Leidos Holdings, Inc. Reports Second Quarter Fiscal Year 2020 Results

August 04, 2020
- Revenues: $2.91 billion, year-over-year growth of 6.8%
- Diluted Earnings per Share: $1.06; Non-GAAP Diluted Earnings per Share: $1.55
- Net Bookings: $4.6 billion (book-to-bill ratio of 1.6)
- Cash Flows from Operations: $422 million

RESTON, Va., Aug. 4, 2020 /PRNewswire/ -- Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500® science and technology leader, today reported financial results for the second quarter of fiscal year 2020.  

Roger Krone, Leidos Chairman and Chief Executive Officer, commented: "Leidos' second quarter results demonstrate the resiliency of our business model, the value of our market diversity and the strength of our team as we delivered on commitments through the most challenging quarter I have seen in my career. We exited the second quarter with a strong business capture win rate, record-setting backlog, resilient cash position and improved capital structure. These factors galvanize our optimism for the future despite the extended effects of the current pandemic."

Summary Results

Revenues for the quarter were $2.91 billion, compared to $2.73 billion in the prior year quarter, reflecting a 6.8% increase. Revenues for the quarter included $206 million and $80 million related to the acquisitions of Dynetics, Inc. ("Dynetics") and L3Harris Technologies' security detection and automation businesses (the "SD&A Businesses"), respectively.

Operating income for the quarter was $249 million, compared to $210 million in the prior year quarter, reflecting an 18.6% increase. Operating income margin increased to 8.5% from 7.7% in the prior year quarter. Non-GAAP operating income margin for the quarter was 11.2%, compared to 9.4% in the prior year quarter, primarily attributable to an $81 million net gain recognized upon the receipt of proceeds related to the VirnetX, Inc. ("VirnetX") legal matter and program wins, partially offset by reduced volume on certain contracts due to negative impacts related to the coronavirus pandemic ("COVID-19").

Diluted earnings per share ("EPS") attributable to Leidos common stockholders for the quarter was $1.06, compared to $0.93 in the prior year quarter. Non-GAAP diluted EPS for the quarter was $1.55, compared to $1.16 in the prior year quarter. The weighted average diluted share count for the quarter was 144 million compared to 146 million in the prior year quarter.

Defense Solutions

Defense Solutions revenues for the quarter of $1,757 million increased by $197 million, or 12.6%, compared to the prior year quarter. The revenue increase was primarily attributable to $206 million of revenues related to the acquisition of Dynetics and program wins, partially offset by the completion of certain contracts and reduced volume on certain contracts due to negative impacts related to COVID-19.

Defense Solutions operating income margin for the quarter was 6.8%, compared to 7.2% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 8.1%, compared to 8.3% in the prior year quarter. The decrease in margin was primarily attributable to the impacts of COVID-19, partially offset by program wins.

Civil

Civil revenues for the quarter of $758 million increased by $91 million, or 13.6%, compared to the prior year quarter. The revenue increase was primarily attributable to $80 million of revenues related to the acquisition of the SD&A Businesses and program wins, partially offset by the completion of certain contracts and reduced volume on certain contracts due to negative impacts related to COVID-19.

Civil operating income margin for the quarter was 10.3%, compared to 8.4% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 12.9%, compared to 11.1% in the prior year quarter, primarily attributable to program wins, improved performance on certain programs and income attributable to the acquisition of the SD&A Businesses.

Health

Health revenues for the quarter of $399 million decreased by $102 million, or 20.4%, compared to the prior year quarter. The revenue decrease was primarily attributable to timing of program execution due to COVID-19, the impact from the sale of our health staff augmentation business in the third quarter of fiscal year 2019 and the completion of certain contracts. This was partially offset by program wins and the impact from our acquisition of IMX Medical Management Services, Inc. in the third quarter of fiscal year 2019.

Health operating income margin for the quarter was 0.3%, compared to 12.2% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 5.3%, compared to 14.4% in the prior year quarter, primarily attributable to reduced volume on certain managed service contracts with fixed cost infrastructures that were impacted by COVID-19.

Cash Flow Summary

Net cash provided by operating activities for the quarter was $422 million compared to $186 million in the prior year quarter. The increase in cash inflows was primarily due to the timing of advance payments from customers, the receipt of $85 million of proceeds related to the VirnetX legal matter, lower tax payments, partially related to the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), and the sale of accounts receivable in the last month of the quarter. This was partially offset by the timing of payroll payments.

