On May 3, 2022 Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500 science and technology leader, reported financial results for the first quarter of fiscal year 2022 (Press release, Leidos, MAY 3, 2022, View Source [SID1234613399]).
Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:
Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing
Schedule Your 30 min Free Demo!
Roger Krone, Leidos Chairman and Chief Executive Officer, commented, "Our first quarter marked a strong start to 2022, with record levels of revenues and backlog stemming from our leadership position in the government technology market. We continued to build our reputation and track record of performance in digital technology, cyber, and innovative systems across our diversified, resilient business portfolio. Our strong first quarter results and the improving federal budget picture increase our confidence in delivering on our full-year financial commitments."
Summary Operating Results
* Non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Management believes that these non-GAAP measures provide another measure of Leidos’ results of operations and financial condition, including its ability to comply with financial covenants. See Non-GAAP Financial Measures at the end of this press release for more information and a reconciliation of our selected reported results to these non-GAAP measures.
Revenues for the quarter were $3.49 billion, up 5% in total and up 4% organically compared to the prior year quarter. Revenues grew across all reportable segments; the largest contributors were the start-up of the Navy Next Generation Enterprise Network Recompete (NGEN-R) Service Management, Integration and Transport (SMIT) contract and the increased deployments on the Defense Healthcare Management System Modernization (DHMSM) program.
Net income was $177 million and diluted EPS was $1.25. Net income and diluted EPS were down 14% and 12% year-over-year, respectively, primarily as a result of the $26 million net benefit from an adjustment to legal reserves related to the Mission Support Alliance (MSA) joint venture recorded in the first quarter of fiscal year 2021. The weighted average diluted share count for the quarter was 140 million compared to 144 million in the prior year quarter. Net income margin decreased from 6.2% to 5.1% year-over-year.
Adjusted EBITDA was $358 million for the first quarter, down 8% year-over-year. Adjusted EBITDA margin decreased from 11.7% to 10.2% over the same period, primarily as a result of the MSA adjustment and a return to more normative indirect spending levels. Non-GAAP net income was $223 million for the first quarter, which was down 10% year-over-year, and non-GAAP diluted EPS for the quarter was $1.58, which was down 9% compared to the first quarter of fiscal year 2021.
Cash Flow Summary
In the first quarter of fiscal year 2022, Leidos generated $93 million of net cash provided by operating activities for an operating cash flow conversion ratio of 53%. After adjusting for payments for property, equipment and software, quarterly free cash flow was $65 million for a free cash flow conversion ratio of 29%.
Leidos used $21 million in investing activities and $519 million in financing activities, which included a $500 million accelerated share repurchase agreement and $51 million in quarterly cash dividends. As of April 1, 2022, Leidos had $297 million in cash and cash equivalents and $5.1 billion of debt.
On April 29, 2022, the Leidos Board of Directors declared that Leidos will pay a cash dividend of $0.36 per share on June 30, 2022 to stockholders of record at the close of business on June 15, 2022.
New Business Awards
Net bookings totaled $5.4 billion in the quarter, representing a book-to-bill ratio of 1.6. As a result, backlog at the end of the quarter was a record $36.3 billion, of which $7.1 billion was funded. Included in the quarterly bookings were several particularly important awards:
Advanced Enterprise Global Information Technology Solutions (AEGIS). Leidos was awarded a prime contract by the National Aeronautics and Space Administration (NASA) to provide telecommunications, cloud and data center services across all of the agency’s centers and facilities. The single award contract has a total estimated value of $2.5 billion and a ten-year period of performance, if all options and award terms are exercised.
National Airspace Systems (NAS) Integration Support Contract (NISC). Leidos will continue its support of air traffic control modernization efforts to the Federal Aviation Administration (FAA) under a new $1.7 billion, 10-year, single-award indefinite-delivery/indefinite-quantity (ID/IQ) contract. Leidos will perform engineering and technical services to integrate new systems, components and equipment into the National Airspace System, including strategic and transition planning, test-and-evaluation, training, automation, flight procedures, security and safety, business intelligence, data analytics and unmanned aircraft systems.
Veterans Benefits Administration (VBA) Medical Disability Examinations (MDE) Services. Leidos was awarded the recompete of its contract to support pre-discharge examinations in the U.S. and a new contract to provide disability examinations in 39 locations outside the U.S. Each multiple award ID/IQ contract has a six-month base period with six one-year options; together, they total approximately $1.7 billion in contract value if all options are exercised. Leidos will leverage the infrastructure and capability built over more than two decades to perform medical disability examinations through multiple delivery models to better serve veterans.
U.S. Navy Surface Combatant Ship Design Engineering Services. The U.S. Navy awarded Gibbs & Cox, a wholly owned subsidiary of Leidos, a contract to provide Surface Combatant Ship Design Engineering Services in support of Future Surface Combatant Programs. Under the contract, Gibbs & Cox will provide services supporting future surface combatants design, with initial focus on the Program Executive Office Ship’s DDG(X) Program Office (PMS 460) industry engagement, DDG(X) design development, and technology integration efforts. The award has a potential value of $319 million with a period of performance through 2027, if all options are exercised.
U.S. Army Gunnery Training Systems Modernization. Leidos was awarded a prime contract by the U.S. Army’s Program Executive Office for Simulation, Training, and Instrumentation to modernize the service’s gunnery training simulation systems. Under the contract, Leidos will perform technology refresh and concurrency updates to the simulators. The single-award ID/IQ contract has a total estimated value of $104 million and a period of performance of five years.
For information regarding adjusted EBITDA margin and non-GAAP diluted EPS, see the related explanations and reconciliations to GAAP measures included elsewhere in this release.
Leidos does not provide a reconciliation of forward-looking adjusted EBITDA margins or non-GAAP diluted EPS to net income attributable to Leidos shareholders, 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 attributable to Leidos shareholders may vary significantly based on actual events, Leidos 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 attributable to Leidos shareholders at this time. The amounts of these deductions may be material and, therefore, could result in projected net income attributable to Leidos shareholders and diluted EPS being materially less than projected adjusted EBITDA margins and non-GAAP diluted EPS.
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 May 3, 2022. 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 (View Source).
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 13728784.