Leidos Holdings, Inc. Reports Fourth Quarter and Calendar Year 2015 Results

RESTON, Va., Feb. 18, 2016 /PRNewswire/ -- Leidos Holdings, Inc. (NYSE: LDOS), a national security, health and engineering solutions company, today reported financial results for the fourth quarter and calendar year 2015.

Roger Krone, Leidos Chairman and Chief Executive Officer, commented: "I am pleased with our fourth quarter results and with a strong close to a very successful year for the Company. Our focus on optimizing the Leidos Platform—our people, capabilities and cost structure—enabled us to deliver competitively priced, innovative solutions to a broader set of customers, resulting in more than $400 million cash generated from continuing operations in the year, and a return to revenue and profit growth."

Fourth Quarter Summary Results

Revenues for the quarter were $1.28 billion, compared to $1.17 billion in the prior year, an increase of 10 percent.

Operating income from continuing operations for the quarter was $102 million compared to $37 million in the prior year. The prior year quarter included a non-cash asset impairment charge of $40 million related to the sale of the Plainfield Renewable Energy facility ("Plainfield").

Diluted earnings per share ("EPS") from continuing operations for the quarter was $1.72, compared to $0.35 in the prior year. The increase of $1.37 is mainly attributable to an increase in other income due to an $82 million gain recognized on the sale of the remaining building and land associated with the Company's former headquarters.

Non-GAAP diluted EPS from continuing operations for the quarter was $0.78 compared to $0.69 in the prior year. The diluted share count for the quarter was 74 million, down by 1 percent from 75 million in the prior year.

In March 2015, the Company announced a change in its fiscal year end from the Friday nearest the end of January to the Friday nearest the end of December. The quarterly results are for the three months ended January 1, 2016, whereas the results for the prior period are for the three months ended January 30, 2015. The calendar year 2015 results are for the twelve months beginning January 3, 2015 and ending January 1, 2016, which includes the last month of the prior fiscal year, whereas the results for the prior fiscal year are for the twelve months beginning February 1, 2014 and ending January 30, 2015.

Fourth Quarter Segment Operating Results

National Security Solutions

National Security Solutions revenues for the quarter increased $29 million, or 4 percent, compared to the fourth quarter of the prior year. The revenue growth was primarily attributable to an increase in our revenues associated with the United Kingdom Ministry of Defense program, partially offset by a reduction in contract activities associated with Overseas Contingency Operations ("OCO Contracts"). Excluding the revenue declines associated with OCO Contracts, revenue for the National Securities Solutions segment increased 7.5 percent. OCO Contracts contributed approximately $46 million in revenues for the quarter, down from $73 million in the fourth quarter of the prior year.

National Security Solutions operating income margin for the quarter was 7.7 percent, up from 7.2 percent in the fourth quarter of the prior year primarily due to improved program performance.

Health and Engineering

Health and Engineering revenues for the quarter increased $73 million, or 20 percent, compared to the fourth quarter of the prior year. The revenue growth reflects an increase in the engineering design build business revenues, higher sales in federal health due our new Electronic Health Record system modernization program, as well as an increase in our security products business. These increases were partially offset by decreased sales volumes in our commercial health business.

Health and Engineering operating income for the quarter was $46 million compared to an operating loss of $17 million in the fourth quarter of the prior year. Excluding the prior year non-cash asset impairment charge of $40 million related to the sale of Plainfield, operating income benefited from higher profit margins on security products sales and reduced indirect expenses.

Calendar Year 2015 Summary Results

Revenues for calendar year 2015 were $5.09 billion, compared to $5.06 billion in the prior fiscal year.

Operating income from continuing operations for calendar year 2015 was $298 million, compared to an operating loss from continuing operations of $214 million in the prior fiscal year. The prior fiscal year operating loss was primarily due to a $486 million goodwill impairment charge.

Diluted EPS from continuing operations for calendar year 2015 was $3.19, compared to a diluted loss per share of $4.46 for the prior fiscal year. Diluted EPS for calendar year 2015 benefited from an increase in other income due to a gain recognized on the sale of the remaining building and land associated with the Company's former headquarters. Diluted loss per share for the prior fiscal year reflects the impact of the goodwill impairment charge discussed above. The diluted share count was 74 million for both calendar year 2015 and the prior fiscal year.

Non-GAAP diluted EPS from continuing operations for calendar year 2015 was $2.89, compared to $2.56 in the prior fiscal year.

