UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended April 4, 2025
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number 001-33072
| (Exact name of registrant as specified in its charter) | ||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
(571 ) 526-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||||||||||||||||||||
| Emerging growth company | |||||||||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares issued and outstanding of each of the issuer’s classes of common stock as of April 29, 2025, was 128,718,872 shares of common stock ($.0001 par value per share).
LEIDOS HOLDINGS, INC. FORM 10-Q
Table of Contents
| Part I | Page | |||||||
Item 1. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
| Part II | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
Item 5. | ||||||||
Item 6. | ||||||||
Part I—Financial Information
Item 1. Financial Statements
LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| (unaudited; in millions, except share and per share data) | April 4, 2025 | January 3, 2025 | ||||||||||||
| Assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Receivables, net | ||||||||||||||
| Inventory, net | ||||||||||||||
| Other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Property, plant and equipment, net | ||||||||||||||
| Intangible assets, net | ||||||||||||||
| Goodwill | ||||||||||||||
| Operating lease right-of-use assets, net | ||||||||||||||
| Other long-term assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||||||||
| Accrued payroll and employee benefits | ||||||||||||||
| Current portion of long-term debt | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term debt, net of current portion | ||||||||||||||
| Operating lease liabilities | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingencies (Note 11) | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
Common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Retained earnings | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Total Leidos stockholders’ equity | ||||||||||||||
| Non-controlling interest | ||||||||||||||
| Total stockholders' equity | ||||||||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
Leidos Holdings, Inc. | 1 | ||||
PART I—FINANCIAL INFORMATION
LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended | ||||||||||||||
| (unaudited; in millions, except per share data) | April 4, 2025 | March 29, 2024 | ||||||||||||
| Revenues | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||
| Acquisition, integration and restructuring costs | ||||||||||||||
| Equity earnings of non-consolidated subsidiaries | ( | ( | ||||||||||||
| Operating income | ||||||||||||||
| Non-operating income (expense): | ||||||||||||||
| Interest expense, net | ( | ( | ||||||||||||
Other (expense) income, net | ( | |||||||||||||
| Income before income taxes | ||||||||||||||
| Income tax expense | ( | ( | ||||||||||||
| Net income | ||||||||||||||
Less: net income (loss) attributable to non-controlling interest | ( | |||||||||||||
| Net income attributable to Leidos common stockholders | $ | $ | ||||||||||||
| Earnings per share: | ||||||||||||||
| Basic | $ | $ | ||||||||||||
| Diluted | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
2 | Leidos Holdings, Inc. | ||||
PART I—FINANCIAL INFORMATION
LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Three Months Ended | ||||||||||||||
| (unaudited; in millions) | April 4, 2025 | March 29, 2024 | ||||||||||||
| Net income | $ | $ | ||||||||||||
Foreign currency translation adjustments | ( | |||||||||||||
Unrecognized (loss) gain on derivative instruments | ( | |||||||||||||
| Pension adjustments | ||||||||||||||
| Total other comprehensive income (loss), net of taxes | ( | |||||||||||||
| Comprehensive income | ||||||||||||||
Less: net income (loss) attributable to non-controlling interest | ( | |||||||||||||
Comprehensive income attributable to Leidos common stockholders | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
Leidos Holdings, Inc. | 3 | ||||
PART I—FINANCIAL INFORMATION
LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
| (unaudited; in millions, except per share data) | Shares of common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income (loss) | Leidos stockholders' equity | Non-controlling interest | Total stockholders' equity | ||||||||||||||||||||||||||||||||||
| Balance at January 3, 2025 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of taxes | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuances of stock | — | — | — | ||||||||||||||||||||||||||||||||||||||
Repurchases of stock and other | ( | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
Dividends of $ | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net capital distributions to non-controlling interest | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Balance at April 4, 2025 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| (unaudited; in millions, except per share data) | Shares of common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income (loss) | Leidos stockholders' equity | Non-controlling interest | Total stockholders' equity | ||||||||||||||||||||||||||||||||||
| Balance at December 29, 2023 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of taxes | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Issuances of stock | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Repurchases of stock and other | ( | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
Dividends of $ | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net capital distributions to non-controlling interest | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Balance at March 29, 2024 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4 | Leidos Holdings, Inc. | ||||
PART I—FINANCIAL INFORMATION
LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended | |||||||||||
| (unaudited; in millions) | April 4, 2025 | March 29, 2024 | |||||||||
| Cash flows from operations: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operations: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Other | ( | ( | |||||||||
| Change in assets and liabilities | |||||||||||
| Receivables | ( | ( | |||||||||
| Other current assets and other long-term assets | ( | ( | |||||||||
| Accounts payable and accrued liabilities and other long-term liabilities | ( | ( | |||||||||
| Accrued payroll and employee benefits | ( | ||||||||||
| Income taxes receivable/payable | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Payments for property, equipment and software | ( | ( | |||||||||
| Other | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from debt issuance | |||||||||||
| Repayments of borrowings | ( | ( | |||||||||
| Payments for debt issuance costs | ( | ||||||||||
| Dividend payments | ( | ( | |||||||||
| Repurchases of stock and other | ( | ( | |||||||||
| Proceeds from issuances of stock | |||||||||||
| Net capital distributions to non-controlling interests | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash | ( | ||||||||||
Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | |||||||||||
| Less: restricted cash at end of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
Leidos Holdings, Inc. | 5 | ||||
PART I—FINANCIAL INFORMATION
LEIDOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS [CONTINUED]
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS [CONTINUED]
| Three Months Ended | |||||||||||
| (unaudited; in millions) | April 4, 2025 | March 29, 2024 | |||||||||
| Supplementary cash flow information: | |||||||||||
| Cash paid for income taxes, net of refunds | $ | ( | $ | ||||||||
| Cash paid for interest | |||||||||||
| Non-cash investing activity: | |||||||||||
Property, plant and equipment additions | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
6 | Leidos Holdings, Inc. | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1–Basis of Presentation and Summary of Significant Accounting Policies
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Leidos Holdings, Inc. ("Leidos"), a Delaware corporation, is a holding company whose direct 100 %-owned subsidiary and principal operating company is Leidos, Inc. Leidos, 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, Leidos' customers include the U.S. Department of Defense ("DoD"), 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. Unless indicated otherwise, references to "we," "us" and "our" refer collectively to Leidos Holdings, Inc. and its consolidated subsidiaries.
Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. We changed our Cash and Cash Equivalents policy to exclude outstanding payments from “Cash and cash equivalents” on the condensed consolidated balance sheets. Prior year financial information has been updated to conform to our current presentation on the condensed consolidated balance sheet and condensed consolidated statement of cash flows. See the Cash and Cash Equivalents section below for further discussion of the change and the impact on the financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which consist of normal recurring adjustments, necessary for a fair presentation thereof. The results reported in these unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed on February 11, 2025.
