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

November 02, 2020
- Revenues: $3.24 billion, year-over-year growth of 14.4%
- Diluted Earnings per Share: $1.13; Non-GAAP Diluted Earnings per Share: $1.47
- Net Bookings: $4.3 billion (book-to-bill ratio of 1.3)
- Cash Flows from Operations: $592 million

RESTON, Va., Nov. 2, 2020 /PRNewswire/ -- Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500® science and technology leader, today reported financial results for the third quarter of fiscal year 2020.  

Roger Krone, Leidos Chairman and Chief Executive Officer, commented: "Leidos' third quarter results reflect the hard work and dedication of our employees and close collaboration with our customers as we provided continuity of operations while accelerating our pandemic response plan. This is evidenced by record revenue, solid margins, record backlog and record operational cash generation in the recent quarter. While challenges still remain, we are pleased with the growth and margin trajectory as we enter the fourth quarter and beyond."

Summary Results

Revenues for the quarter were $3.24 billion, compared to $2.84 billion in the prior year quarter, reflecting a 14.4% increase. Revenues for the quarter included $302 million and $74 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 $258 million, compared to $249 million in the prior year quarter, reflecting a 3.6% increase. Operating income margin decreased to 8.0% from 8.8% in the prior year quarter. Non-GAAP operating income margin for the quarter was 10.0%, compared to 10.4% in the prior year quarter, primarily attributable to a $54 million recovery recognized in the prior year quarter related to the receipt of the Greek arbitration award.

Diluted earnings per share ("EPS") attributable to Leidos common stockholders for the quarter was $1.13, compared to $1.11 in the prior year quarter. Non-GAAP diluted EPS for the quarter was $1.47, compared to $1.36 in the prior year quarter. The weighted average diluted share count for the quarter was 144 million compared to 145 million in the prior year quarter.

Defense Solutions

Defense Solutions revenues for the quarter of $1,951 million increased by $357 million, or 22.4%, compared to the prior year quarter. The revenue increase was primarily attributable to $302 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 the coronavirus pandemic ("COVID-19").

Defense Solutions operating income margin for the quarter was 7.4%, compared to 6.7% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 8.8%, compared to 7.7% in the prior year quarter. The increase in margin was primarily attributable to higher margins on program wins and lower indirect expenditures.

Civil

Civil revenues for the quarter of $771 million increased by $38 million, or 5.2%, compared to the prior year quarter. The revenue increase was primarily attributable to $74 million of revenues related to the acquisition of the SD&A Businesses and program wins, partially offset by the completion of certain contracts, prior year upfront lease revenue recognized on certain programs and reduced volume on certain contracts due to negative impacts related to COVID-19.

Civil operating income margin for the quarter was 7.0%, compared to 5.9% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 10.5%, compared to 8.3% in the prior year quarter, primarily attributable to improved performance on certain programs and a decrease in bad debt expense.

Health

Health revenues for the quarter of $520 million increased by $12 million, or 2.4%, compared to the prior year quarter. The revenue increase was primarily attributable to a net increase in volumes on certain programs and program wins. This was partially offset by the impact from the sale of our health staff augmentation business in the third quarter of fiscal 2019.

Health operating income margin for the quarter was 14.4%, compared to 12.4% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 16.3%, compared to 14.8% in the prior year quarter, primarily attributable to lower expenditures on certain programs and the impact from the sale of our health staff augmentation business in the third quarter of fiscal 2019.

Cash Flow Summary

Net cash provided by operating activities for the quarter was $592 million compared to $349 million in the prior year quarter. The increase in cash inflows was primarily due to the timing of payroll payments and higher advance payments from customers in the current year quarter.

Net cash used in investing activities for the quarter was $15 million compared to $102 million in the prior year quarter. The decrease in cash outflows was primarily due to cash paid related to the acquisition of IMX Medical Management Services, Inc. in the prior year quarter, partially offset by net proceeds received for the divestiture of our health staff augmentation business in the prior year quarter.

Net cash used in financing activities for the quarter was $517 million compared to $204 million in the prior year quarter. The increase in cash outflows was primarily due to the early repayment of our $450 million senior unsecured notes in the current quarter and the timing of dividend payments, partially offset by stock repurchases in the prior year quarter.

