up from 39% in 2023. We view the move to more outcome-based procurement as a continued area of opportunity” .

Q&A Highlights

  • Administrative disruption: “Short answer is not really… day-long pauses… picked right back up” (Bell); company prepared a playbook if disruptions persisted (Cage) .
  • Border security and IRON DOME: Administration priorities “right in our wheelhouse,” with active engagement and RFI responses; broad portfolio applicability to space surveillance, counter‑UAS, cruise/hypersonic defense .
  • VBA MDE recompete: Confident on 2025–2026 execution despite new entrant; demand robust; Leidos positioned on outcomes and scale .
  • Guidance conservatism: EPS guide reflects investment in a “pivot year,” potential headwinds from refinancing rates/taxes; one‑offs not expected to repeat, but portfolio variability considered (Cage) .
  • Defense Systems assets/programs: $21M write‑off in airborne surveillance weighed on Q4 DS margin; IFPC viable domestically and internationally; MACH‑TB 2.0 role as subcontractor to Kratos with meaningful workshare .

Estimates Context

  • Wall Street consensus from S&P Global (SPGI) was unavailable due to API request limits during this analysis window; therefore, we cannot provide vs‑consensus comparisons for Q4 2025 revenue/EPS or FY25 guidance at this time (SPGI request limit exceeded).
  • Given Q4 non‑GAAP EPS of $2.37 (+19% YoY) and robust bookings/backlog, subsequent intra‑year guidance raises (Q2 and Q3) suggest prior consensus likely trailed management’s updated trajectory, particularly on margins and EPS .

Key Takeaways for Investors

  • Durable demand and visibility: $7.6B Q4 bookings and $43.6B backlog (1.7x B2B) across VA medical exams, TSA sustainment, IFPC, and C‑HGB/TPS underpin 2025 growth and mix improvement .
  • Health & Civil is the profit engine: Sustained 20%+ margins on higher MHS volumes, complexity, and execution; VBA recomplete supports near‑term trajectory despite added competitor .
  • Defense Systems near‑term volatility, long‑term leverage: Q4 write‑down compressed margin, but pipeline (IFPC Enduring Shield, hypersonics) and “Golden Dome” adjacency support multi‑year scaling .
  • Cash generation supports balanced capital return and reinvestment: Q4 OCF $299M; significant Q4 buyback ($406M) and consistent dividend; management prioritizes fixed‑price/outcome contracts and selective growth investments .
  • FY25 starting point was conservative and later raised: Initial guide ($16.9–$17.3B rev; $10.35–$10.75 EPS; mid‑high 12% margin; $1.45B OCF) was lifted by Q2/Q3 to higher margins/EPS and OCF, signaling estimate momentum as awards/funding normalize .
  • Monitor administration/CR cadence and budget timing: Management reports limited disruption and sees constructive shift toward efficiency and outcome‑based procurement, a core Leidos competency .
  • Stock catalysts: Continued award flow conversion, DS margin normalization from one‑offs, and execution on large IDIQs (IFPC, TSA, C‑HGB/TPS) could drive upward revisions and multiple support .