Business Overview and History Leidos Holdings, Inc. (LDOS) is an industry-leading provider of technology and engineering solutions that address the toughest challenges faced by government and commercial organizations worldwide. With a rich history spanning over five decades, Leidos has established itself as a trusted partner in delivering innovative, mission-critical solutions that enhance the efficiency, security, and capabilities of its clients.
Leidos was founded in 1969 by physicist Dr. Robert Beyster, who envisioned a company that would leverage scientific and engineering expertise to solve complex problems of global significance. Initially focused on providing technical services and solutions to government customers, particularly the U.S. Department of Defense and U.S. Intelligence Community, Leidos has since expanded its capabilities and customer base. The company now serves a wide range of customers, including various U.S. government agencies, commercial clients, and international markets.
A significant milestone in Leidos' history occurred in 2013 when it was spun off from SAIC, becoming an independent, publicly-traded company. This separation allowed Leidos to more nimbly respond to the changing needs of its government and commercial customers. The company continued to grow both organically and through strategic acquisitions, further enhancing its technical capabilities and customer reach.
Throughout its history, Leidos has faced and overcome various challenges, including navigating changes in government spending priorities and the competitive government contracting landscape. The company's response has been to diversify its portfolio, invest in new technologies, and maintain a strong focus on operational excellence and customer satisfaction. These efforts have enabled Leidos to weather periods of economic and political uncertainty and emerge as a leading provider of advanced technology solutions.
Today, Leidos boasts a global workforce of 48,000 employees and generates the majority of its revenues from contracts with the U.S. government, complemented by a growing international and commercial business. The company's core capabilities span areas such as cybersecurity, digital modernization, mission software systems, and rapid prototyping and manufacturing, enabling it to deliver innovative solutions to address the complex challenges faced by its diverse customer base.
In 2024, Leidos realigned its business into four reportable segments: National Security Digital, Health and Civil, Commercial International, and Defense Systems. This strategic reorganization has enabled the company to better focus on specific, defined capability sets and deliver more targeted solutions to its customers.
Financial Performance and Metrics Leidos' financial performance has been consistently strong, with the company delivering robust revenue growth and profitability. In fiscal year 2024, the company reported total revenue of $16.66 billion, representing an 8.0% increase compared to the prior year. This strong top-line growth was driven by a combination of program wins, increased volumes, and successful contract executions across Leidos' diverse portfolio of offerings.
The company's adjusted EBITDA margin for fiscal year 2024 stood at 12.9%, a 210-basis point improvement from the previous year. This margin expansion was achieved through a strategic focus on higher-margin work, as well as ongoing operational efficiency initiatives. Leidos' non-GAAP diluted earnings per share (EPS) for fiscal year 2024 reached $10.21, a remarkable 40% increase compared to the prior year.
For the most recent quarter ended January 3, 2025, Leidos reported revenue of $4.37 billion, representing a 9.7% year-over-year growth, and net income of $284 million. The company's full-year net income for fiscal year 2024 was $1.25 billion.
Liquidity and Cash Flow Leidos' balance sheet remains healthy, with a net debt position of $3.73 billion as of the end of fiscal year 2024. The company's strong cash flow generation, with $1.39 billion in operating cash flow and $1.24 billion in free cash flow during the year, has provided ample financial flexibility to invest in growth initiatives, return capital to shareholders, and maintain a prudent capital structure.
As of January 3, 2025, Leidos had a debt-to-equity ratio of 0.14, demonstrating a conservative capital structure. The company's liquidity position was strong, with $943 million in cash and cash equivalents and a $1 billion revolving credit facility, which had no outstanding borrowings. The current ratio stood at 1.21 and the quick ratio at 1.13, indicating a solid ability to meet short-term obligations.
Segment Performance National Security Digital Segment: This segment generated revenues of $7.37 billion in fiscal 2024, representing 44% of Leidos' total revenues. Segment operating income was $720 million, with an operating margin of 9.8%. The segment focuses on cyber operations, logistics, security operations, and decision analytics for defense and intelligence customers.
Health Civil Segment: Revenues for this segment reached $5.01 billion in fiscal 2024, accounting for 30% of total revenues. Segment operating income was $1.09 billion, with an impressive operating margin of 21.8%. The segment provides services in public health, care coordination, life sciences, and transportation.
Commercial International Segment: This segment generated revenues of $2.25 billion in fiscal 2024, representing 14% of total revenues. Segment operating income was $104 million, with an operating margin of 4.6%. The segment focuses on securing national assets, modernizing energy and critical infrastructure, and enhancing mission outcomes for international and commercial customers.
