Leidos Holdings, Inc. Reports Third Quarter Fiscal Year 2022 Results

• Revenues of $3.6 billion, up 4% year-over-year
• Net Income of $164 million; Adjusted EBITDA of $372 million
• Diluted Earnings per Share of $1.17, or $1.59 on a non-GAAP foundation
• Record Cash Flows from Operations of $748 million and Free Cash Flow of $721 million
• Net Bookings of $4.1 billion (book-to-bill ratio of 1.1)
• Improved income outlook for 2022

RESTON, Va., Nov. 1, 2022 /PRNewswire/ — Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500^® science and know-how chief, in the present day reported monetary outcomes for the third quarter of fiscal yr 2022.  

Roger Krone, Leidos Chairman and Chief Executive Officer, commented, “Our third quarter results demonstrate the momentum in our business as we continue to report revenue growth at the upper end of our guidance across our diversified portfolio. In addition, our dedicated team delivered earnings in excess of our forecast and generated the highest quarterly cash flow from operations in our history. These results position us well to deliver on our full-year financial targets as we make the world safer, healthier and more efficient.”

Summary Operating Results

Revenues for the quarter had been $3.61 billion, up 4% in comparison with the third quarter of 2021; the most important contributors had been continued progress of the Navy Next Generation Enterprise Network Recompete (NGEN-R) Service Management, Integration and Transport (SMIT) contract; ramp-up of the National Aeronautics and Space Administration (NASA) Advanced Enterprise Global Information Technology Solutions (AEGIS) contract; and elevated deployments on the Defense Healthcare Management System Modernization (DHMSM) program.

Net revenue was $164 million and diluted EPS was $1.17. Net revenue and diluted EPS had been down 21% and 18% year-over-year, respectively. Net revenue and diluted EPS embody a $16 million unrealized loss related to the international forex ahead contract entered into with a view to hedge the preliminary buy worth for Cobham Aviation Services Australia (“Cobham“) in Australian {dollars}. In addition, web curiosity expense elevated to $50 million from $47 million within the third quarter of 2021. Weighted common diluted shares for the quarter had been 138 million in comparison with 143 million within the prior yr quarter, which benefited from the Accelerated Share Repurchase (ASR) settlement applied within the first quarter of 2022.

Adjusted EBITDA was $372 million for the third quarter, down 8% year-over-year, and adjusted EBITDA margin decreased from 11.6% to 10.3% over the identical interval. Profitability within the year-ago quarter was elevated on account of briefly elevated workload and decreased oblique bills because of the COVID-19 pandemic in addition to an elevated stage of write-ups on sure contracts. Adjusted EBITDA and adjusted EBITDA margin elevated $6 million and 10 foundation factors, respectively, in comparison with the second quarter of 2022. Non-GAAP web revenue was $221 million for the third quarter, down 15% year-over-year, and non-GAAP diluted EPS for the quarter was $1.59, down 12% year-over-year.

Cash Flow Summary

In the third quarter web money offered by working actions was $748 million, or 462% of web revenue attributable to Leidos shareholders. After adjusting for funds for property, gear and software program, free money movement was $721 million, leading to a free money movement conversion ratio of 329%. In addition, Leidos used $26 million for investing actions and $217 million for financing actions.

Leidos returned $49 million to shareholders within the third quarter as a part of its common quarterly money dividend program. As of September 30, 2022, Leidos had $807 million in money and money equivalents and $5.0 billion of debt.

On October 30, 2022, Leidos accomplished the acquisition of Cobham Special Mission, which supplies airborne border surveillance and search and rescue companies to the Australian Federal Government. Purchase consideration was $305 million Australian {dollars}, topic to working capital changes. At the signing of the definitive settlement, Leidos entered right into a ahead contract for $215 million to offset international forex fluctuations of the total buy consideration. Based on the trade fee on the shut, the translated buy worth was $196 million. We realized a lack of $18 million related to the international trade ahead contract. 

On October 28, 2022, the Leidos Board of Directors declared a money dividend of $0.36 per share to be paid on December 30, 2022, to stockholders of document on the shut of business on December 15, 2022.

