Leidos Holdings, Inc. — Third Quarter 2026 Earnings Summary

Financial Performance:

• Revenues were $4.63 billion, a 4% increase year-over-year compared to $4.47 billion in the third quarter of 2025.
• Net income was $413 million, up 12% year-over-year from $369 million; diluted EPS was $3.28, up 16% from $2.82.
• Net income margin was 8.9%, compared to 8.3% in the prior year quarter.
• Adjusted EBITDA was $644 million, up 5% year-over-year from $616 million; Adjusted EBITDA margin was 13.9%, up from 13.8%.
• Non-GAAP diluted EPS was $3.62, up 19% year-over-year from $3.05.
• Net cash provided by operating activities was $523 million, with an operating cash flow conversion ratio of 128%.
• Non-GAAP free cash flow was $476 million, with a free cash flow conversion ratio of 105%.
• As of October 2, 2026, the company held $630 million in cash and cash equivalents and $6.0 billion in debt.

Guidance and Future Outlook:

• Leidos enhanced its fiscal year 2026 guidance for the third consecutive quarter following the closing of the Contribution and Equity Purchase Agreement with Altaris on October 5, 2026, which contributed the Security Enterprise Solutions and Industrial Automation (SES) businesses to a joint venture.
• Revised FY26 Revenue guidance is $18.00 billion to $18.20 billion (prior: $18.20 billion to $18.40 billion).
• Revised FY26 Non-GAAP Diluted EPS guidance is $12.50 to $12.70 (prior: $12.20 to $12.50).
• Revised FY26 Adjusted EBITDA margin guidance remains at the mid-13% range.
• Revised FY26 Cash Flows Provided by Operating Activities guidance is approximately $1.90 billion (prior: approximately $1.85 billion).

Business Segments and Product Lines:

• Intelligence & Digital: Revenues grew 1% year-over-year to $1.55 billion, driven by contract awards and expanded scope in Intelligence Community programs, offset by reductions in federal civilian IT programs. Operating income margin was 11.1%.
• Health: Revenues decreased 12% year-over-year to $1.07 billion due to expected program shifts and reduced volumes on managed health services. Operating income margin was 22.5%.
• Homeland: Revenues increased 32% year-over-year to $1.02 billion, driven by demand for air traffic management and electric power distribution solutions, plus $142 million from the ENTRUST Solutions acquisition. Operating income margin was 7.9%.
• Defense: Revenues increased 3% year-over-year to $992 million, led by demand for air defense, sensing, and C5ISR systems. Operating income margin was 8.7%.
• Net bookings totaled $5.5 billion, resulting in a book-to-bill ratio of 1.2.
• Total backlog reached $49.6 billion, with $11.1 billion funded; trailing-twelve-month book-to-bill was 1.1.

Market and Competitive Landscape:

• Revenue growth was driven by increased customer demand for defense tech products, air traffic management solutions, and intelligence mission support.
• The company secured key awards including a $717 million ISR contract with the U.S. Air Force, a $672 million contract with the TSA for security equipment deployment, and a $318 million bridge contract with the Defense Health Agency for MHS GENESIS.
• Leidos secured its first cyber operations award with U.S. Cyber Command (CYBERCOM) for a five-year, $160 million contract.
• The company expanded its position in space sensing with a $272 million award from Sierra Space for the Space Development Agency's Accelerated Missile Defense Tranche 3.

Risks and Challenges:

• Revenue growth was partially offset by declines in some managed health and federal civilian IT programs.
• Net income and diluted EPS reflect $12 million in costs associated with recent strategic corporate transactions.
• Forward-looking statements note risks including U.S. government budget reductions, sequestration, spending limits, and potential government shutdowns.
• Risks include delays in contract procurement, competitor protests, changes in procurement rules, and the ability to attract and retain skilled employees with security clearances.
• The company faces risks related to inflationary pressures, cybersecurity threats, and the ability to accurately estimate costs on firm-fixed-price contracts.

Management Commentary and Tone:

• CEO Tom Bell stated the company delivered "another quarter of strong financial performance," allowing for enhanced guidance for the third consecutive quarter.
• Management cited sustained momentum reflecting the strength of the team and commitment to the NorthStar 2030 strategy.
• The tone was confident, with management indicating plans to continue executing strategy, investing in differentiated capabilities, and deploying capital strategically to accelerate growth.

Other Key Points:

• The Board of Directors declared a cash dividend of $0.45 per share, a 4.7% increase over the prior quarter, payable December 31, 2026.
• Share repurchases totaled $504 million during the quarter, contributing to $556 million returned to shareholders in total (including dividends).
• The acquisition of ENTRUST Solutions contributed $142 million to Homeland segment revenues and added $371 million to backlog as of the acquisition date.
• Leidos closed the Contribution and Equity Purchase Agreement with Altaris, contributing the SES businesses to a newly formed joint venture.
• The company reported $48 million in investing activities, including $47 million in property, equipment, and software payments.