Leidos Holdings, Inc. (LDOS)

Leidos Holdings, Inc. is an industry and technology leader serving government and commercial customers with smarter, more efficient digital and mission innovations. Headquartered in Reston, Virginia, with 47,000 global employees, the company pursues strategic growth across five pillars: space and maritime; energy infrastructure; digital modernization and cyber; mission software; and managed health services. Customers include the U.S. Department of War, the U.S. Intelligence Community, the U.S. Department of Homeland Security, the Federal Aviation Administration, the Department of Veterans Affairs and many other U.S. civilian, state and local government agencies, foreign government agencies and commercial businesses. The company generated 87% of revenues for fiscal 2025 from U.S. government contracts, either as a prime contractor or a subcontractor to others, and approximately 8% of revenues are generated by entities located outside of the United States.

The industry is highly competitive, and Leidos often competes against many well-established corporations with strong name and brand recognition, as well as smaller, more specialized companies, the U.S. government's own capabilities, and federal non-profit contract research centers. Principal competitors named include Accenture Federal Services LLC, Amentum Services Inc., KBR, Inc., BAE Systems, Booz Allen Hamilton Inc., CACI International Inc., Deloitte, General Dynamics Corporation, GovCIO, IBM, KBR Inc., L3Harris Technologies, Inc., Lockheed Martin Corporation, ManTech, Northrop Grumman Corporation, Optum, Parsons Corporation, Peraton Inc., RTX Corporation and SAIC. Leidos competes by offering strong technical expertise, mission understanding, and retaining qualified staff, including those with security clearances, and focuses on fair pricing and program execution.

Leidos generates revenue under several types of contracts including cost-reimbursement, fixed-price-incentive-fee, time-and-materials, fixed-price-level-of-effort, and firm-fixed-price contracts. Revenues from firm-fixed-price contracts represented approximately 43% of total revenues for fiscal 2025. The company's consolidated revenues are largely attributable to prime contracts or to subcontracts with other contractors engaged in work for the U.S. government, with the remaining attributable to international customers, including the UK Ministry of Defence, the Australian Department of Defence, NATO and customers across a variety of commercial markets.

The business is aligned into four reportable segments: National Security & Digital, Health & Civil, Commercial & International and Defense Systems. National Security & Digital provides leading-edge and technologically advanced services, solutions and products across substantially all U.S. federal government customers, including digital modernization and transformation, mission software, multi-domain solutions, cyber operations, and intelligence analysis, mission support, and global logistics services. This segment represented 44% of total revenues for both fiscal 2025 and fiscal 2024 and 47% of total revenues for fiscal 2023. Health & Civil provides services and solutions to federal and commercial customers in public health, care coordination, life and environmental sciences and transportation, including managed health services, transportation solutions, health mission software, energy and environment, and life sciences research and development. This segment represented 30% for both fiscal 2025 and 2024 and 27% of total revenues for fiscal 2023.

Commercial & International delivers a portfolio of products, services, and solutions aimed at securing national assets, modernizing energy and critical infrastructure, and enhancing mission outcomes, including energy infrastructure, global security products and services, and international operations. This segment represented 13% of total revenues for fiscal 2025, and 14% of total revenues for both fiscal 2024 and 2023. Defense Systems addresses threats facing the nation by rapidly prototyping and delivering advanced hardware, software, and integrated systems solutions for the DoW, Army, Navy, Air Force, Space Force, Marine Corps, United States Special Operations Command, Defense Advanced Research Projects Agency and intelligence agencies, covering maritime systems, aerospace systems, land systems, and airborne systems. This segment represented 13% of total revenues for fiscal 2025, and 12% of total revenues for both fiscal 2024 and 2023.

During fiscal 2025, Leidos completed the acquisition of Savanna Industries, Inc. (Kudu Dynamics) for a final purchase consideration of $293 million ¹, net of $29 million of cash acquired, which provides artificial intelligence enabled cyber capabilities for defense, intelligence and homeland security customers. The company also completed an immaterial disposition of a business within the Commercial & International segment. During fiscal 2025, Leidos issued and sold $500 million 5.40% ² and $500 million 5.50% ³ senior unsecured notes maturing in March 2032 and March 2035, respectively, using the proceeds to retire the $500 million senior unsecured notes due May 2025 and repurchase $500 million ⁴ outstanding shares of common stock in an accelerated share repurchase agreement. The company paid dividends of $211 million ⁵ for fiscal 2025 and made open market repurchases of common stock for an aggregate purchase price of $400 million ⁶ during fiscal 2025.