New Business Awards

Net bookings totaled $4.1 billion within the quarter, representing a book-to-bill ratio of 1.1. As a end result, backlog on the finish of the quarter was $35.0 billion, of which $7.4 billion was funded. Notable awards within the quarter embody:

• Sentinel. Leidos was awarded a main job order by the Department of Defense to reinforce technological innovation with a give attention to fast insertion of applied sciences throughout the mission spectrum for a number of companies, and integrating new know-how with current and legacy techniques for elevated effectiveness. Leidos will help the federal government with fast know-how insertion to reinforce Command, Control, Computers, Communications, Cyber, Intelligence, Surveillance and Reconnaissance (C5ISR) missions at a worldwide scale. This award allows Leidos to develop its intensive C5ISR portfolio in addition to ship a important functionality in direction of improved warfighter help. The contract has a complete worth of $1.5 billion {dollars} and features a one-year base interval of efficiency with 4 one-year choices.
   
• U.S. Naval Sea Systems Command (NAVSEA) Medium Unmanned Undersea Vehicle (MUUV). Leidos was chosen by the NAVSEA to design and construct a MUUV to help intelligence preparation of the operational surroundings by offering submarine-based autonomous oceanographic sensing and information assortment for the Navy. The MUUV may also present surface-launched and recovered mine countermeasures. The single award, cost-plus-fixed-fee contract holds an approximate worth of $358 million if all choices are exercised.
   
• Defense Information Systems Agency (DISA) Defense Enclave Services (DES) Task Order. DISA awarded Leidos a job order contract with a complete estimated worth of $138 million {dollars} with a 5 yr interval of efficiency. Through the DES contract, Leidos will consolidate enterprise IT companies and supply standardized, responsive and cost-effective options for greater than 370,000 customers spanning 22 Department of Defense (DoD) companies and subject actions with over 500 websites each within the U.S. and overseas. This first job order will lay the framework and start to consolidate, combine and optimize 5 companies on a standard community structure by means of digital modernization and transformation. The work will give attention to mission worth and person expertise, whereas enhancing cybersecurity, community availability and reliability for Fourth Estate companies.

Forward Guidance

Leidos is updating its fiscal yr 2022 steering as follows:

For info concerning adjusted EBITDA margin and non-GAAP diluted EPS, see the associated explanations and reconciliations to GAAP measures included elsewhere on this launch.

Leidos doesn’t present a reconciliation of forward-looking adjusted EBITDA margins or non-GAAP diluted EPS to web revenue because of the inherent problem in forecasting and quantifying sure quantities which can be vital for such reconciliation. Because sure deductions for non-GAAP exclusions used to calculate projected web revenue could fluctuate considerably primarily based on precise occasions, Leidos just isn’t in a position to forecast on a GAAP foundation with affordable certainty all deductions wanted with a view to present a GAAP calculation of projected web revenue presently. The quantities of those deductions could also be materials and, due to this fact, might lead to projected web revenue and diluted EPS being materially lower than what could also be implied by projected adjusted EBITDA margins and non-GAAP diluted EPS.

Conference Call Information

Leidos administration will focus on operations and monetary ends in an earnings convention name starting at 8:00 A.M. jap time on November 1, 2022. Analysts and institutional traders could take part by dialing +1 (877) 869-3847 (toll-free U.S.) or +1 (201) 689-8261 (worldwide callers).

A stay audio broadcast of the convention name together with a supplemental presentation shall be obtainable to the general public by means of hyperlinks on the Leidos Investor Relations web site (http://ir.leidos.com).

After the decision concludes, an audio replay will be accessed on the Leidos Investor Relations web site or by dialing +1 (877) 660-6853 (toll-free U.S.) or +1 (201) 612-7415 (worldwide callers) and getting into convention ID 13733461.

About Leidos

Leidos is a Fortune 500^® know-how, engineering, and science options and companies chief working to resolve the world’s hardest challenges within the protection, intelligence, civil and well being markets. Leidos’ 44,000 workers help very important missions for presidency and business clients. Headquartered in Reston, Va., Leidos reported annual revenues of roughly $13.7 billion for the fiscal yr ended December 31, 2021.

