Fubotv earnings beat by $0.10, revenue topped estimates
Introduction & Market Context
Leidos Holdings Inc (NYSE:LDOS) shares jumped 5.93% in premarket trading to $170.50 following the release of its Q2 FY25 earnings presentation on August 5, 2025. The defense and information technology services provider reported strong results across all key metrics, continuing the momentum from its impressive Q1 performance.
The company’s presentation revealed significant margin expansion and earnings growth, prompting management to raise full-year guidance. This performance comes amid an improving environment for government contractors, with Leidos highlighting strong alignment between government funding priorities and its core capabilities.
Quarterly Performance Highlights
Leidos reported Q2 FY25 revenues of $4,253 million, representing a 2.9% increase from $4,132 million in the same period last year. More impressively, the company achieved substantial profitability improvements, with adjusted EBITDA margin expanding to 15.2%, a 170 basis point improvement from 13.5% in Q2 FY24.
As shown in the following chart of quarterly financial performance:
Non-GAAP diluted earnings per share reached $3.21, a robust 22.1% increase from $2.63 in the prior-year quarter. This earnings growth significantly outpaced revenue growth, demonstrating the company’s focus on operational efficiency and margin expansion.
The strong quarterly performance was accompanied by healthy cash generation, with free cash flow conversion reaching 110%. Operating cash flow totaled $486 million, while capital expenditures were just $29 million, resulting in non-GAAP free cash flow of $457 million.
Segment Analysis
All four of Leidos’ business segments reported year-over-year revenue growth, with particularly strong performance in the Defense Systems segment. The segment breakdown reveals diverse growth across the company’s portfolio:
The National Security & Digital segment, Leidos’ largest by revenue, grew 3.3% to $1,872 million with a non-GAAP operating income percentage of 10.4%. Health & Civil, the company’s most profitable segment, increased revenues by 0.7% to $1,272 million while maintaining an impressive 24.9% operating income percentage.
Commercial & International revenues rose 0.9% to $566 million with an 8.5% operating margin, while Defense Systems showed the strongest growth at 9.7%, reaching $543 million with a 9.8% operating margin.
The organic growth breakdown by segment further illustrates the company’s performance excluding acquisition impacts:
Capital Deployment & Balance Sheet
Leidos maintained a balanced approach to capital deployment during the quarter, completing the Kudu acquisition for a preliminary net purchase consideration of $291 million while also executing a $500 million accelerated share repurchase program. The company returned $61 million to shareholders and maintained strong liquidity exceeding $1.5 billion.
The following slide details the company’s cash flow and balance sheet metrics:
With total debt of $5.1 billion, Leidos reported a gross leverage ratio of 2.2x and a net leverage ratio of 1.8x. Management indicated that this healthy balance sheet provides optionality for future debt paydown, strategic M&A, and additional share repurchases.
Updated Guidance
Based on strong first-half performance, Leidos raised its full-year guidance across all key metrics. The company narrowed its revenue projection to $17.00-$17.25 billion from the previous range of $16.90-$17.30 billion, while significantly increasing its profitability and cash flow outlook.
The updated guidance is detailed in the following slide:
Notably, Leidos raised its adjusted EBITDA margin guidance to mid-13% from mid-high 12%, and substantially increased its non-GAAP diluted EPS projection to $11.15-$11.45 from the previous $10.35-$10.75. Cash flows from operating activities are now expected to reach approximately $1.65 billion, up $200 million from the prior guidance of $1.45 billion.
Management attributed the improved outlook to confidence from strong first-half performance, prudent management of potential customer delays, and tax policy changes that contributed $150 million to the cash flow guidance increase.
Strategic Initiatives
CEO key messages highlighted Leidos’ strategic positioning in alignment with government priorities. The company noted that OBBB (Omnibus Budget Bill) funding and administration priorities closely align with its NorthStar 2030 strategy and core capabilities, including Golden Dome, FAA Air Traffic Control/TSA Screening, Port and Border Security/Counter-Drone, and Veteran Health and Service.
Leidos also emphasized its "pole position" to support expansion of autonomous naval fleets and its deployment of Trusted Mission AI internally to "lead our own positive disruption." These strategic initiatives position the company to capitalize on emerging opportunities in defense modernization and digital transformation.
Non-GAAP Reconciliations
The presentation included detailed reconciliations between GAAP and non-GAAP metrics. For the three months ended July 4, 2025, GAAP operating income of $571 million was adjusted to $605 million after adding back acquisition/restructuring costs and amortization of acquired intangibles.
The following reconciliation details the adjustments to income metrics:
Similarly, the company provided segment-level reconciliations showing the impact of adjustments on each business unit’s operating income:
The non-GAAP free cash flow reconciliation demonstrates how the company achieved its 110% free cash flow conversion rate:
Leidos’ Q2 FY25 presentation reflects a company executing effectively across multiple dimensions, with improved profitability, strategic growth initiatives, and a strengthened financial outlook for the remainder of fiscal year 2025. With the stock trading well below its 52-week high of $202.90, investors appear to be responding positively to the company’s enhanced guidance and operational performance.
Full presentation:
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