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    LDOS
    Earnings call· Mar 2026(Q1 FY26)

    Leidos Holdings Q1 FY26 earnings call LDOS

    May 5, 2026 Source

    Executive summary

    Leidos Q1 FY26 — Strong Start and Raised Full-Year Guidance

    Leidos delivered a strong Q1 FY26, driven by robust performance in Intelligence and Digital, and Homeland segments, and the accretive Entrust acquisition. The company raised its full-year guidance for revenue, EPS, and operating cash flow, signaling confidence in its NorthStar 2030 growth strategy. While Q2 is anticipated to be a low point for revenue and margin due to program transitions and growth investments, management remains bullish on the long-term outlook, particularly in Defense Tech, managed health, and digital infrastructure, leveraging AI as an accelerant.

    Highlights

    5

    • First quarter revenue increased 4% year-on-year to $4.4 billion.

    • Adjusted EBITDA was $614 million, resulting in a 14% margin.

    • Non-GAAP diluted EPS grew 5% to $3.13.

    • Generated $301 million in cash flows from operating activities and $270 million in free cash flow.

    • Raised full-year 2026 guidance for revenue by $500 million, non-GAAP diluted EPS by $0.05, and operating cash flow by $50 million.

    Concerns

    3

    • Defense non-GAAP operating margin decreased to 8.3% from 9.8% in the prior year quarter due to a scheduled delay on a fixed-price development program.

    • Homeland non-GAAP operating margin decreased to 8.5% from 9.4% in the prior year quarter, reflecting changing customer requirements on a fixed-price program.

    • Q2 is expected to be the likely low point in revenue growth and margin for the year.

    Guidance & targets

    5
    CategoryTargetConfidence
    Full-year 2026 Revenue
    $18 billion to $18.4 billion
    high materiality
    High
    Full-year 2026 Non-GAAP Diluted EPS
    $12.10 to $12.50
    high materiality
    High
    Full-year 2026 Operating Cash Flow
    approximately $1.8 billion
    high materiality
    High
    Full-year 2026 Adjusted EBITDA Margin
    mid-13s
    high materiality
    High
    Entrust Acquisition Accretion
    accretive to non-GAAP EPS and cash in 2026
    high materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Intel and Digital
    Revenue growth driven by recent contract awards and increased volumes for intelligence community mission support, along with contribution from the Kudu Dynamics acquisition. Excellent performance for this portfolio.
    Organic growth: 6%Non-GAAP operating income margin (prior year): 9.7%Revenue from Kudu acquisition: $22 million
    		—7%—10.2%
    Health
    Sustained excellent performance on the top and bottom line, with revenues unchanged and profitability relatively stable across periods.
    		—unchanged——
    Homeland
    Revenue increase driven by surging demand for energy infrastructure engineering services and domestic and international air traffic control systems. Non-GAAP operating margin reflected changing customer requirements on a fixed-price program.
    Non-GAAP operating margin (prior year): 9.4%
    		—6%—8.5%
    Defense
    Revenue growth from integrated air defense systems offset the wind down of some airborne surveillance programs. Non-GAAP operating margin was impacted by a scheduled delay on a fixed-price development program (Space Wide Field of View Tranche 1).
    Non-GAAP operating margin (prior year): 9.8%
    		$883 millionslightly up—8.3%

    Operational metrics

    16
    Revenue
    $4.4 billionup 4% year-on-year
    Q1 FY26

    Total revenue for the first quarter, with organic growth component.

    Adjusted EBITDA
    $614 millionup 2% year-over-year
    Q1 FY26

    Adjusted EBITDA for the first quarter.

    Adjusted EBITDA margin
    14%
    Q1 FY26

    Profitability remained excellent to start 2026.

    Non-GAAP diluted EPS
    $3.13grew 5%
    Q1 FY26

    Non-GAAP diluted EPS for the first quarter.

    Days Sales Outstanding (DSO)
    59 days
    Q1 FY26

    DSO performance, reflecting proactive collections and disciplined working capital management.

    Commercial paper balance
    $300 million
    end of Q1 FY26

    Commercial paper balance at the end of the first quarter, part of Entrust acquisition funding.

    Stock repurchases
    $200 million
    Q1 FY26

    Amount of stock repurchased in the open market as part of balanced capital deployment.

