Leidos Holdings, Inc.
CEO : Mr. Thomas A. Bell
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2023 Q2 | 6.7% YoY | 22.1% | 20.8% | 2023-08-01 |
Tom Bell says,
Revenue Growth and Financial Performance
- Leidos achieved revenue growth of 7% year-over-year in Q2 2023, driven by a healthy demand environment and strong organic growth across all segments.
- Margins, earnings, and cashflow rebounded from Q1 due to an improving business mix, a partial recovery in the security products business, and cost-saving initiatives implemented across the company.
- Adjusted EBITDA margin of 10.9% was up 150 basis points from Q1.
- Non-GAAP diluted earnings per share of $1.80 was up 22% sequentially.
- Operating cashflow of $164 million was up $262 million from the previous quarter.
Business Foundations
- Leidos has three distinct pillars as its business foundations: an incredible team, compelling technology creation, and the ability to act with pace while leveraging scale.
- The company has exceptionally talented and dedicated individuals, a differentiated culture with deep customer insights, and a focus on collaboration and entrepreneurship.
- Technological innovation at Leidos is impressive, with advances in disciplines such as secure software, cybersecurity, and signal processing, and a strong focus on artificial intelligence.
- Leidos is investing to broaden and deepen its workforce capabilities through upskilling employees in fields like AI, cyber, software, and digital engineering.
- The company operates with speed and scale, addressing customers’ holistic problems and operating with a strong bias for velocity.
Areas for Improvement
- Some recent acquisitions have fallen short of plan, but the company will redouble efforts to achieve the value envisioned in its acquisition business cases.
- The financial performance has not always met investors’ expectations, so Leidos is committed to a promises made, promises kept philosophy.
- Business development metrics have not been up to par, and the company aims to grow its total backlog over time with quality wins.
- Leidos will undergo strategic sharpening to optimize success, including simplifying the organizational structure, focusing on the bottom line, and being disciplined on capital allocation.
2023 Guidance
- Based on strong Q2 performance and revenue momentum, Leidos is raising the top and bottom of its revenue guidance to a new range of $14.9 billion to $15.2 billion.
- The adjusted EBITDA margin range guidance is widened to 40 basis points due to variability in the security products business.
- The revised EBITDA range is 10.1% to 10.5% for 2023.
- The non-GAAP diluted EPS range is reaffirmed at $6.40 to $6.80, and the operating cashflow target is reaffirmed at least $700 million.
Chris Cage says,
Revenue Growth
- Second quarter revenue was $3.84 billion, up 7% compared to the previous year.
- All three reporting segments experienced at least 5% organic growth.
Earnings Improvement
- Adjusted EBITDA was $420 million, up 15% year-over-year.
- Adjusted EBITDA margin increased 70 basis points to 10.9%.
- Non-GAAP net income was $252 million, up 15%.
- Non-GAAP diluted EPS was $1.80, up 13%.
Segment Performance
- Defense Solutions segment revenue increased 7% with growth in digital modernization and hypersonics.
- Health segment revenue increased 9% driven by SSA IT work and increased demand for medical examinations.
- Civil segment revenue increased 5% due to the NASA Aegis program and increased engineering support to commercial energy companies.
Profitability Improvement
- Non-GAAP operating margin for Defense Solutions increased to 9.3%.
- Non-GAAP operating margin for Health decreased to 17% due to COVID-19 related costs, but sequentially increased by 110 basis points.
- Civil non-GAAP operating margin improved to 9.1% compared to the prior year quarter.
Cashflow and Balance Sheet
- $164 million of cashflow from operating activities and $124 million of free cashflow generated.
- DSO improved to 59 days.
- Reduced debt by $125 million during the quarter.
Forward Outlook
- Revenue is expected to remain near Q2 levels in the second half of the year.
- EBITDA guidance range factors in security products business outcomes and special project work.
- EPS range aligns with cash target for the year.
- Cash generation is concentrated in Q3.
Q & A sessions,
Customer-driven Delays
- Customer-driven delays improved during the second quarter, although not back to the original plan
- There is a path towards resolving these delays
- Guidance was provided based on these improvements
In-Sourcing and Cost Reduction Actions
- Announcement of setting up a facility in Charleston for light manufacturing
- Modest investment with longer-term payback
- Improved ability to get component parts and circuit board repairs
- Senior resource focused on strategic supplier obsolescence parts management
Strong Pipeline and Selective Bidding
- Pipeline remains strong, with a focus on areas outside of conventional airport and ports and borders
- Selective bidding for maximum benefit to the bottom line and cashflow
Positive Outlook for Second Half Performance
- Potential for significantly stronger second half in security products
- Great quarter in Health with opportunity to sustain momentum
- Digital monetization programs continue to ramp up with opportunities for more project work in the back half of the year
Strong Performance in Defense Solutions Segment
- Highest OI margin in five years
- Progress on digital monetization programs and maturing development programs
- Better mix overall with Australian airborne aviation business acquisition
- Award fee scores were strong and closed out some older projects
No bad stock 