second quarter of fiscal year 2026
Filed Aug 3, 2026Leidos Delivers Strong Second Quarter and Enhances Full-Year Guidance
Revenue grew 7% year-over-year, operating cash flow and non-GAAP free cash flow were strong, and the company raised fiscal year 2026 revenue, non-GAAP diluted EPS, and operating cash flow guidance. GAAP net income, GAAP diluted EPS, net income margin, adjusted EBITDA, and adjusted EBITDA margin declined year-over-year.
Key metrics
as reported| Metric | Value | q/q | y/y |
|---|---|---|---|
| RevenuesGAAP | $4,558 million | – | up 7% |
| Net incomeGAAP | $356 million | – | down 9% |
| Net income marginGAAP | 7.8% | – | – |
| Diluted earnings per share (EPS)GAAP | $2.81 per diluted share | – | down 7% |
| Adjusted EBITDAnon-GAAP | $631 million | – | down 2% |
| Adjusted EBITDA marginnon-GAAP | 13.8% | – | – |
| Non-GAAP net incomenon-GAAP | $413 million | – | decreased 1% year-over-year |
| Non-GAAP diluted EPSnon-GAAP | $3.26 | – | up 2% |
| Net cash provided by operating activitiesGAAP | $793 million | – | – |
| Operating cash flow conversion ratioother | 224% | – | – |
| Non-GAAP Free Cash Flownon-GAAP | $761 million | – | – |
| Free cash flow conversion rationon-GAAP | 185% | – | – |
| Net bookingsother | $4.9 billion | – | – |
| Book-to-bill ratioother | 1.1 | – | – |
| Backlogother | $48.7 billion | – | 5% |
| Funded backlogother | $10.2 billion | – | 44% |
| Trailing-twelve-month book-to-billother | 1.1 | – | – |
FY26 outlook
- Revenue$18.20 - $18.40
- NoteAdjusted EBITDA Margin: Mid 13%
- NoteNon-GAAP Diluted EPS: $12.20 - $12.50
- NoteCash Flows Provided by Operating Activities (B): Approximately $1.85
Capital returns
- $127 million returned to shareholders
- $72 million in share repurchases
- $55 million as part of a regular quarterly cash dividend program
What drove it
- Revenues grew year-over-year due to increased customer demand for defense tech products, energy and air traffic management solutions, and intelligence mission support.
- Revenues were up 7% compared to the second quarter of 2025, including 4% organically.
- Profitability in the current quarter reflected excellent program execution and disciplined cost management across the portfolio.
- Quarterly bookings included a $475 million follow-on AIS PIS contract, a $456 million GSA Military OneSource contract, a $350 million U.S. Air Force Electronic Warfare Mission Support contract modification, a potential 30-month, $325 million DHA RHRP 3.1 contract modification, a five-year, $270 million CBP MEM Systems IDIQ contract, and an $88 million NSWC MACH-TB 2.0 contract.
Concerns
- Net income and diluted EPS for the quarter reflect $29 million in costs associated with the acquisition of ENTRUST Solutions Group and the pending joint venture with Analogic Corporation, as well as restructuring costs associated with the NorthStar 2030 re-alignment.
- Adjusted EBITDA margin of 13.8% decreased from 15.2% in the second quarter of 2025.
- Profitability in the year-ago quarter benefited from several one-time, non-operational gains, including a $25 million insurance reimbursement for legal costs.
What to watch
- Execution against FY26 revenue guidance of $18.20 - $18.40.
- Execution against FY26 non-GAAP diluted EPS guidance of $12.20 - $12.50 and adjusted EBITDA margin guidance of Mid 13%.
- Delivery against FY26 cash flows provided by operating activities guidance of Approximately $1.85.
- Conversion of the $48.7 billion backlog, including $10.2 billion of funded backlog, into revenue.
- Progress of the pending joint venture with Analogic Corporation and the acquisition of ENTRUST Solutions Group.
Balance sheet and cash flow
- For the quarter, Leidos used $38 million in investing activities, including $32 million in property, equipment and software payments.