Net cash used in investing activities for the quarter was $1,014 million compared to $16 million in the prior year quarter. The increase in cash outflows was primarily due to net cash paid related to the acquisition of the SD&A Businesses.

Net cash provided by financing activities for the quarter was $709 million compared to $64 million net cash used in financing activities in the prior year quarter. The increase in cash inflows was primarily due to proceeds received related to the issuance of debt, partially offset by higher principal repayments from the refinancing of our outstanding debt.

As of July 3, 2020, we had $588 million in cash and cash equivalents and $5.0 billion of debt.

New Business Awards

Net bookings totaled $4.6 billion in the quarter, representing a book-to-bill ratio of 1.6.

Notable recent awards received include: 

  • U.S. Customs and Border Protection Software Development Services Support:  The Company was awarded a new Blanket Purchase Agreement ("BPA") by the U.S. Customs and Border Protection ("CBP") to provide software development services and related specialized equipment. Under the BPA and its subsequent task orders, Leidos will provide a full range of software development life cycle services to support CBP's mission to safeguard America's borders and enhance the nation's global economic competitiveness. This single award BPA has a one-year base period of performance followed by four one-year option periods, and a total estimated value of $960 million.
  • Department of Justice Information Technology Services Support:  The Company was awarded the Enterprise Standard Architecture V ("ESA V") task order to provide managed IT services for the Bureau of Alcohol, Tobacco, Firearms and Explosives within the Department of Justice. Under the ESA V task order, Leidos will expand upon its continuous innovation, integration and improvement model to facilitate economies of scale in managed IT services. The single award hybrid task order has one ten-month and two one-year base periods of performance followed by six one-year option periods. It includes a ceiling value not to exceed $850 million, if all options are exercised.
  • Laboratory Intelligence Validated Emulator Production and Sustainment Support:  Dynetics, Inc., a wholly owned subsidiary of Leidos, was awarded a sole-source contract for production and sustainment of foreign radar simulators known as the Laboratory Intelligence Validated Emulator family of products. Under the contract, Dynetics' objective is to navigate the vertical testability construct as part of a broader Live, Virtual, Constructive environment for both test and training of legacy and advanced electronic warfare platforms. The contract has a total estimated value of $356 million for production and sustainment for the next ten years.
  • U.S. Intelligence Community:  The Company was awarded contracts valued at $496 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.

Backlog at the end of the quarter was $30.7 billion, of which $7.0 billion was funded.

Forward Guidance

As a result of the Company's year-to-date performance and updated expectations, the Company is revising its fiscal year 2020 guidance as follows:

  • Revenues of $12.2 billion to $12.6 billion, from $12.5 billion to $12.9 billion;
  • Adjusted EBITDA margins of 10.0% to 10.2%, from 9.8% to 10.0%;
  • Non-GAAP diluted EPS of $5.25 to $5.55, from $5.00 to $5.30; and
  • Cash flows provided by operating activities at or above $1.2 billion, from at or above $1.0 billion.

The Company's updated forward guidance reflects the currently expected impacts related to COVID-19.

Non-GAAP diluted EPS excludes amortization of acquired intangible assets, acquisition, integration and restructuring costs, amortization of equity method investment, gain (loss) on sale of business, acquisition related financing costs, loss on debt modification, asset impairment charges and other tax adjustments. For additional information regarding non-GAAP diluted EPS and Leidos' other non-GAAP financial measures, see the related explanations and reconciliations to GAAP measures included elsewhere in this release.

The Company does not provide a reconciliation of forward-looking adjusted EBITDA margins (non-GAAP) or non-GAAP diluted EPS to GAAP net income, due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. Because certain deductions for non-GAAP exclusions used to calculate projected net income may vary significantly based on actual events, the Company is not able to forecast on a GAAP basis with reasonable certainty all deductions needed in order to provide a GAAP calculation of projected net income at this time. The amounts of these deductions may be material and, therefore, could result in projected GAAP net income and diluted EPS being materially less than projected adjusted EBITDA margins (non-GAAP) and non-GAAP diluted EPS.

COVID-19

The COVID-19 pandemic is affecting major economic and financial markets, and effectively all industries and governments are facing challenges, which has resulted in a period of business disruption, the length and severity of which cannot be predicted. The pandemic has resulted in significant travel restrictions, government orders to "shelter-in-place", quarantine restrictions and significant disruption of the financial markets. We have acted to protect the health and safety of our employees, comply with workplace health and safety regulations and work with our customers to minimize disruptions. The pandemic has impacted each of our groups, primarily in access to customer sites, travel restrictions, limitations of remote work and COVID-19 related costs.

