On November 2, 2021 Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500 science and technology leader, reported financial results for the third quarter of fiscal year 2021 (Press release, Leidos, NOV 2, 2021, View Source [SID1234594069]).

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Roger Krone, Leidos Chairman and Chief Executive Officer, commented, "The third quarter marked another strong quarter for Leidos, with record levels of revenues, adjusted EBITDA, non-GAAP diluted EPS, and backlog. Our success is the direct result of building a business portfolio focused on vital missions and a workforce that is motivated to enhance those missions through technology, engineering, and science. As we described at our October Investor Day, we see continued success ahead based on our scale, positioning, and talented people."

Revenues for the quarter were $3.48 billion, up 7% compared to the prior year quarter. Excluding acquired revenues of $47 million, revenues increased 6% organically. Revenues grew across all reportable segments; the largest contributors were the increase in veterans’ disability examinations after the pause from the COVID-19 pandemic and the start-up of the Navy Next Generation IT contract.

Net income was $208 million, or $1.43 per diluted share. Net income was up 28% and diluted EPS was up 27% from the third quarter of fiscal year 2020. The weighted average diluted share count for the quarter was 143 million compared to 144 million in the prior year quarter. Net income margin increased from 5.0% to 6.0% year-over-year as a result of the strong program management and higher volumes on certain fixed price programs.

Adjusted EBITDA was $403 million for the third quarter, up 16% year-over-year; adjusted EBITDA margin increased from 10.7% to 11.6% over the same period consistent with the increase in operating income margin. Non-GAAP net income was $260 million for the third quarter, which was up 23% year-over-year, and non-GAAP diluted EPS for the quarter was $1.80, which was up 22% compared to the third quarter of fiscal year 2020.

Cash Flow Summary

In the third quarter of fiscal year 2021, Leidos generated $565 million of net cash provided by operating activities for an operating cash flow conversion ratio of 276%. After adjusting for payments for property, equipment and software, quarterly free cash flow was $541 million for a free cash flow conversion ratio of 211%. In addition, Leidos used $53 million in investing activities and used $209 million in financing activities.

During the third quarter of fiscal year 2021, Leidos made open market repurchases of common stock for an aggregate purchase price of $137 million and returned $51 million to shareholders as part of its regular quarterly cash dividend program. In addition, Leidos paid down $27 million of debt and completed a small, strategic acquisition for preliminary purchase consideration of approximately $36 million. As of October 1, 2021, Leidos had $587 million in cash and cash equivalents and $5.1 billion of debt.

On October 29, 2021, the Leidos Board of Directors declared that Leidos will pay a cash dividend of $0.36 per share on December 30, 2021 to stockholders of record at the close of business on December 15, 2021.

New Business Awards

Net bookings totaled $4.7 billion in the quarter, representing a book-to-bill ratio of 1.4. As a result, backlog at the end of the quarter was $34.7 billion, of which $7.3 billion was funded. Included in the quarterly bookings were several particularly important awards:

High-Resolution Three Dimensional (3D) Geospatial Information Operation and Technology Integration Program. Leidos was awarded a prime contract by the U.S. Army to support the Army Geospatial Center’s (AGC) Buckeye program. Under the contract, Leidos will continue to support AGC’s BuckEye mission. The BuckEye program provides mission critical unclassified high resolution color imagery and digital 3D terrain over all operationally relevant areas of the world. The single-award contract has a one-year base period of performance followed by three one-year options and a total estimated value of $600 million if all options are exercised.
Technical Signals Intelligence. Leidos was awarded a prime contract by the National Security Agency (NSA) to provide development and modernization efforts in support of the agency’s Technical Signals Intelligence (TechSIGINT) mission. Under the contract, Leidos will provide the technical services to develop, deploy and sustain a wide range of new and improved TechSIGINT collection, production and analysis capabilities. The single award contract has a five-year base period of performance and holds a ceiling value of $300 million.
Enduring Indirect Fires Protection Capability. Leidos was awarded a contract by the U.S. Army Program Executive Office Missiles and Space for the Enduring Indirect Fires Protection Capability (IFPC) to provide its mobile ground-based weapon system. Under the contract, Dynetics, a wholly owned subsidiary of Leidos, will produce a transportable system designed to engage and defeat Cruise Missile (CM) and Unmanned Aircraft System (UAS) threats. The award has an estimated value of $237 million over the next 2.5 years.
In addition, Leidos received prime positions on several indefinite delivery/indefinite quantity (IDIQ) contracts that provide competitive differentiation and channels for future growth but are not included in bookings or backlog beyond any awarded task orders. The largest of these IDIQs was:

Low-Energy Portal. Leidos was awarded a new prime contract by U.S. Customs and Border Protection (CBP) to provide Low-Energy Portal (LEP) systems for non-intrusive inspection (NII) of passenger vehicles at U.S.-Mexico land border crossings. Under the contract, Leidos will integrate, deploy and train CBP staff to use its VACIS LEP systems, incorporating Viken Detection’s OSPREY scanning technology. The multiple-award LEP contract has a total ceiling value of $390 million.
Forward Guidance

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 November 2, 2021. 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 13723845.