10-Q: Leidos Holdings Q1 2026 Earnings: Revenue Up, Net Income Down

Leidos Holdings reported a 3.7% increase in revenue for the first quarter of fiscal 2026, driven by acquisitions and segment growth, though net income saw a decrease due to acquisition-related costs and debt expenses.

Summary

• Leidos Holdings reported revenues of $4.4 billion for the three months ended April 3, 2026, a 3.7% increase compared to $4.245 billion in the same period last year.
• Operating income decreased by 4.2% to $508 million from $530 million.
• Net income attributable to Leidos common stockholders was $328 million, down from $363 million in the prior year.
• Diluted earnings per share were $2.56, a decrease from $2.77 in the prior year.
• The company completed the acquisition of Entrust for $2.4 billion on March 27, 2026, which is expected to enhance its Homeland segment.
• Total assets increased to $15.387 billion from $13.493 billion, largely due to the Entrust acquisition.
• Total liabilities increased to $10.323 billion from $8.531 billion, also influenced by the acquisition and increased debt.
• The company's total backlog stood at $48.369 billion as of April 3, 2026.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a neutral to slightly positive filing, with revenue growth and a strong backlog offset by decreased net income and increased debt due to strategic acquisitions.

Positives

• Revenue increased by 3.7% to $4.4 billion, driven by growth in the Intelligence & Digital and Homeland segments, and contributions from the recent Kudu Dynamics acquisition.
• The Intelligence & Digital segment saw a revenue increase of 7.5% to $1.513 billion.
• The Homeland segment revenue grew by 6.0% to $816 million, boosted by acquisitions and favorable currency movements.
• Net bookings increased significantly to $3.3 billion from $2.1 billion in the prior year's comparable period.
• Total backlog increased to $48.369 billion from $46.296 billion, indicating strong future revenue potential.
• The company successfully amended and restated its revolving credit facility, increasing borrowing capacity to $1.5 billion.
• Leidos completed the acquisition of Entrust, a strategic move to enhance its energy infrastructure capabilities within the Homeland segment.
• The effective tax rate decreased to 21.9% from 23.6%, primarily due to increased net excess tax benefits from stock-based payments.

Negatives

• Net income attributable to Leidos common stockholders decreased by 9.6% to $328 million.
• Diluted earnings per share decreased to $2.56 from $2.77.
• Operating income decreased by 4.2% to $508 million.
• The Homeland segment's operating income saw a significant decrease of 45.9% to $33 million, primarily due to $25 million in increased acquisition, integration, and restructuring costs related to the Entrust transaction and net write-downs on certain programs.
• The Defense segment's operating income decreased by 16.2% to $62 million due to contract completions and write-downs.
• Non-operating expense increased by 51.9% to $79 million, driven by a $23 million settlement loss from a UK pension plan buy-out and increased interest expense from debt issuance.
• Cash and cash equivalents decreased significantly to $457 million from $1.108 billion, largely due to the Entrust acquisition.
• The company incurred $2.338 billion in net cash used for investing activities, primarily for the Entrust acquisition.

Risks

• The company is subject to government investigations and reviews, which could have a material adverse effect on its business, financial position, results of operations, and cash flows.
• Open indirect cost audits by the Defense Contract Audit Agency for fiscal 2024 and subsequent years could lead to adjustments that adversely affect profitability.
• A Federal Grand Jury Subpoena was received in August 2022 related to a criminal investigation by the U.S. Department of Justice Antitrust Division concerning three U.S. Government procurements; the outcome and potential liabilities are currently indeterminable.
• The company's reliance on U.S. government contracts makes it susceptible to changes in government spending, budget priorities, and potential shutdowns.
• International operations expose the company to risks related to foreign currency exchange rates, geopolitical events, and changes in international trade policies, including tariffs.
• The preliminary purchase price allocation for the Entrust acquisition is subject to change as final working capital and fair value determinations are completed, which could be material.
• The company's significant debt load, which increased substantially with the Entrust acquisition, could impact its financial flexibility and profitability.
• The company's business is subject to various claims and lawsuits arising in the normal course of business, although management currently believes none will have a material adverse effect.

Future Outlook

The company anticipates meeting its liquidity needs for the next 12 months through cash generated from operations, existing cash balances, commercial paper borrowings, and potentially sales of accounts receivable and revolving credit facility borrowings. The company is also forming a new joint venture expected to close in the second half of fiscal 2026.

Management Comments

• The company's performance is affected by the overall level of U.S. government spending, especially national security, homeland security and intelligence spending.
• Changes in international trade policies, including higher tariffs, may increase the cost of certain goods, but the company expects to recover certain portions through contractual measures and does not currently expect a significant effect on the business.
• The acquisition of Entrust enhances existing energy infrastructure capabilities within the Homeland reportable segment.
• The company is fully cooperating with a U.S. Department of Justice Antitrust Division investigation and is conducting its own internal investigation.

Industry Context

StockSavvy.ai notes that Leidos Holdings' performance is heavily tied to U.S. government spending, particularly in defense and intelligence. The company's strategic acquisitions, like Entrust, indicate a focus on expanding capabilities within key government sectors and potentially leveraging synergies with existing operations. The increase in backlog suggests continued demand for its services, though the impact of macroeconomic factors and government budget cycles remains a key consideration.

Legal Proceedings

• The company is involved in various claims and lawsuits arising in the normal conduct of its business, none of which are expected to have a material adverse effect.
• The company received a Federal Grand Jury Subpoena in August 2022 related to a criminal investigation by the U.S. Department of Justice Antitrust Division concerning three U.S. Government procurements. The company is cooperating and conducting an internal investigation, but the outcome and potential liabilities are currently indeterminable.

Stakeholder Impact

• Shareholders: Decreased net income and EPS may be a concern, but revenue growth, increased backlog, and strategic acquisitions suggest long-term value potential. Increased debt levels also warrant attention.
• Employees: The company has 50,000 global employees. The acquisitions may lead to integration and potential restructuring, but also opportunities for growth within expanded business lines.
• Creditors: The company's increased debt levels and financial covenants will be closely monitored.
• Government Customers: The company's significant reliance on government contracts means that changes in government spending, policy, or investigations can directly impact its business.

Next Steps

• The company expects to close the joint venture with Analogic Corporation in the second half of fiscal 2026.
• The company will continue to integrate the acquired Entrust business.
• The company will continue to evaluate the impact of tariffs and international trade policies.
• The company will continue to cooperate with ongoing government investigations.

Key Dates

Recommendation

The filing presents a mixed picture with solid revenue growth and a strong backlog, indicating continued demand for Leidos' services. However, the decrease in net income and EPS, coupled with a significant increase in debt due to acquisitions, warrants a cautious approach. The ongoing government investigations also add a layer of uncertainty. Therefore, a 'hold' recommendation is appropriate pending further clarity on the integration of Entrust and the resolution of legal matters.

Keywords

Leidos Holdings, 10-Q, Quarterly Report, Financial Statements, Revenue, Net Income, Acquisition, Entrust, Kudu Dynamics, Government Contracts, Defense, Intelligence, Homeland Security, Health, Backlog, Debt, Earnings Per Share