Consistent with federal, state and local guidance, we perform work that is essential to support the critical infrastructure of the United States, the Defense Industrial Base and healthcare sector and we continue to operate in support of our customers. We have taken steps to support increased teleworking and safe workplace environments. We have some minor business operations that are not designated as critical infrastructure and therefore have been required to operate in minimal conditions.

For the quarter, COVID-19 adversely impacted revenues and operating income by approximately $132 million and $68 million, respectively, as compared to prior year quarter results. The full extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute on programs in the expected timeframe, will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials and international governments to prevent disease spread, all of which are uncertain and cannot be predicted.

The CARES Act enabled us to defer our federal and some state income tax payments from the second quarter of fiscal year 2020 to the third quarter of fiscal year 2020 and also to defer payment of the employer portion of social security taxes for the balance of fiscal year 2020. For the quarter we deferred $48 million of employer social security tax payments and received $10 million from the Employee Retention Credit.

We have taken measures to protect the health and well-being of our workforce and are working with our customers to minimize the delay and disruption of the award and performance on our contracts. Many of our employees continue to work remotely while our offices remain open with limited capacity.

Conference Call Information

Leidos management will discuss operations and financial results in an earnings conference call beginning at 8:00 A.M. eastern time on August 4, 2020. Analysts and institutional investors may participate by dialing +1 (877) 869-3847 (toll-free U.S.) or +1 (201) 689-8261 (international callers).

A live audio broadcast of the conference call along with a supplemental presentation will be available to the public through links on the Leidos Investor Relations website (http://ir.leidos.com).

After the call concludes, an audio replay can be accessed on the Leidos Investor Relations website or by dialing +1 (877) 660-6853 (toll-free U.S.) or +1 (201) 612-7415 (international callers) and entering conference ID 13706044.

About Leidos

Leidos is a Fortune 500® information technology, engineering, and science solutions and services leader working to solve the world's toughest challenges in the defense, intelligence, homeland security, civil and health markets. The Company's 37,000 employees support vital missions for government and commercial customers. Headquartered in Reston, Va., Leidos reported annual revenues of approximately $11.09 billion for the fiscal year ended January 3, 2020.

For more information, visit www.leidos.com.

Forward-Looking Statements

Certain statements in this release contain or are based on "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by words such as "expects," "intends," "plans," "anticipates," "believes," "estimates," "guidance" and similar words or phrases. Forward-looking statements in this release include, among others, estimates of future revenues, adjusted EBITDA margins, diluted EPS (including on a non-GAAP basis) and cash flows provided by operating activities, as well as statements about our business contingency plans, the impact of COVID-19 and related actions taken to prevent its spread and contract awards. These statements reflect our belief and assumptions as to future events that may not prove to be accurate.

Actual performance and results may differ materially from those results anticipated by our guidance and other forward-looking statements made in this release depending on a variety of factors, including but not limited to: changes to our reputation and relationships with government agencies, developments in the U.S. government defense budget, including budget reductions, implementation of spending limits (sequestration) or changes in budgetary priorities; delays in the U.S. government budget process or approval of raises to the debt ceiling; delays in the U.S. government contract procurement process or the award of contracts; delays or loss of contracts as a result of competitor protests; changes in U.S. government procurement rules, regulations and practices; changes in interest rates and other market factors out of our control; our compliance with various U.S. government and other government procurement rules and regulations; governmental reviews, audits and investigations of our Company; our ability to effectively compete for and win contracts with the U.S. government and other customers; our reliance on information technology spending by hospitals/healthcare organizations; our reliance on infrastructure investments by industrial and natural resources organizations; energy efficiency and alternative energy sourcing investments; investments by the U.S. government and commercial organizations in environmental impact and remediation projects; our ability to attract, train and retain skilled employees, including our management team, and to obtain security clearances for our employees; the mix of our contracts and our ability to accurately estimate costs associated with our firm-fixed-price and other contracts; our ability to realize as revenues the full amount of our backlog; cybersecurity, data security or other security threats, systems failures or other disruptions of our business; resolution of legal and other disputes with our customers and others or legal or regulatory compliance issues; our ability to effectively acquire businesses and make investments; our ability to maintain relationships with prime contractors, subcontractors and joint venture partners; our ability to manage performance and other risks related to customer contracts, including complex engineering projects; the failure of our inspection or detection systems to detect threats; the adequacy of our insurance programs designed to protect us from significant product or other liability claims; our ability to manage risks associated with our international business; exposure to lawsuits and contingencies associated with the IS&GS Business; our ability to declare future dividends based on our earnings, financial condition, capital requirements and other factors, including compliance with applicable laws and contractual agreements; our ability to grow our commercial health and infrastructure business, which could be negatively affected by our budgetary constraints faced by hospitals and by developers of energy and infrastructure projects; and our ability to execute our business plan and long-term management initiatives effectively and to overcome these and other known and unknown risks that we face, including the impacts of COVID-19. These are only some of the factors that may affect the forward-looking statements contained in this release. For further information concerning risks and uncertainties associated with our business, please refer to the filings we make from time to time with the U.S. Securities and Exchange Commission ("SEC"), including the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Legal Proceedings" sections of our latest Annual Report on Form 10-K and quarterly reports on Form 10-Q, all of which may be viewed or obtained through the Investor Relations section of our website at www.leidos.com.

