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    LDOS
    Earnings call· Jun 2026(Q2 FY26)

    Leidos Holdings Q2 FY26 earnings call LDOS

    Aug 4, 2026 Source

    Executive summary

    Leidos Q2 FY26 — Strong Performance Drives Raised Full-Year Guidance

    Leidos delivered a strong second quarter, driven by robust performance in Defense and Homeland segments, leading to raised full-year guidance despite headwinds in the Health segment. The company's NorthStar 2030 strategy is showing results, with accelerating customer procurement activity and a focus on defense tech, energy, and cyber growth pillars. Management is actively positioning for the upcoming VBA recompete while navigating administrative changes.

    Highlights

    5

    • Revenue grew 7% year-over-year, 4% organically to a record $4.6 billion.

    • Adjusted EBITDA margin remained best-in-class at 13.8%.

    • Operating cash flow reached a Q2 record of nearly $800 million.

    • Booked $5 billion in net awards, delivering a solid 1.1 book-to-bill ratio.

    • Raised the midpoint of 2026 revenue guidance by $100 million, EPS guidance by $0.05, and operating cash flow guidance by $50 million.

    Concerns

    2

    • VA decided to suspend incentive payments for all vendors for the medical disability examination program for the rest of this year, impacting the Health segment.

    • Health segment revenues contracted due to the full incorporation of the fourth vendor on the BVA Medical Disability Examination Regions contract.

    Guidance & targets

    14
    CategoryTargetConfidence
    Full-year 2026 Revenue
    Raised midpoint by $100 million
    high materiality
    High
    Full-year 2026 Non-GAAP Diluted EPS
    Raised midpoint by $0.05
    high materiality
    High
    Full-year 2026 Operating Cash Flow
    Raised by $50 million
    high materiality
    High
    Full-year 2026 Revenue Range
    Raised lower end by $200 million
    high materiality
    High
    Full-year 2026 Non-GAAP Diluted EPS Range
    Raised lower end by $0.10
    high materiality
    High
    Full-year 2026 Capital Expenditures
    Closer to $250 million
    medium materiality
    High
    Full-year 2026 Implied Free Cash Flow
    Up about $150 million
    high materiality
    High
    Full-year 2026 Adjusted EBITDA Margin
    Mid 13%
    high materiality
    High
    Health Segment Revenue
    Sustaining around Q2 levels
    medium materiality
    High
    Health Segment Non-GAAP Operating Income Margin
    Around 20%
    medium materiality
    High
    Defense Segment Growth
    Accelerate and post high single-digit growth
    medium materiality
    High
    Defense Segment Growth (ex-airborne ISR)
    Grow double digits
    medium materiality
    High
    Rest of Leidos Revenue Growth (Organic)
    Approximately 7%
    medium materiality
    High
    Rest of Leidos Adjusted EBITDA Growth
    19%
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Homeland
    Led all segments with 32% total growth and 15% organic growth. Reflected robust demand in commercial energy infrastructure and domestic and international air traffic management, plus some benefit from foreign exchange movements. Profitability increased significantly from Q1 levels through strong program execution.
    		—32%——
    Defense
    Accelerated to 6% organic growth as production ramped up on Integrated Air Defense and counter UAS programs. Profitability increased significantly from Q1 levels through strong program execution. Expect high single-digit growth for the year, and double-digit growth in 2026 excluding the airborne ISR business.
    		—6% organic——
    Health
    Revenues contracted from the full incorporation of the fourth vendor on the BVA Medical Disability Examination Regions contract. Margins were maintained through continued efficiencies enabled by technology insertion. Expect sustaining revenues around Q2 levels for the rest of the year with non-GAAP OI margins around 20%.
    		—contracted—maintained margins

    Operational metrics

    22
    Adjusted EBITDA
    $631 million
    Q2 FY26

    Adjusted EBITDA for the second quarter.

    Adjusted EBITDA Margin
    13.8%
    Q2 FY26

    Adjusted EBITDA margin for the second quarter.

    Non-GAAP Diluted EPS
    $3.26
    Q2 FY26

    Non-GAAP diluted earnings per share for the second quarter.