As of October 2, 2020, we had $512 million in cash and cash equivalents and $4.5 billion of debt.

New Business Awards

Net bookings totaled $4.3 billion in the quarter, representing a book-to-bill ratio of 1.3.

Notable recent awards received include: 

  • U.S. Intelligence Community: The Company was awarded contracts valued at $445 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.
  • U.S. Army Saturn Arch Aircraft Operations, Sustainment and Integration Support:  The Company was awarded a follow-on contract by the Army Contracting Command – Redstone Arsenal, Ala. to provide the full spectrum of turnkey ground and flight operations for the Saturn Arch aircraft in Outside the Contiguous United States ("OCONUS") contingency environments. Through the contract, Leidos will leverage the airborne solution operation's deep expertise in specialized systems to provide aircraft engineering, design, fabrication, modification and installation of DHC-8 aerial intelligence, surveillance, and reconnaissance capabilities. The sole source, cost-plus-fixed-fee contract has a total estimated value of $306 million and includes a one-year base period of performance followed by two one-year option periods with a six-month extension.
  • Federal Aviation Administration Enterprise Information Display System Design:  The Company was awarded a prime contract by the Federal Aviation Administration to design and develop a system to provide real-time access to essential weather, aeronautical, and National Airspace System ("NAS") information through a common, NAS-wide Enterprise - Information Display System ("E-IDS"). Through the contract, Leidos will perform the critical activities required to deliver E-IDS, including: program management, systems engineering, design and development, system test and evaluation, training, production and site implementation. The single award contract holds an approximate value of $292 million. It includes a four-year base period of performance and eleven one-year option periods.

Backlog at the end of the quarter was $31.7 billion, of which $6.8 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 $12.3 billion to $12.5 billion, from $12.2 billion to $12.6 billion;
  • Adjusted EBITDA margins of 10.6% to 10.8%, from 10.0% to 10.2%;
  • Non-GAAP diluted EPS of $5.65 to $5.85, from $5.25 to $5.55; and
  • Cash flows provided by operating activities at or above $1.2 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 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 by approximately $40 million and had an immaterial impact on operating income, 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 Coronavirus Aid, Relief and Economic Security Act, which is effective until December 11, 2020, 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 $92 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 November 2, 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 13710584.

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 38,000 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: the impacts of COVID-19 on our business, financial condition, results of operations and cash flows; 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. 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 November 2, 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


Nine Months Ended



October 2,
2020


September 27,
2019


October 2,
2020


September 27,
2019

Revenues


$

3,242



$

2,835



$

9,045



$

8,140


Cost of revenues


2,774



2,450



7,799



7,019


Selling, general and administrative expenses


200



177



583



518


Bad debt expense and recoveries


2



(35)



(70)



(35)


Acquisition, integration and restructuring costs


5





33



3


Asset impairment charges






11




Equity loss (earnings) of non-consolidated subsidiaries


3



(6)



(10)



(16)


Operating income


258



249



699



651


Non-operating (expense) income:









Interest expense, net


(44)



(28)



(133)



(99)


Other (expense) income, net




(7)



(30)



87


Income before income taxes


214



214



536



639


Income tax expense


(51)



(52)



(104)



(150)


Net income


163



162



432



489


Less: net income attributable to non-controlling interest




1



1



3


Net income attributable to Leidos common stockholders


$

163



$

161



$

431



$

486











Earnings per share:









Basic


$

1.15



$

1.13



$

3.04



$

3.38


Diluted


1.13



1.11



2.99



3.33











Weighted average number of common shares outstanding:









Basic


142



143



142



144


Diluted


144



145



144



146











Cash dividends declared per share


$

0.34



$

0.34



$

1.02



$

0.98


 

LEIDOS HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)