All information in this release is as of August 4, 2020. The Company expressly disclaims any duty to update the guidance or any other forward-looking statement provided in this release to reflect subsequent events, actual results or changes in the Company's expectations. The Company also disclaims any duty to comment upon or correct information that may be contained in reports published by investment analysts or others.

CONTACTS:




Investor Relations:

Media Relations:

Peter M. Berl

Melissa Lee Dueñas

571.526.7582

571.526.6850

ir@leidos.com

Duenasml@leidos.com

 

LEIDOS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)




Three Months Ended


Six Months Ended



July 3,

2020


June 28,

2019


July 3,

2020


June 28,

2019

Revenues


$

2,914



$

2,728



$

5,803



$

5,305


Cost of revenues


2,531



2,348



5,025



4,569


Selling, general and administrative expenses


195



175



383



341


Bad debt expense and recoveries


(81)





(72)




Acquisition, integration and restructuring costs


16



1



28



3


Asset impairment charges


11





11




Equity earnings of non-consolidated subsidiaries


(7)



(6)



(13)



(10)


Operating income


249



210



441



402


Non-operating (expense) income:









Interest expense, net


(41)



(33)



(89)



(71)


Other (expense) income, net


(16)



2



(30)



94


Income before income taxes


192



179



322



425


Income tax expense


(38)



(41)



(53)



(98)


Net income


154



138



269



327


Less: net income attributable to non-controlling interest


1



2



1



2


Net income attributable to Leidos common stockholders


$

153



$

136



$

268



$

325











Earnings per share:









Basic


$

1.08



$

0.94



$

1.89



$

2.26


Diluted


1.06



0.93



1.86



2.23











Weighted average number of common shares outstanding:









Basic


142



144



142



144


Diluted


144



146



144



146











Cash dividends declared per share


$

0.34



$

0.32



$

0.68



$

0.64


 

LEIDOS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)




July 3,

2020


January 3,

2020

ASSETS





Cash and cash equivalents


$

588



$

668


Receivables, net


1,789



1,734


Inventory, net


294



72


Other current assets


381



338


Total current assets


3,052



2,812


Property, plant and equipment, net


569



287


Intangible assets, net


1,260



530


Goodwill


6,266



4,912


Operating lease right-of-use assets, net


559



400


Other assets


437



426




$

12,143



$

9,367


LIABILITIES AND EQUITY





Accounts payable and accrued liabilities


$

2,034



$

1,837


Accrued payroll and employee benefits


541



435


Long-term debt, current portion


854



61


Total current liabilities


3,429



2,333


Long-term debt, net of current portion


4,148



2,925


Operating lease liabilities


529



326


Deferred tax liabilities


194



184


Other long-term liabilities


296



182


Stockholders' equity:





Common stock, $0.0001 par value, 500 million shares authorized, 142 million and 
  141 million shares issued and outstanding at July 3, 2020 and January 3, 2020,
  respectively





Additional paid-in capital


2,600



2,587


Retained earnings


1,065



896


Accumulated other comprehensive loss


(127)



(70)


Total Leidos stockholders' equity


3,538



3,413


Non-controlling interest


9



4


Total equity


3,547



3,417




$

12,143



$

9,367


 

 

LEIDOS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)




Three Months Ended


Six Months Ended



July 3,

2020


June 28,

2019


July 3,

2020


June 28,

2019

Cash flows from operations:









Net income


$

154



$

138



$

269



$

327


Adjustments to reconcile net income to net cash provided by operations:









