Leidos Holdings, Inc. 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended July 3, 2026 (Fiscal Q2 2026). Leidos is a technology and engineering firm serving U.S. government and commercial customers. Beginning in fiscal 2026, the company realigned its reporting structure into four segments: Intelligence & Digital, Health, Homeland, and Defense, with unallocable costs presented as Corporate. The company operates with approximately 50,000 global employees.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | Q2 2025 (3 Months) | YTD 2026 (6 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Revenues | $4,558 million | $4,253 million | $8,958 million | $8,498 million |
| Operating Income | $514 million | $571 million | $1,022 million | $1,101 million |
| Operating Margin | 11.3% | 13.4% | 11.4% | 13.0% |
| Net Income (Attributable to Leidos) | $354 million | $391 million | $682 million | $754 million |
| Diluted EPS | $2.81 | $3.01 | $5.37 | $5.80 |
| Cash from Operations (YTD) | $1,094 million (vs. $544 million YTD 2025) | |||
| Total Debt (Outstanding) | $6.0 billion (vs. $4.6 billion at Jan 2, 2026) | |||
| Cash & Equivalents | $748 million (as of July 3, 2026) |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 7.2% in Q2 and 5.4% YTD compared to the prior year, driven by program wins and the acquisition of Entrust.
- Profitability Decline: Operating income decreased 10.0% in Q2 and 7.2% YTD. Margins compressed due to increased acquisition, integration, and restructuring costs ($62 million YTD vs. $6 million prior year) and higher interest expense.
- Segment Performance:
- Homeland: Revenue surged 32.0% in Q2, largely due to the Entrust acquisition ($141 million contribution) and volume increases.
- Health: Revenue declined 7.6% in Q2 due to net volume decreases.
- Intelligence & Digital: Revenue grew 6.5% in Q2.
- Defense: Revenue grew 6.2% in Q2.
- Debt Increase: Total debt rose significantly to $6.0 billion following the issuance of $1.4 billion in senior notes (2029 and 2036 maturities) to fund the Entrust acquisition.
Guidance, Outlook, and Risks
- Acquisitions & Divestitures:
- Entrust: Completed March 27, 2026, for $2.4 billion. Adds infrastructure design and grid modernization capabilities to the Homeland segment.
- SES Divestiture: Entered an agreement to divest Security Enterprise Solutions and Industrial Automation businesses into a joint venture with Altaris, LLC. Assets are classified as "held for sale" ($943 million).
- Backlog: Total backlog stands at $48.7 billion ($10.2 billion funded, $38.5 billion unfunded). Net bookings were $4.9 billion in Q2 and $8.2 billion YTD.
- Liquidity: The company maintains a $1.5 billion revolving credit facility and a $1.5 billion commercial paper program, both currently undrawn. Management expects to meet liquidity needs through operations and available facilities.
- Risks & Contingencies:
- Government Funding: Reliance on U.S. government spending (83% of Q2 revenue) creates exposure to potential shutdowns if appropriations are not passed by September 30, 2026.
- Legal: Ongoing DOJ Antitrust Division investigation regarding procurements in 2021-2022; outcome and potential fines are currently indeterminable.
- Pension Settlement: Recognized a $23 million settlement loss in Q2 related to the buy-out of the UK defined benefit pension plan.
Investor Verification Checklist
- Entrust Integration: Verify the realization of synergies and the impact of the $1.65 billion goodwill recognized on future amortization and impairment risks.
- Debt Servicing: Confirm compliance with financial covenants (Debt/EBITDA < 3.75x) given the increased debt load and interest expense.
- SES Divestiture Timeline: Monitor the completion of the Security Enterprise Solutions joint venture transaction expected in H2 2026.
- Government Appropriations: Assess the risk of a federal government shutdown in late September 2026 and its potential impact on billings and revenue recognition.
- Antitrust Investigation: Track developments in the DOJ investigation for potential material fines or penalties.