Leidos Holdings, Inc. (LDOS) - 10-K Summary
Business Context and Reporting Period
Company: Leidos Holdings, Inc.
Filing Type: Form 10-K (Annual Report)
Fiscal Year Ended: January 2, 2026 (Fiscal 2025)
Business Overview: Leidos is a technology and industry leader serving government and commercial customers with digital and mission innovations. The company operates through four reportable segments: National Security & Digital, Health & Civil, Commercial & International, and Defense Systems. Approximately 87% of revenues are derived from U.S. government contracts.
Key Financial Metrics
| Metric (in millions) | Fiscal 2025 | Fiscal 2024 | Change |
|---|---|---|---|
| Revenues | $17,174 | $16,662 | +3% |
| Operating Income | $2,109 | $1,827 | +15% |
| Operating Margin | 12.3% | 11.0% | +130 bps |
| Net Income (Attributable to Leidos) | $1,448 | $1,254 | +15% |
| Diluted EPS | $11.14 | $9.22 | +21% |
| Cash from Operations | $1,750 | $1,435 | +22% |
| Total Debt | $4.6 billion | $4.7 billion | -$100 million |
| Cash & Equivalents | $1,108 | $849 | +$259 million |
Material Changes vs. Prior Period
- Revenue Growth: Driven by program wins and net volume increases, partially offset by contract completions. The National Security & Digital segment contributed $60 million in revenue from the Kudu Dynamics acquisition.
- Margin Expansion: Operating margin improved to 12.3% from 11.0%, primarily due to program wins, volume increases, and operational efficiencies, despite higher general and administrative expenses.
- Segment Performance:
- Health & Civil: Operating income increased 10% to $1.2 billion, driven by write-ups in managed health services.
- Commercial & International: Operating income surged 60% to $166 million, aided by prior year write-downs in UK operations and favorable exchange rates.
- Defense Systems: Operating income grew 66% to $156 million due to volume increases and lower amortization.
- Tax Impact: The effective tax rate decreased to 23.4% from 23.7%, influenced by the "One Big Beautiful Bill Act" (OBBBA) and a decrease in unrecognized tax benefits.
Guidance, Outlook, and Risks
- Strategic Initiatives: Focus on the "NorthStar 2030" strategy, leveraging AI and automation for efficiency, and disciplined capital deployment.
- Backlog: Total backlog stands at $49.0 billion ($9.7 billion funded). The company changed its backlog policy to include estimated future revenue on sole-source IDIQ task orders, increasing reported unfunded backlog by $4.8 billion.
- Acquisitions: Completed the acquisition of Kudu Dynamics ($293 million) for AI-enabled cyber capabilities. Announced a subsequent agreement to acquire Entrust for $2.4 billion (expected to close in H1 2026).
- Capital Allocation: Continued share repurchases ($944 million in fiscal 2025, including a $500 million ASR) and quarterly dividends ($1.63 per share). Issued $1 billion in new senior notes to refinance debt and fund the ASR.
- Key Risks:
- Government Budget: Dependence on U.S. government spending (87% of revenue); risks include budget cuts, sequestration, and delays in appropriations.
- Regulatory: Compliance with evolving procurement rules (FAR overhaul), cybersecurity standards (CMMC), and data privacy laws.
- Geopolitical: Conflicts in Eastern Europe and the Middle East impacting supply chains and international operations.
- Goodwill: Goodwill represents 47% of total assets; impairment risks remain if cash flow forecasts deteriorate.
Investor Verification Checklist
- Backlog Realization: Verify the convertibility of the $39.3 billion unfunded backlog, particularly given the new policy inclusion of sole-source IDIQ estimates.
- Entrust Acquisition: Monitor the closing of the $2.4 billion Entrust acquisition and its integration impact on the Commercial & International segment.
- Tax Legislation Impact: Assess the long-term effects of the OBBBA on deferred tax assets and future effective tax rates.
- Government Appropriations: Track the status of U.S. federal appropriations and continuing resolutions, which directly impact revenue recognition timing.
- Goodwill Valuation: Review the annual impairment testing assumptions for the Security Enterprise Solutions (SES) reporting unit, which previously held significant impairment charges.