Loss (gain) on sale of business




1





(87)


Depreciation and amortization


71



57



132



115


Stock-based compensation


15



13



30



25


Loss on debt extinguishment


12





31




Asset impairment charges


11





11




Deferred income taxes


(3)





(1)



13


Other


2





11



3


Change in assets and liabilities, net of effects of acquisitions and dispositions:









Receivables


137



53



226



32


Other current assets and other long-term assets


58



78



15



53


Accounts payable and accrued liabilities and other long-term liabilities


(69)



(216)



(44)



(2)


Accrued payroll and employee benefits


2



108



70




Income taxes receivable/payable


32



(46)



44



(5)


Net cash provided by operating activities


422



186



794



474


Cash flows from investing activities:









Acquisition of businesses, net of cash acquired


(968)





(2,610)




Payments for property, equipment and software


(46)



(16)



(90)



(46)


Proceeds from disposition of business








171


Net proceeds from sale of assets








96


Other






1




Net cash (used in) provided by investing activities


(1,014)



(16)



(2,699)



221


Cash flows from financing activities:









Proceeds from debt issuance


3,050





6,225




Payments of long-term debt


(2,276)



(17)



(4,203)



(48)


Payments for debt issuance costs


(27)





(39)




Dividend payments


(48)



(47)



(99)



(101)


Repurchases of stock and other


(2)



(5)



(34)



(227)


Proceeds from issuances of stock


8



5



16



15


Other


4





4




Net cash provided by (used in) financing activities


709



(64)



1,870



(361)


Net increase (decrease) in cash, cash equivalents and restricted cash


117



106



(35)



334


Cash, cash equivalents and restricted cash at beginning of period


565



597



717



369


Cash, cash equivalents and restricted cash at end of period


$

682



$

703



$

682



$

703


 

 

LEIDOS HOLDINGS, INC.
UNAUDITED SEGMENT OPERATING RESULTS
(in millions)


Effective the beginning of fiscal 2020, certain contracts were reassigned from the Civil reportable segment to the Defense Solutions reportable segment to better align the operations within the reportable segments to the customers they serve. Prior year segment results have been recast to reflect this change. Additionally, the results of Dynetics and the SD&A Businesses were included within the Defense Solutions and Civil reportable segments, respectively.


The segment information for the periods presented was as follows:




Three Months Ended


Six Months Ended



July 3,

2020


June 28,

2019


Dollar
change


Percent
change


July 3,

2020


June 28,

2019


Dollar
change


Percent
change

Revenues:

















Defense Solutions


$

1,757



$

1,560



$

197



12.6

%


$

3,462



$

3,051



$

411



13.5

%

Civil


758



667



91



13.6

%


1,412



1,290



122



9.5

%

Health


399



501



(102)



(20.4)

%


929



964



(35)



(3.6)

%

Corporate








NM








NM

Total


$

2,914



$

2,728



$

186



6.8

%


$

5,803



$

5,305



$

498



9.4

%


















Operating
   income (loss):

















Defense Solutions


$

119



$

113



$

6



5.3

%


$

214



$

217



$

(3)



(1.4)

%

Civil


78



56



22



39.3

%


137



114



23



20.2

%

Health


1



61



(60)



(98.4)

%


74



106



(32)



(30.2)

%

Corporate


51



(20)



71



NM


16



(35)



51



NM

Total


$

249



$

210



$

39



18.6

%


$

441



$

402



$

39



9.7

%


















Operating
   income margin:

















Defense Solutions


6.8

%


7.2

%






6.2

%


7.1

%





Civil


10.3

%


8.4

%






9.7

%


8.8

%





Health


0.3

%


12.2

%






8.0

%


11.0

%





Total


8.5

%


7.7

%






7.6

%


7.6

%






NM - Not Meaningful

 

LEIDOS HOLDINGS, INC.
UNAUDITED BACKLOG BY REPORTABLE SEGMENT
(in millions)


Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts. Backlog
value is based on management's estimates about volume of services, availability of customer funding and other
factors, and excludes contracts that are under protest. Our estimate of backlog comprises both funded and negotiated
unfunded backlog. Backlog estimates are subject to change and may be affected by several factors including
modifications of contracts, non-exercise of options, foreign currency movements, etc.


Funded backlog for contracts with the U.S. government represents the value on contracts for which funding is
appropriated less revenues previously recognized on these contracts. Funded backlog for contracts with non-U.S.
government entities and commercial customers represents the estimated value on contracts, which may cover
multiple future years, under which Leidos is obligated to perform, less revenue previously recognized on the
contracts.


