Leidos (NYSE:LDOS) Q4 2025 Earnings call February 17, 2026 08:00 AM ET Speaker8Be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Stuart Davis, from Investor Relations. Stuart, you may begin.Speaker11Thank you, operator, and good morning, everyone. I'd like to welcome you to our fourth quarter and fiscal year 2025 earnings conference call. Joining me today are Tom Bell, our CEO, and Chris Cage, our CFO. Today's call is being webcast on t ...

Financial Data and Key Metrics Changes - The company reported a top-line growth of 7% for the quarter, with revenue reaching $4.47 billion, and a year-to-date revenue growth of 5% [4][20] - Adjusted EBITDA margin was 13.8%, with adjusted EBITDA of $616 million, reflecting a 3% year-over-year increase [21] - Non-GAAP diluted EPS grew 4% to $3.05, supported by a lower share count [21] - Operating cash flow for the quarter was $711 million, contributing to a free cash flow of $680 million, resulting in a free cash flow conversion ratio of 171% [25] Business Line Data and Key Metrics Changes - National Security and Digital revenues increased by 8% year-over-year, driven by contract awards and increased volumes for defense IT and mission support [22] - Health and Civil revenues grew by 6% year-over-year, with a record non-GAAP operating income margin of 25.7% due to high volumes in managed health services [23] - Defense Systems segment grew by 11% year-over-year, marking its seventh consecutive period of high single to low double-digit growth [24] Market Data and Key Metrics Changes - The company experienced a 27% sequential increase in funded backlog, indicating strong customer demand [16] - The U.S. utilities are expected to invest over $1 trillion in energy infrastructure over the next decade, presenting significant growth opportunities for the company [10] Company Strategy and Development Direction - The North Star 2030 strategy focuses on five growth pillars: space and maritime, energy infrastructure, digital modernization and cyber, mission software, and managed health services [8] - The company is committed to investing in innovation and technology to enhance customer outcomes and drive down costs [6][7] - The divestiture of Varik, a non-core legacy asset, aligns with the sharpened strategic focus of the company [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current government shutdown, noting that most programs remain unaffected [4] - The company raised its guidance for 2025, reaffirming revenue guidance of $17 billion to $17.25 billion and increasing adjusted EBITDA margin guidance [18][26] - Management highlighted a robust pipeline of near-term opportunities valued at $69 billion, with $24 billion in bids awaiting adjudication [16][54] Other Important Information - The company repurchased $100 million worth of shares and accelerated the payoff of $450 million on its term loan [17] - The company plans to continue investing in growth pillars while returning capital to shareholders [18] Q&A Session Summary Question: Thoughts on M&A in the current environment - Management indicated a shareholder-friendly approach to capital deployment, focusing on both organic and inorganic growth opportunities [31] Question: Growth outlook for defense systems - Management highlighted tracking 10 franchise programs expected to deliver about $15 billion in potential value over the next five years [36] Question: Sustainability of health and civil segment margins - Management expressed confidence in sustaining high margins through innovation and investment in technology [45][48] Question: Bid expectations for next year - Management expects a significant increase in bid submissions next year, with a strong pipeline of opportunities [54][55] Question: Impact of the government shutdown on Q4 - Management acknowledged potential risks from the shutdown but remained optimistic about returning to normal operations quickly [70] Question: Recompete contracts for next year - Management noted that it is too early to specify growth expectations for 2026, but several programs are expected to drive growth momentum [86]

Financial Data and Key Metrics Changes - The company reported Q2 revenues of $4.25 billion, up 3% year-over-year, and adjusted EBITDA of $647 million, up 16% year-over-year, with an EBITDA margin of 15.2%, the highest ever by 100 basis points [27][28][37] - Non-GAAP diluted EPS grew 22% to $3.21, surpassing the previous record of $2.97 [28] - Operating cash flow was $486 million, with free cash flow of $457 million, resulting in a free cash flow conversion of 110% [34] Business Line Data and Key Metrics Changes - National Security and Digital revenues increased by 3% year-over-year, with a non-GAAP operating income margin of 10.4% [30] - Health and Civil revenues increased by 1% year-over-year, with a non-GAAP operating income margin of 24.9% [32] - Defense Systems revenue saw the highest growth at 10% year-over-year, with non-GAAP operating margins of 9.8% [33] Market Data and Key Metrics Changes - The company noted a robust pipeline of opportunities amounting to $70 billion, with approximately 75% being new work rather than recompete [102] - The administration's funding priorities are expected to drive significant opportunities in areas such as FAA modernization and border security [61][62] Company Strategy and Development Direction - The company is executing its North Star 2030 strategy, focusing on five growth pillars: space and maritime, energy infrastructure, digital modernization and cyber, mission software, and managed health services [8][22] - The company is actively seeking constructive acquisitions that align with its growth pillars and enhance shareholder value [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the improving customer decision environment and the expected increase in awards in the second half of the year [20][21] - The company raised its full-year guidance for 2025, reflecting confidence in funding trajectories and ongoing contract reviews [36][37] Other Important Information - The company completed the Kudu Dynamics acquisition, adding $400 million in pipeline opportunities and enhancing its competitive position [22][34] - The company is focused on leveraging AI and automation to drive down costs and improve operational efficiency [29][16] Q&A Session Summary Question: Impact of GSA initiative on financials - Management views the GSA's increased role in procurement positively, as it aligns with the company's capabilities and focus on mission systems [41][42][46] Question: Opportunities for organic investment in maritime space - Management highlighted strong demand signals and ongoing investments in unmanned autonomous vehicles, particularly in the Indo-Pacific region [55][56] Question: Scale of opportunities in scanning business - Management identified billions in addressable funding related to FAA modernization and border security, emphasizing the company's readiness to capture these opportunities [61][62] Question: Competitive landscape and recent large awards - Management acknowledged the competitive landscape but emphasized their unique capabilities in deploying AI and mission systems, viewing it as an opportunity rather than a threat [82][84] Question: Update on Dynetics acquisition and growth - Management expressed confidence in the Dynetics acquisition, noting improved performance and growth potential in defense capabilities [90][92]