Leidos Holdings Inc.
LDOSBusiness Overview
source: coverage-next-full ticker: LDOS step: "01" title: Business Overview — Leidos Holdings created: 2026-05-29
Step 01 — Business Overview
Company Description
Leidos Holdings, Inc. is the largest US government IT and solutions contractor by revenue. The company traces its roots to SAIC (Science Applications International Corporation), from which it was spun off in 2013, and dramatically expanded through the 2016 acquisition of Lockheed Martin's Information Systems & Global Solutions (IS&GS) segment ($4.6B) and the 2021 acquisition of Dynetics ($1.65B). Today, Leidos employs approximately 47,000 people and generates over $16B in annual revenue, virtually all from the US federal government.
Core Business Model
Leidos is a government contractor that earns fees for providing technology-enabled services and solutions. Revenue is recognized primarily under long-term contracts (typically 3-7 years base + option periods) with US government agencies. The company operates across three reportable segments and generates revenue under cost-reimbursable, fixed-price, and time-and-materials contract structures. The business is asset-light: capital intensity is low, and the principal asset is the skilled, cleared workforce and the classified relationships they maintain.
Segment Structure
Defense Solutions (~55% of Revenue, ~$9.2B)
The largest segment supports the DoD, intelligence community, and international defense clients. Key programs include:
- DISA SITE II — enterprise IT services for the Defense Information Systems Agency
- Airborne ISR programs — Intelligence, Surveillance, Reconnaissance for classified customers
- Cyber and Electronic Warfare — offensive/defensive cyber, EW systems integration
- C4ISR — command, control, communications, computers
- Dynetics products — hypersonic systems, counter-UAS, space propulsion (acquired 2021)
Civil (~25% of Revenue, ~$4.2B)
Serves civilian federal agencies (NASA, DHS, DOE, FAA, NRC, FEMA) and selected commercial clients. Key programs include:
- TSA Checkpoint Security — explosives detection screening at major US airports (one of largest single programs)
- NASA support contracts — IT, engineering support at Kennedy Space Center and beyond
- Department of Energy — environmental management, nuclear security
- FAA IT modernization — air traffic control IT systems
Health (~20% of Revenue, ~$3.3B)
Serves the Department of Veterans Affairs, Defense Health Agency (DHA), and other HHS agencies. Key programs include:
- VA Health Electronic Health Record Modernization — EHR implementation (complex, multi-year)
- DHA IT services — Defense Health Agency enterprise IT
- DHHQ — Defense Health Headquarters support
Revenue Recognition & Contract Mix
| Contract Type | Approx. Mix | Characteristics |
|---|---|---|
| Cost-Reimbursable | ~58% | Lower risk, lower margin (~6-7%); revenue = cost + fee |
| Fixed-Price | ~27% | Higher risk, higher margin potential (~8-12%); execution risk matters |
| Time & Materials | ~15% | Blended; labor rate × hours |
Fixed-price contracts have increased as a percentage over time, which benefits margins but increases program risk.
Customer Concentration
Leidos derives essentially all revenue from the US federal government. The DoD (including intelligence community) represents approximately 70% of total revenue, with civilian agencies at ~20% and health at ~10%. No single program represents more than ~5% of total revenue, providing diversification within the government customer base.
Employee & Clearance Base
Leidos's ~47,000 employees are among its most valuable assets. A significant proportion — estimated 60%+ — hold US government security clearances, many at the Top Secret/SCI level. This represents a significant switching-cost moat: cleared employees cannot be easily replaced, and clearances take 12-24 months to obtain for new hires.