Negotiated unfunded backlog represents estimated amounts of revenue to be earned in the future from contracts
for which funding has not been appropriated and unexercised priced contract options. Negotiated unfunded backlog
does not include unexercised option periods and future potential task orders expected to be awarded under indefinite
delivery/indefinite quantity ("IDIQ"), General Services Administration Schedule or other master agreement contract
vehicles, with the exception of certain IDIQ contracts where task orders are not competitively awarded or separately
priced but instead are used as a funding mechanism, and where there is a basis for estimating future revenues and
funding on future task orders is anticipated.


The estimated value of backlog as of the dates presented was as follows:




July 3,

2020


January 3,

2020

Defense Solutions(1):





Funded backlog


$

4,275



$

3,063


Negotiated unfunded backlog


13,779



11,974


Total Defense Solutions backlog


$

18,054



$

15,037


Civil(1):





Funded backlog


$

1,695



$

1,267


Negotiated unfunded backlog


6,634



2,978


Total Civil backlog


$

8,329



$

4,245


Health:





Funded backlog


$

1,074



$

1,083


Negotiated unfunded backlog


3,204



3,725


Total Health backlog


$

4,278



$

4,808


Total:





Funded backlog


$

7,044



$

5,413


Negotiated unfunded backlog


23,617



18,677


Total backlog


$

30,661



$

24,090




(1) 

Prior year amounts have been recast for the contracts that were reassigned from the Civil reportable segment to the Defense Solutions
reportable segment.

The change in backlog for the Defense Solutions and Civil reportable segments reflect $1,762 million and $574 million, respectively, of backlog acquired as a result of the acquisitions of Dynetics and the SD&A Businesses, respectively.

LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES
(in millions, except per share amounts)

The Company uses and refers to non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA margin and non-GAAP diluted EPS, which are not measures of financial performance under generally accepted accounting principles in the U.S. and, accordingly, these measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be read in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.

Management believes that these non-GAAP measures provide another measure of the Company's results of operations and financial condition, including its ability to comply with financial covenants. These non-GAAP measures are frequently used by financial analysts covering Leidos and its peers. The Company's computation of its non-GAAP measures may not be comparable to similarly titled measures reported by other companies, thus limiting their use for comparability.

Non-GAAP operating income is computed by excluding the following items from net income: (i) non-operating expense, net; (ii) income tax expense; and (iii) the following discrete items and the related tax impacts:

  • Acquisition, integration and restructuring costs – Represents acquisition, integration, lease termination and severance costs related to the Company's acquisitions.
  • Amortization of acquired intangible assets – Represents the amortization of the fair value of the acquired intangible assets.
  • Amortization of equity method investment – Represents the amortization of the fair value of the acquired equity method investment.
  • Acquisition related financing costs – Represents the amortization of the debt financing commitments in connection with the Company's acquisitions of Dynetics, Inc. and the SD&A Businesses.
  • Loss on debt modification – Represents the write-off of debt discount and debt issuance costs related to the termination of credit agreements entered into in August 2016 as a result of the debt modification.
  • Asset impairment charges – Represents impairments of long-lived tangible assets.
  • Gain (loss) on sale of business – Represents the net gain on sale of businesses. 
  • Other tax adjustments – Represents discrete tax items.

Non-GAAP operating margin is computed by dividing non-GAAP operating income by revenue.

Adjusted EBITDA is computed by excluding the following items from income before income taxes: (i) discrete items as identified above; (ii) interest expense; (iii) interest income; (iv) depreciation expense; and (v) amortization of intangibles.

Adjusted EBITDA margin is computed by dividing adjusted EBITDA by revenue.

Non-GAAP diluted EPS is computed by dividing net income, adjusted for the discrete items as identified above and the related tax impacts, by the diluted weighted average number of common shares outstanding.

