Leidos(LDOS) - 2025 Q2 - Earnings Call Transcript

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]