For extra info, go to www.leidos.com.

Forward-Looking Statements

Certain statements on this launch include or are primarily based on “forward-looking” info inside the that means of the Private Securities Litigation Reform Act of 1995. In some instances, you may establish forward-looking statements by phrases corresponding to “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “guidance” and related phrases or phrases. Forward-looking statements on this launch embody, amongst others, estimates of our future progress and monetary and working efficiency, together with future revenues, adjusted EBITDA margins, diluted EPS (together with on a non-GAAP foundation), and money flows offered by working actions, in addition to statements about our business contingency plans, uncertainties in tax on account of new tax laws or different regulatory developments, the affect of COVID-19 and associated actions taken to forestall its unfold, our contract awards, technique, deliberate investments, sustainability targets and our future dividends, share repurchases, capital expenditures, debt repayments, acquisitions, inclinations, and money movement conversion. These statements replicate our perception and assumptions as to future occasions that will not show to be correct.

Actual efficiency and outcomes could differ materially from these outcomes anticipated by our steering and different forward-looking statements made on this launch relying on quite a lot of elements, together with, however not restricted to: the affect of COVID-19 or future epidemics on our business, together with the potential for facility closures, re-evaluation of U.S. authorities spending ranges and priorities, delay of recent contract awards, provide chain impacts, airline journey ranges, our skill to get well prices underneath contracts, insurance challenges, uncertainty concerning the efficacy of vaccines towards variants, booster vaccinations, or the dearth of public acceptance of vaccines and low vaccination charges, and legal guidelines and rules with respect to vaccinations; adjustments to our repute and relationships with authorities companies, developments within the U.S. authorities protection finances, together with finances reductions, implementation of spending limits or adjustments in budgetary priorities; delays within the U.S. authorities finances course of or approval of raises to the debt ceiling; delays within the U.S. authorities contract procurement course of or the award of contracts or our skill to win contracts; delays or lack of contracts because of competitor protests; adjustments in U.S. authorities procurement guidelines, rules and practices; adjustments in rates of interest and inflation, and different market elements out of our management, together with normal financial and political circumstances; our compliance with varied U.S. authorities and different authorities procurement guidelines and rules; governmental evaluations, audits and investigations of Leidos; our reliance on info know-how spending by hospitals/healthcare organizations, infrastructure investments by industrial and pure assets organizations and different buyer investments associated to our business; our skill to draw, prepare and retain expert workers, together with our administration crew, and to acquire safety clearances for our workers; the combination of our contracts and our skill to precisely estimate prices related to our firm-fixed-price and different contracts in addition to our skill to appreciate as revenues the total quantity of our backlog; cybersecurity, information safety or different safety threats, techniques failures or different disruptions of our business; decision of authorized and different disputes with our clients and others or authorized or regulatory compliance points; our skill to successfully purchase companies and make investments and any associated contingencies or liabilities to which we could turn out to be topic; our skill to take care of relationships with prime contractors, subcontractors and three way partnership companions; our skill to handle efficiency and different dangers associated to buyer contracts, together with advanced engineering tasks; our skill to acquire vital parts and supplies to carry out our contracts, together with semiconductors and associated gear, on affordable phrases or in any respect; the failure of our inspection or detection techniques to detect threats; adjustments in business circumstances that would affect business investments and/or recorded goodwill or the worth of different long-lived belongings; the adequacy of our insurance applications designed to guard us from vital product or different legal responsibility claims; our skill to handle dangers related to our worldwide business; our skill to declare future dividends or repurchase our inventory primarily based on our earnings, monetary situation, capital necessities and different elements, together with compliance with relevant legal guidelines and contractual agreements; adjustments in accounting, U.S. or international tax, export or different legal guidelines, rules, and insurance policies and their interpretation or utility; and our skill to execute our business plan and long-term administration initiatives successfully and to beat these and different identified and unknown dangers that we face.