Strategic Positioning
Leidos is positioned at the intersection of national security IT, digital transformation, and advanced technology. The company's strategic priorities under CEO Tom Bell (since January 2023) include:
- ODIN platform — proprietary AI/digital modernization platform for government customers
- International expansion — Australia, UK, Germany defense IT
- Advanced capabilities — hypersonics, autonomous systems, directed energy (via Dynetics)
- Margin improvement — targeting 10%+ operating margins over time from ~7% today
Financial Snapshot
source: coverage-next-full ticker: LDOS step: "04" title: Financial Snapshot — 3-Year P&L Summary created: 2026-05-29
Step 04 — Financial Snapshot
Three-Year P&L Summary
| Metric | FY2022 | FY2023 | FY2024 |
|---|---|---|---|
| Revenue | $14.4B | $15.4B | $16.7B |
| Revenue Growth YoY | +5.5% | +7.3% | +8.4% |
| Gross Profit | $2.10B | $2.28B | $2.54B |
| Gross Margin | 14.6% | 14.8% | 15.2% |
| Operating Income (GAAP) | ~$910M | ~$1.01B | ~$1.17B |
| Operating Margin (GAAP) | 6.3% | 6.6% | 7.0% |
| Adjusted Operating Income | ~$1.05B | ~$1.18B | ~$1.35B |
| Adj. Operating Margin | 7.3% | 7.7% | 8.1% |
| Interest Expense | ~($270M) | ~($265M) | ~($255M) |
| Net Income (GAAP) | ~$560M | ~$680M | ~$870M |
| Net Margin | 3.9% | 4.4% | 5.2% |
| Diluted EPS (GAAP) | ~$3.90 | ~$4.85 | ~$6.30 |
| Adj. Diluted EPS (Non-GAAP) | ~$6.10 | ~$7.50 | ~$8.70 |
| D&A | ~$415M | ~$390M | ~$370M |
| EBITDA | ~$1.33B | ~$1.40B | ~$1.54B |
| EBITDA Margin | 9.2% | 9.1% | 9.2% |
| CapEx | ~$150M | ~$145M | ~$160M |
| Free Cash Flow | ~$780M | ~$960M | ~$1.10B |
Note: FY = fiscal year ending ~December/January. Figures are based on reported and analyst-synthesized data.
GAAP vs. Non-GAAP Reconciliation
The gap between GAAP and non-GAAP earnings is primarily driven by:
- Amortization of acquired intangibles: ~$190-220M annually (primarily from IS&GS and Dynetics acquisitions). This is a large, non-cash charge that inflates the gap between GAAP and adjusted EPS.
- Acquisition integration costs: One-time charges that have largely run off by FY2023-2024.
- Pension/OPEB adjustments: Relatively modest.
Non-GAAP EPS is the metric most closely tracked by sell-side analysts and used in management compensation targets.
Margin Profile Analysis
Operating Margin Walk (FY2022 → FY2024)
- FY2022 GAAP operating margin: 6.3%
- FY2023: +30bps (scale leverage, fixed-price mix shift)
- FY2024: +40bps (continued scale, program performance)
- Path to 10%+ (management target): Requires sustained fixed-price mix shift, G&A leverage, and successful program execution — achievable over 5-7 years
Segment-Level Margins (FY2024 Estimated)
| Segment | Operating Margin |
|---|---|
| Defense Solutions | ~8.5% |
| Civil | ~7.5% |
| Health | ~5.5% |
| Corporate Allocated | (~1.5%) |
| Total | ~7.0% |
Health margin suppression reflects execution challenges on the VA EHRM contract, which has required incremental investment and generated program losses/penalties. Resolution of EHRM challenges is a meaningful margin catalyst.
Dynetics Acquisition Impact
Leidos acquired Dynetics, Inc. in January 2021 for approximately $1.65B. Dynetics contributed:
- Hypersonic strike capabilities (HAWC program)
- Counter-UAS / directed energy systems
- Space propulsion and advanced R&D
- ~4,500 additional cleared employees in Huntsville, Alabama
Impact on financials:
- Added ~$500-600M in annual revenue (included in Defense Solutions)
- Contributed high-value classified programs
- Added ~$1.4B in goodwill and intangible assets
- Net-leverage neutral (funded from existing revolver / commercial paper)
- ROIC dilution in near-term due to large intangible asset base, expected to improve as synergies materialize
Cash Flow Quality
Free cash flow has been consistently strong and growing:
- FY2022: $780M FCF (54% GAAP net income to FCF conversion)
- FY2023: $960M (higher conversion from working capital improvement)
- FY2024: $1.1B (~125% of GAAP net income)
FCF exceeds GAAP net income because D&A ($370M) far exceeds CapEx ($160M) — confirming the asset-light business model. Working capital is naturally negative (government agencies pay within 30-45 days, while Leidos has some supplier payment timing flexibility).
Effective Tax Rate
Leidos's effective tax rate has been relatively stable at 21-24% annually. The company benefits from R&D tax credits (defense research programs qualify) and has some state tax optimization from operations in low-tax jurisdictions. Foreign earnings (7-8% of revenue) create modest ETR complexity.
Key Financial Observations
- Revenue quality is high: >95% US government, long-term contracts with high renewal rates
- Margins expanding: Adj. operating margin trajectory 7.3% → 7.7% → 8.1% shows consistent improvement
- FCF well above GAAP earnings: Large D&A tail from acquisitions masks true cash earnings power
- Amortization headwind fading: IS&GS intangibles are ~10 years old (2016 acquisition), increasingly amortized through; charge should decline materially by 2028-2030
- Health segment is the margin drag: VA EHRM resolution would be a meaningful catalyst
Deeper Financial Analysis
The fundamental tier adds 9 additional research dimensions for $LDOS.