Core Insights - For defense contractors like Leidos Holdings Inc. (LDOS), an increasing backlog count is a primary revenue growth driver, supported by a steady flow of contracts from the Pentagon and U.S. allies amid rising geopolitical tensions [1][3] - A growing backlog strengthens future order deliveries, converting into notable sales, ensuring a steady revenue stream and predictable cash flow, thus enhancing the company's financial outlook [2] Backlog and Revenue Growth - LDOS recorded a first-quarter 2025 backlog of $46.30 billion, up from $43.56 billion at the end of fourth-quarter 2024, which itself improved from $40.56 billion in third-quarter 2024 and $36.49 billion in second-quarter 2024 [3][12] - The company's revenues improved by 6.9% year-over-year in third-quarter 2024, 9.7% in fourth-quarter 2024, and 6.8% in first-quarter 2025, indicating a positive correlation with the rising backlog [3][12] - Future revenue growth is anticipated, with Zacks Consensus Estimates suggesting a year-over-year improvement of 2.7% for 2025 and 3.2% for 2026 [4] Industry Comparisons - Other defense contractors like RTX Corp. and Lockheed Martin are also experiencing solid backlog growth, with RTX reporting a backlog of $92 billion and Lockheed Martin at $173 million as of March 31, 2025 [5][6][7] - RTX's first-quarter sales improved by 5.2% to $20.31 billion, while Lockheed's sales increased by 4.5% to $17.20 billion, reflecting similar trends in revenue growth across the industry [6][7] Stock Performance and Valuation - Shares of LDOS have gained 1.5% over the past year, compared to the industry's growth of 5.2% [10] - The company's shares are currently trading at a forward 12-month Price/Earnings ratio of 13.66X, significantly lower than the industry's average of 28.48X, indicating a potential undervaluation [11]

Financial Data and Key Metrics Changes - The company's Q1 2025 revenue increased by 32% to $826.6 million compared to the same period last year, driven by a 47% increase in Electrical and Mechanical (E and M) revenue, partially offset by a 2% decline in Transmission and Distribution (T and D) revenue [20][21] - Total EBITDA for Q1 2025 was $61.8 million, also reflecting a 32% increase year-over-year, with an EBITDA margin of 7.5%, consistent with the prior year [20][21] - The total backlog at the end of Q1 2025 was $3.1 billion, up 10% from the end of 2024 and up 41% from the same period last year [21][24] Business Line Data and Key Metrics Changes - E and M segment revenue rose to $648.2 million, a 47% increase from $441 million in the prior year, with EBITDA for this segment increasing by 51% to $49.5 million [22][23] - T and D segment revenue was $185 million, down from $188.5 million last year, but T and D EBITDA increased by 5.8% to $20.1 million, resulting in an EBITDA margin of 10.9%, up 80 basis points from last year [23][24] Market Data and Key Metrics Changes - The company reported strong demand trends in key markets, particularly in data centers, hospitality, and high-tech reshoring, with E and M backlog increasing by 46% year-over-year [10][11][12] - The T and D segment is expected to benefit from increased workloads, particularly in undergrounding projects, despite some weather-related delays impacting revenue [35][48] Company Strategy and Development Direction - The company is focused on its "forever strategy," which emphasizes attracting and retaining talent, delivering high-quality execution, and maintaining customer relationships [14][16] - A significant portion of the increased capital expenditure in Q1 was allocated to purchasing a new prefabrication facility in Kansas City, which is critical for supporting organic growth [17][25] - The company aims for organic revenue growth of 5% to 7% and EBITDA growth of 7% to 9% on a compound annual basis [19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating macroeconomic uncertainties and highlighted the importance of maintaining strong customer relationships and project execution [9][11] - The company remains optimistic about backlog growth and demand trends in key markets, despite acknowledging potential fluctuations in project timing [10][14] Other Important Information - The company has appointed Tim Steves as vice president of corporate development and strategy to enhance its M&A capabilities [18] - The company affirmed its 2025 guidance, projecting revenues between $3 billion and $3.1 billion and EBITDA between $210 million and $225 million [26] Q&A Session Summary Question: Outlook on larger mix of longer lead time projects - Management indicated that while backlog may be bumpy, their expertise in winning large complex projects allows them to add value early in the project lifecycle [30][32] Question: T and D segment outlook and weather-related impacts - Management noted strong demand for T and D services and emphasized their long-standing customer relationships, which position them well for future work [35][48] Question: Status of high-tech manufacturing market - Management confirmed ongoing strong relationships with semiconductor manufacturers and expressed confidence in continuing to support these customers despite some cyclicality in capital allocation [38] Question: Non-backlog business outlook - Management highlighted the importance of non-backlog work and resource allocation, indicating a healthy backlog and good project visibility [41][44] Question: Hospitality market status - Management reported an increase in backlog in Las Vegas and strong relationships with customers, positioning them well for future opportunities [47] Question: Impact of tariffs on business - Management discussed proactive measures to mitigate tariff impacts, including securing pricing and availability with suppliers [59][60] Question: Corporate costs and future run rate - Management indicated that corporate costs may increase slightly as they stand up departments, but overall guidance remains unchanged [62]

