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Leidos raised its full-year 2026 guidance after a strong first quarter, with revenue up 4% year over year to $4.4 billion and adjusted EBITDA margin holding at 14%. Management lifted revenue, EPS and operating cash flow forecasts, citing solid execution and demand across defense, intelligence, health and energy markets.
The ENTRUST acquisition is a major driver of the improved outlook, with management saying it was completed ahead of schedule and should be accretive to EPS and cash in 2026, with more benefit in 2027 and beyond. Leidos also expects the deal to help expand its energy business and order pipeline.
Segment performance was mixed but generally supportive of growth, led by 7% revenue growth in Intelligence and Digital and 6% growth in Homeland, while Defense was only slightly higher and margins declined in Defense and Homeland. Management expects second-half acceleration as awards recover and newer defense programs ramp up.
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Leidos (NYSE:LDOS) reported a stronger first quarter for fiscal 2026 and raised its full-year outlook, citing solid core execution, recent acquisitions and continued demand across defense, intelligence, health and energy infrastructure markets.
Chief Executive Officer Tom Bell said first-quarter revenue rose 4% year over year to $4.4 billion, while adjusted EBITDA margin remained at 14%. The company raised its 2026 guidance for revenue by $500 million, non-GAAP diluted earnings per share by $0.05 and operating cash flow by $50 million.
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“Today, I’m pleased to report a very strong start for Leidos in 2026,” Bell said. He said the results provide another “proof point” that Leidos is positioned to benefit from its scale, customer relationships, technology investments and artificial intelligence capabilities.
Chief Financial Officer Chris Cage said Leidos now expects 2026 revenue of $18 billion to $18.4 billion, with adjusted EBITDA margin guidance maintained in the mid-13% range. The company also raised its non-GAAP diluted EPS forecast to a range of $12.10 to $12.50 and increased operating cash flow guidance to approximately $1.8 billion.
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Cage said the higher outlook primarily reflects the acquisition of ENTRUST, which closed in March, about two months after it was announced. The deal is now expected to be accretive to non-GAAP EPS and cash in 2026, with additional accretion expected in 2027 and beyond as synergies are realized.
“Our view of the rest of Leidos for 2026 is largely unchanged from where we initially guided in February,” Cage said.
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Leidos generated $301 million of operating cash flow and $270 million of free cash flow in the quarter. Cage said the company ended the quarter with $6.3 billion of debt, $457 million in cash and cash equivalents, and a gross leverage ratio of 2.6 times. The company also repurchased $200 million of stock during the quarter.
Leidos said Intelligence and Digital revenue increased 7% year over year, including 6% organic growth. Cage said the growth was driven by recent contract awards and higher volumes for intelligence community mission support, along with $22 million from the acquisition of Kudu Dynamics. Segment non-GAAP operating margin improved to 10.2% from 9.7% a year earlier.
Health revenue was unchanged from the prior-year quarter, with profitability described as relatively stable. Homeland revenue rose 6%, supported by demand for energy infrastructure engineering services and domestic and international air traffic control systems. Defense revenue of $883 million was up slightly, as growth in integrated air defense systems offset the wind-down of some airborne surveillance programs.
Margins declined in Homeland and Defense. Cage attributed the Defense margin decline to a scheduled delay on a fixed-price development program, identifying the space Wide Field of View Tranche 1 program during the question-and-answer session. He said newer programs, including IFTC, Pounds and ABADS, have “superior economic profiles” and should support improved Defense profitability as they ramp.
Bell said Leidos is executing its NorthStar 2030 growth strategy around five growth pillars: Defense Tech, Managed Health, Digital Infrastructure and Cyber, Energy Resilience, and Mission Software.
In defense, Bell highlighted work with the Department of Defense on accelerated procurement agreements for several Leidos products and capabilities. He said the company sees a path to production runs of thousands of its small cruise missile products this decade, following successful flight tests of the weapon now designated AGM-190A by the customer.
Bell also pointed to Leidos’ maritime autonomy portfolio, including medium unmanned surface vehicles, and said the company is responding to the U.S. Navy’s interest in marketplace acquisition approaches for MUSVs and mission payloads. He cited the Seahawk MUSV’s operational deployment with the Theodore Roosevelt Carrier Strike Group as a sign of customer confidence.
In Health, Bell highlighted a $456 million Military OneSource award, which provides counseling, financial planning, tax assistance, career coaching and other services to military personnel and their families. He also discussed a pilot program called My Service Treatment Record, where Leidos was selected to develop an AI-driven tool to automate transfer of medical records from the Department of Defense to the Department of Veterans Affairs.
Bell said disability exam volumes remained high through the first quarter in the company’s Veterans Benefits Exam business, while customer satisfaction at Leidos QTC clinics remained “best in class.” During the Q&A, he said the company remains bullish on health, including behavioral health and rural health opportunities.
Bell reviewed three major portfolio actions from the past year. He said Leidos’ planned joint venture combining its Security Enterprise Solutions business with Analogic is intended to create a focused U.S. leader in homeland defense-related security products. Leidos will retain a significant minority interest in the joint venture.
He also said the Kudu Dynamics acquisition strengthened Leidos’ offensive cyber capabilities and complements its signal processing and defensive cyber work. Bell said Leidos now sees a total cyber pipeline valued at $24 billion, up 21% since the Kudu acquisition.
On ENTRUST, Bell said integration is ahead of schedule and that the acquisition is already creating new opportunities, including the company’s first energy generation plant request for proposal and selection for detailed design work on what he described as Canada’s largest battery electrical storage facility. He said the combined energy business is targeting a refreshed order pipeline of $10 billion.
Cage cautioned that the second quarter is likely to be the low point of the year for revenue growth and margin. He said some first-quarter revenue outperformance appears to be a pull-forward from the second quarter, while procurement is still recovering from a protracted government shutdown.
Leidos reported a book-to-bill ratio of 0.8 times in the quarter and 1.1 times for the trailing 12 months. Cage said awards are expected to pick up over the course of the year, with growth building in the third and fourth quarters.
Bell said the company’s outlook for the full year remains intact despite some near-term lumpiness. “While it’s a little lumpy this year, it’s not dimming our outlook on the year as a whole,” he said.
Bell also emphasized the company’s use of artificial intelligence, saying AI is an accelerant rather than a threat to Leidos’ model. He said AI can compress routine work and allow Leidos employees to focus on more complex customer missions, particularly in highly cleared and regulated environments.
Leidos is an American technology and engineering company that provides services and solutions to government and commercial customers, with a strong focus on national security, defense, intelligence, and civil government markets. The company delivers systems integration, engineering, cybersecurity, software development, data analytics, cloud migration and managed IT services, as well as mission support for complex programs. Leidos' work spans areas such as C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance), secure communications, sensors and systems engineering, and health IT solutions for public-sector healthcare programs.
Leidos traces its corporate roots to Science Applications International Corporation (SAIC) and emerged as an independent, publicly traded company following a corporate separation in 2013.
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The article "Leidos Q1 Earnings Call Highlights" was originally published by MarketBeat.
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