On February 13, 2024 Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500 innovation company, reported financial results for the fourth quarter and fiscal year 2023 (Press release, Leidos, FEB 13, 2024, View Source [SID1234643764]).

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Tom Bell, Leidos Chief Executive Officer, commented: "With a strong finish to the year, Leidos delivered on all of its financial commitments. Record top- and bottom-line performance enabled us to exceed the high end of the guidance ranges that we set last quarter for all metrics. Our financial performance over the last three quarters demonstrates how strongly the team has enhanced its focus on cost controls and cash generation and committed to a "promises made, promises kept" culture. 2024 is going to be another busy and exciting year for Leidos, as we capitalize on our leaner, more focused organizational structure and chart our path to our second decade of growth."

Summary Operating Results

(in millions, except margin and per
share data)

Three Months Ended

Year Ended

December 29, 2023

December 30, 2022

December 29, 2023

December 30, 2022

Revenues

$ 3,980

$ 3,697

$ 15,438

$ 14,396

Net income

$ 230

$ 180

$ 208

$ 693

Net income margin

5.8 %

4.9 %

1.3 %

4.8 %

Diluted earnings per share (EPS)

$ 1.66

$ 1.28

$ 1.44

$ 4.96

Non-GAAP Measures*:

Adjusted EBITDA

$ 452

$ 397

$ 1,669

$ 1,493

Adjusted EBITDA margin

11.4 %

10.7 %

10.8 %

10.4 %

Non-GAAP diluted EPS

$ 1.99

$ 1.83

$ 7.30

$ 6.60

*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 in our debt agreements. See Non-GAAP Financial Measures at the end of this press release for more information and a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures.

Revenues were $3.98 billion for the quarter and $15.44 billion for the year, up 8% and 7% over the comparable 2022 periods, respectively. For the quarter and the year, revenues grew year-over-year due to increased demand across all customer segments, especially within the Health segment.

For the quarter, net income was $230 million, or $1.66 per diluted share, up 28% and 30%, respectively, compared to the fourth quarter of fiscal year 2022. Net income margin was 5.8%, up 90 basis points year-over-year. Adjusted EBITDA was $452 million (11.4% margin), up 14% over the fourth quarter of 2022. Non-GAAP net income was $276 million, which generated non-GAAP diluted EPS of $1.99. Non-GAAP net income was up 8%, and non-GAAP diluted EPS was up 9% compared to the fourth quarter of fiscal year 2022.

For the year, net income was $208 million, or $1.44 per diluted share. Net income and diluted EPS were down 70% and 71%, respectively, compared to fiscal year 2022. Net income margin for the year decreased to 1.3% from 4.8% in fiscal year 2022, primarily as a result of pre-tax impairment and restructuring charges of $699 million mainly associated with the Security Enterprise Solutions (SES) reporting unit recorded in the third quarter of fiscal year 2023. Adjusted EBITDA was $1.67 billion (10.8% margin), up 12% over fiscal year 2022. Non-GAAP net income was $1.02 billion, which generated non-GAAP diluted EPS of $7.30. Non-GAAP net income and non-GAAP diluted EPS were both up 11% compared to fiscal year 2022.

The primary drivers of increased earnings for the quarter and the year were improved program execution and reduced indirect spending across the company as well as increased volumes and higher incentive awards in the medical examination business.

Cash Flow Summary

In the fourth quarter, Leidos generated $304 million of net cash provided by operating activities and used $76 million in investing activities and $245 million in financing activities. Net cash provided by operating activities benefited from strong collections and working capital management, partially offset by higher cash tax payments. Days Sales Outstanding (DSO) for the quarter was 56, a 1-day improvement from the third quarter of 2023 and a 2-day improvement from the fourth quarter of fiscal year 2022.

Investing activities consisted primarily of $78 million in property, equipment and software payments, which resulted in quarterly free cash flow of $226 million. Financing activities were driven by $253 million returned to shareholders, including $202 million in share repurchases and $51 million as part of a regular quarterly cash dividend program.

For the year net cash provided by operating activities was $1.17 billion and free cash flow was $958 million. For the year Leidos used $211 million in investing activities and $715 million in financing activities. As of December 29, 2023, the Company had $777 million in cash and cash equivalents and $4.7 billion in debt.

On February 8, 2024, the Leidos Board of Directors declared that Leidos will pay a cash dividend of $0.38 per share on March 28, 2024, to stockholders of record at the close of business on March 15, 2024.