Leidos Holdings Inc.

11/03/2026 | Press release | Distributed by Public on 11/03/2026 10:06

Quarterly Report for Quarter Ending October 2, 2026 (Form 10-Q)

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 50,000 global employees, we pursue strategic growth across five pillars: defense tech; energy infrastructure; cyber; mission and digital solutions; and managed health services. Our customers include the U.S. Department of War ("DoW"), 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.
Beginning in fiscal 2026, we realigned our business and operate in four reportable segments that are focused on specific, defined capability sets we bring to our customers. As a result of this change, prior year segment results and disclosures have been recast to reflect the current reportable segment structure. We now operate in the following reportable segments: Intelligence & Digital, Health, Homeland and Defense. We also separately present the unallocable costs associated with corporate functions as Corporate (see "Note 10-Business Segments").
BUSINESS ENVIRONMENT AND TRENDS
U.S. GOVERNMENT MARKETS
During the three and nine months ended October 2, 2026, we generated approximately 83% and 84%, respectively, of total revenues from contracts with the U.S. government, as compared to 87% for both the three and nine months ended October 3, 2025. 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.
Federal funding is secured through December 11, 2026, under a continuing resolution ("CR") and Congress is expected to keep working on fiscal year 2027 appropriations ahead of that date. If Congress does not enact the necessary appropriations legislation or an additional CR by then, a partial or full federal government shutdown would result.
Leidos Holdings, Inc.
PART I-FINANCIAL INFORMATION
INTERNATIONAL MARKETS
Sales to customers in international markets represented approximately 8% of total revenues for both the three and nine months ended October 2, 2026, and October 3, 2025. 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 tariff environment and potential impacts of 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 Nine Months Ended
(dollars in millions) October 2,
2026 		October 3,
2025 		Percent change October 2,
2026 		October 3,
2025 		Percent change
Revenues $ 4,630 $ 4,469 3.6 % $ 13,588 $ 12,967 4.8 %
Operating income
553 535 3.4 % 1,575 1,636 (3.7 %)
Non-operating expense, net
(71) (51) 39.2 % (213) (156) 36.5 %
Income before income taxes 482 484 (0.4 %) 1,362 1,480 (8.0 %)
Income tax expense (69) (115) (40.0 %) (258) (353) (26.9 %)
Net income 413 369 11.9 % 1,104 1,127 (2.0 %)
Net income attributable to Leidos common stockholders $ 410 $ 367 11.7 % $ 1,092 $ 1,121 (2.6) %
Operating margin 11.9 % 12.0 % 11.6 % 12.6 %
SEGMENT AND CORPORATE RESULTS
Three Months Ended Nine Months Ended
Intelligence & Digital
(dollars in millions)
October 2,
2026 		October 3,
2025 		Percent change October 2,
2026 		October 3,
2025 		Percent change
Revenues $ 1,546 $ 1,525 1.4 % $ 4,558 $ 4,341 5.0 %
Operating income 171 141 21.3 % 459 408 12.5 %
Operating margin 11.1 % 9.2 % 10.1 % 9.4 %
The increase in revenues for the three and nine months ended October 2, 2026, compared to the three and nine months ended October 3, 2025, was primarily attributable to program wins, partially offset by a net decrease in volumes and the completion of certain contracts.
The increase in operating income for the three and nine months ended October 2, 2026, compared to the three and nine months ended October 3, 2025, was primarily attributable to program wins and improved margins from program mix, partially offset by a net decrease in volumes and the completion of certain contracts.
Leidos Holdings, Inc.
PART I-FINANCIAL INFORMATION
Three Months Ended Nine Months Ended
Health
(dollars in millions)
October 2,
2026 		October 3,
2025 		Percent change October 2,
2026 		October 3,
2025 		Percent change
Revenues $ 1,068 $ 1,210 (11.7 %) $ 3,342 $ 3,573 (6.5 %)
Operating income 240 324 (25.9 %) 778 915 (15.0 %)
Operating margin 22.5 % 26.8 % 23.3 % 25.6 %
The decrease in revenues and operating income for the three and nine months ended October 2, 2026, compared to the three and nine months ended October 3, 2025, was primarily attributable to reduced volumes in our managed health services programs and the reduction of related incentive fees on those programs in the second half of fiscal 2026.
