On May 4, 2021 Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500 science and technology leader, reported financial results for the first quarter of fiscal year 2021 (Press release, Leidos, MAY 4, 2021, View Source [SID1234579104]).

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Roger Krone, Leidos Chairman and Chief Executive Officer, commented: "First quarter results reflect the perseverance, focus and tremendous execution of our employees and business partners. New quarterly record levels of revenue, non-GAAP EPS and backlog were achieved, and significant organic growth was delivered across all business segments. This early momentum favorably positions Leidos to deliver on our full year financial commitments."

Summary Results

Revenues for the quarter were $3.32 billion, compared to $2.89 billion in the prior year quarter, reflecting a 14.7% increase. Excluding our revenue growth from our acquisitions of $168 million for Dynetics, Inc. ("Dynetics"), L3Harris Technologies’ security detection and automation businesses (the "SD&A Businesses") and 1901 Group, LLC ("1901 Group"), organic revenue increased by $258 million or 8.9%. This increase was primarily attributable to program wins and a net increase in volumes on certain programs.

Operating income for the quarter was $308 million, compared to $192 million in the prior year quarter, reflecting a 60.4% increase. Operating income margin increased to 9.3% from 6.6% in the prior year quarter. Non-GAAP operating income margin for the quarter was 11.1%, compared to 8.5% in the prior year quarter, primarily attributable to a net increase in higher margin program volumes, program wins and a $26 million net benefit from an adjustment to legal reserves related to the Mission Support Alliance joint venture.

Diluted earnings per share ("EPS") attributable to Leidos common stockholders for the quarter was $1.42, compared to $0.80 in the prior year quarter. Non-GAAP diluted EPS for the quarter was $1.73, compared to $1.19 in the prior year quarter. The weighted average diluted share count for the quarter was 144 million for both the current and prior year quarters.

Defense Solutions

Defense Solutions revenues for the quarter of $1,958 million increased by $253 million, or 14.8%, compared to the prior year quarter. The increase in revenues was primarily attributable to program wins, a net increase in volumes on certain programs and a benefit in exchange rate movements. The acquisition of Dynetics contributed incremental revenues of $83 million in the current quarter, which represents an additional month of revenues as compared to the prior year quarter and our acquisition of the 1901 Group contributed $13 million of revenues. The increases in revenues were partially offset by the completion of certain contracts.

Defense Solutions operating income margin for the quarter was 7.8%, compared to 5.6% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 9.2%, compared to 6.8% in the prior year quarter, primarily attributable to program wins, a net increase in program volumes on higher margin contracts and lower indirect expenditures.

Civil

Civil revenues for the quarter of $766 million increased by $112 million, or 17.1%, compared to the prior year quarter. The revenue increase was primarily attributable to $72 million of revenues related to the acquisition of the SD&A Businesses in the second quarter of fiscal 2020 and a net increase in program volumes.

Civil operating income margin for the quarter was 9.7%, compared to 9.0% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 12.0%, compared to 10.9% in the prior year quarter, primarily attributable to a $26 million net benefit from an adjustment to legal reserves related to the Mission Support Alliance joint venture.

Health

Health revenues for the quarter of $591 million increased by $61 million, or 11.5%, compared to the prior year quarter. The revenue increase was primarily attributable to a net increase in volumes on certain programs and program wins, partially offset by the completion of certain contracts.

Health operating income margin for the quarter was 17.3%, compared to 13.8% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 18.6%, compared to 15.5% in the prior year quarter, primarily attributable to a net increase in higher margin program volumes.

Cash Flow Summary

Net cash provided by operating activities for the quarter was $239 million compared to $372 million in the prior year quarter. The decrease in cash inflows was primarily due to the lower customer advance payments, lower sale of accounts receivable and the timing of vendor payments.

Net cash used in investing activities for the quarter was $244 million compared to $1,685 million in the prior year quarter. The decrease in cash outflows was primarily due to net cash paid related to the acquisition of 1901 Group in the current year quarter compared to net cash paid related to the acquisition of Dynetics in the prior year quarter.

Net cash used in financing activities for the quarter was $148 million compared to net cash provided by financing activities of $1,161 million in the prior year quarter. The decrease in cash inflows was primarily due to proceeds received related to the issuance of the Bridge Facility in the prior year quarter, $100 million of open market stock repurchases in the current year quarter and the timing of quarterly principal payments, partially offset by capital contributions to Hanford Mission Integration Solutions from non-controlling interests.

As of April 2, 2021, we had $377 million in cash and cash equivalents and $4.8 billion of debt.

New Business Awards

Net bookings totaled $3.8 billion in the quarter, representing a book-to-bill ratio of 1.2.

Notable recent awards received include:

Military and Family Life Counseling Support Services: The Company was awarded a new prime contract to provide non-medical counseling to military service members and their families through the Military and Family Life Counseling (MFLC) program. Under the contract, Leidos will provide face-to-face non-medical counseling, consultation and outreach services at approximately 100 U.S. military installations or nearby civilian communities. Leidos will also provide management and logistical support for counselors to provide services in accordance with established performance measures. The award has a total estimated value of approximately $1 billion and includes a 12-month base period with four 12-month options and two 12-month award term incentive periods.
U.S. Customs and Border Protection Multi-Energy Portal Systems Support: The Company was awarded a prime contract by U.S. Customs and Border Protection (CBP) to provide Multi-Energy Portal (MEP) systems for non-intrusive inspection of commercial vehicles at land and sea ports of entry. Under the contract, Leidos will integrate, deploy and train CBP staff to use its VACIS MEP with low-energy backscatter and high-energy transmission cargo inspection system. The multiple-award indefinite delivery/indefinite quantity contract has a total value of $480 million and includes a five-year base period of performance and options up to 10 years, if exercised.
Naval Array Technical Support Center Services: The Company was awarded a prime contract by the Naval Undersea Warfare Center – Newport Division to provide engineering, technical and management services for the Naval Array Technical Support Center. Under the contract, Leidos will perform tasks for the U.S. Navy’s Sensors and SONAR Systems Department. Leidos will be responsible for production engineering, technical and logistics support of the Navy and foreign governments’ towed array assets. The single-award, indefinite delivery/indefinite quantity, cost-plus-fixed-fee and firm-fixed-price contract has a total estimated value of $149.2 million.
U.S. Intelligence Community: The Company was awarded contracts valued at $822 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.
Backlog at the end of the quarter was $32.6 billion, of which $7.0 billion was funded.

Forward Guidance

As a result of the Company’s year-to-date performance and updated expectations, the Company is revising its fiscal year 2021 guidance as follows:

Revenues of $13.7 billion to $14.1 billion, remained unchanged from previous guidance;
Adjusted EBITDA margins of 10.5% to 10.7%, up from 10.3% to 10.5%;
Non-GAAP diluted EPS of $6.35 to $6.65, up from $6.15 to $6.45; and
Cash flows provided by operating activities at or above $875 million, up from previous guidance of $850 million.
Non-GAAP diluted EPS excludes amortization of acquired intangible assets, acquisition, integration and restructuring costs and other tax adjustments. For additional information regarding non-GAAP diluted EPS and Leidos’ other non-GAAP financial measures, see the related explanations and reconciliations to GAAP measures 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.

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 4, 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 13718327.