Core Insights - The company is actively pursuing mergers and acquisitions (M&A) to expand its market presence, with a recent $25 billion offer for Cyber Ark and a total planned expenditure of slightly under $30 billion for two major acquisitions [1][12] - The focus is on enhancing capabilities in observability and cybersecurity, aiming for 99.9% uptime and real-time problem resolution [4][7] - The company believes it is well-positioned for future growth, targeting $20 billion in revenue and generating significant free cash flow [15][16] M&A Strategy - The company has completed 28 acquisitions in the past seven and a half years, demonstrating a successful strategy of entering adjacent markets [2] - The latest acquisition, Cronus Fair, aligns with market trends towards increased computational power and the need for application observability [3][10] - M&A has contributed to 30% of the company's growth opportunities, with the remaining 70% coming from organic innovation [11] Market Positioning - The company aims to become the largest cybersecurity firm globally, consolidating various tools into a single platform to enhance efficiency and security [16][19] - The strategy of "platformization" is gaining traction, as companies prefer comprehensive solutions over multiple vendors [17][18] - The demand for real-time capabilities in cybersecurity is increasing, necessitating a streamlined approach to infrastructure and security tools [20][24] Future Outlook - The company anticipates explosive growth opportunities in AI and technology sectors, with significant changes expected in consumer behavior and enterprise adoption [21][26] - There is confidence that infrastructure will be consumed as demand grows, despite current uncertainties in timing [24][25] - The evolution of technology is expected to lead to a future where applications operate autonomously, requiring substantial computational resources [22][23]

Financial Data and Key Metrics Changes - Sales for Q3 2025 increased by $890 million year-over-year to $7.7 billion, representing a 13% increase compared to the prior year, or an 11% increase on a constant currency basis [16] - Non-GAAP gross margin for Q3 was 10.8%, down approximately 70 basis points year-over-year, primarily due to regional and customer mix in Global Components and a $21 million charge in ECS [16] - Non-GAAP diluted EPS for Q3 was $2.41, exceeding the guided range, with the charge lowering EPS by $0.31 [16] Business Line Data and Key Metrics Changes - Global Components sales increased by $610 million year-over-year to $5.6 billion, up 5% sequentially [20] - Global ECS sales rose by $300 million year-over-year to $2.2 billion, reflecting a 15% increase compared to the prior year [21] - ECS billings were $5.2 billion, up 14% year-over-year, with a healthy backlog growth exceeding 70% year-over-year [21] Market Data and Key Metrics Changes - Sales in the Americas were flat sequentially at $1.7 billion, driven by strength in industrial and transportation markets [19] - EMEA sales reached $1.4 billion, with resilience in industrial and aerospace markets despite macroeconomic challenges [19] - Asia sales grew sequentially by 12% to $2.4 billion, supported by strength in industrial, compute, and consumer markets [19] Company Strategy and Development Direction - The company is focused on delivering high-quality, innovative technology solutions and is positioned to emerge with improved momentum as the market gradually recovers [5][6] - The strategy includes a deliberate shift towards higher-margin value-added offerings and expanding the addressable market through strategic outsourcing arrangements [12][13] - The company aims to leverage strong trends in cloud and AI to drive growth in both supply chain services and ECS segments [27] Management's Comments on Operating Environment and Future Outlook - Management believes the current cyclical recovery is gradual, with leading indicators remaining robust across all markets [26] - The company anticipates that the West will catch up to the East in terms of recovery, with mass market customers expected to improve over time [26] - Future guidance for Q4 expects sales between $7.8 billion and $8.4 billion, indicating an 11% year-over-year increase at the midpoint [25] Other Important Information - The company has returned approximately $3.5 billion to shareholders via share repurchase since 2020 [14] - A $21 million charge was taken in Q3 due to lower profit expectations on multi-year contracts, which are part of the strategic outsourcing model [23][35] Q&A Session Summary Question: Clarification on the interim CEO role - The interim CEO confirmed he is not a candidate for the permanent position and a search committee is in place to find a successor [30] Question: Details on the $21 million charge - The charge relates to underperformance in strategic outsourcing contracts, which are expected to be margin-accretive in the long term despite current challenges [31][35] Question: ECS margins and growth expectations - The company expects strong performance in the ECS business for Q4, with margins anticipated to improve despite the recent charge [38] Question: Slower growth in specific verticals - Management indicated that while recovery is underway, some mass market customers are not recovering as quickly as larger OEMs, impacting profit margins [40] Question: Impact of new contracts on working capital - The company noted that while new contracts may require more working capital, they are expected to be margin-accretive, justifying the investment [46]