    Total debt
    $6.3 billion
    end of Q1 FY26

    Total debt at the end of the quarter.

    Cash and cash equivalents
    $457 million
    end of Q1 FY26

    Cash and cash equivalents balance at the end of the quarter.

    Gross leverage ratio
    2.6x
    end of Q1 FY26

    Gross leverage ratio at the end of the quarter, providing ample capacity for investment.

    IC budgets growth
    4% to 5%
    annually since 2022

    Growth rate of IC budgets, expected to continue in the future.

    Cyber pipeline
    $24 billion21% increase since the acquisition of Kudu
    current

    Total cyber pipeline value, reflecting surging demand and impact from Kudu acquisition.

    Entrust order pipeline
    $10 billiongrowth of 230% post close
    current

    Refreshed order pipeline for the combined energy business post-Entrust acquisition.

    Venture stage investment
    $100 million
    multi-year

    Strategic venture stage investment to stay at the forefront of market innovation.

    Military OneSource award
    $456 million
    current

    Award for providing confidential counseling, financial planning, tax assistance, and career coaching to military personnel and families.

    ABADS-MD contract
    $2.2 billion
    current

    Contract under which serial production of the ALPS product has begun.

    Orderbook & backlog

    6
    Defense Tech awards$9 billionlast 15 months
    Defense Tech pipeline$8 billionnext 12-month pipeline
    Cyber pipeline$24 billioncurrent

    21% increase since the acquisition of Kudu

    Entrust order pipeline$10 billionpost close

    growth of 230%

    Book-to-bill ratio0.8Q1 FY26
    Book-to-bill ratio1.1xtrailing 12 months

    Product announcements

    6
    ProductTypeDetails
    AGM-190A (Small Cruise Missile)milestone
    MUSVs (Medium Unmanned Surface Vehicles)milestone
    Seahawk MUSVmilestone
    Air Shieldmilestone
    ALPS (Advanced Long-Range Persistent Surveillance Radar)milestone
    My Service Treatment Recordlaunch

    Deals & partnerships

    3
    EntrustExpands Leidos' energy infrastructure services, adding breadth and depth to the business.$2.4 billion

    Closed in March, just 2 months after announcement. Integration is ahead of schedule, and cultural alignment is seamless. Already producing new opportunities, including first energy generation plant RFP and detailed design for Canada's largest battery electrical storage facility.

    KuduCombined Kudu's elite offensive cyber tools with Leidos' existing signal processing capabilities and defensive cyber leadership.

    Acquisition from last year. The combined capabilities created an integrated toolkit that customers increasingly rely on, aligning with the national cyber strategy.

    AnalogicCombines Leidos' SES business into a joint venture with Analogic to create a focused American leader in homeland defense.Leidos retains a significant minority interest.

    Purposefully formed to leverage necessary capital for growth while participating in the market upside without leaning in with Leidos cash from the beginning.

    Capital programs

    1
    Venture Stage Investmentcommitted$100 million

    Benefit: Early access to vetted pipeline of high-growth disruptors with mission-ready capabilities in AI, advanced cyber, and autonomy.

    Multiyear investment in a marquee PE firm with a proven track record in the federal technology space, balancing strategic moves with surgical venture stage investment.

    Risks & headwinds

    4
    Fixed-price program delays and changing customer requirementsQ1 FY26

    Defense non-GAAP operating margin decreased from 9.8% to 8.3%; Homeland non-GAAP operating margin decreased from 9.4% to 8.5%.

    Mitigation: For Defense, new programs with superior economic profiles are ramping up. For Homeland, prudent cost management and excellent award/incentive fee performance helped maintain overall profitability.

    Q2 expected to be low point for revenue growth and marginQ2 FY26

    Q2 is probably more similar to Q1, maybe a small step down on run rate and profitability.

    Mitigation: Expects significant momentum and growth to build in Q3 and Q4, carrying into 2027. Growth investments will rise in Q2 for compelling opportunities with long-term upside.

    Procurement still recovering from protracted government shutdownOngoing

    Book-to-bill ratio of 0.8 in the quarter.

    Mitigation: Expects awards to pick up significantly over the course of the year.

    Increased growth investmentsQ2 FY26

    Near-term growth investments will rise, impacting Q2 profitability.

