Revenues: $1.87 billion
(PRNewswire) — Leidos Holdings, Inc. (NYSE: LDOS), a global science and technology solutions company, today reported financial results for the third quarter of fiscal year 2016.Roger Krone, Leidos Chairman and Chief Executive Officer commented: "Our focus on growth and profitability drove record quarterly EPS for the Company and the fifth consecutive quarter of year over year organic growth. The integration activities following our successful acquisition of Lockheed Martin's IS&GS business during the quarter are proceeding well, with transaction-related synergies running ahead of plan. The encouraging results year-to-date, including strong bookings and cash generation, give us confidence in raising our full year outlook."
Summary Results
Revenues for the quarter were $1.87 billion as compared to $1.30 billion in the prior year. The current quarter included $620 million of revenue attributable to the Information Systems & Global Solutions business ("IS&GS Business") acquired from Lockheed Martin during the quarter.
Operating income from continuing operations for the quarter was $101 million compared to $94 million in the prior year, a growth of 7%. Operating margin decreased to 5.4% from 7.2% in the prior year, as the current quarter included $44 million of acquisition and integration costs, $27 million of amortization of intangible assets and $5 million of restructuring charges related to the acquisition of the IS&GS Business. Excluding these items, non-GAAP operating margin increased to 9.5% from 7.2% in the prior year quarter.
Diluted earnings per share ("EPS") from continuing operations for the quarter was $0.80 compared to $0.67 in the prior year. The weighted average diluted share count for the quarter was 114 million, up from 73 million in the prior year due to the issuance of approximately 77 million shares of Leidos common stock to participating Lockheed Martin stockholders in connection with the acquisition of the IS&GS Business.
Excluding the items mentioned above, non-GAAP diluted EPS from continuing operations for the quarter was $1.25 compared to $0.73 in the prior year.
National Security Solutions
National Security Solutions revenues for the quarter increased by $43 million, or 5%, compared to the prior year. The revenue growth was primarily attributable to revenues associated with our international business.
National Security Solutions operating income margin for the quarter was 9.9%, up from 8.9% in the prior year primarily due to a strong level of net fee write-ups.
Health and Infrastructure Sector
Health and Infrastructure Sector revenues for the quarter decreased by $90 million, or 22%, compared to the prior year. The revenue decline is primarily attributable to the divestiture of our design, build and heavy construction engineering services business in the second quarter of the current fiscal year. Excluding the revenues from the divested business, revenues increased $25 million, or 8.3%, primarily due to growth in the Federal Health business.
Health and Infrastructure Sector operating income margin for the quarter was 12.5%, up from 3.1% in the prior year due to improved fee performance from our federal health business, and decreases in bad debt expense and asset impairment charges.
Information Systems & Global Solutions
We have designated the IS&GS Business as a separate operating and reportable segment ("IS&GS"). IS&GS revenues were $620 million and operating margin was 4.2% for the quarter ended September 30, 2016. Excluding the impact of amortization of acquired intangibles, non-GAAP operating margin was 8.4% for the quarter.
Cash Flow Summary
Cash flows provided by operating activities of continuing operations for the quarter were $226 million compared to $269 million in the prior year. The lower operating cash inflows were primarily due to timing of collections and payments compared to the prior year quarter.
Cash flows provided by investing activities of continuing operations for the quarter were $16 million compared to $24 million cash flows provided in the prior year quarter. The $8 million difference in cash flows was primarily due to proceeds received from the disposition of a business in the prior year quarter that did not recur in the current year quarter, along with higher payments for property, plant and equipment in the current year quarter, partially offset by cash acquired as part of the acquisition of the IS&GS Business.
Cash flows used in financing activities of continuing operations for the quarter were $463 million compared to $23 million in the prior year. The higher financing cash outflows were primarily due to a special cash dividend payment in connection with the Transactions and the early repayment of debt, partially offset by the issuance of debt, net of issuance costs.
As of September 30, 2016, the Company had $449 million in cash and cash equivalents and $3.5 billion in notes payable and long-term debt.
New Business Awards
Net business bookings totaled $2.9 billion in the quarter, representing a book-to-bill ratio of 1.56.
Notable recent awards received include:
- Army Geospatial Center: Leidos was awarded a prime contract from the General Services Administration (GSA) to support the Army Geospatial Center's High-Resolution, 3-E (HR3D) Geospatial Information program. The single-award task order awarded under the GSA One Acquisition Solution for Integrated Services (OASIS) contract has a one-year base period of performance and includes four one-year options. If all options are exercised, the contract carries a total value of $777 million .
- U.S. Army Space and Missile Defense Command: Leidos was awarded a prime contract by the U.S. Army Space and Missile Defense Command to provide technical solutions in support of the Counter-Narcoterrorism Technology Program Office (CNTPO). The multiple-award indefinite-delivery/indefinite-quantity contract has a two-year base period of performance, two option years and a total programmatic contract ceiling of approximately $480 million for all awardees, if all options are exercised. Leidos is one of four contractors eligible to compete for work under the contract.
- Customs & Border Protection: Leidos was awarded a prime contract from the Customs & Border Protection agency to provide systems administration and maintenance services for X-ray and imaging technology. This hybrid firm fixed-price time and materials contract has a one-year base period of performance and includes four one-year options. If all options are exercised, the contract carries a total value of approximately $155 million .
- Intelligence Community: The Company was awarded contracts valued at $462 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.