Three Months Ended Nine Months Ended
Homeland
(dollars in millions)
October 2,
2026 		October 3,
2025 		Percent change October 2,
2026 		October 3,
2025 		Percent change
Revenues $ 1,024 $ 775 32.1 % $ 2,858 $ 2,316 23.4 %
Operating income 81 50 62.0 % 206 175 17.7 %
Operating margin 7.9 % 6.5 % 7.2 % 7.6 %
The increase in revenues for the three months ended October 2, 2026, compared to the three months ended October 3, 2025, was primarily attributable to a net increase in volumes, program wins, $142 million recognized from the acquisition of Entrust, and a $10 million favorable impact from exchange rate movements, partially offset by the completion of certain contracts.
The increase in revenues for the nine months ended October 2, 2026, compared to the nine months ended October 3, 2025, was primarily attributable to $294 million recognized from the acquisition of Entrust, a net increase in volumes, program wins, and a $47 million favorable impact from exchange rate movements, partially offset by the completion of certain contracts and the divestiture of a business in the prior year.
The increase in operating income for the three months ended October 2, 2026, compared to the three months ended October 3, 2025, was primarily attributable to a net increase in volumes, partially offset by higher amortization, acquisition and restructuring expenses.
The increase in operating income for the nine months ended October 2, 2026, compared to the nine months ended October 3, 2025, was primarily attributable to a net increase in volumes and program wins. The increase was partially offset by higher amortization, acquisition and restructuring expenses and the divestiture of a business in the prior year.
On October 5, 2026, the divestiture of the SES Business closed. Upon closing, Leidos retained a 41.5% non-controlling equity interest in the new joint venture and Altaris holds a 58.5% interest. As a result of the transaction, revenues in the fourth quarter of fiscal 2026 will be lower than they would have been had the transaction not occurred.
Three Months Ended Nine Months Ended
Defense
(dollars in millions)
October 2,
2026 		October 3,
2025 		Percent change October 2,
2026 		October 3,
2025 		Percent change
Revenues $ 992 $ 959 3.4 % $ 2,830 $ 2,737 3.4 %
Operating income 86 79 8.9 % 232 231 0.4 %
Operating margin 8.7 % 8.2 % 8.2 % 8.4 %
The increase in revenues for the three and nine months ended October 2, 2026, compared to the three and nine months ended October 3, 2025, was primarily attributable to program wins and increased volumes on existing contracts, partially offset by the completion of certain contracts.
The increase in operating income for the three months ended October 2, 2026, compared to the three months ended October 3, 2025, was primarily attributable to program wins and increased volumes on existing contracts, partially offset by the completion of certain contracts.
Operating income remained consistent between the nine months ended October 2, 2026, and the nine months ended October 3, 2025, as program wins and improved operating performance were offset by the completion of higher-margin contracts.
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PART I-FINANCIAL INFORMATION
Three Months Ended Nine Months Ended
Corporate
(dollars in millions)
October 2,
2026 		October 3,
2025 		Percent change October 2,
2026 		October 3,
2025 		Percent change
Operating loss $ (25) $ (59) NM $ (100) $ (93) 7.5 %
NM - Not Meaningful
The decrease in operating loss for the three months ended October 2, 2026, compared to the three months ended October 3, 2025, was primarily attributable to $23 million of lower legal expenses compared to the prior year.
The increase in operating loss for the nine months ended October 2, 2026, compared to the nine months ended October 3, 2025, was primarily attributable to increased acquisition and integration costs, partially offset by decreased legal fees in the current year.
NON-OPERATING EXPENSE, NET
Non-operating expense, net for the three months ended October 2, 2026, was $71 million compared to $51 million for the three months ended October 3, 2025. The increase was primarily due to higher interest expense from the issuance of our $600 million and $800 million senior notes.
