Leidos Holdings, Inc. 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended April 3, 2026. Leidos is a technology and services company serving government and commercial customers. Effective fiscal 2026, the company realigned its reporting structure into four segments: Intelligence & Digital, Health, Homeland, and Defense, with unallocable costs presented as Corporate. The quarter included the acquisition of Entrust, an engineering firm focused on energy infrastructure.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Revenues | $4,400 million | $4,245 million |
| Operating Income | $508 million | $530 million |
| Net Income (Attributable to Leidos) | $328 million | $363 million |
| Diluted EPS | $2.56 | $2.77 |
| Operating Margin | 11.5% | 12.5% |
| Cash from Operations | $301 million | $58 million |
| Total Debt | $6.33 billion | $4.65 billion |
| Cash & Equivalents | $457 million | $842 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 3.7% year-over-year, driven by program wins and contributions from the Kudu Dynamics and Entrust acquisitions.
- Profitability Decline: Operating income decreased 4.2% and Net Income decreased 9.6%. This was primarily due to a $23 million pension settlement loss, increased interest expense from new debt issuances, and $29 million in acquisition and integration costs.
- Segment Performance:
- Intelligence & Digital: Revenue +7.5%, Operating Income +10.6%.
- Health: Revenue flat, Operating Income -1.4%.
- Homeland: Revenue +6.0%, but Operating Income dropped 45.9% due to Entrust integration costs and program write-downs.
- Defense: Revenue +0.5%, Operating Income -16.2% due to contract completions and write-downs.
- Balance Sheet: Total debt increased significantly to fund the Entrust acquisition ($2.4 billion purchase price). Cash and cash equivalents decreased by $666 million due to the acquisition outflow.
Guidance, Outlook, and Risks
- Acquisitions: The company completed the acquisition of Entrust for $2.4 billion in cash. Pro forma results suggest the acquisition would have increased Q1 2026 revenue to $4.528 billion and diluted EPS to $2.65.
- Backlog: Total backlog stands at $48.4 billion ($9.6 billion funded, $38.8 billion unfunded). Net bookings for the quarter were estimated at $3.3 billion.
- Liquidity: The company maintains a $1.5 billion revolving credit facility (undrawn) and a commercial paper program with $300 million outstanding. Management expects to meet liquidity needs through operations and available credit.
- Risks & Contingencies:
- Legal: Ongoing DOJ Antitrust Division investigation regarding procurements in 2021-2022; potential fines or penalties cannot be estimated.
- Government Audits: Active indirect cost audits by the Defense Contract Audit Agency (DCAA) for fiscal 2024 and subsequent years.
- Subsequent Event: Entered into an agreement to form a joint venture with Altaris LLC involving Leidos' Security Enterprise Solutions business, expected to close in H2 2026.
Investor Verification Checklist
- Entrust Integration: Verify the final purchase price allocation and the timeline for realizing anticipated synergies, as preliminary goodwill is subject to change.
- Debt Servicing: Confirm compliance with financial covenants (Debt/EBITDA ratio) given the significant increase in debt load to $6.3 billion.
- Legal Exposure: Monitor the status of the DOJ Antitrust investigation and potential financial impact.
- Contract Estimates: Review the impact of unfavorable contract estimate changes ($46 million unfavorable vs. $37 million favorable in Q1 2026) on future margins.
- Joint Venture: Assess the strategic rationale and financial impact of the proposed joint venture with Altaris LLC announced in April 2026.