For fiscal 2025, total revenues were $17,174 million ⁷, compared to $16,662 million ⁸ in fiscal 2024, representing a 3% increase. Net income attributable to Leidos common stockholders was $1,448 million ⁹ for fiscal 2025, compared to $1,254 million ¹⁰ in fiscal 2024, a 15% increase. Diluted earnings per share was $11.14 ¹¹ for fiscal 2025 versus $9.22 ¹² in the prior year. Operating income was $2,109 million ¹³ for fiscal 2025, a $282 million increase compared to $1,827 million ¹⁴ in fiscal 2024, and operating margin was 12.3% ¹⁵ compared to 11.0% ¹⁶ in fiscal 2024. Net cash provided by operating activities was $1,750 million ¹⁷ for fiscal 2025, compared to $1,435 million ¹⁸ in fiscal 2024.

A primary growth vector is the NorthStar 2030 strategy, which focuses on achieving annual revenue growth aligned with the five growth pillars of space and maritime, energy infrastructure, digital modernization and cyber, mission software, and managed health services. The company is also pursuing growth through acquisitions, as evidenced by the January 23, 2026, agreement to acquire all of the shares of Entrust for a purchase price of $2.4 billion ¹⁹ in cash, subject to customary adjustments. In connection with that acquisition, Leidos entered into an agreement for a senior unsecured 364-day bridge loan facility in an aggregate principal amount of $1.4 billion ²⁰. Additionally, on February 12, 2026, the company amended and restated its existing senior unsecured revolving credit facility to increase the borrowing capacity from $1.0 billion ²¹ to $1.5 billion ²².

Another growth vector is the expansion of international business, which represented approximately 8% of total revenues for fiscal 2025 and 2024. The company is seeking to grow its international business, which increases exposure to international markets and associated risks. The company also continues to invest in company-funded research and development, with expenses of $187 million ²³ in fiscal 2025, $150 million ²⁴ in fiscal 2024, and $128 million ²⁵ in fiscal 2023, representing 1.1% ²⁶, 0.9% ²⁷, and 0.8% ²⁸ of consolidated revenues, respectively.

Operating margin for fiscal 2025 was 12.3% ²⁹ compared to 11.0% ³⁰ for fiscal 2024. The increase in operating income was primarily attributable to program wins and a net increase in volumes on certain programs, partially offset by an increase in general and administrative expenses and the completion of programs. The company continues to review its cost structure against anticipated sales and undertake cost management actions and efficiency initiatives where necessary, driven by its enterprise transformation office leveraging artificial intelligence and automation.

The company's operational outlook includes continual improvements in the effectiveness and efficiency of business processes driven by the enterprise transformation office leveraging artificial intelligence and automation. As of January 2, 2026, Leidos employed approximately 47,000 ³¹ full and part-time employees, of whom approximately 41,900 ³² are located in the United States and the remainder in approximately 45 countries worldwide. Approximately 38% ³³ of employees have degrees in science, technology, engineering or mathematics fields, approximately 24% ³⁴ have advanced degrees, 53% ³⁵ possess U.S. security clearances, and approximately 19% ³⁶ are military veterans.

Capital allocation priorities include disciplined deployment of cash resources and use of the capital structure to enhance shareholder value while retaining an appropriate amount of financial leverage. Company-funded research and development expense was $187 million ³⁷ in fiscal 2025. Capital expenditures, reflected in payments for property, equipment and software, were $125 million ³⁸ in fiscal 2025, compared to $149 million ³⁹ in fiscal 2024. During fiscal 2025, the company made open market repurchases of common stock for an aggregate purchase price of $400 million ⁴⁰ and paid dividends totaling $1.63 ⁴¹ per share. The company also entered into an accelerated share repurchase agreement, paying $500 million ⁴² to a financial institution and receiving 3.6 million ⁴³ shares.