October 2,
2020


January 3,
2020

ASSETS





Cash and cash equivalents


$

512



$

668


Receivables, net


1,872



1,734


Inventory, net


292



72


Other current assets


523



338


Total current assets


3,199



2,812


Property, plant and equipment, net


577



287


Intangible assets, net


1,335



530


Goodwill


6,158



4,912


Operating lease right-of-use assets, net


581



400


Other assets


435



426




$

12,285



$

9,367


LIABILITIES AND EQUITY





Accounts payable and accrued liabilities


$

2,279



$

1,837


Accrued payroll and employee benefits


718



435


Long-term debt, current portion


401



61


Total current liabilities


3,398



2,333


Long-term debt, net of current portion


4,125



2,925


Operating lease liabilities


549



326


Deferred tax liabilities


216



184


Other long-term liabilities


282



182


Stockholders' equity:





Common stock, $0.0001 par value, 500 million shares authorized, 142 million and 141 million shares issued and
   outstanding at October 2, 2020 and January 3, 2020, respectively





Additional paid-in capital


2,624



2,587


Retained earnings


1,180



896


Accumulated other comprehensive loss


(98)



(70)


Total Leidos stockholders' equity


3,706



3,413


Non-controlling interest


9



4


Total equity


3,715



3,417




$

12,285



$

9,367


 

LEIDOS HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)




Three Months Ended


Nine Months Ended



October 2,
2020


September 27,
2019


October 2,
2020


September 27,
2019

Cash flows from operations:









Net income


$

163



$

162



$

432



$

489


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









Gain on sale of business








(87)


Depreciation and amortization


82



59



214



174


Stock-based compensation


15



13



45



38


Loss on debt extinguishment






31




Asset impairment charges






11




Deferred income taxes


(1)



16



(2)



29


Bad debt expense


2



19



11



19


Other


2





4



3


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









Receivables


(86)



36



140



68


Other current assets and other long-term assets


34



(19)



49



34


Accounts payable and accrued liabilities and other long-term liabilities


255



95



211



93


Accrued payroll and employee benefits


177



(17)



247



(17)


Income taxes receivable/payable


(51)



(15)



(7)



(20)


Net cash provided by operating activities


592



349



1,386



823


Cash flows from investing activities:









Acquisition of businesses, net of cash acquired




(94)



(2,610)



(94)


Payments for property, equipment and software


(30)



(21)



(120)



(67)


Proceeds from disposition of businesses




12





183


Net proceeds from sale of assets


10





10



96


Other


5



1



6



1


Net cash (used in) provided by investing activities


(15)



(102)



(2,714)



119


Cash flows from financing activities:









Proceeds from debt issuance






6,225




Payments of long-term debt


(477)



(2)



(4,680)



(50)


Payments for debt issuance costs






(39)




Dividend payments


(49)





(148)



(101)


Repurchases of stock and other


(1)



(203)



(35)



(430)


Proceeds from issuances of stock


10



1



26



16


Other






4




Net cash (used in) provided by financing activities


(517)



(204)



1,353



(565)


Net increase in cash, cash equivalents and restricted cash


60



43



25



377


Cash, cash equivalents and restricted cash at beginning of period


682



703



717



369


Cash, cash equivalents and restricted cash at end of period


$

742



$

746



$

742



$

746


 

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 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


Nine Months Ended



October 2,
2020


September 27,
2019


Dollar
change


Percent
change


October 2,
2020


September 27,
2019


Dollar
change


Percent
change

Revenues:

















Defense
  Solutions


$

1,951



$

1,594



$

357



22.4

%


$

5,413



$

4,645



$

768



16.5

%

Civil


771



733



38



5.2

%


2,183



2,023



160



7.9

%

Health


520



508



12



2.4

%


1,449



1,472



(23)



(1.6)

%

Total


$

3,242



$

2,835



$

407



14.4

%


$

9,045



$

8,140



$

905



11.1

%


















Operating
  income
  (loss):

















Defense
 Solutions


$

145



$

107



$

38



35.5

%


$

359



$

324



$

35



10.8

%

Civil


54



43



11



25.6

%


191



157



34



21.7

%

Health


75



63



12



19.0

%


149



169



(20)



(11.8)

%

Corporate


(16)



36



(52)



NM





1



(1)



NM


Total


$

258



$

249



$

9



3.6

%


$

699



$

651



$

48



7.4

%


















Operating
 income
 margin:

