 

LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES [CONTINUED]
(in millions, except per share amounts)


The following tables present the reconciliation of the non-GAAP measures identified above to the most directly comparable GAAP measures:




Three Months Ended July 3, 2020



As reported


Acquisition,
integration
and
restructuring
costs


Amortization
of acquired
intangibles


Acquisition
related
financing
costs


Loss on debt
modification


Asset
impairment
charges


Non-GAAP
results

Operating income


$

249



$

16



$

51



$



$



$

11



$

327


Non-operating expense,

  net


(57)







3



12





(42)


Income before income
  taxes


192



16



51



3



12



11



285


Income tax expense(1)


(38)



(4)



(13)



(1)



(3)



(2)



(61)


Net income


154



12



38



2



9



9



224


Less: net income
  attributable to non-
  controlling interest


1













1


Net income attributable to
  Leidos common
   stockholders


$

153



$

12



$

38



$

2



$

9



$

9



$

223

















Diluted EPS attributable to
  Leidos common
  stockholders


$

1.06



$

0.09



$

0.27



$

0.01



$

0.06



$

0.06



$

1.55


Diluted shares


144



144



144



144



144



144



144


 



Three Months Ended July 3, 2020



As reported


Acquisition,
integration
and
restructuring
costs


Amortization of
acquired intangibles


Acquisition
related
financing
costs


Loss on debt
modification


Asset
impairment
charges


Non-GAAP
results

Income before income taxes


$

192



$

16



$

51



$

3



$

12



$

11



$

285


Depreciation expense


20













20


Amortization of intangibles


51





(51)










Interest expense, net


41







(3)







38


EBITDA


$

304



$

16



$



$



$

12



$

11



$

343


EBITDA margin


10.4

%












11.8

%



(1) 

Calculation uses an estimated statutory tax rate on non-GAAP adjustments.

 

LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES [CONTINUED]
(in millions, except per share amounts)




Three Months Ended June 28, 2019



As reported


Acquisition,
integration
and
restructuring
costs


Amortization of
acquired intangibles


Amortization
of equity method
investment


Loss on sale
of business


Non-GAAP
results

Operating income


$

210



$

1



$

43



$

2



$



$

256


Non-operating expense, net


(31)









1



(30)


Income before income taxes


179



1



43



2



1



226


Income tax expense(1)


(41)





(11)



(1)



(1)



(54)


Net income


138



1



32



1





172


Less: net income attributable to non-
  controlling interest


2











2


Net income attributable to Leidos
  common stockholders


$

136



$

1



$

32



$

1



$



$

170















Diluted EPS attributable to Leidos
  common stockholders


$

0.93



$



$

0.22



$

0.01



$



$

1.16


Diluted shares


146



146



146



146



146



146


 



Three Months Ended June 28, 2019



As reported


Acquisition,
integration
and
restructuring
costs


Amortization
of acquired
intangibles


Amortization
of equity method
investment


Loss on
sale of
business


Non-GAAP
results

Income before income taxes


$

179



$

1



$

43



$

2



$

1



$

226


Depreciation expense


14











14


Amortization of intangibles


43





(43)








Amortization of equity method
   investment


2







(2)






Interest expense, net


33











33


EBITDA


$

271



$

1



$



$



$

1



$

273


EBITDA margin


9.9

%










10.0

%



(1)

 Calculation uses an estimated statutory tax rate on non-GAAP adjustments.

 

LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES [CONTINUED]
(in millions, except per share amounts)




Six Months Ended July 3, 2020



As
reported


Acquisition,
integration
and
restructuring
costs


Amortization
of acquired
intangibles


Acquisition
related
financing
costs


Loss on debt
modification


Asset impairment
charges


Non-GAAP
results

Operating income


$

441



$

28



$

93



$



$



$

11



$

573


Non-operating expense,
  net


(119)







5



31





(83)


Income before income
  taxes


322



28



93



5



31



11



490


Income tax expense(1)


(53)



(7)



(24)



(1)



(8)



(2)



(95)


Net income


269



21



69



4



23



9



395


Less: net income
  attributable to non-
  controlling interest


1













1


Net income attributable to
  Leidos common
   stockholders


$

268



$

21



$

69



$

4



$

23



$

9



$

394


















Diluted EPS attributable to
  Leidos common
  stockholders


$

1.86



$

0.15



$

0.48



$

0.03



$

0.16



$

0.06



$

2.74


Diluted shares


144



144



144



144



144



144



144


 



Six Months Ended July 3, 2020



As
reported


Acquisition,
integration
and
restructuring
costs


Amortization
of acquired
intangibles


Acquisition
related
financing
costs


Loss on debt
modification


Asset impairment
charges


Non-GAAP
results

Income before income taxes


$

322



$

28



$

93



$

5



$

31



$

11



$

490


Depreciation expense


38













38


Amortization of intangibles


94





(93)









1


Interest expense, net


89







(5)







84


EBITDA


$

543



$

28



$



$



$

31



$

11



$

613


EBITDA margin


9.4

%












10.6

%



(1) 

Calculation uses an estimated statutory tax rate on non-GAAP adjustments.

