Leidos Holdings, Inc. Reports Third Quarter Fiscal Year 2017 Results

-- Revenues: $2.50 billion

(PRNewswire) —  Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500® science and technology solutions company, today reported financial results for the third quarter of fiscal year 2017.

Roger Krone, Leidos Chairman and Chief Executive Officer, commented: "Our third quarter results, including particularly strong margins and earnings, reflect continued momentum in our operational execution as a leading provider of science and technology solutions and services to our customers. We were able to leverage our scale to increase innovation, lower cost, and drive strong bookings which position us well for future growth."

Summary Results

Revenues for the quarter were $2.50 billion, compared to $1.87 billion in the prior year quarter. The current quarter results include $1.29 billion of revenue attributable to the Information Systems & Global Solutions business ("IS&GS Business") acquired from Lockheed Martin in August 2016, compared to $620 million of revenues in the prior year quarter.

Operating income for the quarter was $151 million, compared to $101 million in the prior year quarter. Operating margin increased to 6.0% from 5.4% in the prior year quarter. The current quarter results include $76 million of amortization of intangible assets, $21 million of acquisition and integration costs, $6 million of restructuring charges and $2 million of amortization of equity method investments related to the acquisition of the IS&GS Business. The prior year quarter results included $44 million of acquisition and integration costs, $27 million of amortization of intangible assets and $5 million of restructuring charges. Excluding these items, non-GAAP operating income for the quarter was $256 million compared to $177 million in the prior year quarter.

Diluted earnings per share ("EPS") attributable to Leidos common stockholders for the quarter was $0.53, compared to $0.80 in the prior year quarter. Excluding the items mentioned in the preceding paragraph, non-GAAP diluted EPS for the quarter was $0.95, compared to $1.25 in the prior year quarter. The weighted average diluted share count for the quarter was 154 million, up from 114 million in the prior year quarter primarily due to the issuance of approximately 77 million shares of Leidos common stock to participating Lockheed Martin stockholders during the third quarter of fiscal year 2016 in connection with the acquisition of the IS&GS Business.

Defense Solutions

Defense Solutions revenues for the quarter of $1,201 million increased by $192 million, or 19%, compared to the prior year quarter. The revenue growth was primarily attributable to the acquired IS&GS Business and growth in certain airborne programs, partially offset by a contract write-up in the prior year quarter that did not recur in the current period and completion of certain contracts.

Defense Solutions operating income margin for the quarter was 6.7%, compared to 9.2% in the prior year quarter. On a non-GAAP basis, operating margin for the quarter was 8.4%, compared to 9.6% in the prior year quarter, primarily due to a contract write-up on a certain contract in the prior year quarter that did not recur in the current period.

Civil

Civil revenues for the quarter of $838 million increased by $279 million, or 50%, compared to the prior year quarter. The revenue increase is primarily attributable to the acquired IS&GS Business.

Civil operating income margin for the quarter was 6.0%, compared to 6.8% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 11.2%, compared to 9.3% in the prior year quarter, reflecting stronger program performance and profit write-ups on certain contracts.

Health

Health revenues for the quarter of $464 million increased by $164 million, or 55%, compared to the prior year quarter. The revenue increase is primarily attributable to the acquired IS&GS Business.

Health operating income margin for the quarter was 13.6%, compared to 9.3% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 16.4%, compared to 12.3% in the prior year quarter, primarily attributable to higher margins on certain IS&GS contracts.

Cash Flow Summary

Net cash provided by operating activities for the quarter were $268 million compared to $273 million in the prior year quarter. The lower operating net cash inflows were primarily due to higher payments for taxes and interest, partially offset by lower payments for acquisition and integration expenses and lower vendor payments.

Net cash used in investing activities for the quarter were $19 million compared to net cash provided of $16 million in the prior year quarter. The decrease in net cash from investing activities was primarily due to cash acquired as part of the acquisition of the IS&GS business in the prior year quarter.

Net cash used in financing activities for the quarter were $175 million compared to $463 million in the prior year quarter. The decrease is primarily due to payment of a special cash dividend offset by the borrowings to finance the IS&GS acquisition in the prior year quarter. In addition, there were higher debt repayments in the quarter versus the prior year quarter.

As of September 29, 2017, the Company had $287 million in cash and cash equivalents and $3.1 billion of debt.

New Business Awards

Net bookings totaled $3.1 billion in the quarter, representing a book-to-bill ratio of 1.2.

Notable recent awards received include:

  • Social Security Administration : Leidos was awarded a prime contract to provide information technology services in support of the SSA Agency Strategic Plan. Under this follow-on contract, Leidos will provide lifecycle activities for software improvement, database and data administration, software engineering and management support and systems administration and security support. The multiple-award indefinite delivery/indefinite quantity contract has up to a ten-year period of performance, should all option periods be exercised, with a total contract ceiling of $2.3 billion.
      
  • Department of Homeland Security : Leidos was selected as the prime task order awardee by the General Services Administration Federal Systems Integration and Management Center, on behalf of the Department of Homeland Security, to provide operations and maintenance, security, optimization, enhancement, design, engineering, architecture, integration, configuration, testing, and expansion of the Homeland Secure Data Network and the Classified Local Area Network under the Secure Enterprise Network Systems, Services and Support ("SENS3") task order. The single-award task order has a base period and five one-year option periods, with a total estimated value of approximately $684 million.
      
  • United States Army Contracting Command : Leidos was awarded a firm-fixed-price contract to provide support for the Afghan Air Force ("AAF") and Special Mission Wing ("SMW") helicopter/fixed-wing fleets. Through the Afghanistan Contractor Logistics Support contract, Leidos will deliver all flight operations, maintenance, and logistics, and will provide mentoring for the AAF and SMW to operate and maintain aircraft. Work will be performed in Kabul, Afghanistan, with an estimated completion date of May 31, 2020 and potential value up to $728 million .
       
  • Intelligence Community :  The Company was awarded contracts valued at $390 million , if all options are exercised, by U.S. national security and intelligence clients. Though the specific nature of these contracts is classified, they all encompass mission-critical services that help to counter global threats and strengthen national security.

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