Company Overview - Leidos Holdings, Inc. operates as an IT services company, focusing on defense, intelligence, civil, and health markets with a market cap of $23.4 billion [1][2] Stock Performance - Leidos touched its all-time high of $202.90 on Nov. 22, 2024, and is currently trading 9.4% below that peak, with a 23% increase over the past three months, outperforming the Technology Select Sector SPDR Fund's (XLK) 12.5% surge during the same period [3] - Year-to-date, Leidos' stock has gained 27.6% and 19.1% over the past 52 weeks, surpassing XLK's 16.7% gains in 2025 but lagging behind XLK's 23.8% surge over the past year [4] Financial Performance - Following the release of robust Q2 results on Aug. 5, Leidos' stock prices rose 7.5% in the trading session and maintained positive momentum for six subsequent sessions [5] - Q2 revenues increased 2.9% year-over-year to $4.3 billion, exceeding expectations, while non-GAAP EPS soared by 22.1% year-over-year to $3.21, significantly surpassing consensus estimates [5] - Free cash flows increased by 27.7% year-over-year to $457 million, boosting investor confidence [5] Competitive Position - Leidos has significantly outperformed Booz Allen Hamilton Holding Corporation, which experienced a 21.1% decline year-to-date and a 34.7% plunge over the past 52 weeks [6]

Investment Rating - The report indicates a stable investment outlook for IT budgets, with the US expected to grow by 2.7% and Europe by 2.3% over the next twelve months, despite some downward revisions due to tariff impacts [2][29]. Core Insights - Data modernization and Generative AI (GenAI) have surpassed cybersecurity as the top investment priority for CIOs, reflecting a shift in focus towards analytics and digital transformation projects [3][36]. - The overall macroeconomic sentiment has worsened slightly, with 49% of US respondents expecting a decline in macro conditions, which may impact business services budgeting [10][40]. - CIOs have revised their IT budgets down by an average of 3% due to tariff impacts, with 42% expecting no impact from tariffs on their budgets [24][46]. Sector Summaries Software - Data analytics/GenAI is now the top investment priority, followed by digital transformation projects and customer-facing applications [36][8]. - Spending on public cloud infrastructure is expected to grow by 6.6% over the next twelve months, indicating strong demand driven by GenAI workloads [24][62]. Cybersecurity - Cybersecurity has dropped to the second investment priority, with a projected growth rate of approximately 5.3%, which is still higher than the overall IT budget growth [3][10]. - The emphasis on data analytics/GenAI is expected to benefit cybersecurity vendors that can secure GenAI deployments [11][19]. Communication Services and Infrastructure - Despite tariff uncertainties, the US budget for communication services remains resilient at 2.7%, with opportunities for digital transformation and GenAI adoption [10][23]. - Network infrastructure is expected to be negatively impacted by tariffs, ranking second among categories affected [10][49]. Hardware - Spending on PC storage and networking infrastructure is trending positively, while server spending is declining [27][28]. - A mixed recovery in IT hardware spending is noted, with 53% of respondents not expecting GenAI to impact their hardware budgets [28][91]. European Technology - European CIOs have shown increased caution, with a 3% negative impact on IT budgets due to tariffs, although growth expectations remain stable [24][33]. - Financial software and ERP applications are gaining prioritization, indicating resilience for companies like SAP [24][10]. GenAI Trends - Microsoft is the preferred vendor for GenAI investments, followed by Amazon, OpenAI, and Google, with a notable shift in budget allocation towards these technologies [4][67]. - 54% of CIOs expect GenAI investments to lead to a reduction in overall headcount within the next 1-2 years [26][75].