Non-operating expense, net for the nine months ended October 2, 2026, was $213 million compared to $156 million for the nine months ended October 3, 2025. The increase was primarily due to a $23 million settlement loss from the buy-out of our UK defined benefit pension plan and higher interest expense from the termination of our senior unsecured bridge loan facility and issuance of our $600 million and $800 million senior notes.
PROVISION FOR INCOME TAXES
The effective tax rate was 14.3% for the three months ended October 2, 2026, compared to 23.8% for the three months ended October 3, 2025, and 18.9% for the nine months ended October 2, 2026, compared to 23.9% for the nine months ended October 3, 2025. The decreases in both periods were primarily due to an increase in the federal research tax credit and a decrease in unrecognized tax benefits.
BOOKINGS AND BACKLOG
We recorded net bookings worth an estimated $5.5 billion and $13.7 billion during the three and nine months ended October 2, 2026, respectively, as compared to $5.9 billion and $11.9 billion for the three and nine months ended October 3, 2025, respectively.
The estimated value of our total backlog was as follows:
October 2, 2026 October 3, 2025
(in millions) Funded Unfunded Total Funded Unfunded Total
Intelligence & Digital $ 2,098 $ 16,074 $ 18,172 $ 2,092 $ 17,339 $ 19,431
Health 1,243 5,075 6,318 1,523 6,479 8,002
Homeland 3,909 6,501 10,410 3,193 6,538 9,731
Defense 3,812 10,842 14,654 2,256 8,236 10,492
Total $ 11,062 $ 38,492 $ 49,554 $ 9,064 $ 38,592 $ 47,656
Backlog at October 2, 2026, includes amounts acquired as part of the Entrust transaction. As of March 27, 2026, the acquisition date, Entrust had $371 million of backlog that was included within the Homeland reportable segment.
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.
Leidos Holdings, Inc.
PART I-FINANCIAL INFORMATION
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW OF LIQUIDITY
As of October 2, 2026, we had $630 million in cash and cash equivalents. We have a senior unsecured revolving credit facility which can provide up to $1.5 billion in additional borrowing, if required, and a commercial paper program under which we may issue short-term unsecured commercial paper notes ("Commercial Paper Notes") not to exceed $1.5 billion, with maturities of up to 397 days from the date of issuance. As of October 2, 2026, and January 2, 2026, there were no borrowings outstanding under the revolving credit facility and no Commercial Paper Notes outstanding.
We had outstanding debt of $6.0 billion and $4.6 billion at October 2, 2026, and January 2, 2026, respectively. In March 2026, we issued and sold $600 million 4.10% and $800 million 5.00% senior unsecured notes maturing in March 2029 and March 2036, respectively. The annual interest rate is payable on a semi-annual basis. The proceeds from the notes were used to fund a portion of the consideration payable in connection with the acquisition of Entrust and for general corporate purposes.
We made $5 million and $15 million principal payments on our long-term debt during the three and nine months ended October 2, 2026, respectively, and $455 million and $1,014 million during the three and nine months ended October 3, 2025, respectively. The activity for the three and nine months ended October 3, 2025, included a prepayment on our senior unsecured term loan of $450 million and the activity for the nine months ended October 3, 2025, also included a $500 million payment to discharge the $500 million notes due May 2025.
Our senior unsecured revolving credit facility, Commercial Paper Notes, senior unsecured term loan and notes outstanding as of October 2, 2026, contain financial covenants and customary restrictive covenants. We were in compliance with all financial covenants as of October 2, 2026.
We paid dividends of $52 million and $162 million during the three and nine months ended October 2, 2026, respectively, and $51 million and $156 million for the three and nine months ended October 3, 2025, respectively.
We may from time to time seek to retire or purchase our outstanding debt through cash purchases in the open market, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
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 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.
