Leidos Holdings 10-Q 2025-04-04

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

For the quarterly period ended April 4, 2025

or

For the transition period from to

Commission file number 001-33072

(571) 526-6000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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.

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

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Part I—Financial Information

LEIDOS HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

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PART I—FINANCIAL INFORMATION

LEIDOS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to condensed consolidated financial statements.

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PART I—FINANCIAL INFORMATION

LEIDOS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

See accompanying notes to condensed consolidated financial statements.

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PART I—FINANCIAL INFORMATION

LEIDOS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

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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.

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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:

SEGMENT AND CORPORATE RESULTS

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.

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PART I—FINANCIAL INFORMATION

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.

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.

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.

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.

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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:

(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.

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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:

(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.

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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.

(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.

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.

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

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PART I—FINANCIAL INFORMATION

STATEMENT OF OPERATIONS INFORMATION FOR THE GUARANTOR AND ISSUER OF REGISTERED NOTES

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.

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PART I—FINANCIAL INFORMATION

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.

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.

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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.

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.

(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.

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,” as each term is defined in Item 408(a) of Regulation S-K.

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PART II—OTHER INFORMATION

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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.