Defense Systems Segment: Revenues for this segment were $2.03 billion in fiscal 2024, accounting for 12% of total revenues. Segment operating income was $94 million, with an operating margin of 4.6%. The segment addresses threats by rapidly prototyping and delivering advanced hardware, software, and integrated systems solutions for defense customers.
Geographic Performance While Leidos generates the majority of its revenue from U.S. government contracts, approximately 8% of the company's revenues are generated by entities located outside of the United States. This international presence provides some geographic diversification and opportunities for growth in global markets.
Diversified Portfolio and Growth Opportunities Leidos' diversified portfolio of solutions and services positions the company well to capitalize on a wide range of growth opportunities across its key markets. In the National Security Digital segment, the company is leveraging its expertise in areas such as cyber operations, digital modernization, and mission software systems to support the critical needs of defense and intelligence customers.
Within the Health and Civil segment, Leidos has established a strong presence in areas like healthcare IT, life sciences research, and transportation solutions, including its long-standing partnership with the Federal Aviation Administration (FAA) to modernize the National Airspace System.
The Commercial International segment has been a source of growth, with the company's security products and solutions, digital modernization capabilities, and airborne solutions resonating with customers in the United Kingdom, Australia, and other international markets.
The Defense Systems segment continues to be a key pillar of Leidos' business, with the company developing advanced hardware, software, and integrated systems solutions for the DoD, U.S. military branches, and international customers. Recent contract wins in areas like hypersonic weapons, unmanned systems, and integrated air and missile defense have further strengthened Leidos' position in the defense market.
Outlook and Guidance Looking ahead, Leidos has provided guidance for fiscal year 2025 that reflects the company's confidence in its ability to continue delivering strong financial performance. The company expects revenue to range between $16.9 billion and $17.3 billion, representing growth of up to 4% compared to fiscal year 2024. Leidos has also guided for adjusted EBITDA margin in the mid- to high-12% range, indicating the company's commitment to expanding profitability.
Non-GAAP diluted EPS is expected to be between $10.35 and $10.75 for fiscal year 2025. The company anticipates operating cash flow of approximately $1.45 billion and capital expenditures of about $230 million, or 1.3% of revenues.
The company's robust backlog, which grew 18% year-over-year to $43.55 billion as of the end of fiscal year 2024, provides a solid foundation for future revenue and earnings growth. Leidos' strategic focus on high-priority areas, such as IT modernization, digital transformation, and critical defense capabilities, aligns well with the priorities of the current administration, positioning the company for continued success.
Industry Trends and Market Position Leidos operates primarily in the government services industry, which has experienced a compound annual growth rate (CAGR) of 6.6% over the past three years. This growth trend, coupled with Leidos' strong market position and diverse capabilities, positions the company well to capitalize on ongoing opportunities in the sector.
The company generates approximately 87% of its revenue from contracts with the U.S. government, either as a prime contractor or subcontractor. Leidos has established strong relationships with key customers, including the Department of Defense, Intelligence Community, Department of Homeland Security, and federal civilian agencies.
Risks and Challenges Like any industry-leading company, Leidos faces a range of risks and challenges that could impact its performance. These include the potential for changes in government spending priorities, increased competition in its key markets, regulatory compliance requirements, and the need to continuously invest in talent and technology to maintain its competitive edge.
The company's reliance on the U.S. government as its primary customer, particularly the DoD and the Intelligence Community, exposes Leidos to the risk of budget fluctuations and policy changes. The company's ability to navigate these challenges and adapt to shifting market dynamics will be crucial in sustaining its long-term growth and profitability.
Additionally, Leidos has faced some legal and compliance challenges. In August 2022, the company was subject to a federal grand jury subpoena related to a criminal investigation by the U.S. Department of Justice Antitrust Division. Leidos is cooperating with the investigation. Furthermore, in late 2021, the company discovered activities by its employees, third-party representatives, and subcontractors that raised concerns related to its international operations. Leidos conducted an internal investigation and voluntarily self-reported the findings to the Department of Justice and Securities and Exchange Commission. While the DOJ closed its inquiry in December 2024, the SEC investigation is ongoing.
Conclusion Leidos Holdings, Inc. has established itself as a premier provider of mission-critical solutions, leveraging its deep expertise in technology, engineering, and scientific disciplines to solve complex problems for its government and commercial customers. The company's strategic realignment, diversified portfolio, and focus on high-growth, high-margin opportunities have positioned it for continued success in the years ahead.
With a strong financial foundation, a robust backlog, and a talented workforce, Leidos is well-equipped to capitalize on the evolving needs of its customers and deliver long-term value for its shareholders. As the company continues to navigate the dynamic market landscape, its ability to innovate, adapt, and execute will be key to maintaining its industry-leading position and addressing the challenges and opportunities that lie ahead.