This launch additionally accommodates sure forward-looking statements with respect to Leidos’ acquisition of Cobham Aviation Services Australia, together with advantages of the transaction and the merchandise and markets of every firm. Many elements might trigger precise future occasions to vary materially from the forward-looking statements on this launch, together with however not restricted to: (i) the prevalence of any occasion, change or different circumstance that would give rise to the termination of the merger settlement, (ii) the impact of the announcement of the transaction on Cobham Aviation Services Australia’s business relationships, working outcomes, and business typically, (iii) dangers that the transaction disrupts present plans and operations of Leidos or Cobham Aviation Services Australia and potential difficulties in Cobham Aviation Services Australia’s worker retention because of the transaction, (iv) dangers associated to diverting administration’s consideration from Cobham Aviation Services Australia ongoing business operations, (v) the end result of any authorized proceedings that could be instituted towards Leidos or towards Cobham Aviation Services Australia associated to the merger settlement or the transaction, (vi) the power of Leidos to efficiently combine Cobham Aviation Services Australia’s operations, product strains, and know-how, and (vii) the power of Leidos to implement its plans, forecasts, and different expectations with respect to Cobham Aviation Services Australia’s business after the completion of the proposed acquisition and understand further alternatives for progress and innovation. These are solely among the elements that will have an effect on the forward-looking statements contained on this launch. For additional info regarding dangers and uncertainties related to our business, please discuss with the filings we make on occasion with the U.S. Securities and Exchange Commission (“SEC”), together with the “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Legal Proceedings” sections of our newest Annual Report on Form 10-Okay and Quarterly Reports on Form 10-Q, all of which can be seen or obtained by means of the Investor Relations part of our web site at www.leidos.com.

All info on this launch is as of November 1, 2022. Leidos expressly disclaims any responsibility to replace the steering or another forward-looking assertion offered on this launch to replicate subsequent occasions, precise outcomes or adjustments in Leidos’ expectations. Leidos additionally disclaims any responsibility to remark upon or right info that could be contained in reviews revealed by funding analysts or others.

Defense Solutions

Defense Solutions revenues of $2,075 million elevated by 3% in comparison with the prior yr quarter. The major drivers of income progress had been the ramp up of Navy NGEN-R SMIT and varied drive safety applications, which offset the wind down of sure applications supporting operations in Afghanistan and the encompassing area and antagonistic international trade impacts. For the quarter Defense Solutions working revenue margin decreased to six.6% from 7.0% within the prior yr quarter and non-GAAP working revenue margin was 8.1% in comparison with 8.8% within the prior yr quarter. The decline in section profitability was attributable to program combine in addition to investments in prototype improvement contracts within the present quarter.

Civil

Civil revenues of $874 million elevated by 10% in comparison with the prior yr quarter. The major driver of income progress was the ramp up of the NASA AEGIS program. In addition, the section delivered software program upgrades and elevated upkeep exercise inside its safety merchandise business and extra engineering help to business power firms, which elevated each income and profitability. Civil working revenue margin for the quarter elevated to 9.0% from 7.3% within the prior yr quarter. Non-GAAP working revenue margin was 11.0%, in comparison with 9.6% within the prior yr quarter.

Health

Health revenues of $659 million decreased by 3% in comparison with the prior yr quarter. Increased backlog of incapacity exams attributable to COVID-19 within the third quarter of 2021 and elevated competitors within the present quarter greater than offset elevated deployments on the DHMSM program. With the return to extra regular quantity of incapacity exams, working revenue margin declined from 19.1% to 13.8% and non-GAAP working revenue margin decreased from 20.7% to fifteen.0% in comparison with the prior yr quarter.

LEIDOS HOLDINGS, INC.
UNAUDITED BACKLOG BY REPORTABLE SEGMENT
(in hundreds of thousands)

Backlog represents the estimated quantity of future revenues to be acknowledged underneath negotiated contracts. Backlog worth is predicated on administration’s estimates about quantity of companies, availability of buyer funding and different elements, and excludes contracts which can be underneath protest. Estimated backlog includes each funded and negotiated unfunded backlog. Backlog estimates are topic to alter and could also be affected by a number of elements, together with modifications of contracts, non-exercise of choices and international forex actions.