    Cash and Cash Equivalents
    $748 million
    Q2 FY26

    Cash and cash equivalents balance at quarter end.

    Gross Leverage
    2.5x
    Q2 FY26

    Gross leverage ratio at quarter end.

    Commercial Paper Paid Down
    $300 million
    Q2 FY26

    Remaining commercial paper tied to Entrust acquisition paid down.

    Share Repurchase
    $66 million
    Q2 FY26

    Completed previous 2022 board share repurchase authorization.

    Share Repurchase Authorization
    $20 millionnew authorization
    FY26

    New board authorization for share repurchases.

    Rest of Leidos Revenue Growth
    approximately 7%organic
    FY26

    Expected organic revenue growth for the company excluding the Health segment.

    Rest of Leidos Adjusted EBITDA Growth
    19%
    FY26

    Expected adjusted EBITDA growth for the company excluding the Health segment.

    Proposals in Pipeline
    $23 billion
    current

    Total value of proposals awaiting adjudication.

    Defense Tech Pipeline
    $12 billion
    next 12 months

    Pipeline of visible opportunities in the Defense Tech business.

    Huntsville Workforce Growth
    13%since beginning of year
    YTD

    Growth in the Huntsville workforce since the beginning of the year.

    Huntsville Manufacturing Workforce Growth
    33%of total growth
    YTD

    Percentage of Huntsville workforce growth attributed to manufacturing personnel.

    MDE Market CAGR
    2.1%
    CAGR

    Projected Compound Annual Growth Rate for the Medical Disability Exam market.

    Behavioral Health Market CAGR
    4.3%
    CAGR

    Projected Compound Annual Growth Rate for the Behavioral Health market.

    Rural Health Market CAGR
    4.5%
    CAGR

    Projected Compound Annual Growth Rate for the Rural Health market.

    Managed Health Market Size
    $13 billion
    current

    Current size of the Managed Health market.

    Managed Health Market Size
    $15 billion
    by 2030

    Projected size of the Managed Health market by 2030.

    Provider Network
    >15,000
    current

    Number of providers in the QTC subsidiary network.

    Clinics
    90
    current

    Number of clinics operated by the QTC subsidiary.

    Examinations Annually
    2.8 million
    annually

    Number of examinations conducted annually by the QTC subsidiary.

    Orderbook & backlog

    4
    Net Awards$5 billionQ2 FY26
    Book-to-bill ratio1.1Q2 FY26
    Defense Segment Book-to-bill ratio2.2Q2 FY26
    Defense Segment TTM Book-to-bill ratio1.9Q2 FY26

    Product announcements

    1
    ProductTypeDetails
    Parkadelaunch

    Deals & partnerships

    2
    AnalogicSES joint venture

    Joint venture with Analogic for the SES business, expected to close later this year. Guidance excludes any impact from this pending JV.

    Core ReeveStrategic partnership for secure cloud, AI, sovereign AI

    Major partnership geared at positioning Leidos as the preferred provider of secure cloud, AI, and sovereign AI for the intelligence community, including the Department of War.

    Capital programs

    1
    Department of War framework agreementunderway>$1 billion
    Start: this year

    Benefit: 3,000 low-cost containerized munitions

    Framework agreement to deliver 3,000 low-cost containerized munitions by 2030. Production readiness and scaling review scheduled for later this month, with full flight tests next summer and full rate production thereafter.

    Risks & headwinds

    3
    VA suspension of incentive paymentsRest of FY26

    Impacts Health segment for the rest of this year

    Mitigation: Proactively worked with the VA to apply real savings from technology insertion across contracts; outlook fully reflected in enhanced 2026 guidance.

    Health segment revenue contractionQ2 FY26 onwards

    Contracted from full incorporation of fourth vendor

    Mitigation: Maintained health margins through continued efficiencies enabled by technology insertion; expect sustaining revenues around Q2 levels for the rest of the year.

    Potential disruptions from Continuing Resolution (CR)Year-end

    Vulnerability for Intel and Digital segments

    Mitigation: Management does not anticipate a shutdown but expects a CR; the guidance range allows for potential impacts, with opportunities for acceleration if conditions break favorably.