Core Insights - Matrix Service Company reported strong revenue growth in the third quarter of fiscal 2025, driven by increased activity in its Storage & Terminal Solutions and Utility & Power Infrastructure segments, achieving a revenue of $200.2 million, up 21% from $166.0 million in the same quarter of the previous year [5][9] - The company experienced a book-to-bill ratio of 1.5x for the quarter, indicating strong demand in core energy and industrial markets, with total project awards of $301.2 million [7][13] - Despite a reduction in fiscal year revenue guidance by 10% due to macroeconomic uncertainties, the company maintains a robust backlog of $1.4 billion and a project pipeline valued at $7 billion, suggesting continued growth potential [3][4][18] Financial Summary - Revenue for the third quarter of fiscal 2025 was $200.2 million, a 21% increase from $166.0 million in the prior year [5] - Gross margin improved to $12.9 million (6.4%) compared to $5.6 million (3.4%) in the same quarter of fiscal 2024, attributed to better performance in Utility and Power Infrastructure and Process and Industrial Facilities segments [6] - The company reported a net loss of $(3.4) million or $(0.12) per share, an improvement from a net loss of $(14.6) million or $(0.53) per share in the prior year [9] Segment Performance - The Storage and Terminal Solutions segment saw revenue increase by 77% to $96.1 million, driven by higher volumes in specialty vessel and LNG storage projects, although gross margin slightly decreased to 3.9% [10] - The Utility and Power Infrastructure segment's revenue rose 27% to $58.7 million, with gross margin improving significantly to 9.4% due to effective project execution [11] - The Process and Industrial Facilities segment experienced a revenue decline to $45.4 million, primarily due to the completion of a large renewable diesel project, but gross margin improved to 8.3% [12] Backlog and Project Awards - The total backlog increased by 7.7% to $1.4 billion as of March 31, 2025, with project awards totaling $301.2 million for the quarter [7][13] - The book-to-bill ratio for the quarter was 1.5x, with significant contributions from the Storage and Terminal Solutions segment, which had a book-to-bill ratio of 2.1x [13][42] Financial Position - As of March 31, 2025, the company had total liquidity of $247.1 million, consisting of $185.5 million in unrestricted cash and cash equivalents, with no outstanding debt [16] - Cash flow from operations for the quarter was $31.2 million, reflecting strong scheduled payments from customers [14] Fiscal Year 2025 Guidance - The company updated its fiscal year 2025 revenue guidance to a range of $770 million to $800 million, down from the previous guidance of $850 million to $900 million, due to external uncertainties affecting project timelines [18]

Financial Data and Key Metrics Changes - The second quarter saw record net service revenue (NSR), margins, and earnings per share (EPS) [11][29] - Adjusted EBITDA increased by 8% to $290 million, and adjusted EPS rose by 20% to $1.25, both setting new second-quarter highs [13][29] - Free cash flow increased by 141% to $178 million, with $110 million returned to shareholders through share repurchases and dividends during the quarter [13][29] Business Line Data and Key Metrics Changes - NSR in The Americas increased by 6%, with adjusted operating margin rising by 130 basis points to 19.4%, a new second-quarter high [31][32] - In the international segment, NSR increased by 1%, with adjusted operating margin increasing by 10 basis points to 11.1% [33] - Contracted backlog in the design business increased by 5%, supporting confidence in future growth [30] Market Data and Key Metrics Changes - The US market remains robust, accounting for over 50% of NSR, with a record backlog driven by a 1.2 book to burn ratio [20][21] - Canada experienced double-digit growth in revenue and backlog, supported by a $150 billion investment plan [23] - The UK saw increases in NSR and backlog, although larger transportation projects faced delays due to budgetary challenges [24] Company Strategy and Development Direction - The company aims to deliver 50% of revenue from advisory and program management over time, with ongoing investments to accelerate organic growth [16][20] - The competitive edge platform is delivering record high win rates, with an 80% success rate on large enterprise critical pursuits year to date [14] - Investments in innovation, technical excellence, and business development are expected to accelerate in the second half of the year [12][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the second half of the year, supported by a record backlog and a growing pipeline of opportunities [14][19] - The company noted that delays in project decisions are common during changes in administration, but the impact on backlog was minimal [12][48] - Management highlighted that the work is highly technical and critical, with a versatile workforce that can adapt to growth opportunities [18] Other Important Information - The company is maintaining its capital allocation strategy, focusing on share repurchases consistent