Leidos Holdings, Inc. | 7 | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ACCOUNTING STANDARDS UPDATES ISSUED BUT NOT YET ADOPTED
ASU 2023-09 Income Taxes
In December 2023, the FASB issued ASU 2023-09, to enhance the transparency and usefulness of income tax disclosures. The update requires enhancements to the annual rate reconciliation, including disclosure of specific categories and additional information for reconciling items meeting a quantitative threshold. The update also requires disclosure of income taxes paid disaggregated by federal, state and foreign taxes, and individual jurisdictions meeting a quantitative threshold.
The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis. Early adoption is permitted. We are currently evaluating the impacts of this update and plan to adopt these amendments using the prospective approach for annual disclosures in fiscal 2025.
ASU 2024-03 Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, to enhance the transparency of certain expense disclosures. The update requires disclosure of specific expense categories in the notes to the financial statements at interim and annual reporting periods. The update requires disaggregated information about certain prescribed expense categories underlying any relevant income statement expense caption.
The amendments in this update are effective for public entities for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. The amendments may be adopted either prospectively or retrospectively. Early adoption is permitted. We are currently evaluating the impacts of this update and plan to adopt these amendments for annual disclosures in fiscal 2027 and interim disclosures in fiscal 2028.
CHANGES IN ESTIMATES ON CONTRACTS
Changes in estimates related to contracts accounted for using the cost-to-cost method of accounting are recognized in the period in which such changes are made for the inception-to-date effect of the changes, with the exception of contracts acquired through a business combination, where the adjustment is made for the period commencing from the date of acquisition.
Changes in estimates on contracts were as follows:
| Three Months Ended | ||||||||||||||
| (in millions, except per share data) | April 4, 2025 | March 29, 2024 | ||||||||||||
| Favorable impact | $ | $ | ||||||||||||
| Unfavorable impact | ( | ( | ||||||||||||
| Net impact to income before income taxes | $ | $ | ||||||||||||
Impact on diluted EPS attributable to Leidos common stockholders | $ | $ | ||||||||||||
The impact on diluted earnings per share ("EPS") attributable to Leidos common stockholders is calculated using the statutory tax rate.
Revenue Recognized from Prior Obligations
We recognized revenue of $27 million and reduced revenue by $2 million from performance obligations satisfied in previous periods for the three months ended April 4, 2025, and March 29, 2024, respectively. The changes primarily relate to revisions of variable consideration including award and incentive fees, and revisions to estimates at completion resulting from changes in contract scope, mitigation of contract risks or true-ups of contract estimates at the end of contract performance.
CASH AND CASH EQUIVALENTS
Our cash equivalents are primarily comprised of investments in several large institutional money market accounts, with original maturity of three months or less. Effective as of the first quarter of fiscal 2025, we changed our policy to exclude outstanding payments from “Cash and cash equivalents” on the condensed consolidated balance sheets. To reflect the change in accounting policy, we recast "Cash and cash equivalents" and "Accounts payable and accrued liabilities" on the condensed consolidated balance sheet as of of January 3, 2025, reducing both balances by $94
8 | Leidos Holdings, Inc. | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
reported amounts. The recast of the condensed consolidated statement of cash flows for the three months ended March 29, 2024, resulted in an increase of $50 million to net cash provided by operations. Net cash provided by operations on the condensed consolidated statement of cash flows for the three months ended April 4, 2025, was not materially impacted by the change in accounting policy.
RESTRICTED CASH
Note 2–Revenues
REMAINING PERFORMANCE OBLIGATIONS
Remaining performance obligations ("RPO") represent the expected value of exercised contracts, both funded and unfunded, less revenue recognized to date. RPO does not include unexercised option periods and future potential task orders expected to be awarded under indefinite delivery/indefinite quantity ("IDIQ") contracts, General Services Administration Schedule or other master agreement contract vehicles, with the exception of certain IDIQ contracts where task orders are not competitively awarded and separately priced but instead are used as a funding mechanism, and where there is a basis for estimating future revenues and funding on future anticipated task orders.
As of April 4, 2025, we had $17 billion of RPO and expect to recognize approximately 65 % and 81 % over the next 12 months and 24 months, respectively, with the remainder to be recognized thereafter.
DISAGGREGATION OF REVENUES
We disaggregate revenues by customer-type, contract-type and geographic location for each of our reportable segments.
Disaggregated revenues by customer-type were as follows:
| Three Months Ended April 4, 2025 | |||||||||||||||||||||||||||||
| (in millions) | National Security & Digital | Health & Civil | Commercial & International | Defense Systems | Total | ||||||||||||||||||||||||
DoD and U.S. Intelligence Community | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Other U.S. government agencies(1) | |||||||||||||||||||||||||||||
Commercial and non-U.S. customers | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Three Months Ended March 29, 2024 | |||||||||||||||||||||||||||||
| (in millions) | National Security & Digital | Health & Civil | Commercial & International | Defense Systems | Total | ||||||||||||||||||||||||
DoD and U.S. Intelligence Community | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Other U.S. government agencies(1) | |||||||||||||||||||||||||||||
Commercial and non-U.S. customers | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
(1) Includes federal government agencies other than the DoD and U.S. Intelligence Community, as well as state and local government agencies.
Leidos Holdings, Inc. | 9 | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Disaggregated revenues by contract-type were as follows:
| Three Months Ended April 4, 2025 | |||||||||||||||||||||||||||||
| (in millions) | National Security & Digital | Health & Civil | Commercial & International | Defense Systems | Total | ||||||||||||||||||||||||
Cost-reimbursement and fixed-price-incentive-fee | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Firm-fixed-price | |||||||||||||||||||||||||||||
Time-and-materials and fixed-price-level-of-effort | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Three Months Ended March 29, 2024 | |||||||||||||||||||||||||||||
| (in millions) | National Security & Digital | Health & Civil | Commercial & International | Defense Systems | Total | ||||||||||||||||||||||||
Cost-reimbursement and fixed-price-incentive-fee | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Firm-fixed-price | |||||||||||||||||||||||||||||
Time-and-materials and fixed-price-level-of-effort | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Disaggregated revenues by geographic location were as follows:
| Three Months Ended April 4, 2025 | |||||||||||||||||||||||||||||
| (in millions) | National Security & Digital | Health & Civil | Commercial & International | Defense Systems | Total | ||||||||||||||||||||||||
United States | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
International | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Three Months Ended March 29, 2024 | |||||||||||||||||||||||||||||
| (in millions) | National Security & Digital | Health & Civil | Commercial & International | Defense Systems | Total | ||||||||||||||||||||||||
United States | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
International | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Revenues by customer-type, contract-type and geographic location exclude lease income of $17 million and $24 million for the three months ended April 4, 2025, and March 29, 2024, respectively.
10 | Leidos Holdings, Inc. | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONTRACT ASSETS AND LIABILITIES
Performance obligations are satisfied either over time as work progresses or at a point in time. Firm-fixed-price contracts are typically billed to the customer using milestone payments while cost-reimbursable and time and materials contracts are typically billed to the customer on a monthly or bi-weekly basis as indicated by the negotiated billing terms and conditions of the contract. As a result, the timing of revenue recognition, customer billings and cash collections for each contract results in a net contract asset or liability at the end of each reporting period.
