Leidos reported a strong finish to fiscal year 2025, with full-year revenue of $17.2 billion (up 3.1%) and Q4 revenue of $4.2 billion. Despite a 3.6% year-over-year decline in Q4 revenue due to a six-week government shutdown and calendar shifts, underlying business grew approximately 4%. Profitability expanded significantly, with adjusted EBITDA margin increasing 120 basis points to 14.1% and non-GAAP diluted EPS growing 17% to $11.99. Free cash flow surged 26% to $1.63 billion. The company delivered a book-to-bill ratio of 1.3x and grew funded backlog by 15%. Looking ahead to 2026, Leidos provided guidance for revenue of $17.5 billion to $17.9 billion and EPS of $12.05 to $12.45, driven by the execution of its 'North Star 2030' strategy, the $2.4 billion acquisition of Entrust Solutions, and a tripling of capital expenditures to $350 million to scale defense technologies.
| Metric | Value | Change |
|---|---|---|
| FY 2025 Revenue | $17.2 Billion | +3.1% |
| Q4 2025 Revenue | $4.2 Billion | -3.6% |
| Adjusted EBITDA Margin | 14.1% | +120 bps |
| Non-GAAP EPS | $11.99 | +17% |
| Free Cash Flow | $1.63 Billion | +26% |
| Book-to-Bill | 1.3x | Stable |
| Funded Backlog | N/A | +15% |
Leidos is aggressively executing its 'North Star 2030' strategy through a major organizational realignment. The company consolidated operations into four reporting segments: Defense, Homeland, Intelligence & Digital, and Health. This restructuring is designed to align resources with specific growth pillars, such as Defense Tech and Energy Infrastructure, allowing for more focused execution and integrated solutions like the 'Golden Dome' initiative.
The company is significantly increasing its capital allocation to fuel growth, announcing a plan to triple capital expenditures to $350 million in 2026. This investment will expand production capacity for defense systems and upgrade classified facilities. Additionally, Leidos is pursuing 'co-investment opportunities' with the Department of War, indicating a shift toward higher-risk, higher-reward development partnerships that align with administration priorities.
Inorganic growth remains a key pillar, highlighted by the agreement to acquire Entrust Solutions Group for $2.4 billion. This all-cash acquisition bolsters the Energy infrastructure growth pillar and is expected to be margin accretive. The deal will be funded using a mix of cash, commercial paper, and new debt, yet management projects pro forma leverage will remain a comfortable 2.6 times, well below their 3.0 times target.
Management emphasized the transformative power of AI, appointing a new Chief Technology Officer and an Enterprise Transformation Leader to drive an 'AI-first' approach. They view AI not as a threat but as a 'force multiplier' that will drive internal efficiency—specifically targeting cost reductions—and enhance customer solutions, particularly in Digital Modernization and Mission Software.
The Health segment faces near-term headwinds that could dampen 2026 performance. Management guided for 'modestly lower revenue and margin' due to the addition of a fourth vendor on the VBAMDE contract and the transition of the DHMSM program to a sustainment phase. While they expect long-term inflection, the immediate pressure creates a drag on the company's highest-margin segment.
Reported Q4 revenue declined by 3.6% year-over-year. While management attributes this to a government shutdown and calendar shifts, the headline miss, combined with $7 billion in awards slipping from Q4 into 2026, raises concerns about the predictability of revenue recognition and the potential for a softer start to the fiscal year.
The company is taking on significant financial risk to fund its growth strategy. The $2.4 billion acquisition of Entrust will increase gross leverage to 2.6 times from 1.9 times. While manageable, this reduces financial flexibility. Furthermore, the decision to triple CapEx to $350 million represents a large bet on scaling production; if government awards (like Golden Dome) slip further, returns on this invested capital could be delayed.
Management noted that the 2026 guidance implies 'lower growth in the first half' of the year with acceleration in the back half. This 'back-half loaded' profile introduces execution risk, as it relies heavily on the timely release of funds for programs like Golden Dome and FAA modernization that have already experienced delays.
