Key Highlights

● Revenue was $4,558 million, up 7% and 4% organic.

● Net income fell 9% to $356 million.

● Total backlog was $48.7 billion and funded backlog $10.2 billion, up 44%.

● Operating cash flow guidance rose to about $1.85 billion.

Leidos Holdings, Inc. (NYSE:LDOS) reported second-quarter fiscal 2026 results on 4 August 2026 for the quarter ended 3 July 2026. Revenue was $4,558 million, up 7% and 4% on an organic basis, while net income fell 9% to $356 million. The company raised the low end of its revenue and adjusted earnings guidance for the year and increased its operating cash flow outlook to about $1.85 billion.

Business and Sector

Leidos is a United States technology, engineering and science contractor serving defence, intelligence, civil and health customers. It reports four segments: Intelligence and Digital, Health, Homeland and Defense. Its revenue depends heavily on government contracts, so results follow federal budgets, procurement cycles and the timing of awards.

The government services sector is marked by multi-year contracts, competitive re-bids and a need to replace expiring work with new wins. Backlog and net bookings relative to revenue are watched as indicators of future revenue visibility.

Latest Results

Intelligence and Digital revenue rose 6% to $1,499 million. Health revenue fell 8% to $1,086 million because of lower medical disability exam volumes. Homeland revenue rose 32% to $1,018 million, including $141 million from ENTRUST, and Defense revenue rose 6% to $955 million.

Diluted earnings per share were $2.81 compared with $3.01, and non-GAAP diluted earnings per share were $3.26, up 2% from $3.21. Adjusted EBITDA was $631 million, down 2%, with a margin of 13.8% against 15.2%. Leidos said prior-year profitability benefited from one-time gains, including a $25 million insurance reimbursement, and that current-quarter GAAP results include $29 million of costs tied to the ENTRUST acquisition, the pending Analogic joint venture and restructuring.

Net bookings were $4.9 billion, a book-to-bill ratio of 1.1. Total backlog was $48.7 billion, up 5%, and funded backlog was $10.2 billion, up 44%. Awards included $475 million for F-16 avionics shop support and $456 million for GSA Military OneSource.

Financial Performance and Industry Context

Operating cash flow was $793 million and non-GAAP free cash flow was $761 million, conversion rates of 224% and 185% as Leidos calculates them. For the first half, revenue was $8,958 million, net income was $691 million against $758 million, and operating cash flow was $1,094 million against $544 million.

Leidos returned $127 million to shareholders in the quarter, comprising $72 million of buybacks and $55 million of dividends, and it repaid $300 million of debt. Total debt was $6.0 billion and cash was $748 million.

For fiscal 2026 the company now guides to revenue of $18.20 billion to $18.40 billion, an adjusted EBITDA margin in the mid-13% range, non-GAAP diluted earnings per share of $12.20 to $12.50 and operating cash flow of about $1.85 billion.

Risks and Uncertainties

Margin pressure is visible. Adjusted EBITDA margin declined by 1.4 percentage points, partly because the prior-year quarter included one-time gains, and the Health segment's lower volumes weighed on revenue. Growth in Homeland included acquired revenue, so organic growth of 4% is the better guide to underlying expansion.

Dependence on government customers exposes the company to budget changes, contract protests, delays in awards and scrutiny of costs. Acquisitions and joint ventures bring integration and restructuring costs, as seen in the quarter's charges. With total debt of $6.0 billion, deleveraging and capital allocation choices remain relevant.

Cash conversion, which was strong this quarter, can vary from quarter to quarter.

Backlog conversion and Health volumes

Leidos reported higher revenue, a larger funded backlog and strong cash generation, alongside lower GAAP earnings and a reduced margin. Developments to watch include whether fiscal 2026 results land within the raised ranges, conversion of the backlog, the Health segment's volumes, the integration of ENTRUST, completion of the Analogic joint venture, and the pace of debt reduction.