National Security Solutions

National Security Solutions revenues for calendar year 2015 decreased $127 million, or 4 percent, compared to the prior fiscal year. The revenue contraction was primarily attributable to a reduction in contract activities associated with OCO Contracts, partially offset by an increase in our revenues associated with the United Kingdom Ministry of Defense program. Excluding the revenue declines associated with OCO Contracts, revenue for the National Securities Solutions segment increased 2 percent. OCO Contracts contributed approximately $195 million in revenues for calendar year 2015, down from $382 million in the prior fiscal year.

National Security Solutions operating income margin for both years was 8.0 percent.

Health and Engineering

Health and Engineering revenues for calendar year 2015 increased $129 million, or 9 percent, compared to the prior fiscal year. The revenue growth reflects an increase in the engineering design build business revenues, higher sales in federal health due to our new Electronic Health Record system modernization program, as well as an increase in our security products business. These increases were partially offset by decreased sales volumes in our commercial health business.

Health and Engineering operating income for calendar year 2015 was $45 million compared to an operating loss of $472 million in the prior fiscal year. Excluding the prior fiscal year goodwill impairment charge of $486 million, operating income benefited from higher profit margins on security products sales and reduced indirect expenses.

Cash Flow Summary

Cash flows provided by operating activities of continuing operations for the quarter was $32 million. Cash flows benefited in the quarter from timing of vendor payments. 

Cash flows provided by investing activities for the quarter was $56 million, primarily due to $70 million of proceeds from the sale of the remaining building and land associated with the Company's former headquarters.

Cash flows used in financing activities for the quarter was $67 million, primarily due to cash dividends of $46 million. This quarter included an extra dividend payment from the dividend declared on December 4, 2015, and paid on December 30, 2015.

Cash flows provided by operating activities of continuing operations for calendar year 2015 was $410 million. Cash flows benefited in calendar year 2015 from better net working capital management primarily from improvements in collections from customers and timing of vendor payments. 

Cash flows provided by investing activities for calendar year 2015 was $64 million, primarily due to $70 million of proceeds from the sale of the Company's former headquarters and $27 million received from the disposition of our equity interest in Plainfield.

Cash flows used in financing activities for calendar year 2015 was $296 million, primarily due to $100 million to repurchase shares of our stock, cash dividends of $117 million and repayment and retirement of debt of $58 million.

As of January 1, 2016, the Company had $656 million in cash and cash equivalents and $1.1 billion in long-term debt.

New Business Awards

New business bookings totaled $0.71 billion in the fourth quarter of calendar year 2015 and $7.16 billion for calendar year 2015, representing a book-to-bill ratio of 0.55 and 1.41 for the fourth quarter and calendar year 2015, respectively.

Notable recent awards received include:

• U.S. Army: The Company was awarded a prime contract by the U.S. Army to design, produce, integrate and test for the Airborne Reconnaissance Low-Enhanced program of record. The single-award indefinite-delivery/indefinite-quantity ("IDIQ") contract has a five-year period of performance and a total ceiling value of $661.8 million.

• U.S. Special Operations Command: The Company was awarded a prime contract by the U.S. Special Operations Command ("USSOCOM") to provide intelligence, surveillance and reconnaissance solutions in support of USSOCOM special operations forces acquisition, technology and logistics. The multiple-award IDIQ, firm fixed-price and cost-plus fixed-fee contract has a five-year base period of performance and a total contract ceiling of $750 million for all awardees. Leidos is one of four awardees eligible to compete for task orders under the contract.

• National Institutes of Health: The Company was awarded a task order by the National Institutes of Health ("NIH") to provide software development and technical support to the NIH Center for Scientific Review. The single-award firm fixed-price follow-on contract has a six-month base period of performance, nine six-month options and a total contract value of $17 million if all options are exercised.

• Intelligence Community: The Company was awarded contracts valued at $127 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.

The Company's backlog of signed business orders at the end of calendar year 2015 was $9.9 billion, of which $2.5 billion was funded. As compared to the end of fiscal year 2015, total backlog increased 27 percent and funded backlog decreased 5 percent. The increase in total backlog is primarily due to the United Kingdom Ministry of Defense award received during calendar year 2015. Backlog does not include any estimate of future task orders expected to be awarded under IDIQ, GSA Schedule or other master agreement contract vehicles.

Forward Guidance

The Company's outlook for fiscal year 2016 is being presented based on a 12-month period from January 2, 2016, to December 30, 2016, as follows:

• Revenues of $5.1 billion to $5.3 billion;

• Non-GAAP diluted earnings per share from continuing operations of $2.75 to $2.95; and

• Cash flows provided by operating activities from continuing operations at or above $275 million.

Fiscal year 2016 guidance excludes the impact of the potential transaction with Lockheed Martin and any other future acquisitions, divestitures and other non-ordinary course items.