Contract assets consist of unbilled receivables, which is the amount of revenue recognized that exceeds the amount billed to the customer. Unbilled receivables exclude amounts billable where the right to consideration is solely subject to the passage of time. Contract liabilities consist of deferred revenue, which represents cash advances received prior to performance for programs and billings in excess of revenue recognized.
The components of contract assets and contract liabilities consisted of the following:
| (in millions) | Balance sheet line item | April 4, 2025 | January 3, 2025 | |||||||||||||||||
| Contract assets - current: | ||||||||||||||||||||
| Unbilled receivables | Receivables, net | $ | $ | |||||||||||||||||
| Contract liabilities - current: | ||||||||||||||||||||
Deferred revenue(1) | Accounts payable and accrued liabilities | $ | $ | |||||||||||||||||
| Contract liabilities - non-current: | ||||||||||||||||||||
Deferred revenue(1) | Other long-term liabilities | $ | $ | |||||||||||||||||
(1) Certain contracts record revenue net of cost of revenues, and therefore, the respective deferred revenue balance will not fully convert to revenue.
The increase in unbilled receivables was primarily due revenue recognized on certain contracts, partially offset the timing of billings on certain contracts. The increase in deferred revenue was primarily due to the timing of advanced payments from customers, offset by revenue recognized during the period.
For the three months ended April 4, 2025, $137 million of revenue recognized was included as a contract liability at January 3, 2025. For the three months ended March 29, 2024, $157 million of revenue recognized was included as a contract liability at December 29, 2023.
Note 3–Acquisitions, Goodwill and Intangible Assets
BUSINESS ACQUISITION
On March 10, 2025, we entered into a definitive agreement to acquire a full spectrum cyber company for a preliminary purchase price of $300 million, subject to working capital and other customary adjustments. The transaction is expected to be completed in the second quarter of 2025, subject to the satisfaction or waiver of customary closing conditions. The company develops offensive and defensive cyber platforms and other solutions for the U.S. Government.
GOODWILL
The following table presents changes in the carrying amount of goodwill by reportable segment:
| (in millions) | National Security & Digital | Health & Civil | Commercial & International | Defense Systems | Total | ||||||||||||||||||||||||
Goodwill at December 29, 2023(1) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||||||||||||||||||||
Goodwill at January 3, 2025(1) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | |||||||||||||||||||||||||||||
Goodwill at April 4, 2025(1) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
(1) Carrying amount includes accumulated impairment loss of $596 million within the Commercial & International segment.
Leidos Holdings, Inc. | 11 | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
We evaluate qualitative factors that could cause us to consider whether the estimated fair value of each of our reporting units may be lower than the carrying value and trigger a quantitative assessment, including, but not limited to (i) macroeconomic conditions, (ii) industry and market considerations, (iii) our overall financial performance, including an analysis of our current and projected cash flows, revenues and earnings, (iv) a sustained decrease in share price and (v) other relevant entity-specific events including changes in management, strategy, partners or litigation.
During the three months ended April 4, 2025, and March 29, 2024, there were no
INTANGIBLE ASSETS
Intangible assets, net consisted of the following:
| April 4, 2025 | January 3, 2025 | ||||||||||||||||||||||||||||||||||
| (in millions) | Gross carrying value | Accumulated amortization | Net carrying value | Gross carrying value | Accumulated amortization | Net carrying value | |||||||||||||||||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||||||||||||||||||||
Programs | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Software and technology | ( | ( | |||||||||||||||||||||||||||||||||
Customer relationships | ( | ( | |||||||||||||||||||||||||||||||||
Total finite-lived intangible assets | ( | ( | |||||||||||||||||||||||||||||||||
Indefinite-lived intangible assets: | |||||||||||||||||||||||||||||||||||
| Trade names | — | — | |||||||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Amortization expense was $30 million and $37 million for the three months ended April 4, 2025, and March 29, 2024, respectively.
Program intangible assets are amortized over their respective estimated useful lives in proportion to the pattern of economic benefit based on expected future discounted cash flows. Customer relationships and software and technology intangible assets are amortized either on a straight-line basis over their estimated useful lives or over their respective estimated useful lives in proportion to the pattern of economic benefit based on expected future discounted cash flows, as deemed appropriate.
The estimated annual amortization expense as of April 4, 2025, was as follows:
Fiscal year ending (in millions) | |||||
| 2025 (remainder of year) | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 and thereafter | |||||
| $ | |||||
12 | Leidos Holdings, Inc. | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 4–Fair Value Measurements
The accounting standard for fair value measurements establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: observable inputs such as quoted prices in active markets (Level 1); inputs other than quoted prices in active markets that are observable, either directly or indirectly, or quoted prices that are not active (Level 2); and unobservable inputs in which there is little or no market data (e.g., discounted cash flow and other similar pricing models), which requires us to develop our own market participant assumptions used in pricing the asset or liability (Level 3).
The financial instruments measured at fair value on a recurring basis primarily consisted of the following:
| April 4, 2025 | January 3, 2025 | ||||||||||||||||||||||
| (in millions) | Carrying value | Fair value | Carrying value | Fair value | |||||||||||||||||||
| Derivatives | $ | $ | $ | $ | |||||||||||||||||||
As of April 4, 2025, and January 3, 2025, our derivatives primarily consisted of the cash flow interest rate swaps on $500
The carrying amounts of our financial instruments, other than derivatives, which include cash equivalents, accounts receivable, accounts payable and accrued expenses, are reasonable estimates of their related fair values. As of April 4, 2025, and January 3, 2025, the carrying value of our notes receivable of $16
Note 5–Derivative Instruments
We manage our risk to changes in interest rates through the use of derivative instruments. We do not hold derivative instruments for trading or speculative purposes. For variable rate borrowings, we use fixed interest rate swaps, effectively converting a portion of the variable interest rate payments to fixed interest rate payments. These swaps are designated as cash flow hedges.
| (in millions) | Balance sheet line item | April 4, 2025 | January 3, 2025 | ||||||||||||||
| Cash flow interest rate swaps | Other current assets | $ | $ | ||||||||||||||
Leidos Holdings, Inc. | 13 | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CASH FLOW HEDGES
We have interest rate swap agreements to hedge the cash flows of $500 2.96 %. The objective of these instruments is to reduce variability in the forecasted interest payments of the Variable Rate Loan. Under the terms of the interest rate swap agreements, we will receive monthly variable interest payments based on the one-month SOFR and will pay interest at a fixed rate.
The interest rate swap transactions are accounted for as cash flow hedges. The gain/loss on the swaps is reported as a component of other comprehensive income (loss) and is reclassified into earnings when the interest payments on the underlying hedged items impact earnings. A qualitative assessment of hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate the hedge may no longer be highly effective.