Funded backlog for contracts with the U.S. authorities represents the worth on contracts for which funding is appropriated much less revenues beforehand acknowledged on these contracts. Funded backlog for contracts with non-U.S. authorities entities and business clients represents the estimated worth on contracts, which can cowl a number of future years, underneath which Leidos is obligated to carry out, much less income beforehand acknowledged on the contracts.

Negotiated unfunded backlog represents estimated quantities of income to be earned sooner or later from contracts for which funding has not been appropriated and unexercised priced contract choices. Negotiated unfunded backlog doesn’t embody unexercised choice intervals and future potential job orders anticipated to be awarded underneath IDIQ, General Services Administration Schedule or different grasp settlement contract autos, except for sure IDIQ contracts the place job orders will not be competitively awarded or individually priced however as a substitute are used as a funding mechanism, and the place there’s a foundation for estimating future revenues and funding on future anticipated job orders.

The estimated worth of backlog as of the dates introduced was as follows:

The enhance in backlog consists of $43 million of backlog acquired by means of business mixtures in our Defense Solutions reportable section. Total backlog at September 30, 2022, included a adverse affect of $363 million when in comparison with complete backlog at October 1, 2021, primarily because of the trade fee actions within the British pound and Australian greenback when in comparison with the U.S. greenback.

LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES

Leidos makes use of and refers to natural progress, non-GAAP working revenue, non-GAAP working margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP diluted EPS, free money movement and free money movement conversion, which aren’t measures of monetary efficiency underneath typically accepted accounting ideas within the U.S. and, accordingly, these measures shouldn’t be thought-about in isolation or as an alternative choice to the comparable GAAP measures and must be learn at the side of Leidos’s consolidated monetary statements ready in accordance with GAAP.

Management believes that these non-GAAP measures present one other illustration of the outcomes of operations and monetary situation, together with its skill to adjust to monetary covenants. These non-GAAP measures are steadily utilized by monetary analysts overlaying Leidos and its friends. The computation of non-GAAP measures is probably not similar to equally titled measures reported by different firms, thus limiting their use for comparability.

Organic progress captures the income progress that’s inherent within the underlying business excluding the affect of acquisitions made inside the prior yr; it’s computed as present revenues excluding acquisition revenues inside the final 12 months divided by earlier yr revenues excluding revenues from entities divested inside the prior yr.

Non-GAAP working revenue is computed by excluding the next discrete objects from working revenue:

• Acquisition, integration and restructuring prices – Represents acquisition, integration, lease termination and severance prices associated to acquisitions.
• Amortization of acquired intangible belongings – Represents the amortization of the honest worth of the acquired intangible belongings.
• Derivative loss – Represents the honest worth loss related to the international forex ahead contract to hedge the preliminary buy worth for the Cobham acquisition in Australian {dollars}.
• Asset impairment costs – Represents impairments of long-lived intangible belongings.

Non-GAAP working margin is computed by dividing non-GAAP working revenue by revenues.

Adjusted EBITDA is computed by excluding the next objects from revenue earlier than revenue taxes: (i) discrete objects as recognized above; (ii) curiosity expense; (iii) curiosity revenue; (iv) depreciation expense; and (v) amortization of internally developed intangible belongings.

Adjusted EBITDA margin is computed by dividing adjusted EBITDA by revenues.

Non-GAAP web revenue is computed by excluding the discrete objects listed underneath non-GAAP working revenue and their associated tax impacts.

Non-GAAP diluted EPS is computed by dividing web revenue attributable to Leidos frequent stockholders, adjusted for the discrete objects as recognized above and the associated tax impacts, by the diluted weighted common variety of frequent shares excellent.

Free money movement is computed by deducting expenditures for property, gear and software program from web money offered by working actions.

Free money movement conversion is computed by dividing free money movement by non-GAAP web revenue attributable to Leidos frequent stockholders; working money movement conversion is computed by dividing web money offered by working actions by web revenue attributable to Leidos shareholders.