 

LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES [CONTINUED]
(in millions, except per share amounts)




Six Months Ended June 28, 2019



As
reported


Acquisition,
integration
and
restructuring
costs


Amortization
of acquired
intangibles


Amortization
of equity method
investment


Gain on sale of
business


Other tax
adjustments


Non-GAAP
results

Operating income


$

402



$

3



$

85



$

5



$



$



$

495


Non-operating income (expense),
  net


23









(87)





(64)


Income before income
  taxes


425



3



85



5



(87)





431


Income tax (expense) 

  benefit(1)


(98)



(1)



(22)



(1)



22



7



(93)


Net income


327



2



63



4



(65)



7



338


Less: net income
  a
ttributable to non-
  controlling interest


2













2


Net income attributable
  to Leidos common stockholders


$

325



$

2



$

63



$

4



$

(65)



$

7



$

336

















Diluted EPS attributable
  to Leidos common stockholders


$

2.23



$

0.01



$

0.43



$

0.03



$

(0.45)



$

0.05



$

2.30


Diluted shares


146



146



146



146



146



146



146


 



Six Months Ended June 28, 2019



As reported


Acquisition,
integration
and
restructuring
costs


Amortization
of acquired
intangibles


Amortization
of equity method
investment


Gain on sale of
business


Non-GAAP
results

Income before income taxes


$

425



$

3



$

85



$

5



$

(87)



$

431


Depreciation expense


29











29


Amortization of intangibles


86





(85)







1


Amortization of equity method 
  investment


5







(5)






Interest expense, net


71











71


EBITDA


$

616



$

3



$



$



$

(87)



$

532


EBITDA margin


11.6

%










10.0

%



(1) 

Calculation uses an estimated statutory tax rate on non-GAAP adjustments.

 

LEIDOS HOLDINGS, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES [CONTINUED]
(in millions, except per share amounts)


The following tables present the reconciliation of the non-GAAP operating income by reportable segment and Corporate:




Three Months Ended July 3, 2020



Operating
income


Acquisition,
integration
and
restructuring
costs


Amortization
of acquired
intangibles


Asset
impairment
charges


Non-GAAP
operating
income


Non-GAAP
operating
margin

Defense Solutions


$

119



$

1



$

23



$



$

143



8.1

%

Civil


78



1



19





98



12.9

%

Health


1





9



11



21



5.3

%

Corporate


51



14







65



NM

Total


$

249



$

16



$

51



$

11



$

327



11.2

%




Three Months Ended June 28, 2019



Operating
income
(loss)


Acquisition,
integration
and
restructuring
costs


Amortization of acquired intangibles


Amortization of equity method investment


Non-GAAP operating income (loss)


Non-GAAP operating margin

Defense Solutions(1)


$

113



$



$

16



$



$

129



8.3

%

Civil(1)


56





16



2



74



11.1

%

Health


61





11





72



14.4

%

Corporate


(20)



1







(19)



NM

Total


$

210



$

1



$

43



$

2



$

256



9.4

%




Six Months Ended July 3, 2020



Operating
income


Acquisition,
integration
and
restructuring
costs


Amortization of acquired intangibles


Asset impairment charges


Non-GAAP operating income


Non-GAAP operating margin

Defense Solutions


$

214



$

1



$

44



$



$

259



7.5

%

Civil


137



1



31





169



12.0

%

Health


74





18



11



103



11.1

%

Corporate


16



26







42



NM

Total


$

441



$

28



$

93



$

11



$

573



9.9

%




Six Months Ended June 28, 2019



Operating
income
(loss)


Acquisition,
integration
and
restructuring
costs


Amortization of acquired intangibles


Amortization of equity method investment


Non-GAAP operating income (loss)


Non-GAAP operating margin

Defense Solutions(1)


$

217



$



$

32



$



$

249



8.2

%

Civil(1)


114





32



5



151



11.7

%

Health


106





21





127



13.2

%

Corporate


(35)



3







(32)



NM

Total


$

402



$

3



$

85



$

5



$

495



9.3

%


NM - Not Meaningful



( 1) 

Prior year amounts have been recast for the contracts that were reassigned from the Civil reportable segment to the Defense Solutions reportable segment.

 

Cision View original content:http://www.prnewswire.com/news-releases/leidos-holdings-inc-reports-second-quarter-fiscal-year-2020-results-301105117.html

SOURCE Leidos

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