Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500®science and technology leader, today reported financial results for the second quarter of fiscal year 2018.

Roger Krone, Leidos Chairman and Chief Executive Officer, commented: "The strength of our second quarter results provides early evidence of the success of our strategy to focus on profitable growth. The sequential revenue growth in the quarter, as well as robust bookings, margins, and cash flow, reflect the positive impact of the actions we have taken to improve our win rates and optimize our operations. We remain committed to creating value for our customers and driving growth for our employees and shareholders."

Summary Results

Revenues for the quarter were $2.53 billion, compared to $2.57 billion in the prior year quarter, reflecting a 1.6% decrease.

Operating income for the quarter was $199 million, compared to $166 million in the prior year quarter. Operating income margin increased to 7.9% from 6.5% in the prior year quarter, primarily due to favorable contract mix and decreases in amortization of intangible assets and integration and restructuring costs. Non-GAAP operating income margin for the quarter was 10.3%, same as the prior year quarter.

Diluted earnings per share ("EPS") attributable to Leidos common stockholders for the quarter was $0.94, compared to $0.64 in the prior year quarter. Non-GAAP diluted EPS for the quarter was $1.12, compared to $1.04 in the prior year quarter. The weighted average diluted share count for the quarter was 154 million compared to 153 million in the prior year quarter.

Defense Solutions

Defense Solutions revenues for the quarter of $1,256 million increased by $13 million, or 1.0%, compared to the prior year quarter. The revenue increase was primarily attributable to new awards, timing of revenue recognition on certain contracts, and improved program performance, partially offset by the completion of certain contracts.

Defense Solutions operating income margin for the quarter was 7.4%, compared to 5.1% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 8.8%, same as the prior year quarter.

Civil

Civil revenues for the quarter of $822 million decreased by $53 million, or 6.1%, compared to the prior year quarter. The revenue decrease was primarily due to the completion of certain contracts and a net decrease in program volumes, partially offset by new awards.

Civil operating income margin for the quarter was 7.4%, compared to 7.5% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 10.3%, compared to 11.0% in the prior year quarter, primarily attributable to higher profit write-ups in the prior year quarter.

Health

Health revenues for the quarter of $451 million decreased by $3 million, or 0.7%, compared to the prior year quarter. The revenue decrease was primarily attributable to the completion of certain contracts, partially offset by net volume increases.

Health operating income margin for the quarter was 15.1%, compared to 16.3% in the prior year quarter. The margin decline reflects a $12 million increase in amortization of acquired intangible assets offsetting a more favorable contract mix. On a non-GAAP basis, operating income margin for the quarter was 17.7%, compared to 16.3% in the prior year quarter, primarily attributable to favorable contract mix.

Cash Flow Summary

Net cash provided by operating activities for the quarter was $271 million compared to $166 million in the prior year quarter. The increased operating net cash inflows were primarily due to improved collections of receivables and lower payments for taxes, integration and restructuring costs, partially offset by lower advance payments from customers.

Net cash used in investing activities for the quarter was $13 million compared to $9 million in the prior year quarter. The increase was primarily due to proceeds from the sale of a building in the prior year quarter partially offset by lower purchases of property, plant and equipment.

Net cash used in financing activities for the quarter was $192 million compared to $112 million in the prior year quarter. The increase was primarily due to higher stock repurchases, lower debt payments and payment of a tax indemnification liability.

As of June 29, 2018, the Company had $303 million in cash and cash equivalents and $3.1 billion of debt.

New Business Awards

Net bookings totaled $3.4 billion in the quarter, representing a book-to-bill ratio of 1.4.

Notable recent awards received include:

• Department of Energy: The Company was awarded a prime contract by the Department of Energy ("DOE") to provide research support services to the National Energy Technology Laboratory ("NETL"). The purpose of this contract is to provide technical, managerial, and administrative services that strengthen NETL's ability to nurture world-class competencies critical to delivering on the mission of DOE. The single-award, cost-plus-award-fee contract has a potential 10-year performance period, consisting of a 3-year base period, two 2-year options, and an additional 3-year option period. The program has a potential value of $365 million, if all options are exercised.
• Veteran's Affairs Administration: The Company was awarded a contract by the Department of Veterans Affairs ("VA"), to continue support of the VA's information infrastructure modernization efforts through data center consolidation and cloud computing services. The initial award decision was made in March of 2018, and successfully defended through a protest in the second quarter. The single-award, firm-fixed-price, time-and-materials contract has a 1-year base period of performance, two 1-year option periods and a total potential value of $472 million.
• Intelligence Community: The Company was awarded contracts valued at $620 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.

The Company's backlog at the end of the quarter was $18.3 billion, of which $5.4 billion was funded.

Forward Guidance

The Company affirms previously issued fiscal year 2018 guidance as follows:

• Revenues of $10.25 billion to $10.65 billion;
• Adjusted EBITDA margins of 10.1% to 10.4%;
• Non-GAAP diluted earnings per share of $4.15 to $4.50; and
• Cash flows provided by operating activities at or above $675 million.

Non-GAAP diluted EPS excludes amortization of acquired intangible assets, asset impairment charges, integration and restructuring costs, amortization of equity method investments, loss on sale of assets and held for sale tax adjustment to reflect non-GAAP exclusions. See Leidos' non-GAAP financial measures and the related reconciliation 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.

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 31,000 employees support vital missions for government and commercial customers. Headquartered in Reston, Virginia, Leidos reported annual revenues of approximately $10.17 billion for the fiscal year ended December 29, 2017.

For more information, visit www.leidos.com.