The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows:
| Three Months Ended | ||||||||||||||
| (in millions) | April 4, 2025 | March 29, 2024 | ||||||||||||
Total interest expense, net presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | $ | ||||||||||||
| Amount recognized in other comprehensive income | ||||||||||||||
| Amount reclassified from accumulated other comprehensive loss to interest expense, net | ( | ( | ||||||||||||
We expect to reclassify net gains of $2 million from accumulated other comprehensive loss into earnings during the next 12 months.
Note 6–Debt
Our debt consisted of the following:
| (in millions) | Stated interest rate | Effective interest rate | April 4, 2025 | January 3, 2025 | |||||||||||||||||||
| Senior unsecured term loan: | |||||||||||||||||||||||
$ | % | % | $ | $ | |||||||||||||||||||
| Senior unsecured notes: | |||||||||||||||||||||||
$ | % | % | |||||||||||||||||||||
$ | % | % | |||||||||||||||||||||
$ | % | % | |||||||||||||||||||||
$ | % | % | |||||||||||||||||||||
$ | % | % | |||||||||||||||||||||
$ | % | % | |||||||||||||||||||||
$ | % | % | |||||||||||||||||||||
$ | % | % | |||||||||||||||||||||
$ | % | % | |||||||||||||||||||||
| Finance leases due on various dates through fiscal 2032 | Various | ||||||||||||||||||||||
| Less: unamortized debt discounts and deferred debt issuance costs | ( | ( | |||||||||||||||||||||
| Total long-term debt | |||||||||||||||||||||||
| Less current portion | ( | ( | |||||||||||||||||||||
| Total long-term debt, net of current portion | $ | $ | |||||||||||||||||||||
14 | Leidos Holdings, Inc. | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
REVOLVING CREDIT FACILITY
We have a $1.0 billion senior unsecured revolving facility (the “Revolving Facility”). The Revolving Facility will mature in March 2028 and is subject to an annual commitment fee rate of 0.125 % on the unused credit availability and permits two additional one-year extensions subject to lender consent. Principal payments are made quarterly, with the majority of the principal due at maturity. As of April 4, 2025, and January 3, 2025, there were no
SENIOR NOTES
On February 20, 2025, we issued and sold $500 million senior notes maturing in March 2032 (the "2032 Notes") and $500 million senior notes maturing in March 2035 (the "2035 Notes", and together with the 2032 Notes, the "Notes"). The Notes are senior unsecured obligations issued by Leidos, Inc. and guaranteed by Leidos Holdings, Inc. The annual interest rates for the 2032 Notes and the 2035 Notes are 5.40 % and 5.50 %, respectively, and the interest is payable on a semi-annual basis. In connection with the issuance of the Notes, $10 million of debt issuance costs and discount were recognized, which were recorded as an offset against the carrying value of debt. The proceeds from the Notes were used to retire the $500 million senior unsecured notes due May 2025 and repurchase $500 million outstanding shares of common stock in connection with the Accelerated Share Repurchase ("ASR") agreement (see "Note 8–Earnings Per Share").
COMMERCIAL PAPER
We have a commercial paper program in which the Company may issue short-term unsecured commercial paper notes ("Commercial Paper Notes") not to exceed $1.0 billion. The proceeds will be used for general corporate purposes, including working capital, capital expenditures, acquisitions and share repurchases.
The Commercial Paper Notes are issued in minimum denominations of $0.25 million and have maturities of up to 397 days from the date of issuance. The Commercial Paper Notes either bear a stated or floating interest rate, if interest bearing, or will be sold at a discount from the face amount. As of April 4, 2025, and January 3, 2025, we did not
COVENANTS
The senior unsecured term loan, senior unsecured notes and Revolving Facility are fully and unconditionally guaranteed and contain certain customary restrictive covenants, including among other things, restrictions on our ability to create liens and enter into sale and leaseback transactions under certain circumstances.
The financial covenants in the Revolving Facility and the senior unsecured term loan require that we maintain, as of the last day of each fiscal quarter, a ratio of adjusted consolidated total debt to consolidated EBITDA of not more than 3.75 to 1.00, subject to increases to 4.50 to 1.00 for four fiscal quarters following a material acquisition, and a ratio of EBITDA to consolidated interest expense of not less than 3.50 to 1.00.
We were in compliance with all financial covenants as of April 4, 2025.
PRINCIPAL PAYMENTS
Future minimum payments of debt are as follows:
Fiscal Year Ending (in millions) | ||||||||
| 2025 (remainder of year) | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 and thereafter | ||||||||
| Total principal payments | ||||||||
| Less: unamortized debt discount and issuance costs | ( | |||||||
| Total long-term debt | $ | |||||||
Leidos Holdings, Inc. | 15 | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7–Accumulated Other Comprehensive Income (Loss)
Changes in the components of Accumulated Other Comprehensive Income (Loss) ("AOCI") were as follows:
| (in millions) | Foreign currency translation adjustments | Unrecognized gain (loss) on derivative instruments | Pension adjustments | Total AOCI | |||||||||||||||||||
| Balance at December 29, 2023 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Taxes | ( | ||||||||||||||||||||||
| Reclassification from AOCI | ( | ( | |||||||||||||||||||||
| Balance at January 3, 2025 | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||
| Taxes | ( | ( | |||||||||||||||||||||
| Reclassification from AOCI | ( | ( | |||||||||||||||||||||
| Balance at April 4, 2025 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
Reclassifications from unrecognized gain (loss) on derivative instruments are recorded in "Interest expense, net" in the condensed consolidated statements of operations.
Note 8–Earnings Per Share
The following table provides a reconciliation of the weighted average number of shares outstanding used to compute basic and diluted EPS for the periods presented:
| Three Months Ended | |||||||||||
| (in millions) | April 4, 2025 | March 29, 2024 | |||||||||
| Basic weighted average number of shares outstanding | |||||||||||
Dilutive common share equivalents—stock options and other stock awards | |||||||||||
| Diluted weighted average number of shares outstanding | |||||||||||
Anti-dilutive stock-based awards are excluded from the weighted average number of shares outstanding used to compute diluted EPS. The total outstanding stock options and vesting stock awards that were anti-dilutive were less than 0.5 million for the three months ended April 4, 2025, and 1 million for the three months ended March 29, 2024.
On February 20, 2025, we entered into an ASR agreement with a financial institution to repurchase shares of our outstanding common stock. We paid $500 million to the financial institution and received an initial delivery of 3 million shares at an average price of $131.50 per share. The purchase was recorded to "Additional paid-in capital" in the condensed consolidated balance sheets. All shares delivered were immediately retired. The final number of shares to be repurchased will be based on the company's volume-weighted average share price during the term of the agreement, less a discount. The ASR is expected to be completed in the second quarter of 2025.
Note 9–Income Taxes
For the three months ended April 4, 2025, the effective tax rate was 23.6 % compared to 23.1 % for the three months ended March 29, 2024. The increase to the effective tax rate was primarily due to a decrease in excess tax benefits related to employee stock-based payment transactions.