A significant headwind is the uncertainty surrounding U.S. government defense and non-defense budgets, including budget reductions, sequestration, implementation of spending limits or changes in budgetary priorities, initiatives aimed at improving governmental efficiency, delays in the U.S. government budget process or a government shutdown, or the U.S. government's failure to raise the debt ceiling. Revenues under contracts with the DoW and U.S. Intelligence Community represented approximately 49% ⁴⁴ of total revenues for fiscal 2025 and 48% ⁴⁵ for fiscal 2024. The company also faces headwinds from global supply chain issues and inflationary pressures, which have disrupted supply and increased the prices of goods and services, potentially raising costs associated with providing services and diminishing the ability to compete for new contracts.

Additional constraints include the competitive bidding process, which involves substantial costs and risks, including the risk of inaccurately estimating resources and costs required to fulfill contracts. The U.S. government has increasingly relied on contracts subject to a continuing competitive bidding process, including GSA Schedule and other multi-award contracts, resulting in greater competition and increased pricing pressure. The company also faces risks from the U.S. government's ability to terminate, cancel, modify, renew on less favorable terms or curtail contracts at any time prior to their completion, and from the potential for bid protests following contract awards.

Management's message emphasizes the company's position as an industry and technology leader serving government and commercial customers with smarter, more efficient digital and mission innovations. The key strategic priorities emphasized for the period ahead include achieving annual revenue growth guided by the NorthStar 2030 strategy focusing on growth pillars aligned with customers' priorities, continual improvements in the effectiveness and efficiency of business processes driven by the enterprise transformation office leveraging artificial intelligence and automation, and disciplined deployment of cash resources and use of the capital structure to enhance shareholder value while retaining an appropriate amount of financial leverage.

For fiscal 2025, total revenues were $17,174 million ⁵⁰ compared to $16,662 million ⁵¹ in fiscal 2024. Net income attributable to Leidos common stockholders was $1,448 million ⁵² versus $1,254 million ⁵³ in the prior year. Diluted earnings per share was $11.14 ⁵⁴ for fiscal 2025 compared to $9.22 ⁵⁵ in fiscal 2024. Operating income was $2,109 million ⁵⁶ in fiscal 2025 versus $1,827 million ⁵⁷ in fiscal 2024, with operating margin of 12.3% ⁵⁸ compared to 11.0% ⁵⁹. Net cash provided by operating activities was $1,750 million ⁶⁰ in fiscal 2025 versus $1,435 million ⁶¹ in fiscal 2024. As of January 2, 2026, cash and cash equivalents were $1,108 million ⁶² and total debt was $4.6 billion ⁶³. The effective tax rate was 23.4% ⁶⁴ in fiscal 2025 compared to 23.7% ⁶⁵ in fiscal 2024. The company recognized a non-cash goodwill impairment charge of $596 million ⁶⁶ in fiscal 2023 for the Security Enterprise Solutions reporting unit within the Commercial & International segment. For segment performance, National Security & Digital revenues were $7,611 million ⁶⁷ in fiscal 2025 with operating margin of 10.0% ⁶⁸; Health & Civil revenues were $5,069 million ⁶⁹ with operating margin of 23.7% ⁷⁰; Commercial & International revenues were $2,315 million ⁷¹ with operating margin of 7.2% ⁷²; and Defense Systems revenues were $2,179 million ⁷³ with operating margin of 7.2% ⁷⁴.

The company depends on government agencies as primary customers, with revenues from U.S. government contracts generating approximately 87% ⁴⁶ of total revenue in fiscal 2025, 2024, and 2023, and a decline in U.S. government budgets or changes in spending priorities could significantly and adversely affect future revenues. Revenues under contracts with the DoW and U.S. Intelligence Community represented approximately 49% ⁴⁷ of total revenues for fiscal 2025. The company faces intense competition from well-established corporations and smaller specialized companies, and the competitive bidding process involves substantial costs and risks, including bid protests. Cybersecurity breaches and other information security incidents could negatively impact business and financial results, impair the ability to provide services, and cause reputational harm; the company is subject to the DoD Cybersecurity Maturity Model Certification, which is phasing-in between November 2025 and November 2028 and requires meeting specified cybersecurity standards to be eligible for new contract awards. Goodwill represented 47% ⁴⁸ of total assets as of January 2, 2026, and any impairment could negatively impact results of operations and shareholders' equity, as demonstrated by the $596 million ⁴⁹ non-cash goodwill impairment charge recognized in fiscal 2023 for the Security Enterprise Solutions reporting unit.