Overall: Management exhibited a highly confident and urgent demeanor throughout the call, frequently emphasizing the 'outstanding' nature of the 2025 results and the 'strong productive sense of urgency' driving their 'North Star 2030' strategy. They were transparent about external headwinds like the government shutdown but framed them as manageable distractions from an underlying robust business trajectory.
Confidence: HIGH - Management used definitive, action-oriented language ('firmly in strategy execution mode,' 'very bullish') and provided specific, detailed metrics to support their outlook. Their willingness to triple CapEx and pursue a large acquisition signals strong conviction in future demand.
$17.5 Billion - $17.9 Billion
$12.05 - $12.45
Mid-13%
$1.75 Billion
$350 Million
Hedging & Uncertainty: Management generally avoided heavy hedging regarding past performance, using strong affirmatives like 'outstanding' and 'exceeded.' However, they employed temporal and probability hedges when discussing future government actions, using phrases like 'catalysts that can help propel the second half' and 'expect those awards to start coming in.' They also hedged the immediate financial impact of the Entrust acquisition, stating guidance 'does not include any accommodation,' which protects them from immediate integration scrutiny but adds uncertainty to 2026 numbers.
We are now firmly in strategy execution mode for our North Star 2030 strategy with a strong bias for velocity. - Thomas A. Bell, CEO
The proliferation of AI is not a threat. It is a force multiplier for everything we have always wanted to do. - Thomas A. Bell, CEO
We saw about $7,000,000,000 in awards slip from Q4 into this quarter. - Thomas A. Bell, CEO
We are guiding to mid-13s adjusted EBITDA margin in 2026. This level normalizes some of the onetime benefits of 2025. - Christopher R. Cage, CFO
We are investing in all the growth pillars now that we have a sound key strategy to grow this company into the future. - Thomas A. Bell, CEO
Analyst Sentiment: Analysts expressed curiosity about the mechanics of the company's growth, specifically probing the sustainability of margins amidst heavy investment and the specific timing of revenue acceleration. Questions were detailed, focusing on the 'Golden Dome' IDIQ, the Health recompete, and the deployment of the increased CapEx.
Management Responses: Management responses were detailed and open, providing specific color on segment dynamics and investment logic. They effectively defended the Health segment outlook and clarified that the elevated CapEx is situational for scaling rather than a permanent new baseline, while acknowledging the 'back-half loaded' nature of 2026 growth.
Discussion on the specific allocation of the increased $350M CapEx, focusing on defense production scaling and facility expansion.
Detailed analysis of the Health segment's recompete landscape and the impact of a fourth vendor on margins.
Inquiry into the 'Golden Dome' and SHIELD IDIQ awards and their potential to drive upside to current guidance.
Clarification on leverage targets and capital allocation priorities following the Entrust acquisition.
Leidos is successfully executing a strategic pivot under its 'North Star 2030' plan, evidenced by robust margin expansion (14.1% EBITDA) and strong free cash flow conversion (104%). The realignment into high-growth pillars like Defense Tech and Cyber, combined with the accretive Entrust acquisition, positions the company to outperform peers in the evolving defense market. While near-term revenue faces headwinds from government timing and Health segment transitions, the 1.3x book-to-bill and $49B backlog provide strong visibility. The aggressive tripling of CapEx signals management's confidence in scaling high-margin hardware and AI-driven solutions, making the stock attractive for long-term growth.
Management indicated strong alignment with administration priorities, specifically citing 'critical warfighting and national needs' and 'homeland security' as the number one priority. They noted that the administration is looking to partner with firms willing to 'lean into innovation,' favoring Leidos' investment strategy.
The 'longest U.S. government shutdown' in Q4 2025 was cited as a significant headwind, reducing revenue growth by about 7 percentage points in the quarter. This highlights the operational risks associated with federal budget volatility.