    Mitigation: These investments are for locking in franchise positions on compelling opportunities (e.g., Military OneSource, My Service Treatment Record, Defense product lines) that are expected to create long-term upside.

    What to watch in Q2 FY26

    5

    Defense segment operating margin

    Over the course of the year
    Current8.3%
    TargetTrend positively as new programs ramp up

    Why it matters

    Indicates successful execution and profitability of new defense programs, offsetting fixed-price program headwinds.

    When you think of things like our IFPC program, which were continuing to win the next slot for our [ PoNS ] program, our [ AVAD ] program. Those all have superior economic profiles with them. And as those programs ramp up in larger quantities this year, you'll see that Defense level profitability continue to trend positively over the course of the year.

    Q&A highlights

    7

    Asked about the 150 bps decline in Defense operating margin, its drivers (specifically fixed-price programs), and the expected trend, along with an update on key programs like Dynetics.

    Chris Cage attributed the Defense profitability decline to the Space Wide Field of View Tranche 1 development program. He expects profitability to trend positively as new programs like IFPC, PoNS, and AVAD ramp up with superior economic profiles, emphasizing the team's focus on pricing and bidding strategies.

    “So the Defense profitability, that was kind of reflecting the development stage program on our Space Wide Field of View Tranche 1, which we're all in on getting that program delivered this year and on track to do so. But we're really encouraged about the new programs that we've been awarded and are ramping up.”

    asked by Sheila Kahyaoglu · answered by Chris Cage

    2 min read5 chapters

    Detailed Narrative

    01

    NorthStar 2030 Strategy & Growth Pillars

    Leidos is actively executing its NorthStar 2030 growth strategy, focusing on five key growth pillars: Defense Tech, managed health, digital infrastructure and cyber, energy resilience, and mission software. The strategy emphasizes increasing investments in these areas, making the company faster and leaner, and leveraging its scale through technology insertion and cross-business learning. This approach aims to deliver superior top and bottom-line results by adapting to changing market dynamics and rapidly deploying learnings to customers.

    02

    Defense Tech Momentum and Key Programs

    The Defense Tech portfolio is experiencing strong demand, securing over $9 billion in awards in the last 15 months and identifying another $8 billion in its next 12-month pipeline. Key initiatives include accelerating production of the AGM-190A small cruise missile, responding to the U.S. Navy for medium unmanned surface vehicles (MUSVs) like the Seahawk, and scaling production of Air Shield high-power microwave counter UAS technology. Serial production of the ALPS passive sensing system has also commenced under the $2.2 billion ABADS-MD contract, highlighted as a critical sensor for the Golden Dome architecture.

    03

    Health Segment Expansion and Innovation

    Leidos' Health growth pillar is expanding beyond its core Veterans Benefits Exam business, which maintained high volumes in Q1. New strategic awards include the $456 million Military OneSource contract, providing comprehensive support to military personnel, and a pilot program for My Service Treatment Record, an AI-driven tool to automate medical record transfers for service members. The company is focusing on digital ecosystems, behavioral health, and rural health to ensure sustainable growth and long-term customer stickiness within the managed health market.

    04

    Strategic Portfolio Moves and Acquisitions

    The company has undertaken three substantial portfolio moves in the last 12 months. The Entrust acquisition, closed quickly in March, is ahead of schedule on integration and expands Leidos' energy infrastructure services, already generating new opportunities and a $10 billion order pipeline. The Kudu acquisition, completed last year, has accelerated the use of AI in cyber mission software, contributing to a $24 billion cyber pipeline. Additionally, Leidos announced a joint venture with Analogic for its SES business, aiming to create a focused American leader in homeland defense while preserving shareholder upside through a significant minority interest.

    05

    AI as a Business Accelerant

    Leidos views AI as an accelerant, not a threat, to its business model, enabling faster and more efficient operations. AI compresses the bottom of the solution value chain, freeing up specialized talent to focus on complex, mission-critical problems that require deep customer understanding, security clearances, and regulatory expertise. The company's market position in highly cleared environments, proprietary data access, and trusted customer relationships are amplified by AI, strengthening its role as a trusted mission AI expert, particularly within its foundational federal digital infrastructure business.

    AI-generated summary of the company’s earnings call. Not investment advice.