Yahoo Finance Leidos Holdings Inc (LDOS) Q1 2024 Earnings Call Transcript Highlights: Strong Performance and ...
Revenue: $3.98 billion, up 7.5% year-over-year.
Adjusted EBITDA: $490 million, up 42% year-over-year.
Adjusted EBITDA Margin: Increased by 290 basis points to 12.3%.
Non-GAAP Net Income: $313 million.
Non-GAAP EPS: $2.29, up 56% year-over-year.
Free Cash Flow: $46 million.
2024 Revenue Guidance: Raised to between $16 billion and $16.4 billion.
2024 Adjusted EBITDA Margin Guidance: Mid- to high 11%.
2024 Non-GAAP EPS Guidance: Raised to between $8.40 and $8.80.
2024 Operating Cash Flow Guidance: Raised to approximately $1.3 billion.
Release Date: April 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Tom, when you started, I guess, about a year ago, you said you wanted to evaluate allocation of capital to each business based on the business case supporting the return on capital for each. It would seem like capital is being put to best use right now in Health and Civil. Is that a near-term phenomenon being driven by the PACT Act? Or is there a case for that business to be your fastest growing and most profitable longer term as well? A: Thomas A. Bell - Leidos Holdings, Inc. - CEO & Director: I did say that, and I do believe in a merit-based strategy process. I mentioned that in my prepared remarks because what we are doing in 2024 as we undertake this year of deep strategic thinking is analyzing all the business cases and the sub business cases for where the best use of capital is to draw a superior top line and bottom line growth for Leidos. And so as a result, we're able to put some seed corn in areas that are emerging in this year, even though the strategy process is not done. And yes, in fact, the investments we've made in our managed health care business is absolutely paying dividends now, and that is the reason that business under Leidos' leadership has been so well positioned to respond to the increased demands that have come our way.
Q: This is Jasper Bibb on for Tobey. I think last call, you talked about the initial mid- to high 10% guidance range on margin as a base sustainably grow off. And then you raised the '24 guides significantly this quarter. So I guess looking forward, how are you thinking about progression on margins given the progress you've already made this year? A: Christopher R. Cage - Leidos Holdings, Inc. - Executive VP & CFO: Yes, Jasper, thanks for that, right. Obviously, we're very pleased with the start to the year. And as in our prepared remarks, we indicated it wasn't just the Health and Civil business. It was really all of our teams got out of the gate strong. And so now our full year outlook has been updated to mid- to high 11%. We think that's an area that, obviously, we're ahead of that in Q1, but that will be strong performance across the business as the year unfolds. And you think about some parts of the portfolio, for example, Commercial International and Defense Systems, both of which had good first quarters, but aren't yet where we expect that they will be on a margin performance basis.
Q: Kudos to the Leidos Board for choosing the right candidate, clearly, Tom, great results, the whole Leidos team. So maybe on Health, we talked about it a little bit and Chris mentioned it in his remarks in terms of the PACT Act moderation. Can you maybe frame how we should think about the upside and downside scenarios there? A: Thomas A. Bell - Leidos Holdings, Inc. - CEO & Director: Yes. So the PACT Act volumes are racing forward. We're in a unique position to liquidate that volume on behalf of the Veterans Administration and feel very good about that. But as Chris mentioned in his comments, that puts pressure on reaching the contract ceiling value for the Veterans Administration, and they may have to -- and they will have to recompete that contract early. However, we've got a great position for that recompete.
Q: On margins, milestone achievements supported the National Security and Digital margin in the quarter. Should we expect additional milestones in the coming quarters? Or should the margin rate there normalize? And then on Health and Civil, Q2 is expected to be as stronger as Q1, but should we think about the back half falling into the mid-teens on margins [seen as strongest] in the business, obviously, pending the recompete? A: Christopher R. Cage - Leidos Holdings, Inc. - Executive VP & CFO: Yes, I'll start and Tom can jump on. Obviously, National Security and Digital, excellent program execution is what we expect from that team because they've consistently delivered it. And sometimes you're not able to anticipate that you'll knock it out of park on award fees the way they have continued to do so, but I wouldn't bet against them. So we'll continue to see program execution as a strength there. And as it relates to Health, yes, when we -- Health and Civil, when we started the year, we signaled there in the mid-teens was a reasonable expectation for the year. We've exceeded that. We'll continue to exceed that level through Q2.
Q: Tom, you mentioned during the quarter and then here again on the call today, the Munich Security Conference and the somber event that it was. I'm just curious from a demand perspective coming out of Europe, kind of what you at Leidos are seeing these days. And how do you go about taking advantage of the demand signals that you're seeing in Europe at this point kind of given where you operate on that side of the pond, so to speak? And what kinds of programs you might be chasing over there? A: Thomas A. Bell - Leidos Holdings, Inc. - CEO & Director: Yes, it was a somber sobering affair. For those of you who haven't picked up the magazine that they published at the beginning, the title of the conference was lose-lose question mark. So that gives you a sense of the tone earlier this year. And I don't think that, that has become any more joyful. They are all to a, one, increasing defense budgets robustly. So there is certainly top line growth happening in Europe. But more importantly than that, my personal hypothesis is that we're going to see defense expenditures globally, morphed from hardware to more system solutions and effectors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