We made open market repurchases of our common stock for an aggregate purchase price of $500 million and $766 million during the three and nine months ended October 2, 2026, respectively, and $100 million for both the three and nine months ended October 3, 2025. Additionally, we repurchased $500 million of shares under an accelerated share repurchase agreement during the nine months ended October 3, 2025.
During the nine months ended October 2, 2026, we invested $18 million in an investment fund as a limited partner. No investment was made during the three months ended October 2, 2026. In connection with this investment, we have
Leidos Holdings, Inc.
PART I-FINANCIAL INFORMATION
committed to invest an additional $82 million before February 2031. We expect to fund this investment with cash on hand and cash generated through our operations.
For the next 12 months and beyond, we expect to meet our liquidity needs, including servicing our debt, through cash generated from operations, available cash balances and borrowings from our commercial paper program. If needed, we may also sell accounts receivable or borrow under our revolving credit facility.
SUMMARY OF CASH FLOWS
The following table summarizes cash flow information for the periods presented:
Three Months Ended Nine Months Ended
(in millions) October 2,
2026 		October 3,
2025 		October 2,
2026 		October 3,
2025
Net cash provided by operating activities
$ 523 $ 711 $ 1,617 $ 1,255
Net cash used in investing activities (48) (36) (2,445) (372)
Net cash (used in) provided by financing activities (549) (595) 421 (788)
Net cash provided by operating activities decreased $188 million for the three months ended October 2, 2026, compared to the prior year quarter. The decrease was primarily due to unfavorable changes in working capital, including the timing of vendor payments, and the timing of payroll and employee benefit payments.
Net cash provided by operating activities increased $362 million for the nine months ended October 2, 2026, compared to the prior year. The increase was primarily due to favorable changes in working capital and lower tax payments of $148 million.
Net cash used in investing activities increased $12 million for the three months ended October 2, 2026, compared to the prior year quarter primarily due to higher capital expenditures, partially offset by a $7 million payment related to the acquisition of Kudu Dynamics in the prior year quarter.
Net cash used in investing activities increased $2,073 million for the nine months ended October 2, 2026, compared to the prior year. The increase was primarily due to $2,338 million of cash paid in connection with the acquisition of Entrust, net of cash acquired and higher capital expenditures.
Net cash used in financing activities decreased $46 million for the three months ended October 2, 2026, compared to the prior year quarter. The decrease was primarily due to a $450 million prepayment on our senior unsecured term loan in the prior year quarter, partially offset by a $400 million increase in stock repurchases.
Net cash provided by financing activities increased $1,209 million for the nine months ended October 2, 2026, compared to the prior year. The increase was primarily due to a net increase of $1,391 million in cash inflows from debt activity, consisting of proceeds from debt issuances and payments for borrowings and debt issuance costs. The increase was partially offset by an increase of $166 million in stock repurchases and $13 million in shares withheld for tax obligations.
OFF-BALANCE SHEET ARRANGEMENTS
We have outstanding performance guarantees and cross-indemnity agreements in connection with certain aspects of our business and future commitments related to an investment fund. 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.
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.:
$600 million 4.100% notes, due March 2029
$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
$800 million 5.000% notes, due March 2036
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 Holdings, 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) October 2,
2026 		January 2,
2026
Total current assets $ 2,264 $ 3,036
Goodwill 5,424 5,666
Other long-term assets 1,138 1,250
Total assets $ 8,826 $ 9,952
Total current liabilities $ 2,014 $ 1,954
Long-term debt, net of current portion 6,009 4,628
Intercompany payables 5,663 4,706
Other long-term liabilities 916 942
Total liabilities $ 14,602 $ 12,230
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PART I-FINANCIAL INFORMATION
STATEMENT OF OPERATIONS INFORMATION FOR THE GUARANTOR AND ISSUER OF REGISTERED NOTES
Nine Months Ended
(in millions) October 2,
2026
Revenues, net $ 8,254
Operating income 647
Net income attributable to Leidos common stockholders 18
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 2, 2026.
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.
Leidos Holdings, Inc.
PART I-FINANCIAL INFORMATION
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