Defense
 Solutions


7.4

%


6.7

%






6.6

%


7.0

%





Civil


7.0

%


5.9

%






8.7

%


7.8

%





Health


14.4

%


12.4

%






10.3

%


11.5

%





Total


8.0

%


8.8

%






7.7

%


8.0

%






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:



October 2,
2020


January 3,
2020

Defense Solutions(1):





Funded backlog


$

4,115



$

3,063


Negotiated unfunded backlog


13,746



11,974


Total Defense Solutions backlog


$

17,861



$

15,037


Civil(1):





Funded backlog


$

1,521



$

1,267


Negotiated unfunded backlog


7,028



2,978


Total Civil backlog


$

8,549



$

4,245


Health:





Funded backlog


$

1,208



$

1,083


Negotiated unfunded backlog


4,101



3,725


Total Health backlog


$

5,309



$

4,808


Total:





Funded backlog


$

6,844



$

5,413


Negotiated unfunded backlog


24,875



18,677


Total backlog


$

31,719



$

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 $1,632 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 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 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 October 2, 2020



As reported


Acquisition,
integration
and
restructuring
costs


Amortization
of acquired intangibles


Amortization
of equity
method
investment


Non-GAAP
results

Operating income


$

258



$

5



$

59



$

2



$

324


Non-operating expense, net


(44)









(44)


Income before income taxes


214



5



59



2



280


Income tax expense(1)


(51)



(1)



(15)



(1)



(68)


Net income attributable to Leidos common stockholders


$

163



$

4



$

44



$

1



$

212













Diluted EPS attributable to Leidos common stockholders


$

1.13



$

0.03



$

0.30



$

0.01



$

1.47


Diluted shares


144



144



144



144



144






Three Months Ended October 2, 2020



As reported


Acquisition,
integration
and
restructuring
costs


Amortization
of acquired
intangibles


Amortization
of equity
method
investment


Non-GAAP
results

Income before income taxes


$

214



$

5



$

59



$

2



$

280


Depreciation expense


22









22


Amortization of intangibles


60





(59)





1


Amortization of equity method investment


2







(2)




Interest expense, net


44









44


EBITDA


$

342



$

5



$



$



$

347


EBITDA margin


10.5

%








10.7

%


(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 September 27, 2019



As reported


Amortization
of acquired
intangibles


Amortization
of equity
method
investment


Other tax
adjustments


Non-GAAP
results

Operating income


$

249



$

43



$

3



$



$

295


Non-operating expense, net


(35)









(35)


Income before income taxes


214



43



3





260


Income tax (expense) benefit(1)


(52)



(10)



(1)



1



(62)


Net income


162



33



2



1



198


Less: net income attributable to non-controlling interest


1









1


Net income attributable to Leidos common stockholders


$

161



$

33



$

2



$

1



$

197













Diluted EPS attributable to Leidos common stockholders


$

1.11



$

0.23



$

0.01



$

0.01



$

1.36


Diluted shares


145



145



145



145



145






Three Months Ended September 27, 2019



As reported


Amortization
of acquired
intangibles


Amortization
of equity
method
investment


Non-GAAP
results

Income before income taxes


$

214



$

43



$

3



$

260


Depreciation expense


16







16


Amortization of intangibles


43



(43)






Amortization of equity method investment


3





(3)




Interest expense, net


28







28


EBITDA


$

304



$



$



$

304


EBITDA margin


10.7

%






10.7

%


(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)




Nine Months Ended October 2, 2020



As reported


Acquisition, integration and restructuring costs


Amortization of acquired intangibles


Amortization of equity method investment


Acquisition related financing costs


Loss on debt modification


Asset impairment charges


Non-GAAP results

Operating income


$

699



$

33



$

152



$

2



$



$



$

11



$

897


Non-operating expense, net


(163)









5



31





(127)


Income before income taxes


536



33



152



2



5



31



11



770


Income tax expense(1)


(104)



(8)



(38)



(1)



(1)



(8)



(3)



(163)