- Leidos used $423 million in financing activities, consisting primarily of $300 million in debt paydown and $127 million returned to shareholders.
- As of July 3, 2026, Leidos had $748 million in cash and cash equivalents and $6.0 billion of debt.
Analysis
Leidos reported second-quarter fiscal year 2026 revenue of $4,558 million, up 7% year-over-year, including 4% organic growth. Management attributed the growth to increased demand for defense tech products, energy and air traffic management solutions, and intelligence mission support. The company also reported $4.9 billion of net bookings, a 1.1 book-to-bill ratio, and $48.7 billion of backlog, with funded backlog of $10.2 billion growing 44% year-over-year.
Earnings performance was weaker than revenue growth. GAAP net income was $356 million, down 9%, and GAAP diluted EPS was $2.81 per diluted share, down 7%. Net income margin declined to 7.8% from 9.2%. The company identified $29 million of costs related to the Entrust acquisition, the pending Analogic joint venture, and NorthStar 2030 restructuring. Non-GAAP net income declined 1% to $413 million, while non-GAAP diluted EPS increased 2% to $3.26.
Profitability metrics also moved lower against a year-ago period that included one-time, non-operational gains, including a $25 million insurance reimbursement for legal costs. Adjusted EBITDA fell 2% to $631 million and adjusted EBITDA margin declined to 13.8% from 15.2%. Management nevertheless cited excellent program execution and disciplined cost management across the portfolio.
Cash generation was a principal strength. Net cash provided by operating activities was $793 million, with an operating cash flow conversion ratio of 224%. Non-GAAP Free Cash Flow was $761 million and the free cash flow conversion ratio was 185%. The company used $300 million for debt paydown and returned $127 million to shareholders, including $72 million of share repurchases and $55 million in regular quarterly cash dividends.
Leidos raised the low end of FY26 revenue guidance to $18.20 - $18.40 from $18.00 - $18.40, raised the low end of non-GAAP diluted EPS guidance to $12.20 - $12.50 from $12.10 - $12.50, and increased expected cash flows provided by operating activities to Approximately $1.85 from Approximately $1.80. Adjusted EBITDA margin guidance remained Mid 13%. The central points for the balance of the year are conversion of increased backlog, sustained cash generation, margin execution, and the financial effects of Entrust, the pending Analogic joint venture, and NorthStar 2030 restructuring.
Management, verbatim
I'm pleased to report another strong quarter for Leidos. In addition to achieving milestones for revenue and cash, we booked $5 billion of contract awards. We’re seeing meaningful growth emerge across our Defense Tech, Energy Infrastructure, and Cyber growth pillars. And we have greater visibility into the long-term role of our Managed Healthcare pillar. The strength of our balanced portfolio allows us to enhance our 2026 guidance for revenues, earnings, and cash.
Tom Bell, Chief Executive Officer
Not in the filing
stated, not guessed- Segment revenue, segment year-over-year changes, segment quarter-over-quarter changes, and segment profitability were not provided in the supplied filing text.
- GAAP gross profit and gross margin were not provided in the supplied filing text.
- GAAP operating income, operating margin, and operating expenses were not provided in the supplied filing text.
- Income tax expense and effective tax rate were not provided in the supplied filing text.
- Prior-quarter comparisons for reported financial metrics were not provided in the supplied filing text.
- Prior-year amount for non-GAAP net income was not provided on its own line in the supplied filing text.
- Prior-year cash flow and free cash flow comparisons were not provided in the supplied filing text.
- FY26 guidance for gross margin, operating expenses, and tax rate was not provided in the supplied filing text.
- A previous earnings release outlook was not provided, so no actual-versus-prior-guidance comparison is included.
AlphaAI analysis generated from the company’s SEC earnings filing (Form 8-K Item 2.02, or Form 6-K for a foreign private issuer). Every figure was cross-checked against the filing text; consensus estimates, price targets and share-price reactions are not shown because they are not in the filing. AI-generated research, not investment advice.