16 | Leidos Holdings, Inc. | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 10–Business Segments
Our operations and reportable segments are organized around the customers and markets we serve. We define our reportable segments based on the way the chief operating decision maker ("CODM"), currently our Chief Executive Officer, manages operations for the purposes of allocating resources and assessing performance. The CODM considers segment revenue and operating income to assist with the evaluation of strategic business decisions, including potential acquisitions or divestitures, whether to invest in certain products or services, share repurchases and the declaration of dividends.
The following table summarizes business segment information for the periods presented:
| Three Months Ended April 4, 2025 | ||||||||||||||||||||||||||||||||
| (in millions) | National Security & Digital | Health & Civil | Commercial & International | Defense Systems | Total | |||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||
| Direct labor | ||||||||||||||||||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||||||||||||||||||
| Other segment expense | ||||||||||||||||||||||||||||||||
| Segment operating income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Corporate expense | ||||||||||||||||||||||||||||||||
| Total operating income | $ | |||||||||||||||||||||||||||||||
| Three Months Ended March 29, 2024 | ||||||||||||||||||||||||||||||||
| (in millions) | National Security & Digital | Health & Civil | Commercial & International | Defense Systems | Total | |||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||
Direct labor | ||||||||||||||||||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||||||||||||||||||
| Other segment expense | ||||||||||||||||||||||||||||||||
| Segment operating income | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Corporate expense | ||||||||||||||||||||||||||||||||
| Total operating income | $ | |||||||||||||||||||||||||||||||
The statement of operations performance measures used to evaluate segment performance are revenues and operating income. As a result, "Interest expense, net," "Other (expense) income, net" and "Income tax expense" as reported in the condensed consolidated statements of operations are not allocated to our segments.
Other segment expenses include direct program costs such as material and subcontractor expenses, as well as allocable indirect costs such as depreciation and Corporate compensation expenses, but excludes direct labor which is separately presented above. The Health & Civil and Defense Systems segments also include equity earnings of non-consolidated subsidiaries within operating income.
Under U.S. Government Cost Accounting Standards, indirect costs including depreciation expense are collected in indirect cost pools, which are then collectively allocated to the reportable segments based on a representative causal or beneficial relationship of the costs in the pool to the costs in the base. As such, depreciation expense is not separately disclosed on the condensed consolidated statements of operations.
Leidos Holdings, Inc. | 17 | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 11–Commitments and Contingencies
LEGAL PROCEEDINGS
We are involved in various claims and lawsuits arising in the normal conduct of our business, none of which, in the opinion of management, based upon current information, will likely have a material adverse effect on our financial position, results of operations or cash flows.
CONTINGENCIES
Government Investigations and Reviews
We are routinely subject to investigations and reviews relating to compliance with various laws and regulations with respect to our role as a contractor to federal, state and local government customers and in connection with performing services in countries outside of the United States. Adverse findings could have a material effect on our business, financial position, results of operations and cash flows due to our reliance on government contracts.
Defense Contract Audit Agency
As of April 4, 2025, active indirect cost audits by the Defense Contract Audit Agency remain open for fiscal 2022 and subsequent fiscal years. Although we have recorded contract revenues based upon an estimate of costs that we believe will be approved upon final audit or review, we cannot predict the outcome of any ongoing or future audits or reviews and adjustments, and if future adjustments exceed estimates, our profitability may be adversely affected. As of April 4, 2025, we believe we have adequately reserved for potential adjustments from audits or reviews of contract costs.
Other Government Investigations and Reviews
As previously disclosed, the Company voluntarily self-reported to the Department of Justice and the Securities and Exchange Commission an investigation related to activities by its employees, third party representatives and subcontractors, raising concerns related to a portion of our business that conducts international operations, and has cooperated with both agencies. In December 2024, the Company received notification from the U.S. Department of Justice that it had closed its inquiry. While the Company has engaged with the SEC, the Company cannot anticipate the timing, outcome or possible impact of an SEC investigation, although violations of applicable laws may result in civil sanctions, including monetary penalties, and reputational damage.
In August 2022, the Company received a Federal Grand Jury Subpoena in connection with a criminal investigation being conducted by the U.S. Department of Justice Antitrust Division. The subpoena requests that the Company produce a broad range of documents related to three U.S. Government procurements associated with the Company’s Intelligence Group in 2021 and 2022. We are fully cooperating with the investigation, and we are conducting our own internal investigation with the assistance of outside counsel. It is not possible at this time to determine whether we will incur, or to reasonably estimate the amount of, any fines, penalties, or further liabilities in connection with the investigation pursuant to which the subpoena was issued.
COMMITMENTS
As of April 4, 2025, we have outstanding letters of credit of $57 million, principally related to performance guarantees on contracts and outstanding surety bonds with a notional amount of $149 million, principally related to performance and subcontractor payment bonds on contracts. The value of the surety bonds may vary due to changes in the underlying project status and/or contractual modifications.
18 | Leidos Holdings, Inc. | ||||
LEIDOS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of April 4, 2025, the future expirations of the outstanding letters of credit and surety bonds were as follows:
Fiscal year ending (in millions) | |||||
| 2025 (remainder of year) | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 and thereafter | |||||
| $ | |||||
Leidos Holdings, Inc. | 19 | ||||
PART I—FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of Leidos Holdings, Inc.'s ("Leidos") financial condition, results of operations, and quantitative and qualitative discussion about business environment and trends should be read in conjunction with Leidos' condensed consolidated financial statements and related notes.
The following discussion contains forward-looking statements, including statements regarding our intent, belief or current expectations with respect to, among other things, trends affecting our financial condition or results of operations, backlog, our industry, the impact of our merger and acquisition activity, government budgets and spending, our business contingency plans, interest rates and uncertainties in tax due to new tax legislation or other regulatory developments. In some cases, forward-looking statements can be identified by words such as “will,” “expect,” “estimate,” “plan,” “potential,” “continue” or similar expressions. Such statements are not guarantees of future performance and involve risks and uncertainties and actual results may differ materially from those in the forward-looking statements as a result of various factors. Some of these factors include, but are not limited to, the risk factors set forth in our Annual Report on Form 10-K, as updated by the risk factor in this report under Part II, Item 1A. "Risk Factors" and as may be further updated in subsequent filings with the U.S. Securities and Exchange Commission. Due to such uncertainties and risks, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to update these factors or to publicly announce the results of any changes to our forward-looking statements due to future events or developments.
Unless indicated otherwise, references in this report to "we," "us" and "our" refer collectively to Leidos and its consolidated subsidiaries.
OVERVIEW
Leidos 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, we bring domain-specific capabilities, technologies and insights to customers in each of these markets by leveraging seven technical core capabilities: trusted mission artificial intelligence, cyber operations, digital modernization, mission software systems, integrated systems, mission operations, and rapid prototyping and manufacturing. Our customers include the U.S. Department of Defense ("DoD"), the U.S. Intelligence Community, the U.S. Department of Homeland Security, the Federal Aviation Administration, the Department of Veterans Affairs, National Aeronautics and Space Administration and many other U.S. civilian, state and local government agencies, foreign government agencies and commercial businesses.