Net income


432



25



114



1



4



23



8



607


Less: net income attributable to non-controlling interest


1















1


Net income attributable to Leidos common stockholders


$

431



$

25



$

114



$

1



$

4



$

23



$

8



$

606



















Diluted EPS attributable to Leidos common stockholders


$

2.99



$

0.17



$

0.79



$

0.01



$

0.03



$

0.16



$

0.06



$

4.21


Diluted shares


144



144



144



144



144



144



144



144





Nine Months Ended October 2, 2020



As reported


Acquisition, integration and restructuring costs


Amortization of acquired intangibles


Amortization of equity method investment


Acquisition related financing costs


Loss on debt modification


Asset impairment charges


Non-GAAP results

Income before income taxes


$

536



$

33



$

152



$

2



$

5



$

31



$

11



$

770


Depreciation expense


60















60


Amortization of intangibles


154





(152)











2


Amortization of equity method investment


2







(2)










Interest expense, net


133









(5)







128


EBITDA


$

885



$

33



$



$



$



$

31



$

11



$

960


EBITDA margin


9.8

%














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)




Nine Months Ended September 27, 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


$

651



$

3



$

128



$

8



$



$



$

790


Non-operating expense, net


(12)









(87)





(99)


Income before income taxes


639



3



128



8



(87)





691


Income tax (expense) benefit(1)


(150)



(1)



(32)



(2)



22



8



(155)


Net income


489



2



96



6



(65)



8



536


Less: net income attributable to non-controlling interest


3













3


Net income attributable to Leidos common stockholders


$

486



$

2



$

96



$

6



$

(65)



$

8



$

533

















Diluted EPS attributable to Leidos common stockholders


$

3.33



$

0.01



$

0.66



$

0.04



$

(0.45)



$

0.06



$

3.65


Diluted shares


146



146



146



146



146



146



146


 



Nine Months Ended September 27, 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


$

639



$

3



$

128



$

8



$

(87)



$

691


Depreciation expense


45











45


Amortization of intangibles


129





(128)







1


Amortization of equity method investment


8







(8)






Interest expense, net


99











99


EBITDA


$

920



$

3



$



$



$

(87)



$

836


EBITDA margin


11.3

%










10.3

%


(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 October 2, 2020



Operating
income


Acquisition,
integration
and
restructuring
costs


Amortization
of acquired
intangibles


Amortization
of equity
method
investment


Non-GAAP
operating
income


Non-GAAP
operating
margin

Defense Solutions


$

145



$

2



$

24



$



$

171



8.8

%

Civil


54





25



2



81



10.5

%

Health


75





10





85



16.3

%

Corporate


(16)



3







(13)



NM

Total


$

258



$

5



$

59



$

2



$

324



10.0

%





Three Months Ended September 27, 2019



Operating
income


Amortization
of acquired
intangibles


Amortization
of equity
method
investment


Non-GAAP
operating
income


Non-GAAP
operating
margin

Defense Solutions(1)


$

107



$

16



$



$

123



7.7

%

Civil(1)


43



15



3



61



8.3

%

Health


63



12





75



14.8

%

Corporate


36







36



NM

Total


$

249



$

43



$

3



$

295



10.4

%






Nine Months Ended October 2, 2020



Operating
income


Acquisition,
integration
and
restructuring
costs


Amortization
of acquired
intangibles


Amortization
of equity
method
investment


Asset
impairment
charges


Non-GAAP
operating
income


Non-GAAP
operating
margin

Defense Solutions


$

359



$

3



$

68



$



$



$

430



7.9

%

Civil


191



1



56



2





250



11.5

%

Health


149





28





11



188



13.0

%

Corporate




29









29



NM

Total


$

699



$

33



$

152



$

2



$

11



$

897



9.9

%

 



Nine Months Ended September 27, 2019



Operating income


Acquisition,
integration
and
restructuring costs


Amortization
of acquired intangibles


Amortization
of equity
method
investment


Non-GAAP
operating income


Non-GAAP
operating margin

Defense Solutions(1)


$

324



$



$

48



$



$

372



8.0

%

Civil(1)


157





47



8



212



10.5

%

Health


169





33





202



13.7

%

Corporate


1



3







4



NM

Total


$

651



$

3



$

128



$

8



$

790



9.7

%


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-third-quarter-fiscal-year-2020-results-301164164.html

SOURCE Leidos

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