with free cash flow generation [61] - The backlog remains near all-time highs, with a strong pipeline of opportunities across various markets [19][30] Q&A Session Summary Question: Guidance for second half EBITDA growth - Management indicated balanced growth expectations, with both top-line growth and margin improvement anticipated [38][39][44] Question: Is the company through the worst of the isolated delays? - Management expressed confidence in managing delays, noting that disruptions are typical during transitions in administration [45][48] Question: Free cash flow expectations for 2025 - Management aims to maintain a 10% free cash flow conversion rate, with expectations for continued strong performance [50][52] Question: Private sector exposure and customer confidence - Private sector accounts for approximately 30% of business, with growth expected to continue, particularly in water and environment sectors [56][57] Question: Capital allocation and share buybacks - No changes to capital allocation strategy, with share repurchases aligned with free cash flow generation [60][61] Question: Margin performance in The Americas - Management highlighted significant organic investments and improvements in pricing and efficiency as key drivers of margin expansion [78][80] Question: Expectations for international margins - Management expects international margins to continue improving, although not at the same rate as The Americas [101][103] Question: Update on AECOM Capital wind down - Management confirmed that AECOM Capital should not be modeled for 2026 [111][112]

Financial Data and Key Metrics Changes - The second quarter results showed record net service revenue (NSR), margins, and earnings per share (EPS) [9][27] - Adjusted EBITDA increased by 8% to $290 million, and adjusted EPS rose by 20% to $1.25, both setting new second quarter highs [11][27] - Free cash flow increased by 141% to $178 million in the quarter, with $110 million returned to shareholders through share repurchases and dividends [11][27] Business Line Data and Key Metrics Changes - NSR growth was highest in The Americas, with a 6% increase, reflecting strong demand across all end markets [30] - The adjusted operating margin in The Americas rose by 130 basis points to 19.4%, a new second quarter high [30] - In the international segment, NSR increased by 1%, with mixed trends across markets, but backlog and pipeline are at record highs [31][32] Market Data and Key Metrics Changes - The backlog increased quarter over quarter to a new record, driven by a 1.1 times book to burn ratio [12] - The U.S. market remains robust, accounting for over 50% of NSR, with significant funding appropriated for infrastructure projects [18][19] - Canada experienced double-digit growth in revenue and backlog, supported by a $150 billion investment plan [21] Company Strategy and Development Direction - The company aims to deliver 50% of revenue from advisory and program management over time, investing in these areas to meet growing demand [14] - The competitive edge platform is delivering record high win rates, with an 80% success rate on large enterprise critical pursuits year to date [12][13] - Investments are being made to accelerate organic growth and expand competitive advantages, particularly in advisory and program management [14][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the second half of the year, supported by a strong backlog and pipeline of opportunities [12][41] - The company is navigating macroeconomic volatility and expects continued growth despite isolated delays in project decisions [9][44] - Management noted that the work is highly technical and critical, with ongoing demand driven by aging infrastructure and sustainability requirements [14][15] Other Important Information - The company has maintained a strong balance sheet with net leverage of 0.7x and a focus on capital allocation strategies [32] - The company is committed to returning capital to shareholders while continuing to invest in high-return opportunities [11][32] Q&A Session Summary Question: Guidance for second half EBITDA growth - Management indicated that growth will be balanced between top line and bottom line, with confidence in contracted backlog and pipeline [35][41] Question: Is the company through the worst of isolated delays? - Management expressed confidence in managing delays, noting that disruptions are typical during changes in administration [42][44] Question: Free cash flow expectations for 2025 - Management aims to maintain over 10% free cash flow conversion of adjusted net income, with strong performance in the first half [47][50] Question: Private sector exposure and customer confidence - Private sector represents approximately 30% of the business, with growth expected to continue, particularly in water and environment sectors [52][54] Question: Capital allocation strategy and share buybacks - The capital allocation strategy remains unchanged, with share repurchases aligned with free cash flow generation [58][59] Question: Expectations for international margins - Management expects international margins to improve in the second half, with continued investments in people and capabilities [95][96] Question: Gross revenue versus net revenue and construction management - Management is repositioning the construction management business, which may lead to a decline in gross revenue in the short term [101][102] Question: Update on AECOM Capital wind down - Management confirmed that AECOM Capital should not be modeled for 2026 [104]