BUSINESS ENVIRONMENT AND TRENDS
U.S. GOVERNMENT MARKETS
During both of the three months ended April 4, 2025, and March 29, 2024, we generated approximately 87% of total revenues from contracts with the U.S. government. Accordingly, our business performance is affected by the overall level of U.S. government spending, especially national security, homeland security and intelligence spending, and the alignment of our service and product offerings and capabilities with current and future budget priorities of the U.S. government.
The federal government is currently operating under a continuing resolution that runs through September 30, 2025. Key congressional and administrative initiatives under consideration include tax reform, energy policy measures and investments in defense and border security.
The Department of Government Efficiency, established under the current administration aims to streamline federal operations and reduce expenditures which have resulted in contract cancellations, modifications and stop work orders. As a company, Leidos remains aligned with the administration's efforts to drive efficiency in government agencies and operations, while increasing the quality of mission outcomes.
20 | Leidos Holdings, Inc. | ||||
PART I—FINANCIAL INFORMATION
INTERNATIONAL MARKETS
Sales to customers in international markets represented approximately 8% of total revenues for both of the three months ended April 4, 2025, and March 29, 2024. Our international customers include foreign governments and their agencies. Our international business increases our exposure to international markets and the associated international regulatory, foreign currency exchange rate and geopolitical risks.
Changes in international trade policies, including higher tariffs on imported goods and materials, may increase the cost of certain goods necessary to fulfill our contractual requirements and for internal purposes. We expect to recover certain portions of the increase to the cost of goods through contractual measures. While we continue to evaluate the impact of the higher tariffs, we currently do not expect them to have a significant effect on our business.
RESULTS OF OPERATIONS
The following table summarizes our condensed consolidated results of operations for the periods presented:
| Three Months Ended | |||||||||||||||||
| (dollars in millions) | April 4, 2025 | March 29, 2024 | Percent change | ||||||||||||||
| Revenues | $ | 4,245 | $ | 3,975 | 6.8 | % | |||||||||||
Operating income | 530 | 415 | 27.7 | % | |||||||||||||
Non-operating expense, net | (52) | (47) | 10.6 | % | |||||||||||||
| Income before income taxes | 478 | 368 | 29.9 | % | |||||||||||||
| Income tax expense | (113) | (85) | 32.9 | % | |||||||||||||
| Net income | 365 | 283 | 29.0 | % | |||||||||||||
| Net income attributable to Leidos common stockholders | $ | 363 | $ | 284 | 27.8 | % | |||||||||||
| Operating margin | 12.5 | % | 10.4 | % | |||||||||||||
SEGMENT AND CORPORATE RESULTS
| Three Months Ended | |||||||||||||||||
National Security & Digital (dollars in millions) | April 4, 2025 | March 29, 2024 | Percent change | ||||||||||||||
| Revenues | $ | 1,878 | $ | 1,793 | 4.7 | % | |||||||||||
| Operating income | 185 | 175 | 5.7 | % | |||||||||||||
| Operating margin | 9.9 | % | 9.8 | % | |||||||||||||
The increase in revenues and operating income for the three months ended April 4, 2025, as compared to the three months ended March 29, 2024, was primarily attributable to a net increase in volumes on certain programs and program wins, partially offset by the completion of certain contracts.
Leidos Holdings, Inc. | 21 | ||||
PART I—FINANCIAL INFORMATION
| Three Months Ended | |||||||||||||||||
Health & Civil (dollars in millions) | April 4, 2025 | March 29, 2024 | Percent change | ||||||||||||||
| Revenues | $ | 1,291 | $ | 1,199 | 7.7 | % | |||||||||||
| Operating income | 299 | 222 | 34.7 | % | |||||||||||||
| Operating margin | 23.2 | % | 18.5 | % | |||||||||||||
The increase in revenues and operating income for the three months ended April 4, 2025, as compared to the three months ended March 29, 2024, was primarily attributable to a net increase in volumes and case complexity within the managed health services business.
| Three Months Ended | |||||||||||||||||
Commercial & International (dollars in millions) | April 4, 2025 | March 29, 2024 | Percent change | ||||||||||||||
| Revenues | $ | 568 | $ | 509 | 11.6 | % | |||||||||||
| Operating income | 37 | 34 | 8.8 | % | |||||||||||||
| Operating margin | 6.5 | % | 6.7 | % | |||||||||||||
The increase in revenues and operating income for the three months ended April 4, 2025, as compared to the three months ended March 29, 2024, was primarily attributable to a net increase in volumes and program wins, partially offset by the completion of certain programs.
| Three Months Ended | |||||||||||||||||
Defense Systems (dollars in millions) | April 4, 2025 | March 29, 2024 | Percent change | ||||||||||||||
| Revenues | $ | 508 | $ | 474 | 7.2 | % | |||||||||||
| Operating income | 34 | 21 | 61.9 | % | |||||||||||||
| Operating margin | 6.7 | % | 4.4 | % | |||||||||||||
The increase in revenues for the three months ended April 4, 2025, as compared to the three months ended March 29, 2024, was primarily attributable to program wins, partially offset by the completion of certain contracts.
The increase in operating income for the three months ended April 4, 2025, as compared to the three months ended March 29, 2024, was primarily attributable to program wins and a decrease in amortization expense.
| Three Months Ended | |||||||||||||||||
Corporate (dollars in millions) | April 4, 2025 | March 29, 2024 | Percent change | ||||||||||||||
| Operating loss | $ | (25) | $ | (37) | (32.4 | %) | |||||||||||
The decrease in operating loss for the three months ended April 4, 2025, as compared to the three months ended March 29, 2024, was primarily attributable to decreased general and administrative expenses and legal fees.
NON-OPERATING EXPENSE, NET
Non-operating expense, net for the three months ended April 4, 2025, was $52 million as compared to $47 million for the three months ended March 29, 2024. The increase was primarily driven by unfavorable exchange rate movements.
22 | Leidos Holdings, Inc. | ||||
PART I—FINANCIAL INFORMATION
PROVISION FOR INCOME TAXES
For the three months ended April 4, 2025, our effective tax rate was 23.6% compared to 23.1% for the three months ended March 29, 2024. The increase to the effective tax rate was primarily due to a decrease in excess tax benefits related to employee stock-based payment transactions.
In December 2021, the Organization for Economic Cooperation and Development enacted model rules for a new 15% global minimum tax framework (“Pillar Two”). Many governments around the world have enacted or are in the process of enacting Pillar Two legislation. The Pillar Two legislation became effective for certain jurisdictions beginning in fiscal 2024. We will continue to evaluate the impact of the rules as additional legislation gets enacted; however, there has been no material impact from jurisdictions where Pillar Two rules are currently in effect.
