Leidos (LDOS -0.24%), a technology, engineering, and science solutions provider serving governments and highly regulated markets, released its Q2 FY2025 earnings on August 4, 2025. The company reported non-GAAP earnings per share of $3.21, well above the analyst expectation of $2.66 (non-GAAP), a beat of 20.7% (non-GAAP). Revenue (GAAP) came in at $4.25 billion, marginally over the $4.23 billion analyst estimate (GAAP). The quarter showed notable margin expansion and strong profitability, as Adjusted EBITDA margin increased to 15.2% and net income margin increased to 9.2%, supported by robust U.S. government contract activity and continued gains in cyber and defense programs. Management raised full-year FY2025 guidance for revenue, profit, and cash flow. Overall, the quarter marked outperformance versus consensus, with both non-GAAP EPS and GAAP revenue exceeding analyst estimates, with solid operational execution and key wins across core markets.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $3.21 | $2.66 | $2.63 | 22.1 % |
| Revenue (GAAP) | $4.25 billion | $4.23 billion | $4.13 billion | 2.9 % |
| Adjusted EBITDA | $647 million | $559 million | 15.7 % | |
| Free Cash Flow (Non-GAAP) | $457 million | $358 million | 27.6 % | |
| Net Income (GAAP) | $393 million | $324 million | 21.3 % |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
About Leidos: Business Focus and Success Factors
Leidos is a leading provider of technology, engineering, and scientific solutions, primarily to U.S. government agencies such as the Department of Defense and the Department of Homeland Security. Its work includes mission-critical programs in national security, healthcare, civil government, and commercial sectors. The company’s business revolves around managing and delivering advanced digital systems, cybersecurity solutions, and technical services.
Key success factors for Leidos include maintaining its strong position as a core partner to U.S. federal clients, driving technological innovation in areas like artificial intelligence and cyber operations, and closely adhering to regulatory requirements for data security and government contracting. In recent years, it has set out to diversify revenue by expanding commercial and international business through specialized technology offerings. Winning government contracts, investing in next-generation cyber and digital modernization projects, and attracting top workforce talent are all central to its strategy.
Quarter Highlights: Financial Results and Strategic Developments
Leidos outperformed profit (non-GAAP EPS) and revenue (GAAP) expectations on the back of strong government and defense demand. Non-GAAP EPS beat analyst projections by 20.7%, reflecting effective cost control and improved execution across portfolio programs. Revenue (GAAP) inched above estimates, growing 2.9% year over year, led by high demand in defense systems and stability in core health and civil programs.
The main driver of improved profitability was a record 15.2% adjusted EBITDA margin (non-GAAP), up from 13.5% in Q2 FY2024. This expansion was attributed to disciplined expense management, stronger program results, and a one-time $25 million insurance reimbursement related to prior legal costs. Net income (GAAP) also climbed 21% year over year, while Non-GAAP free cash flow surged 27.7% year over year, highlighting improved cash generation year over year. By segment, Health & Civil posted a GAAP operating income margin of 24.4%. Commercial & International turned from a loss in the prior year to a 7.1% operating income margin, and Defense Systems revenue jumped 10% year over year.
Major contract wins continued to show Leidos’s relevance in U.S. federal spending. These included two multi-year Intelligence Community awards totaling $1.7 billion, a $350 million U.S. Air Force electronic warfare program (IDIQ subcontract awarded in Q2 FY2025), a $128 million FBI contract, and an $87 million NATO cybersecurity and IT modernization project. 87% of the company’s FY2024 revenue was derived from U.S. government contracts, reinforcing how central this market remains.
The company advanced its technological strategy by acquiring Kudu Dynamics on May 23, 2025, which delivers cyber and artificial intelligence-enabled solutions to national security customers. Management pointed to continued investment in artificial intelligence, cyber operations, and digital modernization as key differentiators. In the defense segment, growth was linked to programs in space sensing and integrated air defense, including the Indirect Fires Protection Capability Increment 2 system, a missile defense product for the U.S. Army. Commercial and International performance was underpinned by contract rebaselining in the UK and progress on energy and global security initiatives.
One caution flag came from the company’s net booking trends. Net bookings totaled $3.9 billion, resulting in a book-to-bill ratio of 0.9x, and funded backlog declined from the previous year, from $8,023 million as of Q2 FY2024 to $7,122 million as of Q2 FY2025. While the company ended the quarter with a record $46.2 billion backlog, up 11% year over year, the portion of this backlog with secured funding fell to $7.1 billion funded backlog. Management acknowledged these softer booking results in Q1 FY2025 and the risk that slower contract adjudication could weigh on future revenue momentum, though it cited an opportunity pipeline of $226 billion as of Q1 FY2025.
On capital allocation, Leidos spent $291 million to acquire Kudu Dynamics, paid $52 million in dividends, and repurchased $9 million in shares. Overall, liquidity remained sound, with $930 million in cash and cash equivalents and a total debt level of $5.1 billion as of July 4, 2025. Non-GAAP free cash flow conversion was strong at 110%. The Board declared a quarterly dividend of $0.40 per share for the third quarter, a slight increase from $0.38 per share in Q2 FY2024.
Forward Outlook and What to Watch
Management raised full-year FY2025 financial guidance in response to strong first-half results and improved clarity on the federal funding environment. Updated projections include revenue guidance of $17.0–$17.25 billion (previously $16.9–$17.3 billion) for FY2025, non-GAAP diluted EPS guidance of $11.15–$11.45 (up from $10.35–$10.75) for FY2025, and expected operating cash flow (GAAP) of about $1.65 billion for FY2025 (increased from $1.45 billion). The adjusted EBITDA margin is now set for the mid-13% range for FY2025 guidance. These updates assume ongoing demand for defense, digital modernization, and health services, but also contemplate political and budget uncertainties.
These include whether Leidos can reverse the recent dip in book-to-bill and funded backlog, as both metrics declined sequentially from Q1 FY2025 (book-to-bill ratio of 0.5; funded backlog of $7.3 billion) to Q2 FY2025 (book-to-bill ratio of 0.9; funded backlog of $7.1 billion). The company continues to face a high level of exposure to U.S. government funding priorities, and political or policy shifts remain a key risk. The quarterly dividend was $0.40 per share, up from $0.38 per share in the prior year quarter. Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
