Leidos(LDOS) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Leidos reported Q4 2024 revenue of nearly $4.37 billion, reflecting a robust organic growth rate of 9.7$16.66 billion, exceeding prior guidance by $212 million [44] - Adjusted EBITDA for Q4 was$508 million, with an adjusted EBITDA margin of 11.6%, up 20 basis points year-over-year [44] - For the full year, adjusted EBITDA was $2.15 billion, with a margin increase of 210 basis points to 12.9$10.21, up 40% from 2023 [46] Business Line Data and Key Metrics Changes - National Security and Digital revenue growth accelerated to 5.5%, with a segment operating income margin of 9.7% [48] - Health and Civil revenues increased by 16.4% year-over-year, with a non-GAAP operating margin of 21.6% [50] - Commercial and International revenues rose by 12.3%, with a non-GAAP operating margin of 7.9% [51] - Defense Systems revenues increased by 6.7%, with a non-GAAP operating margin of 3.5% [52] Market Data and Key Metrics Changes - In Q4 2024, Leidos achieved net bookings of $7.6 billion, resulting in a book-to-bill ratio of 1.7$25.6 billion in bids awaiting adjudication [57] - The company anticipates revenue growth of up to 4% in 2025, with adjusted EBITDA margins in the mid- to high 12% range [59] - Management emphasized the importance of maintaining a strong balance sheet and cash flow generation to support growth initiatives [55][61] Other Important Information - Leidos repurchased $406 million worth of shares in Q4, exceeding its annual commitment of$500 million [54] - The company has a leverage ratio of 2.2x gross debt-to-adjusted EBITDA, with plans to refinance a $500 million bond maturing in May [55] Q&A Session Summary Question: Disruption from the new administration - Management noted minimal disruption, with customers adapting to the environment and proceeding with contracting [64][66] Question: Opportunities in border security and IRON DOME - Management highlighted alignment with capabilities in border security and IRON DOME, expressing optimism about growth opportunities [70][72] Question: VBA recompete and its impact - Management expressed confidence in executing the VBA program profitably despite new competition, emphasizing the strength of their growth pillars [78][82] Question: Bookings and growth reacceleration - Management indicated strong bookings in Q4 and expressed optimism for growth in 2025 and beyond, despite potential challenges from a continuing resolution [86][90] Question: Transition of the VBA contract - Management confirmed expectations for continued EBITDA and free cash flow growth during the transition of the VBA contract [114] Question: Guidance on EPS growth - Management acknowledged the impact of certain charges on EPS guidance but emphasized the potential for increased expectations as the year unfolds [120] Question: Increased privatization and competition - Management stated readiness to engage in increased privatization opportunities while maintaining service quality to veterans [126] Question: Growth pillars and competition - Management emphasized focus on differentiated capabilities in growth pillars, welcoming new entrants while maintaining a competitive edge [130][132] Question: Low-margin work pivot - Management clarified a strategic shift away from low-margin work, focusing on areas with better growth potential [135][138]