BOOKINGS AND BACKLOG
Effective for the first quarter of fiscal 2025, we changed our backlog policy to include estimated future revenue on task orders expected to be awarded under sole source indefinite delivery/indefinite quantity ("IDIQ") contracts in our reported backlog. We believe this presentation provides enhanced visibility for investors and more accurately reflects the future revenues we expect to generate from our business.
We recorded net bookings worth an estimated $2.1 billion during the three months ended April 4, 2025, as compared to $3.8 billion for the three months ended March 29, 2024.
The estimated value of our total backlog was as follows:
| April 4, 2025 | March 29, 2024(1) | ||||||||||||||||||||||||||||||||||
| (in millions) | Funded | Unfunded | Total | Funded | Unfunded | Total | |||||||||||||||||||||||||||||
| National Security & Digital | $ | 2,733 | $ | 21,601 | $ | 24,334 | $ | 2,411 | $ | 19,616 | $ | 22,027 | |||||||||||||||||||||||
| Health & Civil | 991 | 10,290 | 11,281 | 1,953 | 8,956 | 10,909 | |||||||||||||||||||||||||||||
| Commercial & International | 2,267 | 2,847 | 5,114 | 2,465 | 2,071 | 4,536 | |||||||||||||||||||||||||||||
| Defense Systems | 1,338 | 4,229 | 5,567 | 1,136 | 3,075 | 4,211 | |||||||||||||||||||||||||||||
| Total | $ | 7,329 | $ | 38,967 | $ | 46,296 | $ | 7,965 | $ | 33,718 | $ | 41,683 | |||||||||||||||||||||||
(1) Amounts have been recast to include estimated future revenue on task orders expected to be awarded under sole source IDIQ contracts. As a result, unfunded backlog increased $5,112 million.
Backlog represents the revenues we expect to recognize under negotiated contracts and unissued task orders on sole source IDIQ contracts, to the extent we believe their execution and funding to be probable. Backlog does not include potential task orders expected to be awarded under multiple award IDIQ contracts.
Backlog estimates are subject to change and may be affected by factors including modifications of contracts and foreign currency movements.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW OF LIQUIDITY
As of April 4, 2025, we had $842 million in cash and cash equivalents. We have a senior unsecured revolving credit facility which can provide up to $1 billion in additional borrowing, if required. As of April 4, 2025, and January 3, 2025, there were no borrowings outstanding under the revolving credit facility.
We had outstanding debt of $5.1 billion and $4.7 billion at April 4, 2025, and January 3, 2025, respectively. In February 2025, we issued and sold $500 million 5.40% and $500 million 5.50% senior unsecured notes maturing in March 2032 and March 2035, respectively. The annual interest rate is payable on a semi-annual basis. The proceeds from the issuance of the notes were used to retire the $500 million senior unsecured notes due May 2025 and repurchase $500 million outstanding shares of common stock.
We have a commercial paper program in which we may issue short-term unsecured commercial paper notes ("Commercial Paper Notes") and have maturities of up to 397 days from the date of issuance. As of April 4, 2025, and January 3, 2025, we did not have any Commercial Paper Notes outstanding.
Leidos Holdings, Inc. | 23 | ||||
PART I—FINANCIAL INFORMATION
We made principal payments on our debt of $529 million and $4 million during the three months ended April 4, 2025, and March 29, 2024, respectively. The activity for the three months ended April 4, 2025, included a $500 million payment to discharge the $500 million notes due May 2025.
Our senior unsecured term loan, senior unsecured notes and senior unsecured revolving facility contain financial covenants and customary restrictive covenants. We were in compliance with all financial covenants as of April 4, 2025.
We paid dividends of $53 million during both of the three months ended April 4, 2025, and March 29, 2024.
Stock repurchases of Leidos common stock may be made on the open market or in privately negotiated transactions with third parties including through accelerated share repurchase ("ASR") agreements. Whether repurchases are made and the timing and actual number of shares repurchased depends on a variety of factors including price, corporate capital requirements, other market conditions and regulatory requirements. The repurchase program may be accelerated, suspended, delayed or discontinued at any time.
On February 20, 2025, we entered into an ASR agreement with a financial institution to repurchase shares of our outstanding common stock. We paid $500 million to the financial institution and received an initial delivery of 3 million shares. The purchase was recorded to "Additional paid-in capital" in the condensed consolidated balance sheets (see "Note 8–Earnings Per Share"). All shares delivered were immediately retired.
During the three months ended March 29, 2024, we made open market repurchases of our common stock for an aggregate purchase price of $150 million. There were no open market share repurchases during the three months ended April 4, 2025.
For the next 12 months, we anticipate that we will be able to meet our liquidity needs, including servicing our debt, through cash generated from operations, available cash balances, borrowings from our commercial paper program and, if needed, sales of accounts receivable and borrowings from our revolving credit facility.
SUMMARY OF CASH FLOWS
The following table summarizes cash flow information for the periods presented:
| Three Months Ended | ||||||||||||||
| (in millions) | April 4, 2025 | March 29, 2024 | ||||||||||||
Net cash provided by operating activities(1) | $ | 58 | $ | 113 | ||||||||||
| Net cash used in investing activities | (22) | (12) | ||||||||||||
| Net cash used in financing activities | (110) | (228) | ||||||||||||
(1) Net cash provided by operating activities for the three months ended March 29, 2024, was recast to reflect a change in the accounting policy, see "Note 1–Basis of Presentation and Summary of Significant Accounting Policies."
Net cash provided by operating activities decreased $55 million during the three months ended April 4, 2025, when compared to the prior year quarter. The decrease was primarily due to the timing of payroll and employee benefit payments, partially offset by higher earnings and favorable changes in working capital.
Net cash used in investing activities increased $10 million during the three months ended April 4, 2025, when compared to the prior year quarter. The increase was primarily due to higher capital expenditures of $5 million in the current year quarter.
Net cash used in financing activities decreased $118 million for the three months ended April 4, 2025, when compared to the prior year quarter, primarily due to a net increase of $465 million in cash inflows from proceeds received from the issuance of debt, payments for borrowings and payments for debt issuance costs, partially offset by a $350 million net increase in stock repurchases primarily attributable to the accelerated share repurchase activities in the current quarter.
OFF-BALANCE SHEET ARRANGEMENTS
We have outstanding performance guarantees and cross-indemnity agreements in connection with certain aspects of our business. We also have letters of credit outstanding principally related to performance guarantees on contracts and surety bonds outstanding principally related to performance and subcontractor payment bonds as described in "Note 11–Commitments and Contingencies" of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q. These arrangements have not had, and management does not believe it is likely that they will in the future have, a material effect on our liquidity, capital expenditures or capital resources, operations or financial condition.