Conference Call Information

Leidos management will discuss operations and financial results in an earnings conference call beginning at 8 A.M. eastern on February 18, 2016. Analysts and institutional investors may participate by dialing +1 (877) 869-3847 (U.S. dial-in) or +1 (201) 689-8261 (international dial-in).

A live audio broadcast of the conference call along with a supplemental presentation will be available to the public through links on the Leidos Investor Relations website (http://ir.leidos.com).

After the call concludes, an audio replay can be accessed on the Leidos Investor Relations website or by dialing +1 (877) 660-6853 (toll-free U.S.) or +1 (201) 612-7415 (international) and entering passcode 13629866.

About Leidos

Leidos is a science and technology solutions leader working to address some of the world's toughest challenges in national security, health and engineering. The Company's approximately 18,000 employees support vital missions for government and commercial customers, develop innovative solutions to drive better outcomes and defend our digital and physical infrastructure from 'new world' threats. 

For more information, visit www.leidos.com.

Forward-Looking Statements

Certain statements in this release contain or are based on "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by words such as "expects," "intends," "plans," "anticipates," "believes," "estimates," "guidance" and similar words or phrases. Forward-looking statements in this release include, among others, estimates of future revenues, operating income, earnings, earnings per share, charges, backlog, outstanding shares and cash flows, as well as statements about future dividends, share repurchases, acquisitions and dispositions. These statements reflect our belief and assumptions as to future events that may not prove to be accurate.

Actual performance and results may differ materially from the guidance and other forward-looking statements made in this release depending on a variety of factors, including: changes to our reputation and relationships with government agencies, developments in the U.S. Government defense budget, including budget reductions, implementation of spending cuts (sequestration) or changes in budgetary priorities; delays in the U.S. Government budget process; delays in the U.S. Government contract procurement process or the award of contracts; delays or loss of contracts as a result of competitor protests; changes in U.S. Government procurement rules, regulations and practices; changes in interest rates and other market factors out of our control; our compliance with various U.S. Government and other government procurement rules and regulations; governmental reviews, audits and investigations of our Company; our ability to effectively compete for and win contracts with the U.S. Government and other customers; our ability to attract, train and retain skilled employees, including our management team, and to obtain security clearances for our employees; factors relating to the satisfaction of the conditions to the proposed transaction with Lockheed Martin, including regulatory approvals and the required approvals of our stockholders; our and Lockheed Martin's ability to meet expectations regarding the timing, completion and accounting and tax treatments of the transaction with Lockheed Martin; the possibility that we may be unable to achieve expected synergies and operating efficiencies in connection with the transaction with Lockheed Martin within the expected time-frames or at all; the integration of the Information Systems & Global Solutions business being acquired from Lockheed Martin being more difficult, time-consuming or costly than expected; the effect of any changes resulting from the proposed transaction in customer, supplier and other business relationships; general market perception of the proposed transaction with Lockheed Martin; exposure to lawsuits and contingencies associated with Lockheed Martin's Information Systems & Global Solutions business; the mix of our contracts and our ability to accurately estimate costs associated with our firm-fixed-price and other contracts; our ability to realize as revenues the full amount of our backlog; cybersecurity, data security or other security threats, systems failures or other disruptions of our business; resolution of legal and other disputes with our customers and others or legal or regulatory compliance issues; our ability to effectively acquire businesses and make investments; our ability to maintain relationships with prime contractors, subcontractors and joint venture partners; our ability to manage performance and other risks related to customer contracts, including complex engineering or design build projects; the failure of our inspection or detection systems to detect threats; the adequacy of our insurance programs designed to protect us from significant product or other liability claims; our ability to manage risks associated with our international business; our ability to declare future dividends based on our earnings, financial condition, capital requirements and other factors, including compliance with applicable laws and contractual agreements; and our ability to execute our business plan and long-term management initiatives effectively and to overcome these and other known and unknown risks that we face. These are only some of the factors that may affect the forward-looking statements contained in this release. For further information concerning risks and uncertainties associated with our business, please refer to the filings we make from time to time with the U.S. Securities and Exchange Commission, including the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Legal Proceedings" sections of our latest annual report on Form 10-K and quarterly reports on Form 10-Q, all of which may be viewed or obtained through the Investor Relations section of our website at www.leidos.com.

All information in this release is as of February 18, 2016. The Company expressly disclaims any duty to update the guidance or any other forward-looking statement provided in this release to reflect subsequent events, actual results or changes in the Company's expectations. The Company also disclaims any duty to comment upon or correct information that may be contained in reports published by investment analysts or others.

SOURCE Leidos Holdings, Inc.

Related Links

http://www.leidos.com