    What to watch in Q3 FY26

    5

    VBA Recompete RFP Release

    Next 2-3 months
    CurrentExpected 'any day'
    TargetFormal RFP released with clear terms

    Why it matters

    The RFP terms will define the future structure and profitability of a significant part of the Health segment.

    Yes, we expect the draft RFP any day. And then we hope that, that will turn into a formal RFP, let's call it, 30, 45, 60 days later, and then you're in the bid process.

    Q&A highlights

    7

    Analyst asked about the DHA's decision to integrate MHS GENESIS internally and if this indicates a broader trend of agencies limiting systems integrators' roles.

    Management confirmed a trend towards in-sourcing systems integration and commercial tech acquisition across agencies but noted that Leidos transitions its value-added services to higher-level mission systems integration. They emphasized that agencies still need partners for maintenance and enhancement, and Leidos is well-positioned to continue support.

    “I think, honestly, the trend here is that there is an interest in-sourcing across many government agencies right now. What they're interested in-sourcing is the systems integration, as you say, but also the acquisition of commercial technology per the aspirations of this administration.”

    asked by Scott Mikus · answered by Thomas Bell

    2 min read6 chapters

    Detailed Narrative

    01

    NorthStar 2030 Strategy & Growth Pillars

    Leidos' NorthStar 2030 growth strategy is proving effective, with year-to-date financial performance indicating its success. The company is seeing meaningful growth emerge across its defense tech, energy, and cyber growth pillars. Specific programs highlighted include a $1 billion framework agreement with the Department of War for containerized munitions, positioning for a potential production award for the Navy's next-generation medium unmanned surface vessel, and providing sensor payloads for 18 missile warning and tracking satellites for Golden Dome.

    02

    Defense Segment Performance & Outlook

    The Defense segment delivered an exceptional quarter with accelerated revenue growth and expanded margins. It achieved a 2.2 book-to-bill ratio in Q2 and a 1.9 TTM book-to-bill, indicating robust customer traction. The company leverages its 'One Leidos' approach, combining hardware and software, products and services, as demonstrated by its leadership in the U.S. Army's Operation Jailbreak Hackathon, reinforcing its role in open architectures and future defense tech. The segment has a $12 billion pipeline of opportunities over the next 12 months.

    03

    Health Segment Challenges & Recompete

    Demand for the VBA medical disability exam business remains strong, but the VA has suspended incentive payments for all vendors for the rest of the year due to administrative review. This, along with the full incorporation of a fourth vendor, led to contracted revenues in the Health segment. Leidos is actively positioning for the upcoming recompete, expecting a draft RFP soon and potential contract extensions for current work through early to mid-2027, providing clearer visibility for next year.

    04

    MHS GENESIS & DHA Strategy

    Leidos successfully developed and deployed the Department of War's electronic health record system, MHS GENESIS, on time and under budget. The Defense Health Agency (DHA) is now able to procure underlying software directly from commercial vendors. Leidos continues to support and enhance MHS GENESIS under a sole-source bridge contract and is leveraging its expertise for the My Service Treatment record pilot program, which is seen as a significant future business driver.

    05

    Capital Allocation & Free Cash Flow

    The company reported a record Q2 operating cash flow of $793 million and free cash flow of $761 million. Capital expenditures for the year are now expected to be closer to $250 million, leading to an implied free cash flow guidance increase of $150 million. Leidos maintains a balanced approach to capital allocation, completing a $66 million share repurchase under its previous authorization and receiving a new board authorization, while remaining prudent regarding M&A given current valuations.

    06

    Fixed-Price Contracts & Cyber/AI Focus

    Leidos is seeing a trend towards fixed-price, outcome-based contracts across government agencies, a development it welcomes and actively pursues. The company is proactively positioning itself in full-spectrum cyber, as evidenced by its partnership with Core Reeve, to be a preferred provider of secure cloud, AI, and sovereign AI solutions for the intelligence community and Department of War, addressing the growing need for trusted mission AI solutions.

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