24 | Leidos Holdings, Inc. | ||||
PART I—FINANCIAL INFORMATION
GUARANTOR AND ISSUER OF GUARANTEED SECURITIES
Leidos Holdings, Inc. (“Guarantor”) has fully and unconditionally guaranteed the debt securities of its subsidiary, Leidos, Inc. (“Issuer”), that were issued pursuant to transactions that were registered under the Securities Act of 1933, as amended (collectively, the “Registered Notes”). The following is a list of the Registered Notes guaranteed by Leidos Holdings, Inc.
| Senior unsecured Registered Notes issued by Leidos, Inc.: | ||
$500 million 3.625% notes, due May 2025(1) | ||
| $750 million 4.375% notes, due May 2030 | ||
| $1,000 million 2.300% notes, due February 2031 | ||
$500 million 5.400% notes, due March 2032 | ||
$750 million 5.750% notes, due March 2033 | ||
$500 million 5.500% notes, due March 2035 | ||
(1) The $500 million senior unsecured notes were discharged as of April 4, 2025.
Leidos Holdings, Inc. has also fully and unconditionally guaranteed debt securities of Leidos, Inc. that were issued pursuant to transactions that were not registered under the Securities Act of 1933, as amended. The following is a list of unregistered debt securities guaranteed by Leidos Holdings, Inc.
| Senior unsecured unregistered debt securities issued by Leidos, Inc.: | ||
| $250 million 7.125% notes, due July 2032 | ||
| $300 million 5.500% notes, due July 2033 | ||
Additionally, Leidos, Inc. has fully and unconditionally guaranteed debt securities of Leidos Holding, Inc. that were issued pursuant to transactions that were not registered under the Securities Act of 1933, as amended. The following is a list of unregistered debt securities guaranteed by Leidos, Inc.
| Senior unsecured unregistered debt securities issued by Leidos Holdings, Inc.: | ||
| $300 million 5.950% notes, due December 2040 | ||
The following summarized financial information includes the assets, liabilities and results of operations for the Guarantor and Issuer of the Registered Notes described above. Intercompany balances and transactions between the Issuer and Guarantor have been eliminated from the financial information below. Investments in the consolidated subsidiaries of the Issuer and Guarantor that do not guarantee the senior unsecured notes have been excluded from the financial information. Intercompany payables represent amounts due to non-guarantor subsidiaries of the Issuer.
BALANCE SHEET INFORMATION FOR THE GUARANTOR AND ISSUER OF REGISTERED NOTES
| (in millions) | April 4, 2025 | January 3, 2025 | ||||||||||||
| Total current assets | $ | 2,639 | $ | 2,550 | ||||||||||
| Goodwill | 5,673 | 5,673 | ||||||||||||
| Other long-term assets | 1,502 | 1,498 | ||||||||||||
| Total assets | $ | 9,814 | $ | 9,721 | ||||||||||
| Total current liabilities | $ | 2,051 | $ | 2,677 | ||||||||||
| Long-term debt, net of current portion | 5,014 | 4,052 | ||||||||||||
| Intercompany payables | 3,540 | 3,319 | ||||||||||||
| Other long-term liabilities | 811 | 820 | ||||||||||||
| Total liabilities | $ | 11,416 | $ | 10,868 | ||||||||||
Leidos Holdings, Inc. | 25 | ||||
PART I—FINANCIAL INFORMATION
STATEMENT OF OPERATIONS INFORMATION FOR THE GUARANTOR AND ISSUER OF REGISTERED NOTES
| Three Months Ended | ||||||||
| (in millions) | April 4, 2025 | |||||||
| Revenues, net | $ | 2,698 | ||||||
| Operating income | 235 | |||||||
| Net income attributable to Leidos common stockholders | 32 | |||||||
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
We are subject to a number of reviews, investigations, claims, lawsuits, other uncertainties and future obligations related to our business. For a discussion of these items, see "Note 11–Commitments and Contingencies" of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There were no material changes to our critical accounting policies, estimates or judgments that would have a significant impact on earnings during the period covered by this report from those discussed in our Annual Report on Form 10-K for the year ended January 3, 2025.
RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS
For a discussion of these items, see "Note 1–Basis of Presentation and Summary of Significant Accounting Policies" of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.
26 | Leidos Holdings, Inc. | ||||
PART I—FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in our market risk exposure from those discussed in our Annual Report on Form 10-K for the year ended January 3, 2025.
Item 4. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our principal executive officer (our Chief Executive Officer) and principal financial officer (our Executive Vice President and Chief Financial Officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of April 4, 2025. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting during the quarter ended April 4, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Leidos Holdings, Inc. | 27 | ||||
Part II—Other Information
Item 1. Legal Proceedings
We have furnished information relating to legal proceedings, and any investigations and reviews that we are involved with in "Note 11–Commitments and Contingencies" of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
There were no material changes to the risks described in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended January 3, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)None
(b)None
(c)Purchases of Equity Securities by the Issuer
The following table presents information related to the repurchases of our common stock during the quarter ended April 4, 2025.
| Period | Total Number of Shares(1) (or Units) Purchased | Average Price Paid per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Repurchase Plans or Programs(2) | Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(2) | |||||||||||||||||||
| January 4, 2025 - January 31, 2025 | — | $ | — | — | 7,405,410 | ||||||||||||||||||
| February 1, 2025 - February 28, 2025 | 3,041,825 | 131.50 | 3,041,825 | 4,363,585 | |||||||||||||||||||
| March 1 - March 31, 2025 | 1,222 | 133.83 | — | 4,363,585 | |||||||||||||||||||
| April 1, 2025 - April 4, 2025 | — | — | — | 4,363,585 | |||||||||||||||||||
| Total | 3,043,047 | $ | 131.50 | 3,041,825 | |||||||||||||||||||
(1)The total number of shares purchased includes shares surrendered to satisfy statutory tax withholding obligations related to vesting of restricted stock units.
(2)In February 2022, our Board of Directors authorized a share repurchase program of up to 20 million shares of our outstanding common stock. The shares may be repurchased from time to time in one or more open market repurchases or privately negotiated transactions, including accelerated share repurchase transactions. The actual timing, number and value of shares repurchased under the program will depend on a number of factors, including the market price of our common stock, general market and economic conditions, applicable legal requirements, compliance with the terms of our outstanding indebtedness and other considerations. There is no assurance as to the number of shares that will be repurchased, and the repurchase program may be suspended or discontinued at any time at our Board of Directors' discretion. This share repurchase authorization replaces the previous share repurchase authorization announced in February 2018.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
RULE 10B5-1 TRADING ARRANGEMENT
During the three months ended April 4, 2025, no director or officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,”
28 | Leidos Holdings, Inc. | ||||
PART II—OTHER INFORMATION
Item 6. Exhibits
| Exhibit Number | Description of Exhibit | ||||
| 4.1 | |||||
| 4.2 | |||||
| 4.3 | |||||
| 18 | |||||
| 22 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
| 101 | Interactive Data File. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||
| 104 | Cover Page Interactive Data File. The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||
Leidos Holdings, Inc. | 29 | ||||
PART II—OTHER INFORMATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 6, 2025
Leidos Holdings, Inc.
| /s/ Christopher R. Cage | ||
Christopher R. Cage Executive Vice President and Chief Financial Officer and as a duly authorized officer | ||
30 | Leidos Holdings, Inc. | ||||